Walgreen Profit Up 13.7%, Misses Estimates

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Walgreen Co. (WAG), the largest U.S. drugstore chain, Monday reported a 13.7 percent increase in quarterly profit, but earnings fell a penny short of the average analyst estimate, excluding gains from legal settlements. The stock fell 3 percent on the New York Stock Exchange.

Eric Bosshard, analyst at FTN Midwest Research (search), said expectations for Walgreen's have risen as the company continues to post strong sales and earnings. Excluding one-time gains in both quarters, profit rose 15.1 percent.

"They fell short of high expectations but it's still a fine quarter," Bosshard, who rates the stock "neutral," said.

Walgreen shares fell $1.48 to $44.75 Monday on the New York Stock Exchange (search).

Profit rose to $490.9 million, or 48 cents a share, in the fiscal second quarter ended Feb. 28 from $431.6 million, or 42 cents a share, a year earlier.

Excluding gains from legal settlements, earnings were 47 cents a share, a penny shy of the average analyst estimate, according to Reuters Estimates.

Sales rose 12.3 percent to $10.99 billion in the quarter. Sales at stores open at least a year rose 7.7 percent. The sales compare with a year-earlier period that had an extra day due to Leap Year.

Increased sales of lower-priced generic drugs cut 2.5 percentage points from overall sales growth, Walgreen said. But generic drugs are also higher margin items, helping Walgreen's bottom line.

Walgreen has also seen its photo business helped by the conversion to digital photo labs in its stores. That popular form of photo processing has helped stem declines in overall photo processing and is also more profitable than sending film out to a third party for processing.

Prescription same-store sales rose 10.1 percent and sales of nonprescription items rose 4.1 percent on a same-store basis.

Walgreen, with 4,738 stores, said it is on track to open 450 new stores for the fiscal year, with a net increase of 365 stores, including store closings.