Walgreens Boots Alliance: Maybe I Was Wrong

Core Viewpoint - Walgreens Boots Alliance, Inc. is facing significant challenges, including declining stock prices and operational difficulties, despite some recent improvements in quarterly results [1][3][10]. Financial Performance - In Q3 2024, Walgreens Boots Alliance reported sales of $36,351 million, reflecting a 2.6% year-over-year growth, and an operating income of $111 million, a turnaround from an operating loss of $477 million in Q3 2023 [3][4]. - Diluted earnings per share increased from $0.14 in Q3 2023 to $0.40 in Q3 2024, marking a 186% year-over-year growth [3]. - Free cash flow improved from a negative $444 million to a positive $334 million in the same quarter [3]. Segment Analysis - The U.S. Retail Pharmacy segment generated $28,503 million in sales with a 2.3% year-over-year growth, but adjusted operating income declined 47.9% to $501 million [4][5]. - The International segment saw sales increase to $5,727 million, a 2.8% growth, but adjusted operating income fell 15.9% to $175 million [5][6]. - The U.S. Healthcare segment reported a 7.6% year-over-year sales growth to $2,125 million, but still faced an operating loss of $220 million [6]. Impairment and Balance Sheet - A significant non-cash goodwill impairment charge of $12.4 billion was recognized due to a downward revision in the long-term forecast from VillageMD management [7]. - Goodwill on the balance sheet decreased from $28,187 million to $15,821 million, indicating a substantial write-off [7]. - The company has limited cash reserves of $703 million, raising concerns about liquidity, especially with $1,506 million in short-term debt and $7,407 million in long-term debt [7][8]. Dividend Policy - Walgreens Boots Alliance cut its dividend to $0.25 per share, a nearly 50% reduction, losing its status as a dividend aristocrat [9]. - The current annual dividend of $1.00 results in a yield of 6.3%, but further cuts may be necessary depending on cash generation in the upcoming quarters [9]. Future Outlook - Management has lowered the adjusted EPS guidance for fiscal 2024 to a range of $2.80 to $2.95, reflecting ongoing challenges in the retail pharmacy business and a difficult consumer environment [10][11]. - Despite some signs of hope, the overall sentiment remains cautious, with the company needing to manage its turnaround effectively to regain profitability [13].