Walgreen (WAG) posted better than expected third quarter earnings, but the stock fell 4% in early trading as the company’s deal with pharmacy benefits manager Express scripts officially ended.
Walgreen posted 57 cents of EPS, 2 cents better than expectations. Comparable store sales rose 4.4%, but gross margin slipped by 19 basis points on weakness in front end (non-pharmacy) sales. ‘The upside versus our estimate was driven by better-than-expected sales and gross margins, offset by less SG&A leverage than expected,” wrote Citi analyst Deborah Weinswig.
But the stock appears to be moving on news about the company’s contract with Express scripts (ESRX). Walgreen, which first announced back in June that the contract would probably not be renewed, said in its earnings statement today that “there has been no substantive progress in the contract renewal negotiations with Express scripts.” The contract has resulted in $5.3 billion in annual sales at Walgreen, and pharmacists could be forced to steer clients to other pharmacies.
“As part of the company�s strategy and plan to move forward without Express scripts after Dec. 31, 2011, Walgreens is working with a number of partners to explore all options so that their employees and members can continue to have access to Walgreens convenient, cost-effective pharmacy, health and wellness services.”
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