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Walgreen fiscal 4Q profit soars 86 percent

October 1, 2013

Walgreen Co.’s fiscal fourth-quarter earnings soared 86 percent, as the nation’s largest drugstore chain booked gains from its method of inventory accounting and its acquisition of a stake in European health and beauty retailer Alliance Boots.

The Deerfield, Illinois, company said Tuesday that it earned $657 million, or 69 cents per share, in the quarter that ended Aug. 31. That compares with earnings of $353 million, or 39 cents per share, a year ago. Revenue climbed 5 percent to $17.94 billion.

Adjusted earnings totaled 73 cents per share, excluding acquisition-related costs among other items.

Analysts forecast earnings of 72 cents per share on $17.96 billion in revenue, according to FactSet.

Walgreen shares slipped 15 cents to $53.65 Tuesday before markets opened and after the company announced results.

Walgreen recorded an $8 million “last-in-first-out” inventory benefit in this year’s quarter, compared with a $132 million charge last year. LIFO is a method of accounting for inventory that assumes a company sells its newest inventory first. The company takes a credit or charge each quarter according to the anticipated inflation rate for the year.

The company attributed the big swing to lower-than-anticipated prescription drug inventory ahead of a transition it made to AmerisourceBergen Corp. Walgreen had announced earlier this year that it and Alliance Boots were buying an ownership stake in drug distributor AmerisourceBergen Corp. Walgreen also entered into a supply agreement with AmerisourceBergen for its drugstores, mail order and specialty pharmacy businesses.

Last year, Walgreen acquired a 45 percent stake in Swiss-based Alliance Boots for about $4 billion in cash plus 83.4 million Walgreen shares. Walgreen then booked $124 million in equity earnings from its stake in this year’s quarter.

Walgreen runs the nation’s largest chain of drugstores, with 8,116 locations nationwide. The company said an influx of generic drugs also continued to help its bottom line in the fiscal fourth quarter.

Generic drugs, which are cheaper than brand-name medicines, have been helping drugstore chain earnings for several quarters now. They can hurt a drugstore’s revenue because of their lower price, but they help profitability because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

Walgreen, which ranks 37th in the 2013 Fortune 500 list of biggest companies, earned $2.45 billion, or $2.56 per share, in fiscal 2013 on $72.22 billion in revenue.

The company’s shares closed at $53.80 on Monday, which put the stock up more than 45 percent so far this year.

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