Henry Schein Beats on Q1 Earnings and Revs - Analyst Blog


Henry Schein, Inc . ( HSIC ) 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.

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 markets, respectively.

Segment Analysis

Henry Schein derives revenues from four operating segments, viz Dental, Medical, Animal Health, and Technology and Value-added services.

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 increased 10.4%.

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.

Margin Trends

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.

Financial Position

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.

Our Take

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.

Zacks Rank

Currently Henry Schein carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical/dental supplies industry include The Cooper Companies Inc. ( COO ), Milestone Scientific Inc. ( MLSS ) and Steris Corp . ( STE ). All the three stocks carry a Zacks Rank #2 (Buy).

COOPER COS (COO): Free Stock Analysis Report

HENRY SCHEIN IN (HSIC): Free Stock Analysis Report


STERIS CORP (STE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: EPS , COO , HSIC , MLSS , STE



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