Walgreens Slumps on Cautious Guidance Despite Q2 Beat

Riding the strong demand for COVID-19 vaccines and tests, retail pharmacy leader Walgreens Boots Alliance, Inc. (NASDAQ: WBA) reported upbeat second-quarter Fiscal 2022 results (ended February 28). 

However, shares of the company closed 5.7% lower at $44.77 on Thursday after management provided cautious Fiscal 2022 EPS guidance. 

Results in Detail 

The company reported adjusted earnings of $1.59 per share, which beat the Street’s estimate of $1.38 per share and surged 26.5% year-over-year. 

Additionally, total sales grew 3.8% year-over-year to $33.8 billion and topped analysts’ expectations of $33.38 billion. Strong sales growth at Walgreens, the International segment, and the Walgreens Health segment acted as tailwinds. Meanwhile, lower sales at AllianceRx Walgreens were a negative. 

Walgreens recorded U.S. retail comparable sales growth of 14.7%, the highest in over 20 years. 

During the quarter, Walgreens administered 11.8 million vaccinations and 6.6 million tests. 

At the end of the second quarter, net cash provided by operating activities stood at $1.1 billion, while free cash flow was $669 million. 

Segmental Results

The United States segment recorded sales of $27.7 billion, up 1.2% year-over-year, while comparable sales grew 9.5%. 

Additionally, the International segment’s sales increased 2.6% to $5.6 billion, including an unfavorable currency impact of 4.9%. Also, Boots U.K.’s comparable pharmacy sales increased 3.6% year-over-year, reflecting elevated demand for pharmacy services. 

In Fiscal 2022, the company launched its new consumer-centric healthcare strategy and formed a new operating segment, Walgreens Health, which reported sales of $527 million in the second quarter. Sales resulted from the acquisition of VillageMD and Shields. 

Official Comments 

In response to the second-quarter results, Walgreens Boots Alliance CEO Rosalind Brewer said, “Second quarter results demonstrated broad-based execution, driving strong comparable sales and robust earnings growth. We continue to make important strides along our strategic priorities, building a consumer-centric, technology-enabled healthcare enterprise at the center of local communities…The strategic review of our Boots business is progressing, and our transformational actions are accelerating sustainable value creation.” 

Guidance 

For Fiscal 2022, Walgreens maintained its adjusted EPS guidance of low-single-digit growth. Additionally, the company expects sales of around $2.2 billion. 

The company has increased estimates for base business growth to 6% to 8% from 5% to 7%. This reflects strong U.S. front-of-store performance and increased testing revenue. Meanwhile, planned healthcare business investments now represent an approximate five percentage point headwind to EPS growth, up from the prior expectation of four percentage points.

Wall Street’s Take  

The Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on two Buys and five Holds. The average Walgreens Boots Alliance price target of $55.86 implies 24.77% upside potential. Shares have fallen about 10% over the past year. 

Bloggers Weigh In 

Bloggers seem enthused by the company’s earnings results. TipRanks data shows that financial blogger opinions are 81% Bullish on WBA, compared to a sector average of 69%.

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