Walgreen Co.'s fiscal third quarter earnings jumped 16 percent compared to last year but the performance still missed Wall Street expectations.
The Deerfield, Ill., company's stock plunged more than 6 percent in morning trading Tueday.
Walgreen told analysts that sales in its stores outside the pharmacy did not meet its expectations, and it was working to fix that. It also lowered its forecast for the earnings contribution it expects from European health and beauty retailer Alliance Boots for its fourth quarter.
Credit Suisse analyst Edward J. Kelly called the results "fairly disappointing."
Walgreen and other drugstores have been helped for several quarters by an influx of generic drugs, which boost profitability because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives. But Kelly said in an email that benefit is expected to decelerate sharply, and Walgreen will increase its sales promotions. Those factors could pressure its profitability.
"This quarter is not a great signal for the near-term," he wrote.
Walgreen said Tuesday that it earned $624 million, or 65 cents per share, in the quarter that ended in May. That's up from $537 million, or 62 cents per share, a year ago, when the company had fewer shares outstanding.
Revenue rose about 3 percent to $18.31 billion.
Adjusted earnings amounted to 85 cents per share, excluding expenses such as acquisition and legal costs.
Analysts forecast earnings of 91 cents per share on $18.4 billion in revenue, according to FactSet.
A business split with the nation's largest pharmacy benefits manager, Express Scripts Holding Co., hurt Walgreen's performance in last year's quarter. The companies had a break of about nine months, and that caused many Walgreen customers to migrate to competitors for their prescriptions, at least temporarily.
The companies resumed business last September, and Walgreen says customers have been returning to its stores.
Walgreen said Tuesday its results in this year's quarter were helped by its acquisition of a stake in Europe's Alliance Boots, which contributed about 10 cents per share to the U.S. company's adjusted earnings. Walgreen announced that deal the same day it reported fiscal third quarter earnings last year.
But the company also said it lowered its earnings expectation from Alliance Boots for the fourth quarter by a penny, to 8 cents per share, due to a weaker British pound.
Walgreen runs nearly 8,100 drugstores. That's more than competitors CVS Caremark Corp. and Rite Aid Corp.
Its shares dropped $3.01, or 6.3 percent, to $45.04 Tuesday morning, while broader trading indexes rose less than 1 percent.