November 10, 2010 / 5:33 PM / 7 years ago

UPDATE 3-Shoppers Drug profit dips; facing price pressure

* Q3 EPS C$0.73 vs C$0.79 a year earlier

* Revenue up 3 percent, same-store sales up 1 percent

* Ontario generic initiative hits profit margins

* Shares up slightly after 15 pct decline this year (Adds analyst comments, updates share movement)

By Bhaswati Mukhopadhyay

TORONTO, Nov 10 (Reuters) - Shoppers Drug Mart SC.TO, Canada’s No.1 pharmacy chain, on Wednesday reported a 7 percent drop in third-quarter profit and said it faces new pressures on pricing and government reimbursement.

Even so, profit excluding one-time items came in above market expectations, and its shares, down 15 percent so far this year, edged higher.

The company, which operates 1,181 stores across Canada, is grappling with profit margin declines after Ontario, Canada’s most populous province, cut reimbursements to drugstores for dispensing generic drugs.

The company said those changes hit its pharmacy sales growth, although overall revenue climbed 3 percent and sales in stores opened a year or more inched higher.

Analysts expect the Ontario drug reforms to make it hard for Shoppers to grow earnings over the next few years.

“Our concern longer-term is that the story that used to go 15 percent-plus earnings growth is probably mid-single digit earnings growth over the next several years until the Ontario drugs benefit plan goes away,” said analyst Brian Yarbrough of Edward Jones.

In a cost-cutting move, Ontario slashed the price of generics to 25 percent of branded equivalents and eliminated the rebates stores had received from the drugmakers.

Candice Williams, an analyst with Canaccord Genuity, however, said Shoppers had adapted well to the changes, although they would curb growth going forward.

Q3 TOPS ESTIMATES

For the quarter to Oct. 9, Shoppers’ net income fell to C$159.3 million ($159.3 million), or 73 Canadian cents a share, from C$170.9 million, or 79 Canadian cents a share, a year earlier.

Excluding charges, the company earned C$167 million, or 77 Canadian cents a share, topping analysts’ average expectation of 74 Canadian cents a share

Revenue rose 3 percent to C$3.09 billion, helped by growth across all regions of the country.

Analysts on average had expected revenue of C$3.12 billion, according to Thomson Reuters I/B/E/S.

Same-store sales, or sales at stores opened more than a year, rose a little more than 1 percent.

The company said prescription sales were up 1 percent at C$1.49 billion, driven by growth in the number of prescriptions filled.

Shares of Shoppers Drug Mart rose 20 Canadian cents to C$38.55 on the Toronto Stock Exchange on Wednesday afternoon. ($1=$1.00 Canadian) (Editing by Janet Guttsman)

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