Walgreens Boots Alliance, Inc. WBA reported adjusted earnings per share (EPS) of 83 cents for third-quarter fiscal 2020, down 43.8% year over year (down 43.4% at constant exchange rate or CER). Also, the figure lagged the Zacks Consensus Estimate by 24.5%.
GAAP loss per share was $1.95 on a year-over-year basis against EPS of $1.13. The U.K. market was the most impacted by COVID-19, which required a review resulting in non-cash impairment charges of $2 billion related to goodwill and intangible assets in Boots UK.
Walgreens Boots recorded total sales of $34.63 billion in the fiscal third quarter, up 0.1% year over year and 1.2% at CER. The top-line figure exceeded the Zacks Consensus by 1.2%.
This year-over-year growth was led by improvement within the Retail Pharmacy USA comparable sales growth of 3%. However, adverse impact of COVID-19 on sales of $700-$750 million (almost entirely from the company's non-U.S. businesses) is also included in the fiscal third-quarter results.
Segments in Detail
Walgreens Boots reports through three segments — Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale.
Retail Pharmacy USA
The segment’s sales totaled $27.4 billion in the fiscal third quarter, highlighting an improvement of 3.2% year over year.
Prescriptions filled in the third quarter fell 1.3% year over year. In comparable stores, prescriptions filled (adjusted to 30-day equivalents) increased 0.4% from the year-ago quarter. This represents a slower rate of growth compared to the fiscal second quarter due to COVID-19-led stay-at-home orders. This led to a fall in doctor visits and hospital admissions. However, the prescription volume trend has shown steady improvement since May-end.
Pharmacy sales were up 4.6% from the year-ago quarter on higher brand inflation and a 15.9% rise in specialty sales, which offset the COVID-19 prescription volume impact.
Pharmacy sales at comparable stores improved 3.5% year over year.
Retail sales edged down 0.7% (including the impact of the store closures), while comparable retail sales inched up 1.9%, year on year. Excluding tobacco and e-cigarettes, comparable retail sales increased 3.5%.
Retail Pharmacy International
Revenues at the Retail Pharmacy International division declined 31.5% on a year-over-year basis to $1.9 billion in the fiscal third quarter. Sales were down 26.2% at CER due to a 27.7% fall in Boots U.K. sales, resulting from pandemic-led severe disruption in foot traffic at stores.
Boots UK’s comparable pharmacy sales were down 48% at CER, while comparable pharmacy sales slid 1% at CER in the reported quarter.
The division’s quarterly sales were $5.9 billion, up 0.6% year over year, including an adverse currency impact of 4.8%. Sales were up 5.3% at CER on growth in Germany and the U.K.
Gross profit in the reported quarter fell 13.6% year over year to $6.44 billion. Gross margin contracted 296 basis points (bps) to 18.6%. Gross margin was adversely impacted due to shift from higher margin discretionary categories to lower margin categories and by higher supply chain costs.
Selling, general and administrative (SG&A) expenses were up 32.6% year over year to $8.27 billion due to higher employee costs, and social distancing and cleaning expenses.
Operating loss in the quarter was $1.83 billion against operating income of $1.22 billion in the fiscal second quarter.
The fiscal third-quarter reported and adjusted figures include estimated operational impacts of 61-65 cents per share due to COVID-19.
Walgreens Boots exited the fiscal third quarter with cash and cash equivalents of $768 million compared with the $792 million recorded at the end of the fiscal second quarter. Long-term debt was $12.11 billion at the end of the reported quarter, up from $10.63 last quarter.
Year to date, net cash provided by operating activities was $3.39 billion, up from the year-ago period’s $3.22 billion.
The company has raised its quarterly dividend by 2.2% to an annual rate of $1.87 per share and suspended activity under its share repurchase program.
Fiscal 2020 Guidance Issued
Walgreens Boots estimates EPS in fiscal 2020 in the range of $4.65-$4.75, considering estimated COVID-19 impacts of $1.03-$1.14 per share.
The company expects the adverse impacts of COVID-19 to continue in the fourth quarter. In the U.K., retail conditions are expected to remain very depressed despite the gradual easing of restrictions.
However, more robust sales growth is expected in the Retail Pharmacy USA division in spite of expectations of continued compression of retail margins in comparison to fiscal 2019. The guidance is based on sales trends witnessed by the company in June and does not consider potential changes to those trends.
Meanwhile, the Zacks Consensus Estimate for fiscal 2020 adjusted earnings per share is currently pegged at $5.36.
Walgreens Boots exited third-quarter fiscal 2020 on a mixed note. The better-than-expected revenue numbers look encouraging. The Retail Pharmacy USA division witnessed an uptick in sales during the quarter on account of strong pharmacy sales. Also, a rise in Pharmaceutical Wholesale division sales buoys optimism.
Meanwhile, choppy market conditions, particularly in retail, have been inducing sluggishness in the Retail Pharmacy International division. Margin pressure is a major overhang on the stock.
The coronavirus pandemic impacted the company’s results to a great extent by driving down segmental growth as well as ticking up SG&A expenses.
Meanwhile, among many of its COVID-19-related initiatives, Walgreens and Boots UK expanded their community health roles by implementing COVID-19 testing sites.
Zacks Rank and Key Picks
Walgreens Boots currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks, which reported solid results this earnings season or are about to report, are HEXO Corp. HEXO, Patterson Companies, Inc. PDCO and ResMed Inc. RMD.
HEXO reported third-quarter fiscal 2020 adjusted loss per share of 4 cents, narrower than the Zacks Consensus Estimate of a loss of 5 cents. Its net revenues of $22.1 million outpaced the consensus estimate by 57.9%. The company carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Patterson Companies currently sports a Zacks Rank #1. It reported fourth-quarter fiscal 2020 adjusted EPS of 43 cents, surpassing the Zacks Consensus Estimate by 152.9%. Its revenues of $1.29 billion outpaced the consensus mark by 1.9%.
The Zacks Consensus Estimate for ResMed's fiscal 2020 adjusted EPS is currently pegged at 99 cents. The consensus estimate for fourth-quarter revenues is at $710.9 million. The company, which currently carries a Zacks Rank #2, is slated to release results soon.
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Click to get this free report ResMed Inc. (RMD) : Free Stock Analysis Report Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report HEXO Corp. (HEXO) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research