Shares of Walgreens fell more than 11% on Thursday after the company reported adjusted fiscal first-quarter earnings and revenue that beat expectations, but cut its quarterly dividend by nearly half.
Retail pharmacy giant cuts dividend to 25 cents per share 48 cents per share to “enhance [its] long-term balance sheet and cash position,” Chief Executive Tim Wentworth, who officially took the helm during the quarter, said in a statement.
Walgreens’ dividend yield is now 3.9%, based on Wednesday’s closing price. This is significantly lower than its previous return of more than 7%, which made the company highest yielding dividend stock in the Dow Jones Industrial Average.
It also marks the company’s first dividend cut almost five decades. The dividend will be paid on March 12.
In an interview with CNBC, Wentworth called the dividend cut an “incredibly important and responsible” decision.
He added that the majority of investors expected the move and “are actually excited that we’re going to have additional capital to invest in the core business in a way that stimulates growth again, because ultimately that’s going to be the most shareholder-friendly thing.” that we can do.”
The dividend cut comes as Wentworth, a veteran of the healthcare industry, tries to steer the company out of trouble.
Shares of Walgreens tumbled 30% last year as the company grappled with weakened demand for Covid products, low pharmacy reimbursement rates, increased pressure from online retailers, labor unrest among pharmacy staff in the fall, an uneven push for health care and a difficult macroeconomic environment.
But Thursday’s earnings mark a rebound from October, when Walgreens missed earnings estimates for two straight quarters for the first time in nearly a decade.
Here’s what Walgreens reported for the quarter ended Nov. 30 compared with what Wall Street expected, based on a survey of analysts from LSEG, formerly Refinitiv:
- Earnings per share: 66 cents per share adjusted versus 61 cents expected
- Income: $36.71 billion versus $34.86 billion expected
The company reported a net loss of $67 million, or 8 cents per share, for the fiscal first quarter.
That compares with a net loss of $3.7 billion, or $4.31 per share, in the same period a year ago, when Walgreens was ordered to pay a multibillion-dollar settlement for litigation claims the company helped fuel of the country. opioid crisis.
Excluding certain items, adjusted earnings per share were 66 cents for the fiscal first quarter.
Walgreens posted sales of $36.71 billion in the quarter, up about 10% from the same period a year ago.
The company said revenue growth in its US pharmacy retail and international business segments, as well as sales contributions from its US healthcare division, drove the increase. Walgreens is making significant investments to transform itself from a large drugstore chain into a large healthcare company.
Despite the quarterly hits, Walgreens reiterated guidance for fiscal 2024 adjusted earnings of $3.20 to $3.50 per share.
Executives during an earnings call Thursday highlighted fiscal 2024 growth “tailwinds and headwinds in a challenging environment” compared to when it issued its previous outlook.
Walgreens now expects better performance from its pharmacy services unit due to more favorable tax rates. It forecast an adjusted effective tax rate of 15% to 17% for the full year, compared with a previous outlook of 19% to 20%.
However, executives also expect several headwinds, including lower prescription market growth and lower sales and leaseback contributions. They also expect a slowdown in consumer spending to limit US retail sales in the short term and then improve in the second half of the fiscal year.
The company did not say in the earnings call whether it would also maintain its previous revenue guidance of $141 billion to $145 billion.
During an earnings call Thursday, executives said the company is on track to achieve $1 billion in cost savings during fiscal 2024 due to its ongoing cost-cutting initiative, which includes closing unprofitable stores, redundancies and the use of artificial intelligence to increase supply chain efficiency. among other efforts.
Walgreens’ US retail pharmacy division generated sales of $28.94 billion in the first fiscal quarter, an increase of more than 6% over the same period last year. Comparable sales at pharmacy locations increased 8.1%.
This division operates more than 8,000 pharmacies across the US, which sell prescription and non-prescription drugs, as well as health and wellness, beauty, personal care and food products.
A sign advertises Covid vaccines at a Walgreens pharmacy in Somerville, Massachusetts, on August 14, 2023.
Brian Snyder | Reuters
Pharmacy sales for the quarter rose 10.7% compared with the first quarter of fiscal 2023, as comparable sales rose more than 13% due to price inflation in brand name drugs and “strong execution” in pharmacy services, it said. Walgreens.
Total prescriptions filled in the quarter including vaccinations totaled 311.6 million, flat from the same period a year ago.
Walgreens reported a weaker respiratory virus season this fall, dampening demand for drugs and vaccines. The company also pointed to Medicaid redeterminations, which are routine checks each state’s Medicaid agency performs to determine whether beneficiaries still qualify for coverage.
Retail sales for the quarter fell 6.1% year-over-year and comparable retail sales fell 5%. Walgreens pointed to the weaker respiratory period as well as “macroeconomic consumer trends” and Festive store closings on Thanksgiving Day – a first for the company last year – to explain the decline.
Meanwhile, the company international department, which operates more than 3,000 retail stores overseas, generated sales of $5.83 billion in its first fiscal quarter. This is an increase of more than 12% from the same period a year ago.
The company said sales from Walgreens’ UK subsidiary Boots rose more than 6%.
Revenue from Walgreens’ U.S. healthcare division was $1.93 billion, up from $989 million same period last year.
This segment includes primary care provider VillageMD, which includes urgent care provider Summit Health, and CareCentrix, which coordinates home care for patients after they leave 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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