NEW YORK (AP) — Drugstore operator Walgreen Co.’s fiscal first-quarter earnings fell more than 4 percent due in part to a slow flu season and its decision to leave the Express Scripts Inc. pharmacy network next month.
President and CEO Greg Wasson said during a conference call with analysts that Walgreen last week made “one last attempt” to come to terms with Express Scripts on a new contract. He said the companies were unable to resolve their differences over the rates that Express Scripts pays Walgreen to fill prescriptions but that Walgreen remains open to a reasonable offer from Express Scripts.
A three-year contract between the companies ends Dec. 31, and since June, Walgreen and Express Scripts have said they were preparing to stop doing business. Walgreen gets $5.3 billion in annual revenue from Express Scripts, but the Deerfield, Ill., company has said it would rather give that up than continue filling unprofitable prescriptions.
“While we remain open to any fair and competitive offer from Express Scripts, we firmly believe that accepting their proposal was not in the best long-term interests of our shareholders,” Wasson said in a statement.
Shares of Walgreen fell $2, or 6 percent, to $31.50 in morning trading while the broader markets edged down less than 1 percent.
The nation’s largest drugstore chain said the decision to stop doing business with Express Scripts cost a penny per share in sales at pharmacies open at least a year and a penny per share in expenses during the first quarter.
It also said a delay in the cough, cold and flu season hurt earnings by another penny per share. The company administered 5 million flu shots through Nov. 30 compared with 5.6 million a year ago.
Walgreen said its quarterly net income fell to $554 million, or 63 cents per share, from $580 million, or 62 cents per share, a year ago, when it had more shares outstanding. Revenue grew 4.7 percent to $18.16 billion.
Analysts surveyed by FactSet expected, on average, earnings of 67 cents per share and $18.24 billion in revenue.
Walgreen is trying to keep as many of those prescriptions as possible by making its own arrangements with companies and health plans. Based on prescriptions Walgreen is filling in December and other trends, the company says it expects to keep 97 to 99 percent of its fiscal 2011 prescription volume in the new fiscal year. Analysts estimate that Walgreen will lose most of the Express Scripts prescriptions.
Express Scripts also is trying to buy Medco Health Solutions Inc., another large pharmacy benefits manager. If that deal goes through, Walgreen may lose Medco’s clients over time.
Walgreen’s first-quarter selling, general and administrative expenses also climbed 5 percent to $4.2 billion because of its acquisition of drugstore.com and other items.
Earlier this month, Walgreen said sales at stores open at least a year grew 2.5 percent during the quarter. However the Express Scripts fight reduced those sales by 1.1 percent. Sales at stores open at least a year are considered a key measurement of retailer health because they exclude results from stores that have opened or closed in the last year.
The company operates 7,812 drugstores nationwide.
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Tom Murphy contributed to this story from Indianapolis.
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