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Earnings preview: Walgreens unlikely to perform any miracle in Q3

Walgreens Boots Alliance (NASDAQ: WBA) is set to release its earnings results for the third quarter of 2019 on Thursday before the market opens. The results will be hurt by the accelerated market challenges and macro trends. The market will be looking for key strategies in the advancement of the e-commerce space.

The company experienced a significant reimbursement pressure, compounded by lower generic deflation, and continued consumer market challenges in the US and UK. The company expects a roughly flat adjusted earnings growth for fiscal 2019 as its response to address the trends was not rapid enough given market conditions.

The company will be benefited by the transfer of prescriptions from Rite Aid (NYSE: RAD) stores within the retail Pharmacy USA division. Also, the underlying trend in terms of prescription volumes and market share in the US is expected to be in Walgreens’ favor for the quarter.

Photo Courtesy: Walgreens Boots Alliance

Earlier this year, Walgreens revealed plans to invest about $300 million in digital healthcare, a few months after signing a partnership with Microsoft (NASDAQ: MSFT) for shifting its digital infrastructure to the IT giant’s cloud platform.

Analysts expect the company’s earnings to drop by 6.50% to $1.43 per share while revenue will rise by 0.40% to $34.47 billion for the third quarter. In comparison, during the previous year quarter, Walgreens posted a profit of $1.53 per share on revenue of $34.33 billion. The company surprised investors by beating analysts’ expectations thrice in the past four quarters.

For the second quarter, the company reported an 8.3% decline in earnings hurt by lower sales both at the retail and wholesale pharmacy segments. Sales inched 4.6% higher for the quarter. On a constant currency basis, sales were up 6.7%, reflecting the acquisition of the Rite Aid stores.

Also read: Rite Aid Q1 2020 earnings preview

Total pharmacy sales increased by 9.8%, reflecting the acquisition of the Rite Aid stores and organic growth of 4%. Market share was 22.3%, up about 90 basis points compared to last year, reflecting the acquired Rite Aid stores. Comp pharmacy sales increased by 1.9%, and central specialty business grew 28.7%.

For fiscal 2019, Walgreens expects adjusted EPS growth to be roughly flat at constant currency rates, which is way lower than previous guidance of 7-12% percent growth. As looking forward to 2020 and beyond, the company sees improved operational EPS performance. Over the long term, the company is comfortable that its growth model can deliver mid to high single-digit adjusted EPS growth in constant currencies.

Shares of Walgreens opened lower on Tuesday but changed course to the green territory on the Nasdaq. The stock has fallen over 23% in the past year and over 16% in the past three months.

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