Henry Schein Reports Record Second Quarter Financial Results

10-08-2017

MELVILLE, N.Y., Aug. 8, 2017/PRNewswire/ -- Henry Schein, Inc.(Nasdaq: HSIC), the world's largest provider of health care products and services to office-based dental, animal health, and medical practitioners, today reported record second quarter financial results.

Net sales for the quarter endedJuly 1, 2017 were $3.1 billion, an increase of 6.5% compared with the second quarter of 2016. This consisted of 7.7% growth in local currencies and a 1.2% decline related to foreign currency exchange. In local currencies, internally generated sales increased 4.4% and acquisition growth was 3.3% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc. for the second quarter of 2017 was $136.1 million, or $1.71 per diluted share. This represents growth of 13.3% and 17.1%, respectively, compared with GAAP results for the second quarter of 2016. Non-GAAP net income for the second quarter of 2017 was $139.3 million, or $1.75 per diluted share. This represents growth of 2.9% and 6.7%, respectively, compared with non-GAAP results for the second quarter of 2016. Note that the second quarter of 2017 included a litigation settlement expense of $5.3 millionpretax, or $0.04 per diluted share, and the second quarter of 2016 included restructuring costs of $20.4 million pretax, or $0.18 per diluted share (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP net income and EPS).

"We are pleased with overall sales results for the second quarter of 2017 in each of our global Dental, Animal Health, and Medical businesses. We delivered solid earnings per share growth as we continue to implement our strategy of growing the business organically and through acquisitions," saidStanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.

Dental sales of $1.5 billionincreased 8.4%, consisting of 9.4% growth in local currencies and a 1.0% decline related to foreign currency exchange. In local currencies, internally generated sales increased 3.1% and acquisition growth was 6.3%. The 3.1% internal growth in local currencies included 3.8% growth inNorth Americaand 2.0% growth internationally.

"In North America, dental consumable merchandise internal sales in local currencies grew by 0.8%. Dental equipment internal sales in local currencies increased 14.8%, due in part to an easier prior-year comparable," commented Mr. Bergman. "Beginning September 1, 2017, we look forward to offering the full range ofDentsply Sironadental equipment across North America, including the leading CEREC CAD/CAM restoration system, to complement our offering from key suppliers including 3M, 3Shape, A-dec, Danaher, Ivoclar, Midmark, Planmeca, and many others."

Mr. Bergman continued, "International dental consumable merchandise internal sales increased by 1.4% in local currencies, reflecting a generally stable market environment. International dental equipment internal sales grew by 3.6% in local currencies with strength inGermanyfollowing the International Dental Show, partially offset by softness in Australia and Italy."

Animal Health sales of $891.3 million increased 4.4%, consisting of 6.7% growth in local currencies and a 2.3% decline related to foreign currency exchange. In local currencies, internally generated sales increased 5.8% and acquisition growth was 0.9%. The 5.8% internal growth in local currencies included 5.9% growth inNorth Americaand 5.7% growth internationally.

"Global Animal Healthinternal sales growth in local currencies reflects healthy end markets domestically and in the international markets we serve," commented Mr. Bergman. "Through organic growth and strategic acquisitions we continue to build on our success in partnering with our animal health customers to deliver high-quality solutions and support that help promote longer, healthier pet lives."

Medical sales of $571.4 million increased 6.1%, consisting of 6.2% growth in local currencies and a 0.1% decline related to foreign currency exchange. In local currencies, internally generated sales increased 6.1% and acquisition growth was 0.1%.

"We believe continued market share gains in our Medical group are the result of our ability to meet the needs of a dynamic, evolving health care market, particularly among large group practices, where we expect to see further consolidation," remarked Mr. Bergman.

Technology and Value-Added Services sales of $108.5 million increased 1.4%, including 2.8% growth in local currencies and a 1.4% decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.2% and acquisition growth was 0.6%.

"In North America, our Technology and Value-Added Services internal sales growth in local currencies was a modest 0.3%. This growth included 13.6% sales growth in ourNorth Americafinancial services business related to strong dental equipment revenue," said Mr. Bergman. "Sales growth was negatively impacted by a difficult comparison in the prior year related to revenue associated with a government contract as well as reduced sales primarily related to discontinued lower margin products."

Mr. Bergman continued, "In international markets, internal growth in local currencies was a robust 12.4%, highlighted by strong software revenue in theU.K.as well as solid growth in our financial services business. We remain confident in our strategic portfolio of technology solutions and value-added services and look forward to continued enhancements as we grow that business over time."   

Stock Repurchase Plan

The Company announced that it repurchased approximately 289,000 shares of its common stock during the second quarter at an average price of $173.16 per share, or approximately $50 million. The impact of the repurchase of shares on second quarter 2017 diluted EPS was immaterial. At the close of the second quarter, Henry Schein had approximately $150 million authorized for future repurchases of its common stock.

Year-to-Date Results

Net sales for the first half of 2017 were $6.0 billion, an increase of 7.1% compared with the first half of 2016.  This consisted of 8.2% growth in local currencies and a decline of 1.1% related to foreign currency exchange. In local currencies, internally generated sales increased 5.2% and acquisition growth was 3.0%.

Net income attributable to Henry Schein, Inc. for the first half of 2017 was $276.8 million, or $3.48 per diluted share, an increase of 18.4% and 23.0%, respectively, compared with the first half of 2016. Excluding the litigation settlement expense in the first half of 2017, non-GAAP net income for the first half of 2017 was $280.0 million, or $3.52 per diluted share, an increase of 11.0% and 15.4%, respectively, compared with non-GAAP net income for the first half of 2016 (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

2017 EPS Guidance

Henry Schein expects full year 2017 diluted EPS to be in the same range as previously disclosed, except for the $0.04 litigation settlement expense.

  • 2017 GAAP diluted EPS attributable to Henry Schein, Inc., which includes the litigation settlement expense of $0.04 per diluted share, is expected to be $7.13 to $7.26. This guidance reflects growth of 15% to 17% compared with 2016 GAAP diluted EPS of$6.19. The prior GAAP diluted EPS guidance range was $7.17 to $7.30.
  • 2017 non-GAAP diluted EPS, which excludes the litigation settlement expense of$0.04per diluted share, is expected to be$7.17 to $7.30. This guidance reflects growth of 8% to 10% compared with 2016 non-GAAP diluted EPS of$6.61. Note that full year 2016 non-GAAP diluted EPS excludes restructuring charges of $0.42 per diluted share.
  • The Company notes that fiscal year 2017 includes one less week than fiscal year 2016.

Guidance for 2017 GAAP and non-GAAP diluted EPS is for current continuing operations as well as completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any. Guidance also assumes foreign exchange rates that are generally consistent with current levels