Henry Schein, Inc. reported financial results for the second quarter of 2016. Net sales for the quarter ended June 25, 2016 were $2.9 billion, an increase of 9.3 per cent compared with the second quarter of 2015. This consisted of 9.7 per cent growth in local currencies and a 0.4 per cent decline related to foreign currency exchange. In local currencies, internally generated sales increased 7.6 per cent and acquisition growth was 2.1 per cent.
Net income attributable to Henry Schein, Inc. for the second quarter of 2016 was $120.1 million ($1.46 per diluted share). This represents growth of 1.8 per cent and 4.3 per cent, respectively, compared with the second quarter of 2015. Our second quarter results include the favourable effect of a proposed tax audit settlement resulting in a reduction in income tax expense of $4.5 million, or approximately $0.05 per diluted share. Excluding restructuring costs of $20.4 million pre-tax, or $0.18 per diluted share, adjusted net income attributable to Henry Schein, Inc. for the second quarter of 2016 was $135.4 million ($1.64 per diluted share). This represents growth of 9.9 per cent and 12.3 per cent, respectively, compared with the second quarter of 2015, excluding restructuring costs.
“North America dental sales were below our expectations in the second quarter; however, sales in our Medical, Animal Health and Technology and Value-Added Services businesses were strong,” said Mr. Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. “Our business model has served us well during periods of sustained economic expansion, as well as in times of uncertainty in our markets. We believe our business model and strategic plan, including our continued investments, will drive our growth over the long term, and we remain extremely well-positioned in each of the vertical markets we serve.”
Dental sales of $1.4 billion increased 4.0 per cent, consisting of 4.1 per cent growth in local currencies and a 0.1 per cent decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.8 per cent and acquisition growth was 1.3 per cent. The 2.8 per cent internal growth in local currencies included 2.0 per cent growth in North America and 4.2 per cent growth internationally.
“North America dental sales reflect softness in the US that began in early June. North America dental consumable merchandise internal sales growth in local currencies was 1.8 per cent, and equipment sales and service internal sales growth in local currencies was 2.7 per cent. Although this sales growth was lower than expected, we believe we have a successful and proven model of delivering value-added solutions to our customers and we have increased our focus on delivering better sales results,” commented Mr. Bergman. “International consumable merchandise internal sales growth in local currencies of 4.5 per cent was solid. International equipment sales and service internal sales in local currencies increased 3.1 per cent over the prior year. Our international dental sales growth was driven by strength in Italy, France and Spain.”
“During the second quarter we announced an investment in Custom Automated Prosthetics (CAP), a US digital laboratory supply company offering CAD/CAM equipment and zirconia materials. The integration of CAP with Zahn Dental and our Custom Milling Centre furthers our commitment to providing our dental laboratory customers with a greater selection of digital equipment, materials and services,” he added.
Animal Health sales of $853.6 million increased 14.0 per cent, consisting of 15.2 per cent growth in local currencies and a 1.2 per cent decline related to foreign currency exchange. In local currencies, internally generated sales increased 11.8 per cent and acquisition growth was 3.4 per cent. The 11.8 per cent internal growth in local currencies included 18.8 per cent growth in North America and 4.9 per cent growth internationally.
“Normalising Animal Health results to account for the impact of certain products switching between agency sales and direct sales, internal sales growth in local currencies was 8.2 per cent in the second quarter, including 11.4 per cent growth in North America,” commented Mr. Bergman. “International local currency sales during the second quarter were up nearly 12 per cent with organic growth complemented by acquisition growth.”
Medical sales of $538.8 million increased 14.5 per cent, all internally generated and with no material impact from foreign currency exchange.
“Normalising results for the impact of agency sales in the prior year, North America Medical internal sales growth was approximately 10.4 per cent. This represents the sixth consecutive quarter of double-digit sales gains and reflects our continued success with large group practices, including Integrated Delivery Networks,” remarked Mr. Bergman.
Technology and Value-Added Services sales of $107.0 million increased 19.6 per cent, including 20.4 per cent growth in local currencies and a 0.8 per cent decline related to foreign currency exchange. In local currencies, internally generated sales increased 8.1 per cent and acquisition growth was 12.3 per cent.
“North America Technology and Value-Added Services internal sales growth was 8.5 per cent in local currencies and matched the highest quarterly growth rate in more than three years. International internal sales growth in local currencies was 6.4 per cent,” commented Mr. Bergman. “Strategic acquisitions have bolstered our market share in this business, as sales in local currencies increased by more than 21 per cent in North America during the second quarter and by nearly 15 per cent internationally.”
Stock repurchase plan
The company announced that it repurchased approximately 337,000 shares of its common stock during the second quarter at an average price of $169.41 per share, or approximately $57 million. The impact of the repurchase of shares on second quarter diluted EPS was immaterial. At the close of the second quarter, Henry Schein had approximately $243 million authorised for future repurchases of its common stock.
Year-to-date results
Net sales for the first half of 2016 were $5.6 billion, an increase of 9.7 per cent compared with the first half of 2015. This consisted of 10.8 per cent growth in local currencies and a decline of 1.1 per cent related to foreign currency exchange. In local currencies, internally generated sales increased 8.4 per cent and acquisition growth was 2.4 per cent.
Net income attributable to Henry Schein, Inc. for the first half of 2016 was $233.8 million ($2.83 per diluted share), an increase of 5.6 per cent and 8.0 per cent, respectively, compared with the first half of 2015. Excluding restructuring costs of $24.4 million pre-tax or $0.22 per diluted share, net income attributable to Henry Schein, Inc. for the first half of 2016 was $252.2 million or $3.05 per diluted share, an increase of 8.9 per cent and 11.3 per cent, respectively, compared with the first half of 2015, excluding restructuring costs.
2016 EPS Guidance
Henry Schein today adjusted 2016 financial guidance, as follows:
- Adjusted diluted EPS attributable to Henry Schein, Inc. is expected to be $6.55 to $6.60 for 2016, which represents growth of 10 to 11 per cent compared with 2015 adjusted diluted EPS of $5.96. Adjusted diluted EPS excludes restructuring costs. This compares with previous guidance for 2016 adjusted diluted EPS of $6.55 to $6.65. This revised guidance reflects ongoing uncertainty related to the recent Brexit vote, the strength of the US dollar and a cautious view of the North America dental market.
- Guidance is presented on a non-GAAP basis only, given that the company cannot reasonably project restructuring costs for the second half of 2016. For the same reasons, the company is unable to address the probable significance of the unavailable information.
- Guidance for 2016 adjusted 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, or restructuring costs. Guidance also assumes foreign exchange rates that are generally consistent with current levels.
- The company now expects that restructuring initiatives will continue into the second half of the year as it continues to lower costs in light of market uncertainties. At this time, we are not able to provide estimates for the impact of the restructuring on 2016 financial results.
