DEERFIELD, Ill. — Walgreens Boots Alliance posted a net loss in its third quarter, but topped Wall Street's estimates for sales and adjusted earnings.
The company reported adjusted earnings of $334 million, or 38 cents a share. Analysts had forecast EPS of 34 cents.
Sales for the quarter ended May 31 rose 7.2% from the year-ago period to $39 billion, beating Wall Street's projected $36.72 billion.
The loss of $175 million compared to a net profit of $344 million a year earlier. The decline was primarily driven by prior year after-tax gains related to fair value adjustments on variable prepaid forward derivatives and a partial sale of the company's equity method investment in Cencora, and higher tax expense in the current quarter.
“Third quarter results reflect continued improvement in our U.S. Healthcare segment and benefits from our cost savings initiatives, while we continued to see weakness in our U.S. front-end sales," said chief executive officer Tim Wentworth. "We remain focused on our turnaround plan, which will require time, disciplined focus and a balanced approach to manage future cash needs with investments necessary to navigate an evolving pharmacy and retail environment.”
WBA is being taken private by Sycamore Partners in a $23.7 billion deal expected to close by the end of 2025.
Third quarter operating income was $53 million compared to $111 million a year ago. Third quarter operating income included a non-cash impairment charge related to certain long-lived assets.
Adjusted operating income was $558 million compared to $613 million in the year-ago quarter. Operating income and adjusted operating income reflect higher incentive accruals, lower U.S. retail sales and lower equity earnings in Cencora, partly offset by growth in U.S. Healthcare and cost savings within U.S. Retail Pharmacy.
The adjusted net earnings of $334 million were down $211 million from $545 million in the year-ago quarter, down 39.3 percent on a constant currency basis. The decrease reflects a higher adjusted effective tax rate, higher incentive accruals, lower U.S. retail sales and lower equity earnings in Cencora, partly offset by cost savings within U.S. Retail Pharmacy.
The loss per share was $0.20 compared to earnings per share of $0.40 in the year-ago quarter.
Net cash provided by operating activities was $584 million in the third quarter, a $20 million decrease compared with the year-ago quarter. Operating cash flow in the current quarter was negatively impacted by $252 million of legal payments primarily related to opioid-related settlements. Free cash flow2 was positive $336 million, a $2 million improvement compared to the year-ago quarter. Operating cash flow and free cash flow reflect improvements in working capital, lower cash taxes and lower interest paid, partly offset by higher legal payments.
The U.S. Retail Pharmacy segment had third quarter sales of $30.7 billion, an increase of 7.8 percent from the year-ago quarter. Comparable sales increased 10.3 percent from the year-ago quarter.
Pharmacy sales increased 11.8 percent and comparable pharmacy sales increased 14.6 percent in the quarter, each benefiting from higher branded drug inflation and mix impacts. Comparable 30-day equivalent prescriptions filled in the third quarter increased 2.7 percent from the year-ago quarter, while comparable prescriptions excluding immunizations also increased 2.7 percent. Total 30-day equivalent prescriptions filled in the quarter, including immunizations, increased 0.4 percent to 308 million.
Retail sales decreased 5.3 percent from the year-ago quarter, including the impact of the Footprint Optimization Program and lower comparable retail sales. Comparable retail sales decreased 2.4 percent and were impacted by weaker sales in grocery and household, health and wellness, and beauty.
Adjusted operating income decreased 30.2 percent to $350 million from $501 million in the year-ago quarter, reflecting higher incentive accruals, lower retail sales and lower equity earnings in Cencora, partially offset by cost savings.
The International segment had third quarter sales of $6.2 billion, an increase of 7.8 percent from the year-ago quarter, including a favorable currency impact of 1.9 percent. Sales increased 5.9 percent on a constant currency basis, with the Germany wholesale business growing 6.8 percent and Boots UK sales growing 5.0 percent.
Boots UK comparable pharmacy sales increased 5.4 percent on a constant currency basis compared with the year-ago quarter. Boots UK comparable retail sales increased 6.0 percent on a constant currency basis compared to the year-ago quarter. Boots.com sales grew 18.7 percent, or 14.8 percent on a constant currency basis, representing 17 percent of Boots total retail sales.
Adjusted operating income increased 22.0 percent to $214 million, an increase of 20.2 percent on a constant currency basis compared with the year-ago quarter, reflecting strong retail performance in Boots UK and market growth in Germany, partly offset by cost inflation primarily driven by payroll.
The U.S. Healthcare segment had third quarter sales of $2.1 billion, a decrease of $23 million. The decline in sales was primarily driven by VillageMD sales decreasing 6.5 percent, reflecting lower risk-based and fee-for-service revenue, including the impact of clinic closures. CareCentrix sales increased 11.6 percent and Shields sales increased 24.8 percent.
Operating loss was $64 million, compared to operating loss of $220 million in the year-ago quarter, reflecting lower acquisition-related amortization and higher contributions from VillageMD risk-based business.
Adjusted operating income, which excludes impairment charges, certain costs related to stock compensation expense and amortization of acquired intangible assets, was $54 million compared to a loss of $22 million in the year-ago quarter.
Adjusted EBITDA of $86 million improved by $63 million versus the prior-year quarter, reflecting improvement at VillageMD and growth at Shields.