Walgreen profit jumps; September sales strong

Reuters

* Fourth-quarter sales up 5.1 percent to $17.94 billion

* Alliance Boots helps results

* Shares up more than 4 percent

By Jessica Wohl

Oct 1 (Reuters) - Walgreen Co reported a much higherquarterly profit on Tuesday as it filled more prescriptions andenticed shoppers with offers and updated stores, and it saidsales trends kept improving in September.

Shares of Walgreen, the largest U.S. drugstore operator,were up 4.4 percent at $56.17 on the New York Stock Exchangeafter rising as high as $56.69.

Walgreen's sales at stores open at least a year rose 4.6percent in the fourth quarter ended on Aug. 31. There was"further improvement" in same-store sales and traffic inSeptember, Chief Executive Officer Greg Wasson said on aconference call.

Walgreen has been overhauling itself over the past couple ofyears. It lost millions of customers in 2012 when it was unableto fill prescriptions for Express Scripts Holding Co patients during a now-resolved contract dispute with thepharmacy benefits manager.

The company is drawing those customers and others withspecial discounts and its year-old Balance Rewards loyaltyprogram, as well as redesigned and new stores. Walgreen alsoacquired a 45 percent stake in Alliance Boots Holdings Ltd, which runs Europe's largest pharmacy chain, in 2012and has the option to buy the rest in about two years.

Walgreen said the work it was doing with Alliance Boots,such as combining the chains' drug purchases and selling theEuropean company's products in its stores, had led to $154million in revenue and savings in the first year of theirpartnership. That is slightly higher than the $125 million to$150 million in so-called synergies that Walgreen had forecast.

As expected, Alliance Boots contributed 8 cents per dilutedshare to fourth-quarter earnings before special items.

"The Alliance Boots deal is looking just increasingly betterthan what people were looking for," said Tony Scherrer, directorof research and co-portfolio manager at Smead CapitalManagement, which holds roughly 617,574 shares of Walgreen. "Wewouldn't be surprised at all to see them ... own 100 percent ofit sooner rather than later."

Despite the short-term cost, plans such as promoting loyaltycards and offers in circulars to woo shoppers are the right movefor Walgreen for the long term, Scherrer said.

Walgreen is the fourth-largest holding for Smead, which hasabout $650 million in assets under management.

SLIGHT PROFIT BEAT

Walgreen's fourth-quarter net income increased to $657million, or 69 cents per share, from $353 million, or 39 centsper share, a year earlier. Excluding acquisition-related costsand other special items, earnings were 73 cents per share,beating the analysts' average estimate by 1 cent, according toThomson Reuters I/B/E/S.

Higher sales of generic drugs weighed on revenue but boostedmargins. These medicines sell for less than branded ones but aremore profitable for drugstore chains.

Sales rose 5.1 percent to $17.94 billion, just below the$17.95 billion preliminary figure Walgreen gave on Sept. 5.

Gross margins rose to 28.9 percent from 28.3 percent a yearearlier as the company filled 8.2 percent more prescriptions.

Walgreen said it had filled a record 821 millionprescriptions in fiscal 2013, bringing its share of the retailprescription market up 0.4 percentage point to 19.1 percent.

Earlier this year, Walgreen and Alliance Boots signed a10-year deal with distributor AmerisourceBergen Corp,which started daily deliveries of branded drugs to Walgreenstores in September. Generic drugs should soon follow.

Walgreen and Rite Aid Corp, the third-largest U.S.drugstore operator, plan to report September sales on Thursday.The No. 2 company in the industry, CVS Caremark Corp, nolonger releases monthly sales reports.

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