Walgreens (WBA) Q4 Earnings: What to Expect

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Shares of Walgreens Boots Alliance (WBA) have been under pressure of late, falling some 14% over the past six months, including a 6% decline in thirty days. Is now the right time to buy and bet on healthier returns or will there be more pain ahead?

These questions will be answered when he company reports fourth quarter fiscal 2021 earnings results before the opening bell Thursday. Despite its scale and global reach, the company’s gross margins have been on a steady decline from just under 30% a decade ago to 20% over the trailing 12 months. This headwind is driven by, among other things, ongoing reimbursement pressures related to generic drugs and the growth in negotiating leverage that PBMs (pharmacy benefit managers) have over retail pharmacies.

Nevertheless, the pharmacy chain has administered over nine million COVID tests and over 25 million vaccines to date with 95% of its locations are administering shots. Walgreens has played an important role in the country’s COVID vaccination efforts from Johnson & Johnson (JNJ), Moderna (MRNA) and Pfizer (PFE) and has supported vaccinations across all fifty states and jurisdictions as part of the Federal Retail Pharmacy Program.

What’s more, Walgreens shifted a major part of its business towards digital, termed the Find Care platform, which should help improve its profit margins. The platform continues to grow and has experienced significant increase in online visits. Notably, the company also introduced COVID vaccination booking on the myWalgreens app. This is even as concerns related to higher drug costs have impacted the sector. These developments are expected to have accelerated the company’s digital platform growth. On Thursday investors will look for Walgreens to provide improved results and strong execution.

For the three months that ended September, Wall Street expects the Walgreens to earn $1.02 per share on revenue of $33.28 billion. This compares to the year-ago quarter when earnings came to 91 cents per share on $34.75 billion in revenue. For the full year, earnings are projected to rise 11% year over year to $4.76 per share, while full-year revenue of $131.47 billion would decline 5.80% year over year.

Despite the projected decline on quarterly revenue, Walgreens revenue showed considerable strength in the most-recent quarter, rising 12% year over year to $34 billion, topping Street estimates by $560 million. The solid growth came in both the U.S. segment which rose 5% year over year to $28.7 billion. The International segments was also strong, surging 76% year over year to $5.3 billion driven by its joint venture formed in Germany. Same-store sales in the U.S. rose 6.4% year over year aided by improved pharmacy sales and comparable retail sales.

The company also boosted its 2021 guidance to reflect the strong quarter and the impact of COVID-19 vaccinations. The management has done a solid job adjusting its U.S. stores to contactless retail, the company has beaten on both the top and bottom lines in two of the past three quarters. Despite beating expectations, earnings results sent shares plunging more than 7%.

Operating more than 9,000 retail locations across America, Puerto Rico and the U.S. Virgin Islands, Walgreens shares are poised to bounce back and the company stands to benefit immensely from the increasing customer traffic which is likely to lead not only to higher sale, but also stronger profit margins.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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