Walgreen Co. (NYSE: WAG) will report weaker fourth-quarter profits less than two weeks after the Deerfield, Ill.-based pharmacy chain returned to its relationship with the nation’s largest pharmacy benefits manager, Express Scripts Holding Company (NASDAQ: ESRX).
The company also announced in the quarter a major European acquisition that positions the company for global expansion and increased efficiencies.
The average Thompson Reuters estimate for the quarter is 56 cents per share on $17.1 billion in revenue, a 1.8 percent decline from last year. The current estimate is down a penny from the start of the quarter. The year’s EPS is projected to be down 1.9 percent from last year to $2.59. The company met analysts’ estimates in its third quarter of 62 cents. The company’s stock price has gained about 13.4 percent since the end of the second quarter, closing Wednesday at $35.85.
For much of last year, the world’s largest pharmacy and Express Scripts had been embroiled in a contract dispute over reimbursements for the over 80 million prescriptions Walgreen filled for Express Script members.
After Walgreen rivals CVS Caremark Corporation (NYSE:CVS), Safeway Inc. (NYSE:SWY), Rite Aid Corporation (NYSE:RAD) and Wal-Mart Stores, Inc. (NYSE:WMT) scrambled to woo Express Script customers dropped by Walgreen, the two companies came to an undisclosed agreement earlier this year that reinitiated the partnership from Sept. 15.
In its fourth quarter ended Aug. 31, Walgreen is expected to provide more details about costs incurred in the Express Script deal, which it said played a role in a 5-percent revenue decline in the quarter, to $17.08 billion, due to the customers it lost. Investors will look to see what Walgreen is planning to do to try to win back these customers from its rivals.
The company also completed in its fourth quarter its first-phase $6.7 billion investment in Switzerland-based Alliance Boots, which operates about 3,300 retail stores in several European countries. Walgreen has the option to buy the whole company within three years for nearly $10 billion.
Last month, Walgreen appointed former McDonald's Corporation (NYSE:MCD) CEO James Skinner to serve as its nonexecutive chairman. Skinner retired from the fast food giant in April to take the job. He has been a Walgreen board member since 2005.
The end of the Express Script conflict, the development of the deal with Alliance Boots, the new leadership and the overall growth in prescription drugs due do an increasingly aging American population suggests a rosy outlook for 2013.
Standard & Poor’s estimates fiscal 2013 Walgreen sales rising 2.8 percent to $74 billion thanks largely to a return of Express Script customers, as well as a cyclical acceleration of drugs shifting from branded to generic in the coming months. When branded drugs shift to generics, prices drop but margins increase.
“We have a positive fundamental outlook for the drug retail subindustry for the next 12 months,” wrote S&P analyst Joseph Agnese in a research note from Saturday. “We believe benefits from increased sales of generic drugs will support margins, despite increased drug reimbursement pressure.”