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Earnings Preview: Walgreen posts 1Q results Friday


Walgreen Co. will report fiscal first-quarter earnings for fiscal 2013 on Friday, and analysts will be looking for more signs that the nation's largest drugstore chain is repairing its revenue after a temporary business split with Express Scripts Holding Co.

WHAT TO WATCH FOR: Walgreen, based in Deerfield, Ill., has seen its revenue slump through 2012 after starting the year stuck in a contract squabble with Express Scripts, the nation's largest pharmacy benefits manager.

The companies had let a contract between them expire in December, and they didn't start a new agreement 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. Earlier this year, it announced a $25 gift card for customers who transfer prescriptions back to Walgreen.

However, competitors like CVS Caremark Corp. and Rite Aid Corp. are trying to keep the new business, and Citi analyst Deborah L. Weinswig said in a recent research note she forecasts that Walgreen will recapture just 20 percent of the prescriptions it lost.

Other analysts note that the number of prescriptions filled at Walgreen stores has been improving the past several months, a sign that Walgreen is having success.

Analysts also expect Walgreen's earnings to be helped by an increase in generic drugs. Generic equivalents to brand-name drugs help drugstore profitability because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

But generic drugs also squeeze drugstore revenue.

Walgreen closed hundreds of stores temporarily in October when Superstorm Sandy hit the East Coast. That also may hurt the company's performance.

The company said last month that total revenue for the first fiscal quarter, which ended Nov. 30, dropped nearly 5 percent to $17.34 billion.

Rite Aid on Thursday reported its first quarterly profit since May 2007. Generic drugs helped results, and Credit Suisse analyst Edward Kelly said Rite Aid's performance bodes well for Walgreen.

WHY IT MATTERS: Walgreen runs more than 8,000 drugstores in all 50 states, the District of Columbia and Puerto Rico, and it reported fiscal 2012 revenue of $72 billion. Millions of people fill their prescriptions at Walgreen stores.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect, on average, earnings of 70 cents per share.

LAST YEAR'S QUARTER: Walgreen earnings fell more than 4 percent due in part to a slow flu season and its then-impending split with Express Scripts. The drugstore chain earned $554 million, or 63 cents per share, as revenue climbed nearly 5 percent to $18.16 billion. Selling, general and administrative expenses also climbed 5 percent, due to an acquisition and some other items.


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