Henry Schein Inc. ( HSIC ) reported
adjusted earnings per share (EPS) of $1.06 in the first quarter of
2013, missing the Zacks Consensus Estimate by a penny, despite 8.2%
year over year growth. The result also underlines the first
earnings miss for the company after five straight quarters of
positive earnings surprise.BECTON DICKINSO (BDX): Free Stock Analysis
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As reported earlier, Henry Schein refinanced the debt of roughly
$220 million associated with Butler Schein Animal Health
transaction in a bid to reduce its interest expense. As expected,
the refinancing closed by the end of the first quarter of 2013.
After including the 3 cents associated with Henry Schein' s
refinancing initiatives, reported EPS was $1.03 compared with 89
cents in the year-ago quarter.
Quarter in Detail
Henry Schein reported revenues of $2.29 billion in the quarter, up
9.3% year over year. Also, the quarterly revenues were marginally
ahead of the Zacks Consensus Estimate of $2.25 billion. The surge
in revenues was led by 9.2% growth in local currencies with a 3.3%
and 5.9% rise in internal sales and acquisition, respectively.
Unfavorable foreign currency exchange muted the local currency
growth by 0.1%.
Henry Schein 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, up 3% year over year. This includes growth of 2.9% from
local currencies due to acquisition growth of 3.2% offset by
internal sales decline of 0.3% and growth of 0.1% related to
foreign exchange tailwinds. The franchise witnessed 1.9% growth in
North America while international sales improved 4.7% for the
Worldwide medical sales shot up 9.6% year over year to $388.9
million reflecting 9.5% growth in local currencies based on
acquisition growth of 1.2% coupled with internal sales growth of
8.3% and rise of 0.1% due to favorable foreign exchange. Henry
Schein recorded hike of 10.4% for its medical franchise in North
America whereas, overseas business revenues decreased 2.5%.
The company's global animal health segment witnessed 21.6% growth
in revenues to $639.1 million in the quarter, including 21.7% surge
in local currencies with internal sales growth of 6.8% along with
acquisition growth of 14.9% and a negative impact of 0.1% related
to foreign currency exchange. The franchise revenues rose 14.9% in
North America while overseas revenues for the animal health segment
recorded 28.5% growth.
Revenues from technology and value-added services climbed 18.7% to
$74.7 million. This included 18.9% growth in local currencies with
acquisition growth of 7.2% and internal sales growth of 11.7%
offset by a 0.2% dip from foreign exchange headwinds. While
revenues in North America shot up 17.3%, international revenue
growth for the segment was 27.9% in the quarter.
Gross margin in the quarter was 28.2%, down 88 basis points (bps)
year over year. This was primarily due to unfavorable product mix
as sales of lower-margin animal health products accelerated along
with acquisition of low margin business. Adjusted operating margin
(excluding restructuring costs in the quarter) was 6.7%, down 22
bps from the year-ago quarter.
Exiting first quarter of 2013, Henry Schein had cash and cash
equivalents of $90.6 million, down from $122.1 million at the end
of 2012. During the reported quarter, the company repurchased
840,000 shares for $73.5 million and was left with $227 million of
authorization for future repurchases. Despite the considerable
share repurchase activity, its impact on the bottom-line was
Henry Schein reiterated guidance for 2013. The company envisages
adjusted EPS in the range of $4.81−$4.91, representing growth of
8%−11% year over year. The current Zacks Consensus Estimate of
$4.87 lies within the guided range.
Henry Schein reported healthy year over year growth in the first
quarter. However, the earnings miss was a downside. Margin pressure
in the quarter was another headwind. Nonetheless, we are encouraged
to note the solid segment growth, especially for the animal health
franchise. Given that the animal health market is the company's
fastest growing market, we expect accelerated growth going
Notably, the European economy remains an overhang for Henry
Schein. The industry is plagued by pricing pressure and competitive
tussle for market share gains. We still believe that the company's
diversified business offers resilience against macroeconomic
volatility and a tough competitive landscape.
The stock carries a Zacks Rank #3 (Hold). While we have a neutral
stance on Henry Schein, we believe that other stocks such as
Becton, Dickinson and Company ( BDX ), The
Cooper Companies ( COO ) and West
Pharmaceutical Services Inc. ( WST ) are worth
considering. These stocks carry a Zacks Rank #2 (Buy).