Analyst Conference Summary

biotechnology

Walgreens Boots Alliance
WBA

conference date: March 28, 2023
for quarter ending: February 28, 2023 (fiscal second quarter, Q2 2023)


Forward-looking statements

Overview: Sales up y/y, EPS down, mainly post-pandemic effect.

Basic data (GAAP):

Revenue was $34.86 billion, up 4% sequentially from $33.4 billion, and up 3% from $33.76 billion year-earlier.

Net income was $703 million, up sequentially from negative $3.72 billion, and down from $833 million year-earlier. Substantial one-time charge in previous quarter.

Earnings per share (EPS), diluted, were $0.81, up sequentially from negative $4.31, and down from $1.02 year-earlier.

Guidance:

Maintained annual guidance of Adjusted EPS $4.45 to $4.65.

Conference Highlights:

CEO Rosalind Brewer said, "WBA exited a solid second quarter with acceleration in February, adding to our confidence in driving strong growth in the second half of the year. With the closing of VillageMD's acquisition of Summit Health, WBA is now one of the largest players in primary care, with best-in-class assets across the care continuum. Both Walgreens and Boots are performing well by delivering compelling value to consumers, playing a critical role as community health destinations, and successfully navigating a challenging environment. We will continue to take bold actions to create sustainable long-term shareholder value" The y/y sales gain was 4.5% on a constant currency basis. The prime headwind in the quarter was lower Covid-19 vaccine and test volumes. Walgreens closed the full acquisition of Shields on December 28, 2022. "The inflection is here."

Operating income in the quarter includes a $306 million pre-tax charge for opioid-related claims and litigation, Summit Health acquisition costs and costs related to the Transformational Cost Management Program. This was partially offset by a $454 million after-tax gain from the partial sale of the equity investment in AmerisourceBergen. Sold 6.0 million shares of AmerisourceBergen common stock in December, with after-tax cash proceeds of $972 million. Sold 15.5 million shares of Option Care Health common stock in March, with after-tax cash proceeds of $466 million. It sold the entire stake of Guangzhou Pharmaceuticals in December for approximately $150 million.

In November 2022 had announced will pay $5.7 billion over 15 years to settle the opioid litigation, per agreement in principal. But only covers "a substantial majority" of the litigation.

Walgreens invested $3.5 billion in debt and equity to support VillageMD's acquisition of Summit Health in January 2023.

Walgreens provided 2.4 millon Covid vaccinations in fiscal Q2, down from 11.8 million y/y.

In Q2 Walgreens signed its first five clinical trial contracts.

In fiscal Q2 2023 Walgreens addressed the pharmacist labor shortage by returning about 500 stores to normal pharmacy operating hours, with about 1,900 stores still impacted at quarter-end. But labor costs were a headwind.

In fiscal Q2 U.S. pharmacy comparable script volume grew 3.5% excluding immunizations, ahead of expectations and sequentially improving vs. Q1 fiscal 2023. The Retail Pharmacy segment sales were $27.6 million, down 0.3% y/y. U.S. Retail comparable sales declined 1%. Total prescriptions filled in the quarter were flat. AllianceRX sales declined 3% y/y.

The International segment Q2 sales $5.7 billion, up 1.6% y/y. Comp sales up 16%. 7.5% adverse currency impact. Sales up 9% constant currency. Operating income in Q2 was $353 million. Adjusted operating income was $352 million, up 55.8.

The U.S. Healthcare Segment had Q2 sales of $1.6 billion, up 45% from $1.1 billion y/y. Gross profit was $32 million. Shields, CareCentrix and VillageMD all grew sales, with VillageMD adding 133 clinics y/y. But operating loss was $472 million, of $159 million non-GAAP

Non-GAAP results: Net income $1.0 billion, flat sequentially from $1.00 million, and down 28% from $1.38 billion year-earlier. EPS $1.16, flat sequentially from $1.16 and down 27% from $1.59 year-earlier.

Cash and equivalents ended at $1.83 billion, down sequentially from $4.23 billion, mainly due to investment in VillageMD. Inventories $8.75 billion. Long-term debt $8.82 billion. Cash flow from operations was $745 million. Capital expenditure $68 million. Free cash flow $677 million.

Cost of sales (GAAP) was $27.8 billion, leaving gross profit of $7.06 billion. SG&A expense waa $6.93 billion. Leaving operating loss of $197 million. Other income $552 million. Interest expense $141 million. Income Tax $70 million. Net loss attributable to noncontrolling interests $159 million.

Q&A selective summary:

VillageMD integration challenges? We are just 90 days in to the integration. We are seeing the value. We are not seeing excess cash needs, we are seeing cost and growth synergies.

Latest on front-end store sales and economy? We are running strong right now. Private label business improved. Online growth over 30%.

Pharmacy market share loss? We did better in February. We are seeing improvement particularly in the stores returned to normal hours. Working on inventory issues, execution, winning back customers.

Summit EBITDA drivers? Expecting strong performance in 2H. They just closed on a private practice, Starling, which should be a growth driver.

Medicare CMS changes? We have low exposure in Florida. We are looking carefully at coming changes, but the final rule is not out. We are cautiously optimistic to manage any changes.

Margin direction? Pharmacy COGS should be better in 2H than in 1H. Retail has been growing both margins and sales for 8 quarters, believes that can continue longer term. But pharmacy reimbursement pressure is expected to continue. End payers are looking for improved outcomes.

Appeared optimistic about Boots UK business. But NHS limits the revenue in the pharmacy segment.

We do not believe we will be able to get all our stores to full normal pharmacy hours by year end.

OpenIcon Analyst Conference Summaries Main Page

 

Search

More Analyst Conference Pages:

 AGEN
 AGIO
 ALNY
 AMAT
 AMGN
 APRE
 ARWR
 BIIB
 BMY
 CDTX
 CLDX
 FATE
 GILD
 GLYC
 ILMN
 INCY
 INO
 IONS
 MCHP
 MRNA
 PLX
 REGN
 RNA
 SAGE
 SGEN
 VRTX
 VSTM

       

Disclaimer: My analyst call summaries may include both condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. These are my personal notes which I share with other investors and which I use as the basis of my blog and Seeking Alpha articles.

Copyright 2023 William P. Meyers