Henry Schien Inc
) lost 3.3% since it announced a lower-than-expected
third-quarter 2013 result.
The company reported adjusted earnings per share (EPS) of $1.22
in the third quarter of 2013, up 12.9% year over year. However,
the results missed the Zacks Consensus Estimate of $1.40.
Quarter in Detail
Henry Schein reported revenues of $2.34 billion in the third
quarter, increasing 5.3% year over year. Nevertheless, the top
line fell below the Zacks Consensus Estimate of $2.36 billion.
The surge in revenues was led by 5.2% growth in local currencies
with 3.4% and 1.8% rise in internal sales and acquisitions,
respectively. Favorable foreign exchange accounted for a nominal
Segments in Detail
Henry Schein derives revenues from four operating segments, viz
Dental, Medical, Animal Health and Technology and Value-added
In the third quarter, the company derived $1.18 billion in
revenues from global Dental sales, up 5.7% year over year.
Segment revenues include local currency growth of 5.2% which
comprises acquisition growth of 2.2%, combined with internal
sales rise of 3.0%. Revenue performance was also supported by
growth of 0.5% related to foreign exchange tailwinds. The
franchise witnessed an improvement of 4.4% in North America while
international sales increased 8.1%.
Worldwide Medical sales increased 0.5% year over year to $444.5
million based on internal sales growth of 0.3%. Acquisitions had
no impact. Foreign exchange movement aided a rise of 0.2% in
segment results. Overseas business revenues declined, while in
North America, the franchise, generated majority of the sales.
The company's global Animal Health segment witnessed 7.4%
improvement in revenues to $642.2 million. This was owing to 8%
surge in local currencies with internal sales rise of 5.9%, along
with acquisition growth of 2.1% and an impact of 0.6% from
foreign exchange tailwinds. The franchise revenues rose 10.4% in
North America while overseas revenues scaled up 4.8%.
Revenues from global Technology and Value-added Services climbed
11.2% to $78.9 million. This included 11.8% rise in local
currencies with acquisition growth of 3.3% and internal sales
growth of 8.5%. At the same time, the positives were offset by a
0.6% dip from foreign exchange headwinds. While the segment
revenues in North America shot up 10.9%, international revenues
grew 13% in the quarter. The segment registered healthy growth on
account of rise in electronic services, reoccurring revenues and,
Gross profit increased 4.9% to $0.63 million in the third quarter
of 2013. However, the gross margin came in at 27.0%, remaining
flat with the year ago quarter.
The operating margin expanded 13 basis points year over year to
6.8%. This was primarily driven by a 4.35% rise in selling
general & administrative expenses to reach $0.47 million.
According to the company, a reduction in operating margin was
partially neutralized by a lower gross margin due to product mix.
Exiting the third quarter, Henry Schein had cash and cash
equivalents of $69.91 million, down from $122.1 million at the
end of 2012. Operating cash flow was $152.8 million, up 94.6%
year over year.
During the reported quarter, the company bought back 730,000
shares for $75 million and was left with $74 million of
authorization for future repurchases.
Henry Schein reiterated its guidance for 2013. The company
envisages adjusted EPS in the range of $4.86−$4.91, representing
growth of 9% to 11% year over year, compared with the prior
guidance of $4.81−$4.91. The current Zacks Consensus Estimate of
$4.89 lies within the guided range.
The company provided its guidance for 2014 as well. It expects
adjusted EPS to be in the range of $5.37-$5.47, representing
growth of 10% to 12%.The Zacks Consensus Estimate for 2014 is
pegged at $5.42 per share, which also lies at the midpoint of the
Although Henry Schein missed the Zacks Consensus Estimate on both
top and bottom lines, the year-over-year growth at both fronts is
indicative of the company's consistent growth via organic and
inorganic means. We are encouraged to find that in spite of the
austerity measures in Europe, HSIC continues to garner market
share in the Dental segment. Moreover, the recent strategic
acquisition announced on Oct 29, 2013 to enter South Africa,
along with plans to expand global footprint is expected to act as
a growth catalyst. Strong sales are also expected from E4D NEVO
scanner in the Dental business as dentists have responded
positively to the product.
However, these positive factors face the threat of the current
economic scenario that can pose difficulties for Henry Schein in
the near term. The austerity measures across Europe continue to
adversely affect the healthcare industry. A tough competitive
landscape and currency headwinds are also likely to weigh heavily
on the company's operational and stock performance.
Currently the stock carries a Zacks Rank #3 (Hold). Other stocks
that are worth a look include
Align Technology Inc.
) each carrying a Zacks Rank #1 (Strong Buy) as well as
Cardinal Health, Inc.
) carrying a Zacks Rank #2 (Buy).
ALIGN TECH INC (ALGN): Free Stock Analysis
CARDINAL HEALTH (CAH): Free Stock Analysis
HENRY SCHEIN IN (HSIC): Free Stock Analysis
MCKESSON CORP (MCK): Free Stock Analysis
To read this article on Zacks.com click here.