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UPDATE 3-Canada's Jean Coutu results improve on generic unit

* Adjusted earnings 23 Canadian cts/shr vs 19 cts yr earlier

* Generics unit sales rise 14 percent

* Same-store sales up 2.6 percent

(Adds analyst's comments, background on Rite Aid stake)

By Allison Martell

TORONTO, Oct 10 (Reuters) - Canadian pharmacy chain JeanCoutu Group Inc reported a rise in adjusted quarterlyearnings on Wednesday, as its generic drug manufacturingsubsidiary Pro Doc posted a double-digit gain in sales andoperating income.

Prescription sales growth at Longueuil, Quebec-based JeanCoutu and rivals such as Shoppers Drug Mart Corp havebeen hurt in recent years by a provincial crackdown on genericdrug prices and reimbursement rules. But Jean Coutu has said ProDoc should help boost margins over the long term.

Pro Doc's sales rose 14.0 percent to C$38.3 million (US$39.2million) for the second quarter ended Sept. 1, and itscontribution to operating income before amortization rose 25.2percent to C$15.4 million.

"I think Pro Doc was a key strategy for them ahead of thegeneric drug legislation changes, and it's definitely beenbeneficial for the company," said Canaccord Genuity analystDerek Dley, who said the quarter was broadly in line with hisexpectations.

Ontario bans drugstores from selling their own private-labelgeneric drugs. Canada's top court has agreed to hear a challengeto the ban by Shoppers Drug Mart.

Jean Coutu said 61.0 percent of prescriptions were forgenerics during its second quarter, up from 57.2 percent in thesame quarter last year.

Results were also helped by higher revenue. Sales atestablished stores, a key measure for retailers, increased 2.6percent overall, and 1.6 percent for non-pharmacy, or"front-end" goods.

Dley said same-store pharmacy sales growth was a bitstronger than he had forecast, while front-end sales growth atestablished stores was weaker than he expected.

"It's a pretty competitive environment out there, so youknow, 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 and other items, earningsrose to C$50.0 million, or 23 Canadian cents a share, comparedwith C$44.6 million, or 19 Canadian cents, a year earlier.

Jean Coutu is Rite Aid's biggest shareholder, the legacy ofthe Canadian company's 2004 purchase of the Brooks and Eckerddrugstore chain. In 2007, Jean Coutu sold the U.S. business toRite Aid for cash and stock. In April, it sold nearly onequarter of its stake.

On an unadjusted basis, net profit fell to C$51.2 million(US$52.3 million), or 23 Canadian cents a share, from C$66.4million, or 29 Canadian cents. Revenue rose to C$658.7 millionfrom C$635.2 million.

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

($1 = $0.98 Canadian)

(Reporting by Allison Martell; Editing by Leslie Adler andJeffrey Benkoe)

((allison.martell@thomsonreuters.com)(+1 416 941 8196)(ReutersMessaging: allison.martell.thomsonreuters.com@reuters.net))

Keywords: JEANCOUTU RESULTS/