Walgreens Boots Alliance (Nasdaq: WBA) began shifting focus to its U.S. Healthcare services segment over the last couple of years. Within in that segment is primary care, specialty care and home-based care capabilities.
Thus far, the path to profitability for the segment hasn’t been easy.
“We are experiencing a slower profit ramp for U.S. Healthcare,” Walgreens CEO Roz Brewer said on the company’s fiscal third-quarter earnings call Tuesday. “Importantly, we remain committed to our strategy through immediate actions to accelerate our path to profitability and to unlock long-term value. I remain confident in the long-term trajectory of our transformation.”
In an effort to be more of a participant in the shift to value-based care, the company has either acquired or heavily invested in health care services companies, such as the primary care provider VillageMD and the health-at-home solutions platform CareCentrix.
Walgreens has invested over $6 billion in VillageMD – which also includes Village Medical at Home – to date. It officially acquired CareCentrix earlier this year, purchasing the remaining 45% of the company for $392 million. It had paid $330 million for 45% of the company in 2021.
The company’s third-quarter sales increased 8.6% year over year to $35.4 billion. But the company lowered earnings guidance, mostly due to the U.S. Healthcare segment’s underperformance.
“While we’re confident in the range and scale of our health care business, we are disappointed with the pace of our path to profitability,” John Driscoll, the segment president of U.S. Healthcare, said on the call. “[We] missed targets due to VillageMD and CityMD underperformance. … We’re taking immediate actions to drive improved profitability. We anticipate this year will remain a transition year as we take action to deliver value and drive profitability.”
VillageMD named Richard Rubino as the company’s new CFO on Tuesday, a move that will become effective on June 26.
A longer runway to profitability shouldn’t necessarily come as a surprise. After all, Walgreens has, again, completely transformed its business model over the last few years.
Additionally, many of the assets included in that health care services bucket are still being integrated.
Walgreens’ efforts to be a winner of the value-based care movement – which includes moving care to the home – likely won’t be abated by short-term earnings struggles.
“We’re building a differentiated value-based care delivery model that successfully integrates pharmacy and medical care for a value-based care market that will more than double by 2027,” Driscoll said. “Walgreens has a unique right to win with our reach, consumer engagement, and enterprise investments in primary care, specialty and care to the home.”