Analyzing Walgreens’ 4Q17 Earnings Beat



Walgreens’ 4Q17 EPS growth

Walgreens Boots Alliance (WBA) reported a 22.4% YoY (year-over-year) rise in its adjusted EPS (earnings per share), which stood at $1.31 for 4Q17. The company outperformed Wall Street analysts’ expectations of $1.21 and management’s guidance of $1.24.

For fiscal 2017, the adjusted EPS rose 11.1% YoY to $5.10. On a constant currency basis, the profit per share has risen 12.9% YoY. Walgreens’ partnerships with pharmacy benefit managers and insurance companies and its ongoing cost control initiatives drove the earnings growth during the year.

Walgreens also provided an earnings guidance for fiscal 2018, which exceeded Wall Street analysts’ expectations. Management is looking for an adjusted diluted net earnings per share of $5.40–$5.70 for the fiscal year, which translates to a 9% YoY increase at the mid-point.

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What drove Walgreens’ 4Q17 operating income?

Walgreens’ GAAP operating income fell 2.3% during 4Q17 to $1.1 billion. However, the adjusted operating income rose 21.2% on a reported basis and 22.3% on a constant currency basis. The operating income was mainly driven by better results in the Retail Pharmacy USA division.

Retail Pharmacy USA’s adjusted operating income has risen 27.5% YoY to $1.4 billion. The improvement was driven by fall of 1.8 percentage points in the adjusted SG&A expenses mainly due to a better sales mix and higher total sales.

The adjusted operating income for the Pharmaceutical Wholesale segment rose 6.3% to $221 million, while the Retail Pharmacy International segment’s adjusted operating income rose 5.7% to $261 million.

Investors looking for exposure to Walgreens through ETFs could consider the Van Eck Retail ETF (RTH). Walgreens accounts for 4.1% of RTH.

In the next part, we’ll discuss Walgreens’ YTD stock market performance and analysts’ recommendations.


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