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Shares of Walgreens Boots Alliance (WBA Free Walgreens Stock Report) are holding relatively steady this morning after the pharmacy services provider reported fiscal 2019 fourth-quarter financial results that were largely in line with expectations. (Fiscal year ended August 31st.) 

The company continued to struggle from an operational standpoint, with earnings coming in at $1.43 a share, a nickel lower than the year-earlier figure. Sales increased just 1.5%, to $33.954 billion, as the Retail Pharmacy International business remained a drag. Indeed, International sales decreased 6.3%, due to currency headwinds and ongoing weakness in the United Kingdom. The Retail Pharmacy USA segment, meantime, posted a 2.1% top-line uptick, on a 3.4% increase in same-store sales. The Pharmacy Wholesale unit performed decently, inking a 3.1% gain, thanks to advances in emerging markets. 

Margins remained under pressure. Operating income declined nearly 12% in the August period, with continued gross margin headwinds stemming from a challenging reimbursement environment. Meanwhile, the EBITDA margin was impacted by cost-cutting efforts associated with the company's transformational cost management program. 

Guidance points to a difficult road ahead. Management said that it expects earnings per share to be roughly flat with the fiscal 2019 result, plus or minus 3%. It did not provide a top-line outlook.

We are leaving intact our fiscal 2020 share-net estimate at $6.05, suggesting a roughly 1% increase over the 2019 tally, despite the assumption of stock repurchases and a 2.5% top-line increase. Reimbursement pressures are expected to continue to pinch margins. That said, we look for some of the benefits from the aforementioned cost-cutting endeavors to begin being realized in the latter stages of the fiscal year. On that note, leadership increased its targeted annual savings from the program to $1.8 billion by fiscal 2022. 

The near-term picture is not overly rosy, and the company must prove that it can successfully deliver on its cost-cutting goals, as well as improve its global business.  Walgreens finances should help in the interim, but the road to recovery is likely to remain bumpy. That said, the stock offers wide 3- to 5-year price appreciation potential at the recent price tag, but a good deal of patience will likely be required here to realize those gains.

About the Company:  Walgreens Boots Alliance is one of the world’s premiere prescription drug providers, anchored by its network of drug stores in the United States and Europe. Currently, it operates in excess of 18,750 stores in more than 25 countries. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.