Henry Schein, Inc
) reported earnings per share (EPS) of $1.18 in the first-quarter
of 2014, up 11.3% from the year-ago adjusted EPS of $1.06.
Results also beat the Zacks Consensus Estimate of $1.13 by 4.4%.
Without considering these adjustments, the company reported EPS
of $1.03 in the first quarter of 2013.
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However, following the earnings announcement, Henry Schein's
share price dropped 1.4% to $113.62 on May 6.
Revenues in Detail
Henry Schein reported revenues of $2.43 billion in the first
quarter, increasing 6.1% year over year. The top line edged past
the Zacks Consensus Estimate of $2.42 billion. The year-over-year
improvement was led by 5.6% growth in local currencies with 2.9%
and 2.7% rise in internal sales and acquisitions, respectively.
Favorable foreign exchange accounted for a nominal 0.4% growth.
Region-wise, Henry Schein experienced solid 8.4% and 4.5%
year-over-year growth in the international and North American
Henry Schein derives revenues from four operating segments, viz
Dental, Medical, Animal Health, and Technology and Value-added
In the first quarter, the company derived $1.3 billion in
revenues from global Dental sales, up 8.9% year over year. The
segment's revenues included local currency growth of 8.6%, which
comprised acquisition growth of 5.1% combined with internal sales
rise of 3.5%. The 3.5% internal growth in local currencies
included 3.6% growth in North America and 3.3% in International.
Revenue performance was also supported by growth of 0.3% related
to favorable foreign exchange. The franchise witnessed an
improvement of 7.9% in North America while international sales
Worldwide Medical sales scaled up 2.2% year over year to $397.4
million based on local currency growth of 2%. The 2%
internal growth in local currencies included 2% growth in North
America and 0.9% in International. Foreign exchange movement
aided a rise of 0.2% in the segment's results. Despite adverse
weather conditions impacting sales growth in this segment,
management remains optimistic about the Medical segment's growing
market share. The franchise witnessed an improvement of 2% in
North America while international sales climbed 5%.
The company's global Animal Health segment witnessed 2.4%
improvement in revenues to $654.5 million. This was owing to
local currency growth of 2%, along with 0.4% growth related to
foreign currency exchange. The 2% local currency growth included
a slight decline of 0.4% in North America offset by 4.2% growth
internationally. Franchise revenues dropped 0.4% in North
America, owing to unfavorable weather conditions, while overseas
revenues scaled up 5%.
Revenues from global Technology and Value-added Services climbed
8.9% to $81.3 million. This included an 8.6% rise in local
currencies with acquisition growth of 2.4% and internal sales
improvement of 6.2%. Foreign exchange movement aided a rise of
0.3% in segment results. The 6.2% local currency growth included
4.8% growth in North America and 14.2% growth internationally.
While the segment's revenues in North America rose 4.7%,
international revenues surged 33.1% in the quarter.
Gross profit increased 7.7% to $696.7 million in the first
quarter of 2014. Gross margin was up 50 basis points (bps) to
28.7% from the year-ago quarter equivalent.
Although selling, general & administrative expenses spiked
9.3% to $539.4 million, operating income increased approximately
2.4% year over year to $157.3 million. However, operating margin
declined roughly 20 bps to 6.5% in the reported quarter.
Henry Schein exited the first quarter with cash and cash
equivalents of $129.1 million, down from $188.6 million at the
end of 2013. In the reported quarter, net cash used in operating
activities was $55.2 million, up 45.3% year over year. The
company also reported total long-term debt of $106 million as of
Mar 29, 2014.
During the quarter under review, the company bought back
approximately 647,000 shares for $75.3 million, at an average
price of $116.34 per share and was left with $225 million of
authorization for future repurchases.
Henry Schein reaffirmed its EPS guidance for 2014. The company
still expects EPS in the range of $5.29-$5.39 (or annualized
growth of 7%-9%). This EPS guidance takes into account Henry
Schein's current continuing operations as well as completed or
previously announced acquisitions and does not include the impact
of potential future acquisitions, if any. The Zacks Consensus
Estimate for 2014 is pegged at $5.36, which lies within the
company's guided range.
Henry Schein has begun year 2014 on a successful note beating the
Zacks Consensus Estimate for both the top and the bottom line.
Year-over-year growth on both fronts is also indicative of the
company's consistent growth via organic and inorganic means
across all its segments. We are, at the same time, encouraged by
the global performance of the company during the first quarter.
We believe that the stabilization of the European market and the
acquisition of BioHorizons, Camlog, Arseus and Lincoln Dental
Supply will enhance the performance of the company's dental
segment. The strategic investments made by Planmeca in the
company's E4D technologies has benefited Henry Schein in its
distribution of E4D products. We are optimistic that the company
will acquire a larger market share in E4D in the near future.
Moreover, the Medivet acquisition, which is roughly 80% complete
in Poland, will help the company to expand its Animal Health
market in Eastern Europe.
However, these positive factors are not without the threat of the
current economic scenario that can pose difficulties for Henry
Schein in the near term. A tough competitive landscape and
currency headwinds are likely to weigh heavily on the company's
operational and stock performance.
Currently Henry Schein carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the medical/dental supplies industry
The Cooper Companies Inc.
Milestone Scientific Inc.
). All the three stocks carry a Zacks Rank #2 (Buy).