Drugstore chain Walgreen reports fiscal 1st quarter profit drop of nearly 26 per cent

Walgreen Co.’s fiscal first-quarter earnings sank nearly 26 per cent as the nation’s largest drugstore chain filled fewer prescriptions and absorbed costs tied to acquisitions and Superstorm Sandy.

The Deerfield, Ill., company’s performance fell short of Wall Street expectations, and the stock slipped Friday morning.

Walgreen said the storm system that swept up the East Coast in late October cost $24 million in the quarter, as it temporarily closed hundreds of stores. Acquisition-related costs totalled $23 million in the quarter.

Walgreen said prescriptions filled at stores open at least a year fell nearly 5 per cent, a smaller decrease than the 8 per cent drop it reported in the previous quarter. The drugstore chain said the improvement was due to its return to the network of Express Scripts Holding Co., the nation’s largest pharmacy benefits manager.

Overall, Walgreen earned $413 million, or 43 cents per share, in the three months that ended Nov. 30. That compares with net income of $554 million, or 63 cents per share, a year ago. Walgreen said earlier this month revenue fell nearly 5 per cent in the quarter to $17.34 billion.

Excluding one-time costs, adjusted earnings were 58 cents per share, which missed analyst expectations.

Analysts forecast, on average, earnings of 70 cents per share, according to FactSet.

Citi analyst Deborah L. Weinswig said in a research note she thought investors would be disappointed with the performance.

Shares dropped 2.5 per cent, or 93 cents, to $36.62, after markets opened. That represented a deeper slip than the drop of more than 1 per cent by the Standard & Poor’s 500 index.

Walgreen runs more than 8,000 drugstores in all 50 states. The company’s revenue has slumped through 2012 after it started the year stuck in a contract squabble with Express Scripts, for which it fills prescriptions.

The companies had let a contract between them expire last December, and their new agreement didn’t start until September. The split meant many Express Scripts customers went to new drugstores for their prescriptions.

Walgreen is trying to bring as many of these customers back to its store as it can, but competitors like CVS Caremark Corp. and Rite Aid Corp. are trying to keep that new business.

Generic drugs also have pinched revenue for Walgreen and other drugstores this year. Generic equivalents to brand-name drugs hurt revenue because they are cheaper, but they help profitability because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

Major acquisitions also have affected Walgreen’s bottom line. It is spending $4 billion in cash and more than 83 million shares for a 45 per cent ownership stake in Alliance Boots, a Swiss company that runs the largest drugstore chain in the United Kingdom.

It also spent $438 million to buy a regional drugstore chain focused on the mid-South under the USA Drug, Super D Drug and Med-X names.