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Walgreens Misses Profit Estimates on Pharmacy Weakness, Shares Fall 6%

Results were hurt by lower payments from insurers on drugs sold at its US pharmacies.

Image: Walgreens Boots Alliance

(Reuters) – Walgreens Boots Alliance Inc’s quarterly profit missed Wall Street expectations on Wednesday, hurt by lower payments from insurers on drugs sold at its U.S. pharmacies, exacerbating investor fears around its growth.

Shares of the Deerfield, Illinois-based company fell nearly 6% to $55.90 before the bell.

Sluggish retail growth, disappointing performance of Boots UK unit and low reimbursement rates for drugs dragged Walgreens’ shares down 15.3% in the past 12 months, making it the worst performer on the Dow Jones Industrials Average index.

Reuters reported in November the company was exploring going private. But according to Reuters’ sources, private equity firms are concerned about Walgreens’ business prospects and the challenges of financing the deal, and hence, not entirely keen to take it private.

Evercore ISI analyst Elizabeth Anderson said there was not a ton of solace for investors in the income statement this quarter.

The company, however, maintained its forecast of almost flat adjusted profit growth in 2020. Walgreens in 2018 launched a cost management program that aims to save more than $1.8 billion in annual costs by 2022.

“We are maintaining our outlook for the year despite a soft first quarter,” Chief Executive Officer Stefano Pessina said.

Sales in the company’s U.S. retail pharmacies missed estimates, despite the company selling more prescription drugs, as continued low reimbursement rates ate into the unit’s profit.

The unit’s sales rose 1.6% to $26.1 billion, short of estimates of $26.18 billion, according to IBES data from Refinitiv. Gross profit from the unit fell 5.2%.

Sales at its international retail unit fell 5.4% to $2.7 billion, as its UK Boots business faced pressure from online retailers, and from lower sales in Chile, where Walgreens operates 293 stores.

Chile has seen several months of unrest since Oct. 2019, which was sparked by a hike in metro fees but spread to encompass pent-up grievances over income inequality and soaring living costs.

Excluding items, the company earned $1.37 per share, missing estimates of $1.41 per share. Net income attributable to Walgreens fell to $845 million, or 95 cents per share, in the first quarter ended Nov. 30, from $1.12 billion, or $1.18 per share, a year earlier. Revenue rose 1.6% to $34.34 billion, but also missed analysts’ estimates of $34.60 billion.

Reporting by Trisha Roy and Manas Mishra in Bengaluru; Editing by Shinjini Ganguli.


Source: Reuters

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