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Walgreens in Fiscal 2Q16: An Earnings Beat and a Miss on Revenues

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Part 2
Walgreens in Fiscal 2Q16: An Earnings Beat and a Miss on Revenues PART 2 OF 4

The Key Drivers behind Walgreens’s 13.6% Sales Growth in 2Q16

A Look at WBA’s top line in 2Q16

For fiscal 2Q16, Walgreens Boots Alliance (WBA) reported a 13.6% YoY (year-over-year) increase in its top line to $30.2 billion compared to 2Q15. The company’s sales were negatively impacted by a foreign currency translation of approximately $750 million, or 2.4%.

The Key Drivers behind Walgreens’s 13.6% Sales Growth in 2Q16

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Combined net synergies from Walgreens’s strategic combination with Alliance Boots stood at $329 million in fiscal 2Q16 and $617 million in the first six months of fiscal 2016. The company expects to reach at least $1.0 billion in combined net synergies in fiscal 2016.

Retail Pharmacy USA Division

The Retail Pharmacy USA Division reported a 2.1% YoY increase in sales to $21.5 billion in fiscal 2Q16. It was driven by a 2.2% increase in comparable store sales during the quarter. The growth in sales was mainly driven by increased market share of the division. However, it was partially offset by the sale of a controlling interest in the company’s infusion business last April and the weak cough, cold, and flu season, which was particularly strong in 2Q15.

Pharmacy sales, which accounted for 65% of the division’s total sales in the quarter, increased 3.2% YoY. Comparable pharmacy sales increased 3.7%, while comparable retail sales declined 0.3% during the quarter.

Retail Pharmacy International Division

Sales of the Retail Pharmacy International Division stood at $3.7 billion in fiscal 2Q16. This division includes the legacy Alliance Boots pharmacy operations the company acquired in December 2014. Results for this division for 2Q16 aren’t directly comparable with the same quarter last year since it didn’t include December 2014 in the fiscal 2Q15 financial results.

Comparable store sales for the division on a pro forma constant currency basis increased 2.3%. They were led by growth in the United Kingdom and strong growth in the Republic of Ireland.

Pharmaceutical Wholesale Division

The Pharmaceutical Wholesale Division, which mainly operates under the Alliance Healthcare brand, reported fiscal 2Q16 total sales of $5.6 billion. Comparable sales on a pro forma constant currency basis and excluding acquisitions and dispositions increased 1.6% during the quarter. Going forward the Pharmaceutical Wholesale Division will include WBA’s share of net earnings attributable to the equity method investment in Amerisource Bergen (ABC).

Comparing WBA’s top line with peers

WBA’s sales have grown by a whopping 37% over the last 12 months, fueled by the Alliance Boots acquisition. In comparison, CVS Health (CVS), WBA’s biggest competitor, has seen a 10% increase in sales. Rite Aid (RAD), Walgreens’ latest acquisition target, registered a sales increase of about 16% over the last 12 months. Investors seeking to add exposure to WBA can consider the VanEck Vectors Retail ETF (RTH), which invests 5% of its portfolio in WBA.

In the next part of our series, we’ll look at the company’s profitability margins for fiscal 2Q16.

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