Shares of drugstore giant Walgreen Co. (NYSE: WAG) have been soaring today after topping analyst estimates for its fiscal fourth quarter.

Going into today's earnings report, analysts had been expecting the company to show earnings of 39 cents per share, but the company surprised to the upside by showing earnings for the quarter of 44 cents per share. In reaction to the better than expected earnings, shares of Walgreen have traded up 9% this morning to $37.28, up $3.09.

It peeves me just a little bit that in spite of some significant moves, there seems to be a lack of positive press for Kroger Co. (NYSE: KR). Oh, they received a good bit of spin out of their move to sign on to a series of directives promoting "best practices" for keeping tobacco out of the hands of minors, but those headlines were garnered in the interest of ivory tower politicos fanning their own egos, not in true recognition of Kroger itself.

What really gets me miffed though, is that the introduction of a $4 generic drug program at 76 of Kroger's pharmacies went virtually unnoticed by all except possibly a few hardcore AP writers who, after all, are responsible to report on just about everything.

So in the interest of "broad coverage," I now give you the link to the story at RetailingToday.com (registration required). I think the quip there provides a good, quick revelation regarding Kroger's generic drug efforts and it also makes a nice comparison between where Kroger is headed in the pharmaceutical business and how Wal-Mart (NYSE: WMT) is faring so far in that regard. We might note at this time that Wal-Mart has initiated a second price tier in its discount drug program.

Of additional interest in the Kroger camp was the recent indication by Jim Cramer that Kroger could be moving as high as $36. I won't disagree with that. Note that KR ended trading on 10-26-07 at $28.68, and was headed downward. Amid an overall positive attitude about the company, I believe that this puppy has room to run!

California-based Watson Pharmaceuticals, Inc. (NYSE: WPI) posted good 1Q 2007 numbers overall. For the quarter, net revenue was $671.6 million, with net income of $31.6 million and diluted EPS of $0.29. Factoring in some of the costs of acquiring Andrx Corporation, legal costs, and debt repurchase costs, adjusted net income was $37.3 million, $0.34 diluted EPS.

Watson Pharmaceuticals includes both generic and branded divisions, both of which reported double digit revenue increases. Generic division revenue was $424.6 million, up 32% or $102.5 million. This increase was driven by the sales of Andrx products as well as the sale of oxycodone HCI controlled-release tablets, the sale of which has been halted. Also sales of oral contraceptives products increased $9.6 million to $85.6 million. The much smaller branded division boosted net revenue for the quarter by 19% to $101.5 million, an increase of $16.4 million.

These positive numbers allowed the company to make $150 million worth of debt repayments in 1Q 2007. CEO Allen Chao states that the company is well placed to expand the number of generic and proprietary products it brings to market, while at the same time controlling operating costs and seeking out additional partners. Watson Pharmaceuticals is facing a number of additional costs related to its acquisition of Andrx Corporation, including over $23 million in additional administrative costs, and several million dollars worth of inventory charges for Andrx products. Pharmaceutical companies generally will face increased costs for clinical trials.

If the company is correct in its assessment of prescriptions trends, prescription prices, and the introduction of new products, then it forecasts FY 2007 net revenue between $2.5 and $2.6 billion.

Walgreen Company (NYSE:WAG) released Q4 2006 figures on Monday, 25 September 2006. Earnings grew 25% based largely on an 18% increase in prescription drug sales and a 16% increase in total revenue to $12.17 billion from $10.49 billion. Q4 earnings were $412.3 million. Earnings per share for the quarter were .41, up from $329 million or .32 per share in Q4 2005. Walgreen opened or acquired 476 new stores in fiscal 2006, giving the company a total of 5,461 stores in the US and Puerto Rico. Walgreen costs related to Hurricane Katrina were almost $55 million. Full year earnings increased to $1.75 billion from $1.56 billion in FY 2005. EPS for 2006 were $1.72, up from $1.52 in 2005.

Things were looking good for another year of expansion, and then Wal-Mart announced last Thursday it would drop prices on almost 300 generic drugs to $4 per prescription. Walgreen stock has dropped 11% since the announcement, closing at $44.47 on Monday, 25 September. Walgreen CFO Rick Hans has spent a lot of time talking to investors since the Wal-Mart announcement. He claims 95% of Walgreen pharmacy patients have prescription insurance coverage. Wal-Mart's $4 per generic prescription drug "won't significantly impact our business."

Who is this guy trying to kid? Sounds a lot like whistling past the graveyard. Walgreen is betting its continued financial health on its convenient locations and higher level of customer service. Will that be enough to counteract Wal-Mart's massive 'always low prices' publicity machine?