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What Affected Walgreens’s Q2 EPS?

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Apr. 3 2019, Published 10:24 a.m. ET

Earnings missed estimate

Walgreens Boots Alliance (WBA) posted adjusted earnings of $1.64 per share, a 5.4% decrease on a YoY basis. The adjusted earnings missed analysts’ estimate of $1.72. Lower comparable store sales in the US and persisting challenges in the UK affected bottom-line growth. Also, the de-emphasis on tobacco products pressured sales, and in turn, EPS.

Meanwhile, higher reimbursement pressure accentuated by deflation in generics and lower inflation in the branded segment adversely impacted margins, and in turn, its EPS. However, share repurchases supported second-quarter earnings.

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Walgreens’s adjusted operating income fell 10.4% to $1.9 billion, reflecting increased reimbursement pressure in the US pharmacy business. Also, weakness in the UK further affected adjusted operating income, and in turn, EPS.

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In comparison, CVS (CVS) posted better-than-expected earnings during the last reported quarter thanks to strong sales growth. However, management expects increased reimbursement pressure and price compression to take a toll on its future earnings. CVS Health’s fiscal 2019 EPS is projected to fall in the mid-single digits.

Outlook

Management lowered its fiscal EPS outlook citing lower comparable store sales, challenges in the UK, and reimbursement pressure. Walgreens’s bottom line is now expected to stay flat on a constant currency basis as compared to its earlier guidance of 7% to 12% growth.

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