October 10, 2012 / 11:24 AM / 5 years ago

Jean Coutu profit rises on gains at generic drug maker

A pedestrian walks past a Jean Coutu pharmacy in downtown Montreal, April 28, 2010. Jean Coutu Group returned to a fourth-quarter profit on Wednesday, benefiting from higher prescription drug sales, but the Canadian drug store chain narrowly missed expectations for revenue. REUTERS/Shaun Best

TORONTO (Reuters) - Canadian pharmacy chain Jean Coutu Group Inc (PJCa.TO) reported a rise in adjusted quarterly earnings on Wednesday as its generic drug manufacturing subsidiary, Pro Doc, posted a double-digit gain in sales and operating income.

Prescription sales growth at Longueuil, Quebec-based Jean Coutu and rivals such as Shoppers Drug Mart Corp SC.TO have been hurt in recent years by a provincial crackdown on generic drug prices and reimbursement rules. But Jean Coutu has said Pro Doc should help boost margins over the long term.

Pro Doc’s sales rose 14.0 percent to C$38.3 million ($39.2 million) in its second quarter, ended September 1, and the unit’s contribution to operating income before amortization rose 25.2 percent to C$15.4 million.

“I think Pro Doc was a key strategy for them ahead of the generic drug legislation changes, and it’s definitely been beneficial for the company,” Canaccord Genuity analyst Derek Dley said, adding that the quarter was broadly in line with his expectations.

Ontario bans drugstores from selling their own private-label generic drugs. Canada’s top court has agreed to hear a challenge to the ban by Shoppers Drug Mart.

Jean Coutu said 61.0 percent of prescriptions were for generics during its second quarter, up from 57.2 percent in the same quarter last year.

Sales at established stores, a key measure for retailers, increased 2.6 percent overall in the quarter, and 1.6 percent for non-pharmacy, or “front-end” goods.

Dley said the same-store pharmacy sales growth was a bit stronger than he had forecast, while front-end sales growth at established stores was weaker than he had expected.

“It’s a pretty competitive environment out there, so you know, I‘m not surprised to see it come in a little bit lower, but it’s definitely a little bit weaker than I was expecting,” he said.

Excluding a gain related to Jean Coutu’s stake in U.S. drugstore chain Rite Aid Corp (RAD.N) and other items, earnings rose to C$50.0 million, or 23 Canadian cents a share, compared with C$44.6 million, or 19 Canadian cents, a year earlier.

Jean Coutu is Rite Aid’s biggest shareholder, the legacy of the Canadian company’s 2004 purchase of the Brooks and Eckerd drugstore chain. In 2007, Jean Coutu sold the U.S. business to Rite Aid for cash and stock. In April, it sold nearly one quarter of its stake.

On an unadjusted basis, net profit fell to C$51.2 million, or 23 Canadian cents a share, from C$66.4 million, or 29 Canadian cents. Revenue rose to C$658.7 million from C$635.2 million.

Analysts, on average, expected earnings of 22 Canadian cents a share on revenue of C$653.7 million.

Shares edged up 0.2 percent to C$14.56 in early trading on the Toronto Stock Exchange on Wednesday.

Reporting by Allison Martell; Editing by Leslie Adler; Jeffrey Benkoe and; Peter Galloway

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