New Walgreens CEO Says No to More Primary Care M&A
Walgreens Boots Alliance Inc. is unlikely to further buy its way into the primary-care space as it builds out its healthcare services division, new CEO Tim Wentworth told analysts and investors Jan. 4.
Speaking on a conference call after Illinois-based Walgreens reported results for its fiscal first quarter, Wentworth said he’s committed to the company’s strategy of adding a range of care options atop its massive store network—“a retail pharmacy base is a fabulous base to build a health services business from because of the engagement”—but added that his primary focus for now is to improve the company’s finances across the board. Continuing to nurse the nascent healthcare services group toward profitability is a big part of that.
“There’s no question that [VillageMD leaders] have put themselves on a good path,” said Wentworth, who took over at Walgreens about two months ago after former CEO Roz Brewer left the company. “So we like that as an investment […] I would not expect to see us investing in additional primary care assets.”
Wentworth previously was CEO of both Evernorth, the health services division of Cigna Group, and Express Scripts. His arrival at Walgreens comes as the holding company faces a tough consumer spending environment as well as pressure to rein in costs after a growth spurt. Alongside the quarterly results—a GAAP net loss of $67 million and adjusted profits that fell to $571 million from $1.0 billion in the year-ago quarter—Wentworth also announced that the Walgreens board has voted to slash the company’s quarterly dividend by nearly 50 percent as part of a broader plan that also seeks to produce $600 million in capital spending versus last year.
The push toward profitability includes closing about 60 Village clinics, a move announced in October and nearly halfway completed. Still, the healthcare services group as a whole produced 12 percent pro forma growth last quarter, clocking total revenues of more than $1.9 billion (to which Village contributed about $1.4 billion) and an adjusted EBITDA loss of $39 million. Wentworth, U.S. Healthcare President John Driscoll and their teams are sticking to the full-year goal of having the division break even, give or take, on an adjusted EBITDA basis after losing $376 million last fiscal year.
“I see a lot of opportunities for us to meaningfully create high return-on-capital investments in the services business,” Wentworth said. “The headline I’ll put out there is that we are going to evolve our services, our strategy.”
In several ways, Walgreens finds itself in a similar digestion phase as rival CVS Health Corp., whose leaders also spent billions to hitch health services business to their retail pharmacy business. CVS CEO Karen Lynch and her team recently set a $10 billion 2028 target for healthcare revenues and said their efforts to refer patients from one part of their company to others are gaining traction.
Pressured by the dividend cut news, shares of Walgreens (Ticker: WBA) fell sharply Jan. 4. In late-afternoon trading, they were changing hands at $23.86, down nearly 7 percent on the day. The drop took Walgreens’ market capitalization below $21 billion.
