Walgreens Boots Alliance shares got a boost on Thursday from a better-than-expected earnings report but analysts remain skeptical about the drugstore chain’s outlook.
For the third quarter, Walgreens reported adjusted earnings of $1.47 per share on revenue of $34.59 billion, beating analysts’ estimates of earnings of $1.43 per share and revenue of $34.46 billion.
Sales increased 0.7% from a year earlier as U.S. pharmacy sales jumped 4.3%, fueled by rising prescription drug prices. Comparable pharmacy sales rose 6.0%.
Walgreens CEO Stefano Pessina, who had called the previous quarter “the most difficult” since the company’s acquisition of Alliance Boots in 2014, was encouraged by the latest results.
“Following a difficult second quarter, we made progress in the third quarter against the strategic goals we set, and are pleased to report an improvement in our U.S. comparable growth compared with the first half of the year,” he said in a news release.
In trading Thursday, Walgreens stock rose 4.1% to $54.52.
But Wall Street is still cautious about Walgreens’ outlook as, like other drugstore chains, it copes with insurers paying pharmacies less to fill prescriptions and consumers switching purchases of household items to online retailers.
“The best thing you can say is that things don’t appear to have gotten much worse,” Ross Muken of Evercore ISI wrote in a note to clients, adding that “Reimbursement pressure, declining generic profits and front-end pressure … remain the main story in drugstores.”
Pessina conceded in an earnings call that “the pressures we have seen for some time continue to impact our businesses, and we still have a lot to do to develop the transformation and data to get ahead of the market trends again and return our company to strong and consistent growth.”
Walgreens’ net income declined 12.1% in the third quarter, which CFO James Kehoe attributed to lower pharmacy margins, weakness in the U.K. drugstore business, and declines in front-store sales in the U.S. Retail sales in U.S. stores open for at least a year fell 1.1% as Walgreens continued to “de-emphasize” tobacco products.