Walgreens Execs Lift Healthcare Sales Target
The leaders of Walgreens Boots Alliance Inc. have ratcheted up the revenue goals of their healthcare services group and expect that the division will begin contributing to the holding company’s earnings before interest, taxes, depreciation and amortization by this time next year.
In reporting Deerfield, Illinois-based Walgreens Boots’ fiscal fourth-quarter results – a net loss of $415 million (which includes $783 million impairment charge of some Boots UK assets) on revenues of $32.4 billion – CEO Roz Brewer and her team said their strategy to meld primary and post-acute care with specialty pharmacy and broader population health management efforts is moving past “a peak investment year” and in line to produce revenue growth of about 50% in the coming 12 months.
That will set the stage for bottom-line contributions soon after and puts the division on track to put up sales of $11 billion to $12 billion in the fiscal year that will end in August 2025. Brewer and her lieutenants had previously set a top-line target of $9 billion to $10 billion as they seek to focus Walgreens more on healthcare than on retail.
“The team is operating with agility and efficiency and we have clear line of sight to positive adjusted EBITDA in fiscal ’24,” CFO James Kehoe told analysts and investors on an Oct. 13 conference call.
Walgreens’ healthcare segment posted an adjusted EBITDA loss of $312 million (on sales of $622 million) in its recently completed fiscal year. In the coming 12 months, Brewer and Kehoe expect that number to shrink to between $220 million and $240 million as sales grow to about $5 billion and then flip positive in fiscal 2024 before growing to a range of $500 million to $700 million in fiscal 2025.
The big investments of the past fiscal year included opening more than 80 VillageMD locations – those clinics typically begin to produce profits in their third year – and the acquisition of post-acute and home care firm CareCentrix. After a regulatory delay, Walgreens bought 55 percent of the latter in August and recently said it will snap up the company’s remaining shares for about $392 million. With forecasted annual sales of more than $1.5 billion, CareCentrix will help drive revenue growth in the coming year along with a further expansion of VillageMD’s network of clinics (where revenues are expected to double to roughly $3 billion) and growth from pharmacy venture Shields Health Solutions.
“Our healthcare strategy is now coming to life and far from just being in the planning stages,” Brewer said on the conference call. “It is well underway and can be seen in our best-in-class assets.”
Shares of Walgreens (Ticker: WBA) were down slightly around $33.50 in midday trading Oct. 14 after climbing more than 5 percent on the heels of the company’s earnings report. The company now has a market capitalization of $29 billion.
