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DEERFIELD, Ill. – Walgreens Boots Alliance Inc. reported fourth quarter adjusted earnings of 67 cents per share, down 17% from a year earlier and one cent shy of analysts’ forecast.
Ginger Graham
Fourth quarter revenue of $35.42 topped Wall Street’s estimate of $34.56 billion.
Excluding one-time items, the company posted a $180 million loss for the three-month period ended August 31. For the full fiscal year, WBA reported a loss of $3.08 billion, or $3.57 per share. Full year revenue was $139.08 billion, up 4.8% from the prior year.
For fiscal 2024, WBA projected adjusted EPS of $3.20 to $3.50 reflecting incremental cost savings across the business and accelerating profitability in U.S. Healthcare, more than offset by lower sale and leaseback contribution, a higher tax rate, and lower COVID-19 contribution.
The company expects U.S. Healthcare adjusted EBITDA to be breakeven at the midpoint of the guidance range of ($50) to $50 million.
“Our performance this year has not reflected WBA’s strong assets, brand legacy, or our commitment to our customers and patients.” said interim chief Executive officer Ginger Graham. “In just six weeks, we have taken a number of steps to align our cost structure with our business performance, including planned cost reductions of at least $1 billion, and lowered capital expenditures by approximately $600 million. We anticipate seeing the impact of these actions in fiscal 2024, beginning in the second quarter. We are also intently focused on accelerating our profitability in the U.S. Healthcare segment. As we welcome our new chief executive officer, Tim Wentworth, who brings deep healthcare experience and the skills needed to propel WBA forward, along with the support of the Board, I am confident in our company’s future and the ability to deliver greater value to our customers, shareholders, partners, and employees.”
Fourth quarter sales increased 9.2 percent from the year-ago quarter, an increase of 8.3 percent on a constant currency basis, reflecting sales growth in the U.S. Retail Pharmacy and International segments, and sales contribution from the U.S. Healthcare segment.
Fourth quarter operating loss was $450 million compared to an operating loss of $822 million in the year-ago quarter. Operating loss in the current quarter reflects certain legal and regulatory accruals and settlements, and higher costs related to the Transformational Cost Management Program. Year over year improvement in operating loss is due to lapping a $783 million non-cash impairment charge related to intangible assets in Boots UK in the year-ago quarter. Adjusted operating income was $683 million, a decrease of 9.8 percent on a constant currency basis, reflecting lower volumes of COVID-19 vaccinations and testing, and lower levels of sale leaseback contribution, partly offset by improvements in underlying U.S. pharmacy, lower incentive accruals, strong International growth, and improved profitability in U.S. Healthcare.
The $180 million loss in the quarter was narrower than the net loss of $415 million in the year-ago quarter, primarily driven by a lower operating loss. Adjusted net earnings decreased 17.1 percent to $575 million, down 18.1 percent on a constant currency basis, primarily driven by lower adjusted operating income and a higher adjusted effective tax rate primarily due to timing and release of valuation allowance related to capital loss carryforwards in the year-ago quarter.
Loss per share was $0.21, compared to a loss per share of $0.48 in the year-ago quarter. Adjusted earnings per share decreased 18.0 percent on a constant currency basis.
Net cash provided by operating activities was $1.0 billion in the fourth quarter and free cash flow was $549 million, a $956 million increase compared with the year-ago quarter driven primarily by phasing of working capital, partially offset by opioid settlement payments.
Sales in fiscal 2023 were up 5.6 percent on a constant currency basis, reflecting sales growth in the U.S. Retail Pharmacy and International segments, and sales contribution from the U.S. Healthcare segment.
Operating loss in fiscal 2023 was $6.9 billion compared to operating income of $1.4 billion in the year-ago period. Operating loss in the period reflects a $6.8 billion pre-tax charge for opioid-related claims and litigation, partly offset by higher Boots UK intangible assets impairment charges in the year ago period. Adjusted operating income was $3.9 billion, a decrease of 24.1 percent on a constant currency basis, reflecting a COVID-19 headwind of 23.3 percent and planned payroll investments in U.S. Retail Pharmacy, partly offset by lower incentive accruals, International growth and improved retail contributions in the U.S.
