Walgreens Shares Slide on $1 Billion Cost-Savings Program

Company posts earnings, revenue beat

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Dec 20, 2018
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Drugstore chain Walgreens Boots Alliance Inc. (WBA, Financial) reported solid first-quarter 2019 earnings before the opening bell on Thursday, but a multiyear plan to cut costs by $1 billion sent shares lower.

The Illinois-based pharmacy retailer, which recently became a member of the Dow Jones Industrial Average Index, posted adjusted earnings of $1.46 per share, topping Refinitiv’s estimates of $1.43. Revenue grew 9.9% from the prior-year quarter to $33.79 billion, narrowly beating expectations of $33.78 billion.

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Sales in Walgreens’ U.S. retail pharmacy division increased 14.4% to $25.7 billion, while international retail pharmacy sales declined 5.9% to $2.9 billion as a result of weak retail conditions in the U.K., which is one of its largest markets.

In its domestic division, comparable pharmacy sales increased 2.8%, while same-store retail sales fell 3.2%. Internationally, same-store pharmacy sales decreased 3.5% and comparable retail sales declined 2.6%.

The wholesale pharmaceutical division saw sales decline 0.2% to $5.7 billion due to a negative currency impact.

Investments and initiatives

In order to better position itself for the future, Walgreens introduced a three-year plan to reduce costs by more than $1 billion. The company’s targets include global spending, organization and digitalization of the business in primarily the U.S. and U.K. The company expects the initiative will cost $150 million to $170 million and has already invested $30 million as of the first quarter. The announcement sent shares lower.

Walgreens CEO Stefano Pessina commented on the investments and partnerships the company is pursuing in order to combat Amazon (AMZN, Financial)'s entrance into the pharmacy sector earlier this year. So far, Walgreens has inked deals with Kroger (KR, Financial), FedEx (FDX, Financial) and Humana (HUM, Financial). Most recently, it entered an agreement with Alphabet (GOOG, Financial)(GOOGL, Financial)'s research organization Verily.

“We have made good progress on partnerships, including advancing our collaborations with Kroger, FedEx and Humana and, earlier this week, we announced an initiative with Verily to further expand our health care offering,” he said.

Guidance and stock movement

The company maintained its guidance of 7% to 12% growth in earnings per share for fiscal 2019.

Shares of Walgreens slid 2.56% on Thursday morning to $71.42. GuruFocus estimates the stock has dipped 2% year to date.

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Disclosure: No positions.

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