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Walgreen profits jump 20 percent

CHICAGO (AP) _ Walgreen Co., the nation's largest drugstore chain, posted a 20 percent increase in third-quarter profit, topping Wall Street's expectations with stronger pharmacy sales and better margins in its digital photofinishing business.

Deerfield, Ill.-based Walgreen's net profit for the March-May period was $411 million, or 40 cents a share, up from $342.3 million, or 33 cents a share, a year earlier, the company said Monday.

Excluding a gain of $6.6 million from litigation settlements, Walgreen's earnings rose 19.5 percent to $406.9 million, also 40 cents a share _ beating the average estimate of 38 cents from analysts surveyed by Thomson Financial.

Walgreen's shares rose $1.62, or 3.7 percent, to $46 in morning trading on the New York Stock Exchange, near its 52-week high of $46.75.

Sales grew 13.1 percent to $10.83 billion in the quarter, or just shy of analysts' estimates of $10.9 billion. Comparable sales, or revenue from stores open at least a year, grew 8.7 percent.

Walgreen executives said 8.8 percent growth in the number of prescriptions filled at comparable stores highlights the strength of its pharmacy business. The gain was aided by a later flu season this year compared with 2004.

``Strong pharmacy trends are driving our sales and store expansion,'' Walgreen's finance director, Rick Hans, said in a recorded statement on the company's Web site.

Prescription sales grew 14 percent, accounting for 65 percent of overall revenue. Stronger sales of generic drugs curbed prescription sales growth but provided higher margins than brand-name medicines.

``Their margins were very good, their costs are better behaved and the generic trend over time is a positive one,'' said analyst Andrew Wolf at BB&T Capital Markets.

Walgreen operated 4,805 stores as of May 31 _ 391 more than a year earlier. The company said it opened 85 new stores during the quarter and remains on track for an increase of 365 stores this fiscal year, after relocations and closings.

Walgreen Chairman and Chief Executive David Bernauer said the company's investment to upgrade its photo labs to digital format also boosted profit margins.

``We're well positioned for the fast-growing demand for printing digital photos,'' Bernauer said in a statement.
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