Shares of Walgreens fell greater than 11% on Thursday after the corporate reported fiscal first-quarter adjusted earnings and revenue that topped expectations, but cut its quarterly dividend nearly in half.
The retail pharmacy giant slashed its dividend to 25 cents per share from 48 cents per share to “strengthen [its] long-term balance sheet and money position,” CEO Tim Wentworth, who officially took the helm through the quarter, said in a press release.
Walgreens’ dividend yield is now 3.9%, based on Wednesday’s closing price. That is down significantly from its prior yield of greater than 7%, which made the corporate the highest-paying dividend stock within the Dow Jones Industrial Average.
It also marks the corporate’s first dividend cut in nearly five a long time. The dividend will probably be payable on March 12.
In an interview with CNBC, Wentworth called the dividend cut an “incredibly vital and responsible” decision.
He added that the vast majority of investors expected the move and “actually are excited in regards to the undeniable fact that we will have additional capital to speculate within the core business in a way that stimulates growth again, because that ultimately goes to be probably the most shareholder-friendly thing we are able to do.”
The dividend reduction comes as Wentworth, a health-care industry veteran, tries to steer the corporate out of a rough spot.
Shares of Walgreens plummeted 30% last 12 months as the corporate grappled with weakening demand for Covid products, low pharmacy reimbursement rates, increased pressure from online retailers, labor unrest amongst pharmacy staff in the autumn, an uneven push into health care and a difficult macroeconomic environment.
But Thursday’s earnings beat marks a turnaround from October, when Walgreens missed earnings estimates for 2 straight quarters for the primary time in nearly a decade.
Here’s what Walgreens reported for the three-month period ended Nov. 30 compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly often called Refinitiv:
- Earnings per share: 66 cents per share adjusted vs. 61 cents expected
- Revenue: $36.71 billion vs. $34.86 billion expected
The corporate reported a net lack of $67 million, or 8 cents per share, for the fiscal first quarter.
That compares with a net lack of $3.7 billion, or $4.31 per share, through the same period a 12 months ago, when Walgreens was ordered to pay a multibillion-dollar settlement for litigation alleging the corporate helped fuel the nation’s opioid crisis.
The web loss in probably the most recent quarter included a $278 million after-tax charge related to Walgreens’ forward sale of shares of drug distributor Cencora, formerly often called AmerisourceBergen.
Excluding certain items, adjusted earnings per share were 66 cents for the fiscal first quarter.
Walgreens booked sales of $36.71 billion within the quarter, a roughly 10% jump from the identical period a 12 months ago.
The corporate said revenue growth in its U.S. retail pharmacy and international business segments, and sales contributions from its U.S. health-care division, drove the rise. Walgreens is making significant investments to rework from a significant drugstore chain to a big health-care company.
Despite the quarterly beats, Walgreens reiterated its fiscal 2024 adjusted earnings guidance of $3.20 to $3.50 per share.
Executives during an earnings call Thursday highlighted incremental fiscal 12 months 2024 “tailwinds and headwinds in a difficult environment” in comparison with when it issued its previous outlook.
Walgreens now expects higher performance from its pharmacy services unit attributable to more favorable tax rates. It forecast a full-year adjusted effective tax rate of 15% to 17%, in comparison with the prior outlook of 19% to twenty%.
But executives also expect several hurdles, including lower market growth in prescriptions and lower sale and leaseback contributions. Additionally they expect a pullback in consumer spending to chop into U.S. retail sales within the short term, then improve within the second half of the fiscal 12 months.
The corporate didn’t indicate within the earnings release whether it will also maintain its previous revenue guidance of $141 billion to $145 billion.
During an earnings call on Thursday, executives said the corporate is on target to realize $1 billion in cost savings during fiscal 2024 attributable to its ongoing cost-cutting initiative, which involves closing unprofitable stores, layoffs and using artificial intelligence to drive supply chain efficiencies, amongst other efforts.
Sales growth across pharmacy and health care
Walgreens’ U.S. retail pharmacy segment generated $28.94 billion in sales within the fiscal first quarter, a rise of greater than 6% from the identical period last 12 months. Comparable sales at pharmacy locations rose 8.1%.
That segment operates greater than 8,000 drugstores across the U.S., which sell prescription and nonprescription drugs in addition to health and wellness, beauty, personal care, and food products.
An indication advertises Covid vaccine shots at a Walgreens Pharmacy in Somerville, Massachusetts, on Aug. 14, 2023.
Brian Snyder | Reuters
Pharmacy sales for the quarter rose 10.7% compared with the fiscal first quarter of 2023, as comparable sales climbed greater than 13% attributable to price inflation in brand medications and “strong execution” in pharmacy services, Walgreens said.
Total prescriptions filled within the quarter including immunizations totaled 311.6 million, which is flat compared with the identical period a 12 months ago.
Walgreens cited a weaker respiratory virus season this fall, which is blunting demand for medications and vaccines. The corporate also pointed to Medicaid redeterminations, that are routine reviews each state’s Medicaid agency conducts to find out whether beneficiaries still qualify for coverage.
Retail sales for the quarter fell 6.1% from the identical period a 12 months ago, and comparable retail sales declined 5%. Walgreens pointed to the weaker respiratory season in addition to “macroeconomic-driven consumer trends” and Thanksgiving holiday store closures – a primary for the corporate last 12 months — to clarify the decrease.
Meanwhile, the corporate’s international segment, which operates greater than 3,000 retail stores abroad, racked up $5.83 billion in sales within the fiscal first quarter. That is an increase of greater than 12% from the identical period a 12 months ago.
The corporate said sales from Walgreens’ U.K. subsidiary, Boots, grew greater than 6%.
Revenue from Walgreens’ U.S. health-care segment got here in at $1.93 billion, up from $989 million in the identical period last 12 months.
That division includes primary-care provider VillageMD, which incorporates urgent-care provider Summit Health, and CareCentrix, which coordinates home take care of patients after they’re discharged from the hospital.
Walgreens will hold an earnings call with investors at 8:30 a.m. ET.
— CNBC’s Bertha Coombs and Robert Hum contributed to this report.
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