Walgreens Boots Alliance Inc (NYSE: WBA) reported fiscal third-quarter earnings and revenue beats on Thursday, but the stock dropped 9 percent on investor concern about weak prescription growth. Analysts see long-term opportunities for Walgreens to expand its business and tweak its current model, but the company still needs to provide clarity about its path forward.
Walgreens reported third-quarter adjusted earnings per share of $1.53 on revenue of $34.33 billion. Both numbers topped consensus analyst estimates of $1.48 and $34.05 billion, respectively. Revenue was up 14 percent from a year ago. Cash flow for the quarter was $1.9 billion.
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Aside from the top- and bottom-line numbers, Walgreens’ quarter had a lot of holes. U.S. same-store sales dropped 4 percent in an increasingly competitive drugstore environment that now includes Amazon.com ( AMZN). Same-store prescriptions were flat compared to a year ago.
Gross margin fell from 24.2 percent to 22.9 percent, missing analyst estimates of 23.5 percent. Adjusted operating margin also dropped from 6 percent to 5.3 percent, short of analyst forecasts of 5.7 percent.
The company blamed reimbursement pressures and generic drug competition for its margin shortcomings.
“I am pleased that, in what has been a challenging environment, we have again delivered solid earnings per share growth combined with healthy cash flow,” CEO Stefano Pessina says in a statement.
Walgreens also announced a new $10 billion share buyback plan and raised its dividend by 10 percent.
“The $10 billion share repurchase program announced this morning demonstrates our confidence in future business performance and, as ever, our focus on driving long-term stockholder value,” Pessina says.
Looking ahead, Walgreens raised the lower end of its full-year 2018 EPS guidance from $5.85 to $5.90 but maintained the high-end of its estimated range at $6.05.
Bank of America analyst Michael Cherny says Walgreens’ quarter wasn’t particularly inspiring.
“Walgreens’ [fiscal year third-quarter]operating results suffered from continued market and competitive pressures, with flat same-store prescriptions … the function of the changing preferred network dynamics,” Cherny says.
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However, he says the stock will certainly get some support from the new buybacks.
“The $10 billion buyback should definitely offset some concerns over the operating pressures, providing incremental support through capital returns,” Cherny says.
Bank of America has a “neutral” rating and $73 price target for WBA stock.
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Walgreens Boots Alliance Inc (WBA) Earnings Are a Disappointment originally appeared on usnews.com
