How Walgreens Tripped Up in Q2

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Walgreens Boots Alliance Inc. (NASDAQ: WBA) released its fiscal second-quarter financial results before the markets opened on Tuesday. The firm said that it had $1.64 in earnings per share (EPS) and $34.5 billion in revenue, compared with consensus estimates that called for $1.74 in EPS and $34.62 billion in revenue. In the same period of last year, the retailer said it had EPS of $1.73 on revenue of $33.02 billion.

During the latest quarter, the company saw an increase in sales of 4.6% from the year-ago quarter and an increase of 6.7% on a constant currency basis, including the benefit from acquired Rite Aid stores.

The Retail Pharmacy USA segment had sales of $26.3 billion, an increase of 7.3% over the year-ago quarter. Excluding the benefit from acquired Rite Aid stores, organic sales growth was 1.6% in the quarter. Pharmacy sales accounted for 71.9% of the division’s sales in the quarter.

On the other hand, the Retail Pharmacy International segment had second-quarter sales of $3.1 billion, a decrease of 7.1% from the year-ago quarter, reflecting an adverse currency impact of 5.9%.

Pharmaceutical Wholesale had second-quarter sales of $5.7 billion, a decrease of 0.3%.

Looking ahead, the company reduced its adjusted EPS guidance for fiscal 2019, from a range of 7% to 12% growth, to roughly flat, at constant currency rates. Consensus estimates call for $6.46 in EPS and $137.24 billion in revenue for the year.

Stefano Pessina, executive vice chair and CEO, commented:

The market challenges and macro trends we have been discussing for some time accelerated, resulting in the most difficult quarter we have had since the formation of Walgreens Boots Alliance. During the quarter, we saw significant reimbursement pressure, compounded by lower generic deflation, as well as continued consumer market challenges in the U.S. and UK. While we had begun initiatives to address these trends, our response was not rapid enough given market conditions, resulting in a disappointing quarter that did not meet our expectations. As a result, we are now expecting roughly flat adjusted EPS growth for fiscal 2019.

Shares of Walgreens closed Monday at $63.49, in a 52-week range of $59.07 to $86.31. The consensus price target is $74.09. Following the announcement, the stock was down about 9% at $58.01 in early trading indications Tuesday.

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