Henry Schein Reports Record Third Quarter Financial Results

14-11-2017

Henry Schein, Inc., the world's largest provider of health care products and services to office-based dental, animal health, and medical practitioners, reported on 6th November record third quarter financial results. All per share figures in this news release reflect the 2-for-1 common stock split that Henry Schein completed during the third quarter of 2017.

Net sales for the quarter ended 30th September 2017 were$3.2 billion, an increase of 10.3% compared with the third quarter of 2016. This consisted of 8.8% growth in local currencies and a 1.5% increase related to foreign currency exchange. In local currencies, internal sales growth was 4.8% and acquisition growth was 4.0% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc.for the third quarter of 2017 was $138.0 million, or $0.87 per diluted share. Compared with the GAAP results for the third quarter of 2016, this represents growth of 3.2% and 6.1%, respectively. Compared with the non-GAAP results for the third quarter of 2016, this represents growth of 0.2% and 3.6%, respectively. Note that third quarter 2016 non-GAAP results exclude restructuring costs of $5.4 millionpretax or $0.02 per diluted share (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP net income and EPS).

"Solid overall sales results for the quarter reflect continued success with our comprehensive offering of products and value-added services that drive internal growth, complemented by strategic acquisitions," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. "Third quarter sales growth was negatively impacted by approximately 30 basis points due to the recent hurricanes in the U.S. as well as a difficult comparable in dental equipment sales as we reported double-digit sales growth in the third quarter of 2016 associated with a successful sales promotion."

Henry Schein is adjusting its 2017 full year EPS guidance range to reflect growth of approximately 12% on a GAAP basis, versus the comparable 2016 results. This reflects growth of 8% to 9% on a non-GAAP basis, which excludes litigation settlement expenses and a fourth quarter loss associated with Henry Schein's divestiture of its equity ownership in E4D Technologies, versus the comparable 2016 results. The Company also is introducing 2018 EPS guidance that reflects growth of 11% to 14% compared with the midpoint of the Company's 2017 GAAP guidance range and 7% to 10% compared with the midpoint of the Company's 2017 non-GAAP guidance range.

"During 2018 and beyond, we expect to continue to make progress with our focus on increasing sales of higher-margin products, as well as improving operating efficiencies to achieve long-term EPS growth," Mr. Bergman added.

Dental sales of $1.5 billion increased 11.1%, consisting of 9.1% growth in local currencies and a 2.0% increase related to foreign currency exchange. In local currencies, internal sales growth was 1.6% and acquisition growth was 7.5%. The 1.6% internal growth in local currencies included 0.8% growth inNorth Americaand 3.2% growth internationally.

"In North America, dental consumable merchandise internal sales growth in local currencies was 1.3%, which was negatively impacted by approximately 140 basis points due to recent hurricanes and the loss of a previously disclosed large DSO contract. We continue to expect stable market growth for dental consumable merchandise," commented Mr. Bergman. "North Americadental equipment internal sales growth in local currencies declined by 0.7%, which was negatively impacted by approximately 170 basis points due to recent hurricanes and the loss of the previously disclosed DSO contract, and reflects a difficult prior-year comparison, when we achieved 13.3% growth. We are fully committed to offering a broad set of solutions to advance digital dentistry, and are pleased with the initial reception from customers in North America following the addition of the full line of Dentsply Sirona dental equipment."

Henry Schein now has access to a comprehensive offering of digital prosthetic equipment solutions and therefore, recently divested its equity investment in E4D Technologies. This is consistent with the Company's strategy to offer a comprehensive selection of dental equipment solutions to customers through an open-architecture market approach. The Company also now has broad access to digital prosthetic materials and as a result, recently divested its ownership position in a company that produces materials used for manufacturing lab restorations and distributes dental products in China. Henry Schein believes it continues to be well-positioned in the global dental lab market, providing solutions for digital restorations that are outsourced to lab facilities. In addition to Dentsply Sirona, Henry Schein will continue to represent the complete lines from other key suppliers, including 3M, 3Shape, A-dec, Danaher, Ivoclar, Midmark, Planmeca, and many others.

Mr. Bergman continued, "In local currencies, international dental consumable merchandise internal sales growth was 3.4% and international dental equipment internal sales growth was 2.6%."

Animal Healthsales of $882.6 million increased 11.7%, consisting of 9.9% growth in local currencies and a 1.8% increase related to foreign currency exchange. In local currencies, internal sales growth was 8.0% and acquisition growth was 1.9%. The 8.0% internal growth in local currencies included 9.0% growth inNorth America, which was negatively impacted by approximately 50 basis points due to recent hurricanes, and 6.9% growth internationally.

