Walgreen Co., the nation's largest drugstore chain, reported its highest quarterly earnings increase in four years Monday, a 31 percent jump that underscores the continuing strength of its prescription-drug business despite a rising threat from mail-order competitors.
Walgreen also cited a strong customer reception to its push on digital photo processing, with early sales more than offsetting the heavy costs of converting its photo labs.
The better-than-expected results from the fiscal first quarter sent Walgreen's stock price surging to its highest level since June 2001. Shares rose $2.01, or 5.2 percent, to close at $40.38 on the New York Stock Exchange _ virtually matching its 5.5 percent increase for all of 2004 in the year's first trading session.
Excluding a pretax gain of $15-million from litigation settlements, earnings were 31 cents per share, or 2 cents higher than the consensus estimate of analysts surveyed by Thomson First Call.
Prescription sales, which accounted for 65 percent of company sales, climbed 14.4 percent while prescription sales in comparable stores rose 11.3 percent.
"Earnings this quarter were powered by solid prescription and general merchandise sales, as well as our second straight quarter of significantly higher gross profit margins," said chairman and CEO Dave Bernauer.
The Deerfield, Ill., company also attributed increased profits to better purchasing terms and the digital photofinishing services.
"It is impressive that Walgreen is able to maintain strong pharmacy-counter sales growth at a time when the pressure is on to migrate managed medical treatments through mail order," said analyst Richard Hastings of Variant Research Corp. in Boca Raton. "Their market-share growth across the U.S. remains totally unimpeded."
Morningstar analyst Mitchell Corwin said in a note to investors that while Walgreen continues to grow "relatively unabated" by industry or competitive threats, the results appear to show prescription-drug growth slowing as a result of heightened use of mandatory mail order and the rising costs of health care and prescription drugs.
1st Qtr Year Ago
Revenue $9.9-bil $8.7-bil
Net Income $332.7-mil $254.9-mil
Per Share 32 cents 25 cents