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Walgreens shares fell 11% on June 27 as executives reported Q3 earnings that were short of analyst expectations and company executives said they were “disappointed” in the US healthcare segment, which Walgreens has banked on in its quest to be a “consumer-centric” healthcare company.
“While we’re confident in the range and scale of our healthcare business, we are disappointed with the pace of our path to profitability,” John Driscoll, EVP and president of the US healthcare segment, said in an earnings call. “US healthcare missed targets due to VillageMD and CityMD underperformance directly related to reduced cough, cold, and flu season, and softer market demand.”
The segment took a $113 million loss before interest, tax, depreciation, and amortization in Q3, with $2 billion in sales. VillageMD, the largest subsidiary in the segment, reported a 22% sales increase, while CareCentrix saw 15% growth and Shields enjoyed a 35% increase.
“The healthcare 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,” Jonathan Palmer, a Bloomberg Intelligence analyst, said in a note, Bloomberg reported.
Driscoll said in the earnings call that his team is “taking immediate actions to drive improved profitability. We anticipate this year will remain a transition year as we take action to deliver value and drive profitability.”
This quarter is the first since 2020 in which Walgreens’ earnings fell below analyst expectations, CNBC reported. CEO Rosalind Brewer cited a “steeper drop-off in Covid-19 vaccines and testing,” as well as lower consumer spending, as the primary causes of missing financial targets. Shares fell 11% following the earnings announcement, Barron’s reported.
In response to the lackluster results, Brewer said Walgreens will increase its cost-cutting initiative to $4.1 billion, up from a previously announced $3.5 billion. As part of that, the company will close 300 stores in the UK and 150 in the US, EVP and global CFO James Kehoe said in the earnings call.
Last month, Walgreens laid off 10% of its corporate workforce. Those cuts were completed over the course of four months and saved Walgreens more than $100 million, Kehoe said.