Why Walgreens Boots Alliance Inc (NASDAQ: WBA) stock is under pressure

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Walgreens Boots Alliance Inc (NASDAQ: WBA) stock fell 5.84% on January 8th, 2020 after the company posted lower than expected results for the first quarter of FY 20. The year on year earnings were affected due to 5 percentage points of adverse items including the year-on-year bonus impact. In Retail Pharmacy USA, strong cost management and improved retail comp sales were offset by lower gross margin. The segment’s sales rose 1.6% in the quarter with 2.9% growth in pharmacy. Total Pharmacy posted sales growth of 2.9% compared to prior year, due to continued brand inflation and script volume growth. In the US Retail business, the total Retail sales decreased 2.2% in the quarter, on the back of store optimization and comp retail sales fell 0.5%. Retail Pharmacy International was negatively affected due to a challenging UK market and the company saw continued strong performance from Pharmaceutical Wholesale. The company’s Transformational Cost Management Program is on track and the company projects to achieve annual cost savings in excess of $1.8 billion by 2022. Operating cash flow was strong at $1.1 billion, which was up $601 million compared tp prior year with free cash flow of $674 million, $684 million better than prior year.

Moreover, during the first quarter, on divisional optimization, the company has completed 114 of the 200 Walgreens store closures and 28 of the 200 Boots UK closures. The company continues to test new store formats in the US and currently are now operating 23 small stores with encouraging results.

WBA in the first quarter of FY 20 has reported the adjusted earnings per share of $1.37, missing the analysts’ estimates for the adjusted earnings per share by 2.1%, as per Zacks Consensus Estimate. The company had reported the adjusted revenue growth of 1.6 percent to $34.34 billion in the first quarter of FY 20, missing the analysts’ estimates for revenue by 0.8%. Adjusted operating income declined 15.4% on a constant currency basis, reflecting lower gross margin in the US and a difficult UK market.

For fiscal 2020, the company has maintained guidance of roughly flat growth in adjusted earnings per share at constant currency rates, with a range expected to be of plus or minus 3 percent. As per the Zacks Consensus Estimate for fiscal 2020, the adjusted earnings per share is currently pegged at $5.93.

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