Walgreens earnings 2023: Disappointment in healthcare segment

Walgreens Boots Alliance’s healthcare services strategy has yet to reach its peak.

The company’s US healthcare operations reported an adjusted operating loss of $172 million in its fiscal third quarter, bringing its year-to-date operating loss to $483 million.

CityMD, its urgent care provider, saw fewer visits for respiratory illnesses in the quarter and fewer referrals to Summit Health medical group. The healthcare giant’s investments to expand its VillageMD primary care clinics also hurt earnings.

John Driscoll, president of Walgreens’ US healthcare segment, told investors on an earnings call Tuesday morning that he is disappointed by the pace of growth in the segment, though the company is not giving up. in what it believes will soon be a major driver of growth.

“While we are confident in the scope and scale of our healthcare business, we are disappointed with the pace of our path to profitability,” Driscoll said. “We are taking immediate steps to drive higher profitability.”

Walgreens also said he saw setbacks in consumer spending in the retail segment, in addition to lower demand for COVID-19 vaccines and over-the-counter tests.

As a result, Walgreens cut its full-year adjusted earnings forecast from $4 to $4.05 per share, compared with its previous range of $4.45 to $4.65 per share.

Third-quarter net income fell nearly 60% year-over-year to $118 million, or 14 cents per share. Gross profit rose just 0.2% to $6.59 billion, while total operating losses rose to $477 million.

Walgreens raised its five-year cost reduction target for the sixth time, to $4.1 billion, from $3.5 billion, with $800 million in savings expected in fiscal 2024. The company said last month it is cutting 10% of its force corporate labor at its Deerfield, Illinois, headquarters and Chicago office. Walgreens also sold its remaining stake in Option Care Health, a home infusion company, earlier this month and continues to cut space in its stores to save money.

James Kehoe, global chief financial officer, told investors on Tuesday that he expects the US healthcare segment to be the biggest driver of operating income in 2024.

Driscoll said Walgreens will focus on adding clinics in existing Village MD markets. The company added 93 clinics in the past year. About 45% of its on-site Village Medical at Walgreens clinics have been open less than a year.

Walgreens said it plans to invest more in CityMD marketing and will continue integration efforts, following the $8.9 billion acquisition of Summit Health-CityMD announced in late 2022.