Walgreens Boots Alliance

  • Walgreens Boots Alliance, the American pharmaceutical manufacturing, wholesale, and distribution giant reported third quarter results which beat on revenue but fell well short of earnings expectations.

  • Fewer people ended up at the doctor to get prescriptions, for fear   of catching Covid-19, and Walgreens spent more on staff, cleaning its stores, and on deliveries.

  • Revenue came in at $34.63 billion, up 1.2% on a constant currency   basis, led by the Retail Pharmacy USA division with comparable sales growth   of 3%. Same-store retail sales grew by 1.9% for the quarter, buoyed by demand   for vitamins and protective gear such as masks. Higher prices for branded   products and an increase in sales of specialty items offset the   coronavirus-led drop in prescription volumes.

  • Sales were down $700 - $750 million in the quarter, almost entirely   because of a decline at its international locations. Even though pharmacies   were deemed essential during lockdowns, its higher margin beauty counters   were shuttered during the period.

  • The company reported an operating loss of $1.6 billion, compared to   operating profit of $1.2 billion a year ago. This was because of a non-cash   impairment charge of $2 billion in the Boots division in the UK. Adjusted   operating income, excluding this once-off impairment, was $919 million, 46.5%   decrease.

  • The company made a net loss of $1.71 billion, or $1.95 per share,   compared with a profit of $1.03 billion, or $1.13 per share, in the same   quarter a year ago. The loss included 61 - 65 cents per share in operational   costs and impacts related to Covid-19 from the UK business. Adjusted EPS, to   exclude this, was 83 cents, a 43.8% decrease from $1.47 it earned a year ago.

  • The pharmacy chain has been on a restructuring and cost cutting   drive. It plans on cutting more than 4000 jobs in its ailing Boots UK and   Boots Opticians businesses, as well as closing 48 eye centers. A 7% reduction   of its total workforce. It also raised its annual cost-savings target to more   than $2 billion by 2022.

  • Walgreens is also experimenting with a new business model. It plans   to open Doctor’s offices in 700 of its US stores over the next five years   thanks to a deal with VillageMD (a company of primary care physicians).   Walgreens will also remodel 9200 US stores into locations with   healthcare-like services alongside the pharmacies it has in those stores, to   create one-stop healthcare destinations. According to statements by the two   companies, Walgreens will invest $1 billion in equity and convertible debt in   VillageMD over the next three years. This includes a $250 million equity   investment completed earlier this week. Walgreens will hold a 30% stake in   VillageMD in three years following the investment.

  • Walgreens has total debt of $16.61 billion, comprised of $10.62   billion in long-term debt and $5.98 billion short-term debt. Adjusting for   the $792 million in cash and cash equivalents, the company has net debt of   $15.82 billion. This is significant given the negative earnings growth.

  • The company warned that it would continue to be impacted by   Covid-19, and that margins would be squeezed by increased home deliveries.   Walgreens has suspended share buybacks and declared a quarterly dividend of   46.75 cents per share, an increase of 2.2%. This marks the 45th consecutive   year that it has raised the dividend, and the 87th year a dividend has been   paid. Walgreens Boots Alliance is on a dividend yield of 4.7% and a PE of 10x   (forward of 7x). The share price has fallen 35% this year.

Walgreens Boots Alliance