August 7, 2019
by Henry Schein
Henry Schein, Inc. (Nasdaq:HSIC), the world’s largest provider of health care solutions to office-based dental and medical practitioners, today reported record second quarter financial results from continuing operations. Results from continuing operations exclude contributions from Henry Schein’s former Animal Health business, which was spun off in February 2019 to form a new publicly traded company, Covetrus.
Net sales from continuing operations for the quarter ended June 29, 2019, were $2.4 billion, an increase of 5.7% compared with the second quarter of 2018. The 5.7% increase consisted of 7.8% growth in local currencies and a 2.1% decline related to foreign currency exchange. In local currencies, internally generated sales increased 3.5% and growth from acquisitions was 4.3%. Excluding approximately $23.9 million in low-margin corporate revenues from product sales to Covetrus under the transition services agreement entered into in connection with the Animal Health spin-off, internal sales growth in local currencies was approximately 2.4% (see Exhibit A for details of sales growth).
Net income attributable to Henry Schein, Inc. from continuing operations for the second quarter of 2019 was $116.8 million, or $0.78 per diluted share, compared with prior-year net income from continuing operations of $110.6 million, or $0.72 per diluted share. Non-GAAP net income from continuing operations for the second quarter of 2019 was $125.7 million, or $0.84 per diluted share, compared with non-GAAP net income from continuing operations of $117.0 million, or $0.76 per diluted share, for the second quarter of 2018. Non-GAAP results for the second quarter of 2019 and 2018 exclude certain costs noted in Exhibit B, which provides a reconciliation of GAAP net income and diluted EPS from continuing operations to non-GAAP net income and diluted EPS from continuing operations.
“We are pleased to deliver solid year-over-year growth in earnings per share from continuing operations in the second quarter of 8.3% on a GAAP basis and 10.5% on a non-GAAP basis. This growth reflects our progress with infrastructure optimization as we position Henry Schein for continued gains in the global dental and medical markets. Softness in North America Dental and Technology and Value-Added Services sales was offset by solid growth in dental sales in the DACH region, dental specialty sales and medical sales,” said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.
“Although we believe second quarter growth in the U.S. dental end market was slower than in recent quarters, we note that market growth rates in any particular quarter may vary, and we had a difficult comparable in the prior year. We affirm our belief that the global dental and medical markets remain generally stable, and that we are well positioned to continue to grow our presence in the end markets we serve.”
Dental sales of $1.6 billion decreased 0.7%, consisting of 2.1% growth in local currencies and a 2.8% decline related to foreign currency exchange. In local currencies, internally generated sales increased 0.7% and growth from acquisitions was 1.4%. The 0.7% internal growth in local currencies included 0.3% growth in North America and 1.3% growth internationally.
“In North America, second quarter dental consumables internal sales growth of 1.3% in local currencies compares with a prior-year quarter that had strong sales growth of 4.7%, and is reflective of relatively low end market growth, yet we believe Henry Schein grew slightly faster than the market. Dental equipment internal sales declined by 2.9% in local currencies in the second quarter, mainly due to a decline in high-tech equipment sales,” commented Mr. Bergman.
“Internationally, dental consumables internal sales in local currencies grew by 2.3% and dental equipment internal sales in local currencies declined by 2.0%,” Mr. Bergman continued. “While we generated solid double-digit equipment sales growth in the second quarter in Germany and surrounding countries following the International Dental Show in March, this was offset by significantly lower sales in Brazil related to a change in our business model.”
Medical sales of $697.6 million increased 13.6%, consisting of 13.8% growth in local currencies and a 0.2% decline related to foreign currency exchange. In local currencies, internally generated sales increased 7.6% and growth from acquisitions was 6.2%.
“We are pleased with Medical internal sales growth of 7.6% in local currencies during the second quarter,” remarked Mr. Bergman. “Solid organic growth was complemented by our recent acquisition of North American Rescue. We believe our Medical group is well-positioned with large group practices, independent physician offices and alternate sites of care, with strong customer relationships in each category contributing to our growth.”
Technology and Value-Added Services sales from continuing operations of $125.1 million increased 39.9%, consisting of 41.2% growth in local currencies and a 1.3% decline related to foreign currency exchange. In local currencies, internally generated sales declined by 1.1% and growth from acquisitions was 42.3%. Growth from acquisitions was driven by the formation of Henry Schein One in the third quarter of 2018. Beginning in the third quarter of 2019, sales from Henry Schein One will be a component of internal sales growth.
