Walgreen Co. reports 31% earnings increase

Monday, January 3rd 2005, 11:13 am

By: News On 6

CHICAGO (AP) _ Walgreen Co. reported its highest quarterly earnings increase in four years Monday, a 31 percent jump that underscores the continuing strength of its prescription-drug business despite a rising threat from mail-order competitors.

The nation's largest drugstore chain also cited a strong customer reception to its push on digital photo processing, with early sales more than offsetting the heavy costs of converting its photo labs.

The better-than-expected results from the fiscal first quarter sent Walgreen's stock price surging to its highest level since 2002. Shares rose $1.70, or 4.4 percent, to $40.07 in midday trading to nearly match its 5 percent increase for all of 2004.

Net earnings for the September-through-November quarter were $332.7 million, or 32 cents per share, up from $254.9 million, or 25 cents per share, in the same period a year earlier.

Excluding a pretax gain of $15 million from litigation settlements, earnings were 31 cents per share, or 2 cents higher than the consensus estimate of analysts surveyed by Thomson First Call.

Revenues increased 13.4 percent to $9.9 billion from $8.7 billion. Prescription sales, which accounted for 65 percent of company sales, climbed 14.4 percent while prescription sales in comparable stores rose 11.3 percent.

``Earnings this quarter were powered by solid prescription and general merchandise sales, as well as our second straight quarter of significantly higher gross profit margins,'' said chairman and CEO Dave Bernauer.

The Deerfield-based company also attributed increased profits to better purchasing terms as well as the digital photofinishing services.

``It is impressive that Walgreen is able to maintain strong pharmacy-counter sales growth at a time when the pressure is on to migrate managed medical treatments through mail order,'' said analyst Richard Hastings of Variant Research Corp. in Boca Raton, Fla. ``Their market-share growth across the U.S. remains totally unimpeded.''

Morningstar analyst Mitchell Corwin said in a note to investors that while Walgreen continues to grow ``relatively unabated'' by industry or competitive threats, the results appear to show overall prescription-drug growth slowing as a result of heightened use of mandatory mail order and the rising costs of health care and prescription drugs.

Walgreen opened 111 stores in the first quarter and plans to open about 450 stores during fiscal 2005, for a net increase after closings and relocations of about 365 stores. The company operates about 4,700 drugstores in 44 states and Puerto Rico.