"Global Animal Health internal sales growth in local currencies reflects strong execution across our global business," commented Mr. Bergman. "We believe these gains are due to the breadth of our value-added solutions offering, including an enhanced product portfolio featuring software, diagnostic equipment, and surgical instruments."

Medical sales of$690.8 millionincreased 8.0%, consisting of 7.9% growth in local currencies, and a 0.1% increase related to foreign currency exchange. In local currencies, internal sales growth was 7.8%, which was negatively impacted by approximately 25 basis points due to recent hurricanes, and acquisition growth was 0.1%.

"The large group practice segment of the market contributed to solid sales growth in our Medical group during the quarter. This success reflects our commitment to solutions that help customers provide quality care and increase value in the delivery of health care services," remarked Mr. Bergman.

Technology and Value-Added Services sales of $109.0 millionincreased 4.1%, including 3.7% growth in local currencies and a 0.4% increase related to foreign currency exchange. In local currencies, internal sales growth was 3.0% and acquisition growth was 0.7%.

"In North America, Technology and Value-Added Services internal sales growth of 2.0% in local currencies was impacted by lower dental software sales and financial services revenue, which is primarily related to lower dental equipment sales versus the prior year third quarter," said Mr. Bergman. "In international markets, we delivered solid internal sales growth in local currencies of 8.7%, highlighted by strong veterinary software revenue."   

Stock Repurchase Plan
The Company announced that during the third quarter it spent approximately $125.0 million to repurchase approximately 1.4 million shares of its common stock. The impact of the repurchase of shares on third quarter 2017 diluted EPS was immaterial. At the close of the third quarter, Henry Schein had approximately $425.0 million authorised for future repurchases of its common stock.

Year-to-Date Results
Net sales for the first nine months of 2017 were $9.1 billion, an increase of 8.2% compared with the first nine months of 2016. This consisted of 8.4% growth in local currencies and a decline of 0.2% related to foreign currency exchange.  In local currencies, internal sales growth was 5.0% and acquisition growth was 3.4%.

Net income attributable to Henry Schein, Inc. for the first nine months of 2017 was $414.8 million, or $2.61 per diluted share on a GAAP basis, an increase of 12.9% and 17.0%, respectively, compared with the first nine months of 2016. Excluding the second quarter 2017 litigation settlement expense of$5.3 million pretax or$0.02per diluted share, non-GAAP net income attributable to Henry Schein, Inc. for the first nine months of 2017 was $418.0 million or $2.63 per diluted share, an increase of 7.2% and 11.0%, respectively, compared with non-GAAP results for the first nine months of 2016, which excluded restructuring costs (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP net income and EPS).

2017 EPS Guidance
Henry Schein today adjusted its 2017 full year diluted EPS guidance range and now expects the following:

  • 2017 GAAP diluted EPS attributable toHenry Schein, Inc., which includes litigation settlement expenses, is expected to be $3.46 to $3.48. This guidance reflects growth of approximately 12% compared with 2016 GAAP diluted EPS of $3.10. The prior 2017 GAAP diluted EPS guidance range was $3.57 to $3.63.
  • 2017 non-GAAP diluted EPS, which excludes litigation settlement expenses and a fourth quarter loss associated with Henry Schein's divestiture of its equity ownership in E4D Technologies, is expected to be $3.59 to $3.61. This guidance reflects growth of 8% to 9% compared with 2016 non-GAAP diluted EPS of $3.31, which excluded restructuring charges of$0.21per diluted share. The prior 2017 non-GAAP diluted EPS guidance range was$3.59 to $3.65. 
  • 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.

2018 EPS Guidance
Henry Schein today introduced 2018 financial guidance, as follows:

  • 2018 diluted EPS attributable toHenry Schein, Inc.is expected to be $3.85 to $3.96. This guidance reflects growth of 11% to 14% compared with the midpoint of the Company's 2017 GAAP guidance range and growth of 7% to 10% compared with the midpoint of the Company's 2017 non-GAAP guidance range.
  • Guidance for 2018 diluted EPS attributable to Henry Schein, Inc.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.

Third Quarter 2017 Conference Call Webcast
The Company held a conference call to discuss third quarter 2017 financial results on 6th November at 10:00 a.m. Eastern time. Individual investors were invited to listen to the conference call through Henry Schein's website at www.henryschein.com. In addition, a replay will be available beginning shortly after the call has ended.