Walgreens is chopping its dividend nearly in half as the drugstore chain looks to strengthen its balance sheet.
The health care giant said Thursday that reducing its quarterly payout to shareholders to 25 cents per share will help free up capital to spend growing its pharmacy and health care businesses.
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New CEO Tim Wentworth said in a statement that company leaders believe such growth “will ultimately improve shareholder value.”
The new dividend compares to a 48 cents per share payout the company announced in October.
Edward Jones analyst John Boylan said the dividend cut was a necessary move.
“However, this is just another step in the financial healing process, and seeing predictable and sustained growth may take time,” he said in an email.
Walgreens also announced on Thursday a better-than-expected fiscal first quarter.
Walgreens Boots Alliance Inc. runs a network of around 13,000 drugstores globally. Most of its locations are in the United States, where its locations are becoming growing sources for care.
The company is working with VillageMD to open primary care practices next to some locations with the idea that drugstores and doctor offices work together to help keep patients healthy. But drugstores remain Walgreens’ main business.
Walgreens, like other drugstores, has struggled with a drop in COVID-19 vaccines and testing, tight reimbursement for prescriptions and pharmacy staffing shortages. The company also is pushing to grow its health care business, a segment that analysts say will take time to develop and turn profitable.
Wentworth said in the company’s earnings statement Thursday that Walgreens is focused on “swift actions to right-size costs and increase cash flow,” and the company is looking at all strategic options to boost shareholder value. He became CEO in October after former leader Rosalind Brewer left the company in late August.
In its fiscal first quarter, Walgreens lost $67 million. Earnings adjusted for one-time items came to 66 cents per share. Sales grew 10% to $36.7 billion.
Analysts expect earnings of 62 cents per share on $34.95 billion in revenue, according to FactSet.
Walgreens also said Thursday that the company was maintaining guidance for the full fiscal year that it laid out in October. The company expects earnings to range between $3.20 and $3.50 per share.
That represents a drop from adjusted earnings of $3.98 per share the company reported in fiscal 2023. Walgreens said challenges in the new fiscal year will include the lower contributions from COVID-19 and a higher tax rate, among other issues.
Analysts expect adjusted earnings of $3.32 per share.
Shares of the Deerfield, Illinois, company slid 7.2% to $23.74 in early trading.