Walgreen fiscal 1Q profit jumps 16 pct to top forecasts, Alliance Boots deal remains on track

Stronger sales from established stores helped Walgreen trump first-quarter expectations, and the nation’s largest drugstore chain said Tuesday that a major acquisition expected to stoke its global reach and buying clout should close next week.

Shareholders of the Deerfield, Illinois, company will vote on its purchase of European health and beauty retailer Alliance Boots on Dec. 29. The company said Tuesday that it completed financing for the deal, and it expects to close by Dec. 31.

In 2012, Walgreen bought a 45 per cent share in Alliance Boots, which runs the United Kingdom’s largest pharmacy chain. It then said in August that it would exercise its option to buy the remaining stake it doesn’t already own.

Analysts and investors expect Walgreen to gain added negotiating muscle over supplies like pharmaceuticals from this purchase and another ownership stake it acquired in pharmaceutical wholesaler AmerisourceBergen Corp.

In its fiscal first quarter, Walgreen Co. earned $809 million. That’s a 16 per cent increase from last year’s total of $695 million. Earnings per share climbed to 85 cents from 72 cents, and adjusted earnings in the latest quarter totalled 81 cents per share, excluding several one-time gains and costs.

Revenue rose nearly 7 per cent to $19.55 billion.

Analysts forecast, on average, earnings of 74 cents per share, on $19.43 billion in revenue, according to Zacks Investment Research.

Walgreen runs 8,230 drugstores and said revenue from stores open at least a year climbed 5.7 per cent in the quarter, helped by 8.1 per cent growth from store pharmacies.

Revenue from established stores is a key indicator of a retailer’s health because it excludes the impact from recently opened or closed stores.

Alliance Boots contributed about 11 cents per share to adjusted earnings in the quarter, and Walgreen’s selling, general and administrative expenses also inched up less than 2 per cent, to $4.46 billion.

Edward Jones analyst Jeff Windau said the company has controlled expenses a little better than expected over the past several quarters.

“It definitely was a solid quarter,” he said.

But the company is still feeling pressure in its pharmacy, where Medicare is paying less for prescriptions and rising generic drug prices have squeezed profitability.

Walgreen shares climbed nearly 3 per cent, or $2.16, to $76.43 Tuesday in midday trading while broader indexes rose slightly.

The stock has recovered from a dive it took in August after the drugstore chain lowered a forecast for the earnings it expects after combining with Alliance Boots. The company also announced then that it would not pursue an overseas reorganization with Alliance Boots that might have trimmed its U.S. taxes.

Those announcements came shortly after Walgreen said that former Chief Financial Officer Wade Miquelon was leaving. Miquelon later sued Walgreen.

Earlier this month, the company said that CEO Greg Wasson would retire after Walgreen completes the Alliance Boots deal.

Walgreen shares were up 29 per cent so far this year, as of Monday’s close. That more than doubles the approximately 12 per cent gain recorded by the Standard & Poor’s 500 index.