CFO: Walgreens’ Tech Buy Won’t Be a Blockbuster

Jan. 6, 2023
The pharmacy giant’s leaders say their healthcare services group should produce about $7 billion in sales this year.

On the heels of an M&A binge since the fall of 2021, Walgreens Boots Alliance’s moves to further grow its healthcare services lineup will be more tactical in the quarters ahead, CFO James Kehoe said Jan. 5.

“We’re taking a pause. We need to focus on integration activities,” Kehoe said on a conference call discussing Walgreen’s results for the three months ended Nov. 30. “We’re not going to go out and do a $2 billion or $3 billion acquisition of a health tech company. We’re likely to be very targeted, and it will be in the hundreds of millions, not in the billions.”

Kehoe’s comments came after a calendar year and change in which Deerfield, Illinois-based Walgreens committed more than 11 billion to take or grow its stakes in clinic operators VillageMD and Summit Health, specialty pharmacy Shields and home care player CareCentrix while also pledging nearly $400 million more to take full ownership of CareCentrix in the coming months. (VillageMD’s acquisition of Summit, which was backed by $3.5 billion from Walgreens and another $2.5 billion from Cigna Corp., closed earlier this week.)

The goal for Kehoe and CEO Roz Brewer: To build and connect a continuum of offerings ranging from wellness to primary and specialty services and onto post-acute care that also capitalizes on the company’s vast store network. The biggest component missing from that equation is a technology platform to help integrate data from those sites of care and Walgreens’ retail pharmacy operations. Buying that piece and other complementary businesses, Kehoe said, remains a priority even as the team works on various integrations.

In its fiscal first quarter, Walgreens posted a net loss of $3.7 billion on sales of $33.4 billion, the former being pulled down by a $6.5 billion charge stemming from the company’s settlement of allegation related to the opioid epidemic. Adjusted for that and other items, net earnings for the quarter came in at $1.0 billion versus more than $1.4 billion in the prior-year period, which was boosted by high COVID vaccine spending.

The healthcare segment of Walgreens Boots Alliance rang up revenues of $989 million in the quarter, an increase from $622 million in the previous three months and with VillageMD accounting for more than half of that figure. Its adjusted EBITDA loss was $124 million versus a loss of $57 million in the prior quarter and were dragged down by a full quarter of results from growth-mode VillageMD and other investments.

Brewer and Kehoe said they still expect the group to exit fiscal 2023 making money on an EBITDA basis—with full-year EBITDA essentially breaking even—while the Summit deal is lifting their sales forecast to between $6.5 billion and $7.3 billion from about $5 billion. By 2025, that top-line number is expected to grow to at least $14.5 billion.

“We are building the scale and resources to help health plans and patients improve outcomes and lower cost,” Brewer said on the call. “There are significant opportunities for synergies, allowing us to pursue value-based care and risk arrangements, which will demonstrate the value of an integrated approach.”

Shares of Walgreens (Ticker: WBA) fell about 7 percent to roughly $34.70 on the heels of the report. Over the past six months, they have lost about 10 percent of their value, trimming the company’s market capitalization to about $30 billion.

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