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Walgreens 1Q gets boost from flu shot business

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DEERFIELD, Ill. — Walgreen Co. topped Wall Street’s profit forecast and saw sales climb 9.5% in its fiscal 2010 first quarter, fueled by a surge in its flu vaccination business.

The drug store chain on Monday reported net earnings of $489 million, or 49 cents per diluted share, for the first quarter ended November 30, up 19.5% from $408 million, or 41 cents per diluted share, a year earlier.

According to Thomson Financial, the average analyst estimate for Walgreens’ fiscal 2010 earnings was 48 cents per share. Yet the retailer finished in the upper end of analysts’ earnings projections of 45 cents to 53 cents per share.

Walgreens said first-quarter results reflect the impact of 3 cents per diluted share in restructuring and related costs related to its Rewiring for Growth initiative. In a research note, William Blair & Co. analyst Mark Miller noted that the $42 million in Rewiring for Growth costs was almost $10 million less than in the previous quarter and $23 million less than his firm had projected.

Miller also called Walgreens’ first-quarter cash flow "impressive." The drug chain said cash flow from operations for the quarter came in at $1.2 billion, more than tripling the total in the prior-year period. Walgreens pointed to improved working capital and drug store performance as helping drive the cash flow surge.

"We’re extremely pleased to report solid, double-digit earnings growth," Walgreens president and chief executive officer Greg Wasson said in a statement. "We remain confident we can continue to generate strong cash flow, which provides us the financial strength and flexibility to continue investments in our core strategies while returning cash to shareholders."

Rewiring for Growth remains on track to deliver $1 billion in pretax cost savings starting in fiscal 2011, the company added.

On the revenue side, fiscal 2010 first-quarter sales totaled a record $16.4 billion, compared with $14.9 billion a year earlier, according to Walgreens. Same-store sales for the quarter rose 4.9%, reflecting a 2.7% gain in the front end and a 6.1% rise in the pharmacy.

Walgreens said overall prescription sales advanced 10% versus the year-ago period, with the number of prescriptions filled up 12%. The company noted that the pharmacy results include a benefit of 0.7 percentage points because of more patients filling 90-day prescriptions.

In addition, Walgreens said an early flu season and a "well-executed flu shot campaign" energized front-end and pharmacy sales in September and October and, to a lesser extent, in November. The drug chain administered more than 5 million flu shots during the quarter, a nearly five-fold increase from a year ago.

"Consumer concerns over high unemployment and the challenging economy were a drag on holiday sales at the end of November, and we’ve seen a similar pattern through mid-December," Wasson stated. "Like every Christmas season, our performance is driven by the final days, which makes this an important week. The calendar works in our favor this year, with Christmas falling on a Friday."


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