Walgreen Profit Climbs 25% From Drug Sales

Walgreen Co. posted 25% quarterly earnings growth to cap its biggest-ever expansion year, but its stock tumbled on continuing investor concern about fallout for drugstore chains from Wal-Mart Stores Inc.’s plan to sell discounted generic drugs.

The profit gain was fueled by an 18% increase in prescription drug sales from a year earlier and a 16% jump in total revenue.

Although the resulting $412.3 million in earnings was on target with Wall Street’s expectations, the stock fell sharply for the second time in three trading days as industry experts speculated about the potential for trouble ahead because of the Wal-Mart plan.

Shares of Walgreen declined $2.43 to close at $44.47 -- down 11% since Wal-Mart’s announcement Thursday.

Morningstar analyst Mitchell Corwin called Walgreen’s fiscal fourth quarter superb but said “the Wal-Mart cloud is hanging over the company right now.”

Wal-Mart announced last week that it planned to sell 291 generic drugs for $4 for a 30-day supply, with plans to start a pilot program in Florida that could expand to the rest of the country next year. On average, generic drugs cost $10 to $30 for a 30-day prescription.

Rick Hans, Walgreen’s director of finance, said the company had concluded based on an initial review that the Wal-Mart program “won’t significantly affect our business.” He said nearly 95% of Walgreen’s pharmacy patients had prescription insurance coverage, meaning they’re responsible for a small co-pay that averaged only $5.30 for the drugs Wal-Mart would sell for $4.

Earnings for the June-through-August quarter amounted to 41 cents a share, up from $329 million, or 32 cents, a year earlier. That matched the consensus estimate of analysts surveyed by Thomson Financial. Revenue grew 16% to $12.2 billion.

Walgreen had a net increase of 476 new stores in its fiscal 2006 -- adding a new store on average every 18 hours during the biggest store expansion year in company history. The Deerfield, Ill.-based company currently operates 5,461 stores in 47 states and Puerto Rico.