HSIC

Henry Schein, Inc. (HSIC)

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Henry Schein (HSIC)

Q3 2010 Earnings Call

October 29, 2010 10:00 am ET

Executives

Steven Paladino - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Executive Director

Susan Vassallo - Vice President of Corporate Communications

Stanley Bergman - Executive Chairman and Chief Executive Officer

Analysts

Lisa Gill - JP Morgan Chase & Co

Robert Jones - UBS

Steven Valiquette - UBS Investment Bank

Lawrence Marsh - Barclays Capital

Albert Rice - Susquehanna Financial Group, LLLP

Glen Santangelo - Crédit Suisse AG

John Kreger - William Blair & Company L.L.C.

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the Henry Schein Third Quarter Conference Call. [Operator Instructions] I would now like to introduce your host for today's call, Susan Vassallo, Henry Schein's Vice President of Corporate Communications. Please go ahead, Susan.

Susan Vassallo

If you have not received a copy of our earnings news release, you can access it on our website at henryschein.com. With me this morning are Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein; and Steven Paladino, Executive Vice President and Chief Financial Officer.

Before we begin, I would like to state that certain comments made during this call include information that is forward-looking. As you know, risks and uncertainties involved in the company’s business may affect the matters referred to in forward-looking statements. As a result, the company's performance may differ from those expressed in, or indicated by, such forward-looking statements. Also, these forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's Securities and Exchange Commission filings. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, October 29, 2010. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. I ask that during the Q&A portion of today's call you limit yourself to a single question and a follow-up before returning to the queue. This will provide the opportunity for as many listeners as possible to ask a question within the one-hour we have allotted for this call.

With that said, I'd like to turn the call over to Mr. Stanley Bergman.

Stanley Bergman

Thank you, Susan, and good morning, everyone. Again, sorry for the delay, we had a telephone issue. And thank you for calling in.

Today we are most pleased to be reporting strong top line growth. In local currencies for the third quarter of 2010, as we continue to see indications of market stability throughout our global business and in fact some of the markets in growing. We are pleased to increase the low end of our 2010 financial guidance and also to introduce guidance for 2011. Of course, on a diluted EPS basis. And for 2011, based on the way we expect 2010 to end, we expect the growth to be in the 10% to 13% range compared to the midpoint of our 2010 guidance.

In a moment, I'll provide commentary on each of our five businesses as well as discuss two strategic transactions we recently announced. But before I go into that and give you further flavor, let Steve Paladino, our CFO, provide our shareholders and people calling in today with an overview of our quarterly financial results.

Steven Paladino

Thank you, Stan, and good morning, everyone. I'm also pleased to be resulting strong results for the third quarter of 2010. Before we begin, I'd like to point out that the prior year's third quarter results reflect a net benefit of $21 million, or $0.23 per diluted share that relates to last year's overseas tax restructuring benefit net of associated expenses. Again, this is in the prior year, our current year results do not include any of these items. So I'll be providing growth rates compared to the prior year excluding these unusual items as non-GAAP and exhibit B to our earnings release that was issued this morning reconciles our GAAP to non-GAAP net income and earnings per share from continuing operations.

Turning to our financial performance, our net sales for the quarter ended September 25, 2010, were $1.9 billion reflecting a 14.1% increase compared with the third quarter of 2009. This consists of 16.4% growth in local currencies and a 2.3% decrease related to foreign currency exchange. In local currencies, our internally generated sales were up 3.7% while acquisition growth was 12.7%.

Sales of seasonal influenza vaccine were very strong during the third quarter of 2010 and if you exclude the sales of seasonal influenza vaccine from both that period, our net sales increased by 14.2% in local currencies. Again you can note the details of our sales growth and exhibit a to our earnings release that was issued earlier today. If you look at our selling, general and administrative expenses for the third quarter of 2010 were $400.1 million, representing 21.1% of sales compared to 21.8% in the third quarter of 2009. That's an improvement of 71 basis points. If we're to exclude the influenza vaccine business in both periods, our SG&A expenses also improved and improved by 33 basis point as a percentage of sales.

Our operating margin for the third quarter of 2010 was 7.3% and expanded 39 basis points compared to the third quarter of 2009. Once again if we exclude influenza profits and certain one-time acquisition and integration expenses from both periods, we saw operating margin was essentially unchanged from the prior year. Our effective tax rate for the quarter was 31.7% which is in line with our guidance and down slightly from the 32.5% that we have shown in the third quarter of 2009 and both of those numbers are on a non-GAAP basis. We expect our full year 2010 effective tax rate to continue to be in this 31% to 32% range as we continue to see the benefits of certain tax savings initiatives that were put in place. Our income from continuing operations, attributable to Henry Schein, for the third quarter of 2010 was $87.9 million, or $0.94 per diluted share. On a non-GAAP basis, which again excludes certain unusual items, our income from continuing operations and earnings per share increased 20.5% and 17.5%, respectively, compared with last year's third quarter. Details again, are on exhibit B. of our earnings release.

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