Earnings Preview: Walgreen to report 3Q results

Walgreen Co. will report its fiscal third-quarter earnings on Tuesday, and analysts will be looking for updates on how the nation's largest drugstore chain is digesting two major acquisitions it announced over the past year.

WHAT TO WATCH FOR: The Deerfield, Ill., company said about a year ago that it would buy a stake in European health and beauty retailer Alliance Boots, a deal that gave Walgreen global clout and an option to buy the entire company in a few years.

Swiss-based Alliance Boots runs more than 3,300 health and beauty retail stores in 11 countries, including the largest drugstore chain in the United Kingdom. Walgreen said in March that Alliance Boots helped its fiscal second-quarter earnings jump 11 percent.

Walgreen also said in March that it and Alliance Boots were buying an ownership stake in another big company, drug distributor AmerisourceBergen Corp.

Walgreen and Alliance Boots receive the right to buy up to 7 percent of AmerisourceBergen's shares and warrants to purchase an additional 16 percent. AmerisourceBergen, in return, will supply Walgreen with both branded and generic drugs for its drugstores and mail order and specialty pharmacy businesses.

Walgreen also will update investors on a couple long-standing developments when it reports earnings Tuesday.

Generic drugs, which are cheaper than brand-name medicines, have been squeezing sales but helping profitability for drugstore chains for several quarters now. 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 also has said that it has been regaining business it lost last year, when it was stuck in a contract squabble with Express Scripts Holding Co., the nation's largest pharmacy benefits manager.

The companies had let a contract between them expire in December, and they didn't start a new agreement until September. The split meant many Express Scripts customers took their prescriptions, at least temporarily, to other drugstores.

Walgreen said earlier this month that it recorded $18.34 billion in revenue for the fiscal third quarter, which represented a 3.3 percent increase from last year's quarter. That was an unaudited total, so the amount the company announces Tuesday for this year's quarter may differ slightly.

WHY IT MATTERS: Millions of people fill their prescriptions at Walgreen stores. There were 8,096 drugstores at the end of May, making Walgreen bigger than CVS Caremark Corp. and Rite Aid Corp. Walgreen also ranks 37th on the 2013 Fortune 500 list.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect, on average, earnings of 91 cents per share.

LAST YEAR'S QUARTER: Walgreen's 2012 fiscal third quarter earnings fell 11 percent to $537 million due in part to the Express Scripts break. Revenue also slid 3 percent to $17.75 billion. But that report was overshadowed by the company's announcement that it planned to pay $6.7 billion in cash and stock to buy its Alliance Boots stake.