Walgreen 3Q profit jumps but misses estimates

Jun 25, 2013 by Tom Murphy

Walgreen Co.'s fiscal third quarter earnings jumped 16 percent, but its shares plunged Tuesday as investors fretted over sluggish sales outside the drugstore chain's pharmacies and other troubling trends.

The Deerfield, Illinois, company missed Wall Street forecasts, and its earnings grew largely because of the comparison with last year's quarter, when a business split had hurt its performance.

Several analysts said they were surprised by a weaker than expected expansion in this year's quarter of Walgreen's , which is a basic measure of profitability. That could indicate that the nation's largest drugstore operator is losing faster than expected a key boost it had been receiving from , said Edward Jones analyst Judson Clark.

An influx of has helped drugstore bottom lines for several quarters now because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

The generic wave was driven by the expiration of patents protecting top-sellers like the cholesterol fighter Lipitor. But that benefit is expected to wane because there are fewer significant patent expirations waiting to refuel it.

That decreasing generic benefit plus a promotional push to boost sales in store front ends, or the area outside the pharmacy, could hurt Walgreen's profitability in future quarters, said analyst Edward J. Kelly, who called the results released Tuesday "fairly disappointing."

"This quarter is not a great signal for the near-term," he wrote in an email.

Walgreen shares sank 6.2 percent, or $2.99, to $45.06 Tuesday afternoon, while broader trading indexes climbed slightly. But the had already advanced 30 percent so far this year before Tuesday, and Clark said that gain is part of the reason shares fell so much after the company released earnings.

"We think this is still a good business and an appropriate price," he said.

Overall, Walgreen earned $624 million, or 65 cents per share, in the quarter that ended in May. That's up from $537 million, or 62 cents per share, a year ago, when the company had fewer shares outstanding.

Revenue rose about 3 percent to $18.31 billion.

Adjusted earnings amounted to 85 cents per share, excluding expenses such as acquisition and legal costs.

Analysts forecast earnings of 91 cents per share on $18.4 billion in revenue, according to FactSet.

Last year, Walgreen and the nation's biggest pharmacy benefits manager, Express Scripts Holding Co., had a contract squabble that kept them from doing business for about nine months. That hurt the drugstore chain's results as many Walgreen customers to migrate to competitors for their prescriptions, at least temporarily.

The companies resumed business last September, and Walgreen says customers have been returning to its stores.

Walgreen said Tuesday results in this year's quarter also were helped by its acquisition of a stake in European health and beauty retailer Alliance Boots, which contributed about 10 cents per share to the U.S. company's adjusted earnings.

Earlier this month, Walgreen said revenue from stores open at least a year climbed 1.3 percent in the quarter, but front-end sales barely rose.

Company leaders said that did not meet their expectations. They said a soft economy has hurt those results, especially in stores in lower-income neighborhoods.

"I can assure you that improving our front end is a high priority," CEO Greg Wasson said.

He said the company has started to customize its advertising circulars more toward individual communities. Walgreen also is using buying trends it gleans from its Balance Rewards customer loyalty program to tailor its promotions. The program lets shoppers pile up points for purchases that they can then translate into cash rewards to use at company stores, and it also gives Walgreen more insight into customer buying patterns.

Walgreen runs 8,097 drugstores nationwide, or 207 more than it did last year. That's more than the totals for CVS Caremark Corp. and Rite Aid Corp.

Explore further: Short sellers not to blame for 2008 financial crisis, study finds

not rated yet
add to favorites email to friend print save as pdf

Related Stories

Generic competition cuts Merck's Q1 sales, profit

May 01, 2013

Drugmaker Merck & Co. is reporting lower first-quarter results and cutting its 2013 profit forecast by 15 cents a share. It also is announcing a huge share buyback, up to $15 billion worth of its stock.

EBay 1Q revenue grows but falls below estimates

Apr 17, 2013

EBay grew its earnings and revenue in the first quarter thanks to growth in its PayPal business and its e-commerce sites. But revenue fell shy of Wall Street's expectations, causing investors to send the company's stock lower ...

Dell earnings down 31 percent in 4Q

Feb 19, 2013

(AP)—Dell Inc.'s net income fell 31 percent in the latest quarter as the company continued to be hurt by a shrinking PC market.

Expedia posts 1Q loss; says revenue rose 24 pct

Apr 25, 2013

Online travel agency Expedia Inc. is reporting a larger loss in the first quarter as its stock-based compensation, legal reserve and depreciation costs surged compared to a year ago. But its adjusted revenue and income surpassed ...

Best Buy reports 1Q loss on restructuring costs

May 21, 2013

(AP)—Best Buy Co. on Tuesday reported a loss for its fiscal first quarter as it sold its stake in Best Buy Europe and works on a turnaround plan that includes cutting costs and closing some stores.

Comcast profit rises 17 percent in 1Q

May 01, 2013

Comcast Corp., the nation's largest cable company and owner of NBCUniversal, says its net income rose 17 percent in the latest quarter, powered by continued strong results from its cable operations.

Recommended for you

Chinese smartphone makers win as market swells

9 hours ago

Chinese smartphone makers racked up big gains as the global market for Internet-linked handsets grew to record levels in the second quarter, International Data Corp said Tuesday.

Full appeals court upholds labels on meat packages

9 hours ago

(AP)—A federal appeals court has upheld new government rules that require labels on packaged steaks, ribs and other cuts of meat to say where the animals were born, raised and slaughtered.

BlackBerry buys German anti-eavesdropping firm

10 hours ago

Canadian smartphone maker BlackBerry announced Tuesday the purchase of German voice and data encryption and anti-eavesdropping firm Secusmart, whose customers include NATO and German Chancellor Angela Merkel ...

India's Flipkart raises $1 bn to tackle Amazon

11 hours ago

India's top e-commerce company Flipkart said Tuesday it had raised $1 billion (60 billion rupees) in funds as it battles US giant Amazon for supremacy in the hyper-competitive local market.

User comments : 0