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posted: 3/27/2012 11:52 AM

Walgreen fiscal 2Q profit slides nearly 8 percent

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  • A passer-by pushes a baby carriage past the entrance of a Walgreens pharmacy.

      A passer-by pushes a baby carriage past the entrance of a Walgreens pharmacy.
    Associated Press

Assocaited Press

Deerfield-based Walgreen Co.'s fiscal second-quarter earnings fell almost 8 percent due in part to its decision to leave the Express Scripts pharmacy network, but the performance still topped analyst expectations.

The nation's largest drugstore chain said Tuesday its net income dropped to $683 million, or 78 cents per share, in the three months that ended Feb. 29. That compares to $739 million, or 80 cents per share, a year ago.

The company said the Express Scripts split and a mild flu season trimmed its earnings by a combined 10 cents per share.

Revenue climbed less than 1 percent to $18.65 billion from $18.5 billion a year earlier.

Analysts surveyed by FactSet expected, on average, earnings of 77 cents per share on $18.57 billion in revenue.

Its shares rose 53 cents, or 1.5 percent, to $34.90 in premarket trading.

Express Scripts, a St. Louis-based pharmacy benefits manager, had paid Walgreen to fill prescriptions, but the companies let a contract between them expire at the end of last year after months of talks failed to produce a new deal. Walgreen has said this would hurt its performance during the current fiscal year.

The company said its split with Express Scripts hurt results by about 7 cents per share in the quarter.

Pharmacy benefits managers, or PBMs, run prescription drug plans and use large purchasing power to negotiate lower drug prices. They make their money by reducing costs for health plan sponsors and members.

Express Scripts has said it ended the Walgreen contract because the drugstore chain wanted a premium compared to what Express Scripts paid other pharmacies. Walgreen has disputed that and said it would rather give up the revenue it gets from Express Scripts than continue filling unprofitable prescriptions.

Walgreen also said Tuesday a mild cough/cold and flu season hurt earnings by 3 cents per share in its fiscal second quarter. Flu shots administered this flu season through Feb. 29 totaled 5.5 million, an 11 percent drop compared to last year.

Prescriptions filled in stores open at least a year fell 4.9 percent. Revenue from the front-end, or rest of the store, rose 2.1 percent.

Revenue from stores that have been open at least a year is considered a key indicator of a retailer's long-term health because it excludes stores that recently opened or closed.

Walgreen operated 7,841 drugstores at the end of February, or 151 more than it operated a year ago. It has more locations than competitors CVS Caremark Corp. or Rite Aid Corp.

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