Walgreens Boots Alliance Inc. shares tumbled after the pharmacy giant slashed its adjusted earnings forecast for the fiscal year as its transition deeper into health-care slowed and reduced spending on Covid-related services 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. Revenue in the period was $35.4 billion, beating Wall Street’s expectation of $34.2 billion.
The shares fell as much as 8.2% before US markets opened. If the current decline in premarket trading holds, the stock is set to hit its lowest level since 2012. Shares of rivals CVS Health Corp. and Rite Aid Corp. fell 2% and 1.7% respectively.
“Significantly lower demand for Covid-related services, a more cautious and value-driven consumer, and a recently weaker respiratory season created margin pressures in the quarter,” Chief Executive Officer Roz Brewer said in the statement. “Our revised guidance takes an appropriately cautious forward view in light of consumer spending uncertainty.”
The cautious forecast suggests that the surge in business helped by demand for Covid-19 shots and testing has likely run out of steam. And while the chain is betting on expanding its health care offerings, the transition to a health-care model may be more difficult than expected.
Walgreens has been diving deeper into various facets of health care, adding primary-care centers to US locations, partnering with health insurers and moving into clinical trial recruitment. The company’s US health-care unit posted revenue of $2 billion, matching analysts’ average estimate.
“Pharmacy has largely normalized to a post-pandemic run-rate where respiratory illness trends are again a modest swing factor,” Bloomberg Intelligence analyst Jonathan Palmer said in a note. “The health-care services segment is taking longer to stand up, which isn’t a huge surprise and at the same time, Walgreens’ ability to catalyze the unit by deploying capital is slowly drying up.”
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.