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Earnings Preview: Walgreen posts 4Q results Friday


Walgreen will release the results from busy fourth quarter Friday that included a huge European investment, the expansion what is already the nation's largest drugstore chain through another acquisition, and the end of a protracted contract dispute that slashed revenue.

WHAT TO WATCH FOR: Walgreen, based in Deerfield, Ill., reached a deal in the fiscal fourth quarter to resume filling prescriptions for Express Scripts Holding Co., the nation's largest pharmacy benefits manager. The new agreement, which had been delayed for months, didn't start until Sept. 15, or after the fiscal fourth quarter ended, but Walgreen incurred some costs in the quarter tied to rejoining the Express Scripts pharmacy network.

The drugstore operator said earlier this month that revenue in the quarter fell 5 percent to $17.08 billion, partly because it was not part of the network. Walgreen and Express Scripts had stopped doing business last year after months of talks failed to produce a new contract, before agreeing in July to resume doing business.

Walgreen rivals CVS Caremark Corp. and Rite Aid Corp. have both claimed new customers due to the stand-off, and some industry watchers doubt that Walgreen will be able to recover much more than 50 percent of that business. They will be looking for more on that situation Friday.

Sales during the past few months, if they are any indicator, have slumped. Revenue from stores open at least a year — a key metric of a retailer's health — fell 8.7 percent in the three months ended Aug. 31.

Almost the entire retail sector has also been affected by the introduction of more generic drugs, which trim pharmacy revenue because they cost less than brand-name products. At the same time, however, they can boost profit for, because their low cost to retailers provide them with a wider profit margin.

Last month, Walgreen said it completed its initial investment of nearly $7 billion in the privately held European health and beauty retailer Alliance Boots. The company said in June it would pay $4 billion in cash and contribute more than 83 million shares for a 45 percent ownership stake in the Swiss company, which runs the largest drugstore chain in the United Kingdom.

Analysts will look for costs incurred in the quarter for that deal.

Walgreen also said last week that it completed its $438 million purchase of a regional drugstore chain focused on the mid-South under the USA Drug, Super D Drug and Med-X names.

The price of Walgreen Co. shares climbed more than 17 percent during the quarter, to close at $35.76 on Aug. 31. The stock price received a big boost in July after Walgreen resolved the Express Scripts dispute.

WHY IT MATTERS: Walgreen runs more than 7,900 drugstores in all 50 states, the District of Columbia and Puerto Rico. Millions of people fill their prescriptions at Walgreen stores.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect, on average, earnings of 55 cents per share.

LAST YEAR'S QUARTER: Walgreen earned $792 million, or 87 cents per share, on nearly $18 billion in revenue. The company's adjusted earnings topped analyst expectations, and revenue grew 6 percent in the quarter. But Walgreen shares slipped the day the results were announced, due to investor concern about the fate of the Express Scripts deal.


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