Walgreens Boots Alliance Reduces Quarterly Dividend

In its financial results for the first quarter of its 2024 fiscal year, Walgreens Boots Alliance announced a reduction in its quarterly dividend by 48%. Despite this, the results were generally in line with Wall Street expectations.

Adjusted earnings for the quarter were reported at $0.66 per share, which closely matched FactSet analyst consensus estimate of $0.62 per share. This figure indicates a decrease from the $1.16 per share reported in the same quarter the previous year. Moreover, the company's sales amounted to $36.7 billion, slightly higher than FactSet's consensus estimate of $34.9 billion.

While this news may come as a surprise to some, it is worth noting that Walgreens has been consistent in paying dividends for the past 91 years. The most recent announcement brings the quarterly dividend to 25 cents per share, down from the previous quarter's dividend of 48 cents per share. Before this cut, the stock enjoyed a relatively high dividend yield of 7.5%.

Explaining this decision, Walgreens CEO Tim Wentworth emphasized the need to strengthen the company's long-term balance sheet and cash position. He stated, "We have made the difficult decision to reduce our quarterly dividend payment to 25 cents per share, to strengthen our long-term balance sheet and cash position."

Earlier this year, Walgreens experienced a significant boost in its share price, surging by 30.9% in December. This marked a positive turnaround after a prolonged period of decline that had driven the stock price to below $20 per share. However, it is important to note that even with this increase, the stock experienced a significant decline of 61.8% from 2019 to the end of 2023, while the S&P 500 index rose by 90.3%.

On the day before the release of the earnings report, Walgreens shares witnessed a drop of 4.1%, making it the worst-performing constituent of the Dow Jones Industrial Average.

It is notable that this earnings report is the first one since the appointment of Tim Wentworth as CEO. Wentworth, a former executive at Cigna, joined Walgreens in October, bringing his expertise to lead the company.

Walgreens Faces Significant Challenges in U.S. Retail Pharmacy Business

Walgreens, the renowned pharmacy chain, is currently grappling with a major challenge in its core U.S. retail pharmacy business. Over the past few years, the company has witnessed a steep decline in operating income, primarily due to shifting consumer shopping habits and underlying challenges within its pharmacy counters.

In an attempt to overcome these difficulties, Walgreens tried to sell its U.K. pharmacy chain, Boots, in 2022. However, this endeavor proved unsuccessful. Furthermore, despite significant investments in expanding its healthcare services offerings, this sector has yet to generate a profit for the company.

Despite these setbacks, Walgreens maintains its guidance for adjusted earnings of $3.20 to $3.50 per share in the 2024 fiscal year.

For the quarter, the adjusted operating income of Walgreens' U.S. retail pharmacy division amounted to $694 million. This figure surpasses the FactSet consensus estimate of $672 million.

To address these challenges, Walgreens' CEO, Wentworth, stated that the company is actively evaluating various strategic options to drive sustainable long-term shareholder value. This includes taking swift actions to optimize costs and enhance cash flow while maintaining a balanced approach to capital allocation priorities.

The upcoming investor call scheduled for Thursday morning at 8:30 a.m. Eastern time holds significant importance for investors. They eagerly await any statements made by Wentworth during this call, especially regarding a potential new attempt to sell Boots – a recent topic of speculation.

In conclusion, Walgreens recognizes the need to navigate these challenges effectively in order to secure its long-term success in the retail pharmacy landscape.