Walgreens saw its earnings drop by more than 4% in the first quarter, a decrease that is due in part to its split from the Express Scripts pharmacy network. Walgreens and Express Scripts said they were preparing to stop doing business when the three-year contract between the companies expires at the end of 2011. Starting in January, most people whose prescription drug benefits are handled by Express Scripts won’t be able to fill their prescriptions at Walgreens stores.
The deal with Express Scripts brings Walgreens $5.3 billion in revenue annually. Walgreens said that it would rather give up that revenue than continue to fill prescriptions that are unprofitable. WellPoint, the largest health insurer in the United States based on membership, and TriCare, a health plan that serves military members and their families, are Express Scripts clients. Walgreens is the biggest drugstore chain in the United States with 7,812 locations.
Walgreens’ split from Express Scripts is a multibillion-dollar dispute that appears to have no end in sight. Greg Wasson, President and CEO of Walgreens, said the company made attempts to reach agreeable terms with Express Scripts. The two sides have been unable to resolve their differences, but Walgreens remains open to another offer, Wasson said.
As the Express Scripts stalemate continues, Walgreens is making its own arrangements with companies and health plans to hold on to as many prescriptions as possible. The company said it expects to keep between 97% and 99% of its 2011 prescription volume.
Net income fell to $554 million from $580 million a year ago, working out to $0.63 per share. Revenue grew 4.7% to $18.16 billion. Analysts expected earnings of $0.67 per share and $18.24 billion in revenue.
Selling, general, and administrative expenses climbed 5% due to Walgreens’ acquisition of drugstore.com and other items. The lack of a traditional cough, cold, and flu season has also weighed heavily on Walgreens’ earnings. Walgreens administered 5 million flu shots through November 30, down from 5.6 million a year ago.