Earnings Preview: Walgreen reports on 4Q Tuesday

Walgreen Co. CEO Greg Wasson assured analysts in June that the nation's largest drugstore chain was focused on improving results from the front end of its stores, or the area outside the pharmacy. Tuesday, the company will deliver an update on that push when it reports fiscal fourth-quarter results.

WHAT TO WATCH FOR: The Deerfield, Ill., company said a soft economy hurt front-end results in the fiscal third quarter, when Walgreen's overall performance also fell short of expectations.

The company's earnings grew compared to the previous year's quarter largely because Walgreen resolved a business split with pharmacy benefits manager Express Scripts Holding Co. that had hurt results in most of 2012.

Investors will want to know whether the company's overall performance picked up in the last quarter of fiscal 2013 and how some other trends played out over the summer.

Walgreen and other drugstore chains have benefited over the last several months from an influx of generic drugs. These cheaper alternatives to branded medicines squeeze sales but help profitability because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives. But some analysts are concerned that this benefit is starting to wane.

Walgreen said last month that its fourth-quarter sales climbed 5 percent to $17.95 billion, and revenue from stores open at least a year rose 4.5 percent. Revenue from established stores is considered a key indicator of a retailer's health, because it excludes the impact from recently opened or closed stores.

Walgreen announced in July that it would raise the quarterly dividend about 15 percent. The new payout of 31.5 cents is up from 27.5 cents and was payable Sept. 12 to shareholders of record on Aug. 20.

The drugstore chain will report its quarterly results on the same day new, public health insurance exchanges will start enrolling people for 2014 coverage as part of the health care overhaul, a massive federal law that aims to help insure millions of people. The law is expected to eventually benefit drugstore chains like Walgreen by helping previously uninsured people buy prescriptions.

Shares of Walgreen have climbed 48 percent so far this year, as of Thursday's closing price of $54.73.

WHY IT MATTERS: Walgreen is the nation's largest drugstore chain, with more than 8,100 stores in 50 states, the District of Columbia, Puerto Rico and Guam. It fills prescriptions for millions of people and also operates hundreds of in-store clinics that can treat relatively minor illnesses and help care for patients with chronic conditions like diabetes.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect, on average, earnings of 72 cents per share.

LAST YEAR'S QUARTER: Walgreen's fourth-quarter net income plunged 55 percent compared to the previous year, when a big gain had inflated results. It also took a hit from the Express Scripts split and its multibillion-dollar acquisition of a minority stake in European health and beauty retailer Alliance Boots.

The company's results beat analyst expectations when one-time items were removed. Wasson, the company's CEO, told analysts the drugstore chain had a "challenging year capped off by a tough fourth quarter," but he added that the year also was very important and strategic.