Walgreen Company (NYSE:WAG) reported an unexpected drop in profits from last year, its first decrease in profits year over year in a decade. The company reported net income of 40 cents per share, 7 cents less than the average analyst estimate for the quarter. 
The company had significant problems with expenses in their fiscal fourth-quarter. Chairman Jeffrey Rein said that lower prices of generic drugs ate into the margins, and increased store and staff costs hurt the overall net income from the quarter. Rein went on to say "Managing both expenses and lower reimbursements on some generic drugs is my top priority." He said the company would fix this problem and continue their growth plan.
The stock price of WAG is being chopped by almost 15% so far today. Rivals CVS Caremark (NYSE:CVS) and Medco Health Solutions (NYSE:MHS) are also losing over 3% on the day.
The lower prices on generic drugs is largely because of the new programs that Wal-Mart Stores (NYSE:WMT) has rolled out, which offers generic drugs for $4.
Investors certainly can't like the news that came out of Walgreen today. It will be very interesting to see if CVS Caremark shows a similar earnings problem when it reports in a few weeks. If CVS is able to keep its profit picture intact then one has to think that this is more of a specific Walgreen problem.
Walgreen has a terrific reputation of growing its profits year over year, which is why today's announcement is so shocking. The company needs to regroup and get its cost situation under control before wall street starts distrusting this once constant grower.
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Tracked on: October 1, 2007 3:04 PM | Permalink to Trackback