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Walgreens shares plunge despite earnings beat

 

Friday, January 05, 2024

Today’s headlines

What’s happening: Shares of Walgreens Boots Alliance fell on Thursday, after the company released results for its first quarter.

What happened: The US pharmacy chain posted better-than-expected sales and earnings for the latest quarter following the implementation of its cost-cut measures.

However, Walgreens announced a significant reduction in quarterly dividend, which exerted pressure on the stock.

How were the results: The Deerfield, Illinois-based company reported low double-digit growth in sales for the first quarter.

  • Sales grew by 10% year-over-year to $36.7 billion, surpassing the consensus estimates of $34.86 billion.
  • Adjusted earnings contracted by 43.1% to 66 cents per share, but still came in ahead of Wall Street expectations of 61 cents per share.

Why it matters: Like other drugstores, Walgreens witnessed a sharp decline in sales from covid-19 vaccines and testing, while sticky inflation resulted in lower discretionary spending by consumers. Against this backdrop, Walgreens was forced to shut down its unprofitable stores and reduce jobs, in a bid to cut costs.

Operating loss for the first quarter came in at $39 million, versus a year-ago loss of $6.2 billion.

Sales at the company’s US retail pharmacy segment rose 6.4% to $28.94 billion, higher than expectations of $27.26 billion. Same-store sales at its US pharmacies climbed 13.1% year-over-year.

However, the healthcare services unit recorded revenues of $1.93 billion, below market estimates of $2.03 billion.

The company slashed its quarterly dividends by 48% to 25 cents per share, saying the move was to strengthen its “long-term balance sheet and cash position.”

“WBA delivered fiscal first quarter results in line with overall expectations, reflecting disciplined execution in a challenging consumer backdrop. We are evaluating all strategic options to drive sustainable long-term shareholder value, focusing on swift actions to right-size costs and increase cash flow, with a balanced approach to capital allocation priorities,” CEO Tim Wentworth said.

Management maintained their adjusted earnings outlook of $3.20 to $3.50 per share for fiscal 2024, representing a decline from the $3.98 per share reported in fiscal 2023.

How shares responded: Shares of Walgreens tanked 5.1% to close at $24.26 on Thursday, following the release of quarterly results. The stock has lost around 17% over the past six months.

What to watch: Investors will continue monitoring inflation levels and covid-19 related news. Rising competition will also remain one of the major concerns for investors.

The markets today

The Canadian dollar will be in focus today ahead of a basket of economic reports

Context: The CAD/USD forex pair traded slightly higher on Thursday, after falling to near a two-week low in the prior session.

Details: The loonie fell to its lowest intraday level since December 21 on Wednesday, following the release of minutes from the latest Federal Reserve meeting, which did not reveal the timelines of interest rate cuts.

Investors remained cautious on Thursday amid a decline in the price of crude oil, one of Canada’s major exports. WTO crude oil futures fell 51 cents to close at $72.19 per barrel.

Weakness in the US dollar lent some support to the CAD/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.1% to $102.42 on Thursday.

On the economic data front, the S&P Global Canada services PMI edged higher to 44.6 in December, from November’s reading of 44.5. However, the latest reading signalled contraction in the country’s services sector for the seventh straight month.

Canada’s composite PMI fell to 44.7 in December, from 44.8 in the prior month.

The CAD/USD forex pair edged higher to 1.3350 on Thursday. The S&P/TSX Composite Index gained 0.25% to close at 20,871.35.

What to watch: Investors await the release of jobs data from Canada today. The unemployment rate in Canada, which increased to 5.8% in November, is expected to rise further to 5.9% in December. Analysts expect employment in Canada to increase by 14,000 in December, following a gain of 24,900 in November, while the average hourly earnings for permanent employees in Canada are projected to increase 5.1% year-over-year in December.

Data on Ivey PMI will also be released today. The Ivey Purchasing Managers Index in Canada, which increased to 54.7 in November, is expected to decline to 52.4 in December. The release of jobs data from the US will also remain in focus today.

Other Markets: European indices closed higher on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.53%, 0.48%, 0.52% and 0.69%, respectively.

The news shaping the markets

The US said Russia had used ballistic missiles supplied by North Korea in its war with Ukraine. The news sent the safe-haven US dollar index higher this morning.


Thailand’s consumer prices declined 0.83% year-over-year in December, following November’s 0.44% decline. The figure came in much worse than market estimates of a 0.3% decline and exerted pressure on the THB/USD forex pair.


The Philippines said its annual inflation rate eased to 3.9% in December, from 4.1% a month ago. Despite this, the PHP/USD pair fell in forex trading this morning.


Japan’s au Jibun Bank services PMI was revised lower to 51.5 in December, versus a preliminary reading of 52.0, which exerted pressure on the JPY/USD forex pair.


Colombia’s producer prices fell by 5.79% year-over-year in December. This being the eighth consecutive month of producer price deflation sent the COP/USD pair lower in forex trading this morning.

What else to watch today

Germany’s retail sales, new passenger car registrations and construction PMI, UK’s Halifax house price index, new passenger car registrations and construction PMI, Brazil’s industrial production, balance of trade, IPC-Fipe inflation and government budget value, Eurozone’s construction PMI, producer price inflation and inflation rate, France’s construction PMI, Italy’s construction PMI and inflation rate, India’s foreign exchange reserves and fiscal year GDP growth, Spain’s business confidence and consumer confidence indicator, US non-farm payrolls, average hourly earnings, unemployment rate, ISM services PMI, factory orders, Baker Hughes crude oil rigs and Logistics Manager’s Index, as well as Türkiye total vehicle sales.


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