The $3.1 billion net loss in fiscal 2023 compared to net earnings of $4.3 billion in the prior year. This was driven by a $5.5 billion after-tax charge for opioid-related claims and litigation in the period and lapping of a $2.5 billion after-tax gain on the Company’s investments in VillageMD and Shields Health Solutions in the year-ago period, partly offset by a $1.7 billion after-tax gain from the partial sale of the Company’s investments in Cencora and the complete sale of the Company’s investment in Option Care Health. Adjusted net earnings were $3.4 billion, a decrease of 20.5 percent on a constant currency basis, primarily driven by lower adjusted operating income.
The $3.57 loss per share for fiscal 2023 compared with EPS of $5.01 in the year-ago period. Adjusted EPS was $3.98, a decrease of 20.9 percent on a reported basis and a decrease of 20.3 percent on a constant currency basis.
Net cash provided by operating activities was $2.3 billion in fiscal 2023. Free cash flow was $0.7 billion, a decrease of $1.5 billion from fiscal 2022 driven by lower earnings, opioid settlement payments, and increased capital expenditures including growth initiatives related to U.S. pharmacy and U.S. Healthcare.
The U.S. Retail Pharmacy segment had fourth quarter sales of $27.7 billion, an increase of 3.7 percent from the year-ago quarter. Comparable sales increased 5.7 percent from the year-ago quarter.
Pharmacy sales increased 6.4 percent compared to the year-ago quarter. Comparable pharmacy sales increased 9.2 percent in the fourth quarter, aided by higher brand inflation and mix impacts. Comparable prescriptions filled in the fourth quarter increased 0.9 percent while comparable prescriptions excluding immunizations increased 1.6 percent compared with the year-ago quarter. Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents, decreased 0.5 percent to 297 million, impacted by lower market growth due to a weaker respiratory season.
Retail sales decreased 4.3 percent and comparable retail sales decreased 3.3 percent versus the year-ago quarter, reflecting macroeconomic-driven consumer pressure, a 1.0 percentage point impact from a weaker respiratory season and a 1.6 percentage point impact from lower sales of COVID-19 OTC test kits.
Adjusted operating income decreased 29.4 percent to $554 million compared to $786 million in the year-ago quarter, reflecting reduced COVID-19 contributions (estimated $215 million) and lower levels of benefits from the sale and leaseback program, partly offset by underlying pharmacy gross profit and lower incentive accruals.
The International segment had fourth quarter sales of $5.8 billion, an increase of 12.4 percent from the year-ago quarter, including a favorable currency impact of 5.7 percent. Sales increased 6.7 percent on a constant currency basis, with Boots UK sales growing 10.9 percent, and the Company’s Germany wholesale business sales growing 3.5 percent.
Boots UK comparable pharmacy sales increased 9.9 percent compared with the year-ago quarter. Boots UK comparable retail sales increased 11.7 percent compared to the year-ago quarter, with growth across all categories and footfall improving 4 percent. Boots.com continued to perform strongly with sales growing 28.9 percent, representing over 13 percent of Boots total retail sales.
Adjusted operating income increased 59.0 percent to $259 million, an increase of 52.2 percent on a constant currency basis, reflecting gross profit growth across all markets, led by strong retail sales in the UK and pharmacy margin.
The U.S. Healthcare segment had fourth quarter sales of $2.0 billion, reflecting the acquisition of CareCentrix, the acquisition of Summit Health by VillageMD, and pro forma growth in all businesses. On a pro forma basis, the segment’s businesses grew sales at a combined rate of 19 percent in the quarter. VillageMD grew 17 percent, reflecting existing clinic growth and clinic footprint expansion. CareCentrix grew pro forma sales 24 percent due to additional service offerings and expansion into additional markets with existing partners. Shields grew 29 percent, driven by key contract wins, further expansion of existing partnerships, and strong executional focus.
Operating loss in the quarter of $294 million compared to $338 million in the prior year period. Adjusted operating loss, which excludes certain costs related to stock compensation expense and amortization of acquired intangible assets, was $83 million compared to $151 million in the year-ago quarter. Fourth quarter adjusted EBITDA loss of $30 million improved by $103 million versus the prior year quarter. Improvement in adjusted operating loss versus the year ago quarter was driven by growth at Shields and CareCentrix, and cost management at Walgreens Health.
