Tuesday's Market Minute: Walgreens (WBA) Earnings Breakdown

Walgreens WBA is a little higher premarket after reporting its 2Q23 earnings. The Street seems to have calibrated lower COVID-19 testing and vaccines: despite EPS falling over 25% year-over-year, Walgreens beat analyst estimates on the top and bottom line. However, its operating margin shrank dramatically to 0.6%, down from 3.7%, due to a pre-tax charge of $306 million for opioid-related claims and litigation and the lower COVID-19 vaccinations. 

Like many retail outlets, Walgreens is facing a labor shortage, including in its pharmacies. It says it has hired enough to return about 500 stores to normal pharmacy operating hours, but about 1,900 are still impacted. However, script volume excluding immunizations grew 3.5%, showing strong demand.

Besides being a pharmaceutical provider, Walgreens is expanding into physicians’ practices as well. The company invested $3.5 billion in the quarter to help VillageMD, a primary care physician company, acquire Summit Health, a multispecialty medical practice company. Walgreens is the majority owner of VillageMD, and the two are opening primary care practices across the U.S., with over 200 locations by the end of 2022. Walgreens also signed its first five clinical trials contracts in 2Q23. CEO Brewer says Walgreens is “playing a critical role” as a community health destination and is now “one of the largest players in primary care.” Like CVS Health (CVS) with its insurance giant Aetna, Walgreens wants to have a hand in every part of the medical ecosystem.

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