Henry Schein Inc.
) reported EPS of $1.08 in the second quarter of 2012. However,
after taking into account restructuring costs of $3.4 million or 3
cents per share, adjusted EPS came in at $1.11, up 9.9% year over
year and a penny ahead of the Zacks Consensus Estimate.
Henry Schein reported a 3.3% year-over-year increase in revenues
to $2.2 billion. The revenue growth included 6.5% growth in local
currencies (internal growth of 4.6% and acquisition growth of
1.9%), partially offset by unfavorable foreign currency of
Henry Schein primarily derives revenues from dental, medical,
animal health and technology and value-added services. In the
reported quarter, the company derived $1.2 billion in revenues from
global dental sales, down 1.3% year over year.
This includes a 2.6% increase in local currencies (internally
generated sales of 2.1% and acquisition growth of 0.5%) but a 3.9%
decline related to foreign exchange. The domestic sales growth in
this segment was the strongest in last eight quarters.
In the quarter, the company strengthened its global orthodontics
business with the acquisition of Ortho Technology and Accord. That
latter is expected to establish Henry Schein's presence in
Thailand, thereby strengthening the company's foothold in Southeast
Worldwide medical sales increased 5.9% year over year to $361.1
million (6.6% growth in local currencies but 0.7% dip related to
foreign exchange) on the back of increased penetration of larger
group practices and improved sales of pharmaceutical products in
North America (consisting of over 90% of global medical
sales). Moreover, the company's acquisition of Modern
Laboratory Services in July 2012 is expected to strengthen its
position in the clinical laboratory market in Western U.S.
The company's global animal health segment witnessed an 11.4%
surge in revenues to $586.3 million, including 14.9% growth in
local currencies and a 3.5% decline related to foreign currency
exchange. This resulted from the company's increased product
offerings to its customers.
During the quarter, Henry Schein completed the acquisition of
AUV Veterinary Services B.V, the veterinary products distribution
arm of Netherlands-based AUV Group. The acquisition enabled the
company to expand in the Dutch and Belgian animal health
Revenues from technology and value-added services climbed 9.8%
year over year to $68.2 million. This included a 10.6% growth in
local currencies offset by a 0.8% decline related to foreign
Gross margin during the quarter was 28.4%, down 30 basis points
year over year. Operating margin was 7.1%, unchanged year over
Henry Schein exited the quarter with cash and cash equivalents
of $87.9 million compared with $147.3 million at the end of fiscal
2011. During the reported quarter, the company repurchased 1.6
million shares for $118.3 million and was left with $143.1 million
of authorization for future repurchases.
Henry Schein reiterated its fiscal 2012 EPS guidance of
$4.30−$4.40, representing growth of 8%−11%. The current Zacks
Consensus Estimate of $4.36 remains within the guided range.
Guidance for 2012 excludes restructuring costs.
We are encouraged with the company's balanced revenue growth
across all the four segments leading to long-term growth
sustainability even amid slow economic growth. The company
continues to drive strong top-line growth and establish domestic
and international footprints in dental, animal health and medical
However, this was to some extent counter-weighed by
unfavorable foreign exchange headwinds. Despite the global
macroeconomic headwinds; aging population, growing demand in dental
and animal health market and improved health insurance coverage are
working in favor of the company.
However, competition in the Dental market from the likes of
Patterson Companies Inc.
) remains tough. Currently, Henry Schein retains a short-term Zacks
#3 Rank (Hold).
HENRY SCHEIN IN (HSIC): Free Stock Analysis
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