Henry Schein, Inc.
) reported earnings per share (EPS) of $1.35 in the second-quarter
of 2014, up 9.8% from the year-ago adjusted number of $1.23.
Results also beat the Zacks Consensus Estimate of $1.33 by 1.5%.
The earnings improvement came on the back of solid revenue growth
and lower year-over-year effective tax rate.
However, the positive earnings surprise failed to boost
investors' confidence. Share price declined 1.8% since the earnings
release to eventually close at $115.31 yesterday.
Henry Schein's net income was $116.2 million or $1.35 per share,
up 7.2% or 9.8% year over year in the reported quarter.
Henry Schein, Inc - Earnings Surprise |
Revenues in Detail
Henry Schein reported revenues of $2.62 billion in the second
quarter, increasing 9.3% year over year. The top line also beat the
Zacks Consensus Estimate by 1.8%. The year-over-year improvement
was led by 7.9% growth in local currencies with 4.3% and 3.6% rise
in internal sales and acquisitions, respectively. Favorable foreign
exchange accounted for a strong 1.4% growth.
Region-wise, Henry Schein experienced solid 13.2% and 7.2%
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 second quarter, the company derived $1.4 billion in
revenues from global Dental sales, up 8.6% year over year. The
segment's revenues included local currency growth of 7.5% and 1.1%
related to favorable foreign exchange. Local currency growth
comprised acquisition growth of 4.9% combined with internal sales
rise of 2.6%. The 2.6% internal growth in local currencies included
4.3% growth in North America and flat International sales growth.
The dental franchise witnessed an improvement of 8.4% in North
America while international sales increased 9.1%.
The company's global Animal Health segment witnessed 13.2%
improvement in revenues to $754.5 million. This was owing to local
currency growth of 10.7%, along with 2.5% growth related to foreign
currency exchange. The local currency growth included 7.3% growth
in internal sales and 3.4% acquisition growth. The 7.3% internal
growth in local currencies included 7.9% growth in North America
and 6.8% growth internationally. Franchise revenues increased 7.9%
in North America while overseas revenues jumped 18.4%.
Worldwide Medical sales scaled up 4.0% year over year to $403.3
million based on local currency growth of 3.7%. Revenues from
global Technology and Value-added Services climbed 14.2% to $89.1
million. This included a 13.2% rise in local currencies, with
acquisition growth of 3.9% and internal sales improvement of
Gross profit increased 8.8% to $728.5 million in the second
quarter of 2014. Gross margin slightly dropped 10 basis points
(bps) to 27.9% from the year-ago quarter equivalent, primarily
driven by changes in sales mix in Henry Schein's businesses across
all of its four groups of businesses.
Although selling, general & administrative expenses spiked
10.9% to $547.6 million, operating income increased 2.7% year over
year to $180.8 million. However, operating margin declined roughly
50 bps to 6.9% in the reported quarter.
Henry Schein exited the second quarter with cash and cash
equivalents of $89.7 million, down from $188.6 million at the end
of 2013. In the reported quarter, net cash flow from operating
activities was $199.2 million, down 27.5% year over year.
During the quarter under review, the company repurchased
approximately 654,000 shares for $76.1 million and was left with
$148 million of future authorization. repurchases.
Henry Schein has narrowed its EPS guidance for 2014. The company
now expects EPS in the range of $5.33-$5.39 representing annualized
growth of 8%-9% (previous guidance: $5.29-$5.39 representing
annualized growth of 7%-9%). The Zacks Consensus Estimate for 2014
is pegged at $5.37, which lies within the company's guided
We are impressed with Henry Schein's second-quarter 2014
financial results which modestly beat the Zacks Consensus Estimate
on both top and bottom-line fronts. 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.
With the flu season knocking on the door, the company is already
receiving an impressive number of pre booking of seasonal influenza
vaccines, in line with the previous year. Additionally, as a result
of the recent strategic agreement signed with athenahealth, Inc. (
), more advanced technology-driven solutions will now be available
to Henry Schein's customers.
However, these positive factors are not without the threat of
the current economic scenario along with a tough competitive
landscape and currency headwinds, that might hamper the company's
operational and stock performance.
Currently, both Henry Schein and athenahealth carry a Zacks Rank
#3 (Hold). Some better-ranked stocks in the medical/dental supplies
industry include McKesson Corporation (
) and Align Technology Inc. (
). Both these stocks carry a Zacks Rank #2 (Buy).
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