“North America Technology and Value-Added Services internal sales growth in local currencies declined by 1.8% on an as-reported basis. When normalizing for product switches from direct to agency sales and an ongoing transition of our technology platform to a cloud-based SaaS model, internal sales growth in local currencies increased by 0.7%. The year-over-year growth rate was negatively impacted by a decline in dental equipment sales, which led to lower financial services revenue.
“Internationally, internal Technology and Value-Added Services sales increased by 1.9% in local currencies. We are excited about the foundation we are building with Henry Schein One to deliver end-to-end management and marketing systems to improve digital dental practice workflow and the entire patient experience so that our customers build more successful and efficient practices,” said Mr. Bergman.
Stock Repurchase Plan
The Company repurchased approximately 1.2 million shares of its common stock during the second quarter at an average price of $64.95 per share, for a total of approximately $77 million. The impact of the repurchase of shares on second quarter 2019 diluted EPS was immaterial. At the end of the second quarter of 2019, Henry Schein had approximately $173 million authorized and available for future stock repurchases.
Net sales from continuing operations for the first half of 2019 were $4.8 billion, an increase of 4.8% compared with the first half of 2018. This consisted of 7.2% growth in local currencies and a decline of 2.4% related to foreign currency exchange. In local currencies, internally generated sales increased 3.9% and growth from acquisitions was 3.3%.
Net income attributable to Henry Schein, Inc. from continuing operations for the first half of 2019 was $235.2 million, or $1.56 per diluted share, compared with net income from continuing operations of $222.2 million, or $1.44 per diluted share in the first half of 2018. Non-GAAP net income from continuing operations for the first half of 2019 was $246.3 million, or $1.64 per diluted share, compared with non-GAAP net income from continuing operations of $230.6 million, or $1.50 per diluted share, for the first half of 2018. Non-GAAP results for the first half of 2019 and 2018 exclude certain items noted in Exhibit B, which provides a reconciliation of GAAP net income and diluted EPS from continuing operations to non-GAAP net income and diluted EPS from continuing operations.
Henry Schein previously disclosed a comprehensive restructuring initiative designed to increase profitability by improving business efficiencies, reducing redundancies and maximizing the Company’s infrastructure. The Company recorded a pretax restructuring charge in the second quarter of 2019 of $11.9 million, or $0.06 per diluted share. For the first half of 2019, Henry Schein recorded a pretax restructuring charge of $16.6 million, or $0.08 per diluted share. These charges primarily include severance pay and facility closing costs. This restructuring program is now complete and we do not expect to record any additional restructuring costs in the second half of 2019.
2019 EPS Guidance
For 2019, Henry Schein today provided GAAP financial guidance and affirmed non-GAAP financial guidance. The Company’s Animal Health business was spun off to shareholders as of February 7, 2019, and that business is classified as a discontinued operation for all current and prior periods presented. Guidance is as follows:
Second Quarter 2019 Conference Call Webcast
The Company will hold a conference call to discuss second quarter 2019 financial results today, beginning at 10:00 a.m. Eastern time. Individual investors are 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.
About Henry Schein, Inc.
Henry Schein, Inc. (Nasdaq: HSIC) is a solutions company for health care professionals powered by a network of people and technology. With approximately 19,000 Team Schein Members worldwide, the Company’s network of trusted advisors provides more than 1 million customers globally with more than 300 valued solutions that improve operational success and clinical outcomes. Our Business, Clinical, Technology, and Supply Chain solutions help office-based dental and medical practitioners work more efficiently so they can provide quality care more effectively. These solutions also support dental laboratories, government and institutional health care clinics, as well as other alternate care sites.
Henry Schein operates through a centralized and automated distribution network, with a selection of more than 120,000 branded products and Henry Schein private-brand products in stock, as well as more than 180,000 additional products available as special-order items.
A FORTUNE 500 Company and a member of the S&P 500® and the Nasdaq 100® indexes, Henry Schein is headquartered in Melville, N.Y., and has operations or affiliates in 32 countries. The Company’s sales from continuing operations reached $9.4 billion in 2018, and have grown at a compound annual rate of approximately 13 percent since Henry Schein became a public company in 1995.
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