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Could Walgreens Exceed Expectations Again in 2Q18?

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Walgreens’s earnings expected to jump 14% in 2Q18

Wall Street has projected a strong quarter for Walgreens Boots Alliance (WBA) in 2Q18, projecting a 14% YoY (year-over-year) increase in its EPS (earnings per share). On average, analysts have forecast EPS of $1.55. The pharmacy giant has not missed analysts’ expectations in the last 14 quarters.

In fiscal 2018, the company’s EPS are projected to increase 13.3% to $5.78, above the management’s guidance of $5.45–$5.70 (an 8.8% YoY jump at the midpoint). The company’s earnings grew 11% to $5.10 in fiscal 2017, driven by recent partnerships with pharmacy benefit managers and insurance companies, as well as ongoing cost control initiatives.

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Profitability in 1Q18

Walgreens’s adjusted operating margin expanded 4.8% YoY to $1.8 billion, mainly driven by a 6.8% increase in Retail Pharmacy USA operating income. This growth was partly offset by a 1.4% decline in Retail Pharmacy International sales.

However, Walgreens’s operating margin narrowed by 17 basis points to 5.9% of sales, with margin deterioration across the company’s three business segments.

Retail Pharmacy USA’s operating margin narrowed by ten basis points to 6.1%, mainly due to lower reimbursement rates and higher sales of low-cost generic drugs. Retail Pharmacy International and Pharmaceutical Wholesale also saw their margins contract, by 40 and 50 basis points, respectively, to 6.8% and 2.6%.

Walgreens recorded an LTM (last-12-month) adjusted operating margin of 5.9%, similar to competitor CVS Health’s (CVS) LTM operating margin of 5.7%. Investors seeking indirect exposure to WBA could consider the SPDR Consumer Staples Select Sector ETF (XLP), of which WBA comprises 3.4%. Continue to the next section to learn about WBA’s stock market performance this year.

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