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Walgreen (WAG) Q2 Earnings To See Margins Pressure

 March 27, 2012 02:08 AM

Drug store chain operator, Walgreen Co. (Nasdaq: WAG), will announce its second quarter earnings results before the market opens on March 27. The company's results will likely see pressure on its margins from its retail pharmacy segment. After the split with Express Scripts, the company's comparable store sales recorded downside in January and February.

The company could potentially lose as much as 80 million prescriptions of Express Scripts in 2012 with revenue of close to $4 billion. Walgreen is taking efforts to bring down the losses due to WAGs split with Express Scripts. Walgreen's is resorting to cost cutting measures and focusing on more generics utilization. However, this may prove to be a difficult exercise given its three-year cost reduction program recently ended.

[Related -Walgreen Company (NYSE:WAG) Q1 Earnings Preview: What To Watch?]

Walgreen's comparable store sales rose 0.4 percent in December. However, in January and February, comps witnessed 4.6 percent downside each month.

Analysts reduced their earnings expectations for Walgreen's to 77 cents a share from 81 cents a share 90 days ago and from 80 cents a share two months ago. Currently, Street analysts' have earnings estimations of 77 cents a share on revenues of $18.52 billion. This represents earnings downside of 3.75 percent on modest sales growth of 0.10 percent.

Last year, the company earned 80 cents a share on revenues of $18.50 billion.

For the first quarter, net earnings dipped 4.5 percent to $554 million from $580 million, but earnings per share rose 1.6 percent to 63 cents a share from 62 cents a share in the year-ago quarter. Net sales rose 4.7 percent to $18.16 billion from $17.34 billion in the previous year quarter. These were below analysts' predictions for earnings of 67 cents a share on revenues of $18.23 billion.

[Related -Walgreen Co. (WAG) Dividend Stock Analysis]

In the last four quarters, Walgreen's earnings failed to meet analysts' estimates once,  came in above estimations twice, and met predictions in one quarter.

For the third quarter, analysts have reduced their earnings forecasts to 63 cents a share from 66 cents a share three months ago and 64 cents a share a week back. Analysts cutting their second and third quarter EPS estimations resulted in full year EPS forecast reductions to $2.62 a share from $2.73 a share in the last quarter and from $2.65 a share one month back.

The stock has underperformed during the last three months by advancing a slender 0.2 percent upside, whereas the S&P 500 witnessed 12.55 percent gain until Friday's close. Significantly, ten analysts' have a Hold rating on Walgreen shares. While five analysts have Strong Buy rating in the current month, seven analysts' are recommending the stock as Buy. Three analysts' have termed the stock as Underperform, while one analyst put the shares to a Sell rating.

For the 52-week period, the stock is trading in the range of $30.34 to $45.34. Today, shares of the company are trading between $33.63 and $34.03. The company's results will hold the key to any significant upside in stock movement. Look at the recent performance, the stock has not given any significant return to investors



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