Walgreens Boots Alliance Inc. shares tumbled after the drugstore chain slashed its adjusted earnings forecast for the fiscal year as its transition deeper into health-care slowed and fading pandemic demand hurt profit.
Annual adjusted earnings will be $4 to $4.05 a share, the Deerfield, Illinois-based company said Tuesday in a statement, down from the earlier range of $4.45 to $4.65. Adjusted earnings for the third-quarter were $1 a share, short of analysts’ average estimate of $1.06.
The shares fell 8.4% before US markets opened, setting the stock to hit its lowest level since 2012. Rival CVS Health Corp. fell 2.5% and Rite Aid Corp. lost 2.2%.
“We have seen changing market trends that have consumers prioritizing value in response to a more uncertain and challenging economic environment,” Chief Executive Officer Roz Brewer said on an earnings call. “There has been a steep drop off in Covid vaccines and testing, and with the end of the public-health emergency we are also experiencing a slower profit ramp for US health care.”
After the pandemic pulled people into drugstores for vaccines and tests, cracks are starting to reappear in the business model that depends on pharmacy-driven foot traffic to sell higher-margin items like toothpaste and over-the-counter therapies. The end of the pandemic emergency has also seen states drop residents from the rolls of Medicaid, the health program for low-income people.
And while Walgreens is betting on an expansion into the wider health world —adding primary-care centers to US locations, partnering with insurers and moving into clinical trial recruitment — the transition hasn’t been simple.
“The health-care services segment is taking longer to stand up,” Bloomberg Intelligence analyst Jonathan Palmer said in a note, “which isn’t a huge surprise and at the same time, Walgreens’ ability to catalyze the unit by deploying capital is slowly drying up.”
Walgreens raised the target for a cost-cutting program to $4.1 billion in total savings from $3.5 billion, and expects savings of $800 million in fiscal 2024. The company said in May that it would cut 10% of its corporate workforce, or about 504 employees, as it seeks to restructure to align better with a focus on patient care.
(Updates with CEO comment in third paragraph)
