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Walgreen fiscal 2Q profit climbs 11 percent

Tom Murphy, AP Business Writer

Drugstore chain Walgreen's fiscal second-quarter earnings climbed 11 percent, helped by contributions from European health and beauty retailer Alliance Boots, a business sale gain, and its new contract with Express Scripts Holding Co.

The Deerfield, Ill., company also said Tuesday that it is expanding a supply agreement with AmerisourceBergen Corp. with a deal that gives it and Alliance Boots an ownership stake in the pharmaceutical wholesaler.

A Walgreen spokesman said AmerisourceBergen will replace primarily Cardinal Health Inc. in supplying pharmaceuticals. Previously, AmerisourceBergen had supplied only some specialty drugs for Walgreen, the nation's largest drugstore chain.

Walgreen and Alliance Boots receive the right to buy up to 7 percent of AmerisourceBergen's shares and warrants to purchase an additional 16 percent. Walgreen also acquired an Alliance Boots stake last year and will wind up owning the entire AmerisourceBergen stake if it exercises its option to buy the rest of Alliance Boots in 2015.

For the fiscal second quarter, Walgreen reported net income of $756 million, or 79 cents per share, in the quarter that ended Feb. 28. That compares to earnings of $683 million, or 78 cents per share, in last year's quarter, when it had fewer shares outstanding.

Excluding one-time items like acquisition-related costs, adjusted earnings totaled 96 cents per share.

Revenue came in flat at $18.65 billion.

Analysts forecast, on average, earnings of 93 cents per share on $18.74 billion in revenue, according to FactSet.

Alliance Boots contributed $85 million to Walgreen's earnings. The drugstore chain also booked a $20 million gain from an incentive payment related to the 2011 sale of its pharmacy benefit manager, Walgreens Health Initiatives, Inc.

Walgreen took a hit in last year's quarter from a split with Express Scripts, the nation's largest pharmacy benefits manager. Walgreen fills prescriptions for Express Scripts, but the companies had let a contract between them expire in December 2011, and their new agreement didn't start until September.

The split meant many Express Scripts customers migrated to new drugstores for their prescriptions at the start of 2012.

Walgreen operated 8,072 drugstores as of Feb. 28, or 231 more than it had a year ago. The company moved its earnings report up a week from its scheduled date.

Shares of Walgreen climbed 68 cents to $43.11 before markets opened Tuesday, and AmerisourceBergen stock jumped 6.6 percent, or $3.20, to $51.50. Cardinal shares, meanwhile, tumbled 9 percent, or $4.23, to $41.90.