Walgreens Boots (WBA) Q4 Earnings Top Estimates, Margins Down

Walgreens Boots Alliance, Inc. WBA reported adjusted earnings per share (EPS) of $1.02 for fourth-quarter fiscal 2020, down 28.7% year over year (down 27.9% at constant exchange rate or CER). However, the figure surpassed the Zacks Consensus Estimate by 6.3%.

The adjusted EPS reflects an adverse impact of approximately 46 cents due to the pandemic. Also, lower U.S. pharmacy gross profit and year-on-year bonus changes dragged down earnings. However, this was partially made up for by Transformational Cost Management Program savings.

GAAP EPS for the fourth quarter was 43 cents, reflecting a fall of 42.7% from the year-ago EPS of 75 cents.

Full-year adjusted EPS was $4.74, reflecting a 20.9% decline from the year-earlier $5.99. At CER, the fall was 20.6%. Again, the metric surpassed the Zacks Consensus Estimate by 1.3%.

Full-year GAAP EPS was 52 cents, reflecting an 87.9% decline from the year-earlier $4.31.

Total Sales

Walgreens Boots recorded total sales of $34.75 billion in the fiscal fourth quarter, up 2.3% year over year and at CER. The top-line figure exceeded the Zacks Consensus by 1.1%.

Full-year revenues were $139.54 billion, reflecting a 1.9% increase from the year-ago period (up 2.5% at CER). Revenues surpassed the Zacks Consensus Estimate by 0.3%.

Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise


Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise

Walgreens Boots Alliance, Inc. price-consensus-eps-surprise-chart | Walgreens Boots Alliance, Inc. Quote

The company stated that despite the pandemic-led business challenges, gradual improvement in key U.S. and U.K. markets has been observed. Also, continued strong performance in the wholesale business and accelerated growth in the e-commerce platforms boosted the top line.

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 billion in the fiscal fourth quarter, highlighting an improvement of 3.6% year over year.

Sales in comparable stores increased 3.6% from the year-ago quarter.

Prescriptions filled in the fourth quarter rose 1.6% year over year. In comparable stores, prescriptions filled (adjusted to 30-day equivalents) increased 3.6% from the year-ago quarter.

Pharmacy sales were up 4.2% from the year-ago quarter. Comparable pharmacy sales improved 3.2% year over year.

Retail sales edged up 1.5% (including the impact of the store optimization programs).

Comparable retail sales inched up 4.7%, year on year, primarily banking on 15% growth in the health and wellness category and 8% growth in the personal care category. However, this was partly offset by a 3% fall in the beauty category. Results were boosted by increased demand for PPE and performance of the mass personalization initiative. In the reported quarter, sales improved 39%.

Retail Pharmacy International

Revenues at the Retail Pharmacy International division declined 14.9% on a year-over-year basis to $2.3 billion in the fiscal fourth quarter. This included a favorable currency impact of 0.5%. Sales were down 15.4% at CER due to a 16.7% fall in Boots U.K. sales.

Boots UK’s comparable retail sales declined 29.2% at CER as footfall in stores remained significantly depressed due to COVID-19, particularly in major high street, train station and airport locations. However, there was a steady improvement in footfall in the fourth quarter compared with the third quarter.

Boots UK’s comparable pharmacy sales inched up 0.4% at CER, mainly due to favorable timing on National Health Service reimbursement. This mitigated the impact of lower prescription volume and reduced demand for pharmacy services during the pandemic.

Pharmaceutical Wholesale

The division’s quarterly sales were $6 billion, up 4.3% year over year. Sales were up 4.3% at CER on growth in Germany and France.


Gross profit in the reported quarter fell 5.9% year over year to $6.80 billion. Gross margin contracted 171 basis points (bps) to 19.6%.

Selling, general and administrative expenses were down 3.1% year over year to $6.21 billion.

Operating profit in the quarter was $593 million compared with operating income of $819 million a year ago. Operating margin contracted 71 bps year over year to 1.7%.

Financial Condition

Walgreens Boots exited fiscal 2020 with cash and cash equivalents of $516 million compared with the $1.02 billion recorded at the end of fiscal 2019. Long-term debt was $12.20 billion at the end of fiscal 2020, up from $11.09 billion at the end of fiscal 2019.

Net cash provided by operating activities at the end of the year was $5.48 billion, down from the year-ago period’s $5.59 billion.

The company declared a quarterly dividend of 46.75 cents per share, reflecting an increase of 2.2%. This marked the 45th consecutive year of Walgreens Boots and its predecessor company, Walgreen Co., raising the dividend.

Fiscal 2021 Guidance Issued

Walgreens Boots estimates adjusted EPS at CER in fiscal 2021 to reflect low single-digit growth.

Although the company expects a gradual recovery from the impacts of COVID-19, the first half of the fiscal will continue to be adversely impacted. The company anticipates the second half of fiscal 2021 to reflect strong adjusted EPS growth as the impacts subside and recovery plans take effect in key markets.

Our Take

Walgreens Boots exited fourth-quarter fiscal 2020 with better-than-expected results despite pandemic-led business challenges. Impressive performance by the Retail Pharmacy USA division and Pharmaceutical Wholesale division buoy optimism. The robust sales of and instill investor confidence. Walgreens Boots’ response toward combatting the pandemic — conducting COVID-19 tests at various locations, increasing testing capacity and launching a COVID-19 testing program for businesses — is impressive.

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.

Zacks Rank and Stocks to Consider

Walgreens Boots currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks, which are supposed to report earnings soon, are Abbott Laboratories ABT, IDEXX Laboratories, Inc. IDXX and ResMed Inc. RMD.

The Zacks Consensus Estimate for Abbott 's third-quarter 2020 adjusted EPS is currently pegged at 90 cents. The consensus estimate for third-quarter revenues is pegged at $8.46 billion. The company, which currently carries a Zacks Rank #2 (Buy), is slated to release results soon. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEXX currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its third-quarter 2020 adjusted EPS is currently pegged at $1.41. The consensus estimate for third-quarter revenues is pinned at $666.7 million.

The Zacks Consensus Estimate for ResMed's first-quarter fiscal 2021 adjusted EPS is currently pegged at 95 cents. The consensus estimate for revenues stands at $702.4 million.

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