Henry Schein, Inc. (HSIC)

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Henry Schein (HSIC)

Q4 2010 Earnings Call

February 22, 2011 10:00 am ET


S. 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


Jeffrey Johnson - Robert W. Baird & Co. Incorporated

Lisa Gill - JP Morgan Chase & Co

Robert Jones - UBS

Steven Valiquette - UBS Investment Bank

Robert Willoughby

Albert Rice - Susquehanna Financial Group, LLLP



Good morning, ladies and gentlemen, and welcome to the Henry Schein Fourth 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

Good morning. Thank you, operator, and my thanks to each of you for joining us to discuss Henry Schein's fourth quarter results. 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 will 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 this live broadcast, February 22, 2011. 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 that 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 the call.

With that said, I would like to turn the call over now to Stanley Bergman.

Stanley Bergman

Thank you, Susan, and good morning, everyone, and thank you for joining us this morning. We are delighted to be reporting solid fourth quarter financial results that reflect market share gains across the board in each of our business groups. This quarterly performance is continued validation of our growth strategy and the underlying strength of our business and confidence in our markets.

In addition, for the first time, quarterly sales for Henry Schein reached the $2 billion mark. Quarterly net sales first surpassed the $1 billion in the third quarter of 2004. And this doubling of quarterly sales represents compounded annual growth of 12%. Since then, the timeframe that includes the recent years of global economic challenges.

In a moment, I'll provide some further color on each of our businesses and provide the full year highlights. But first, let's ask Steve Paladino to provide an overview of our quarterly financial results. Steve?

S. Paladino

Okay, thank you, Stan, and good morning to everyone. I, too, am pleased to be reporting strong results for the fourth quarter of 2010. Before we begin, I'd like to point out that the prior year's fourth quarter results reflect a restructuring credit of about $1 million pretax or $0.01 per diluted share. I will be providing growth rates compared with the prior year, excluding the restructuring, and I will refer to those results as adjusted results from continuing operation. Exhibit B to this morning's earnings news release reconciles our GAAP and non-GAAP income and EPS from continuing operations.

Turning to our financial performance. As Stan mentioned, net sales for the quarter ended December 25, 2010, were $2 billion, reflecting a 13.3% increase compared with the fourth quarter of 2009. This consists of a 15% growth in local currencies, partially offset by a 1.7% decrease related to foreign currency exchange. In local currencies, internally generated sales were up 3.3%, while acquisition growth was 11.7%.

Sales of seasonal influenza vaccines were $14 million for the fourth quarter of 2010. And if you were to exclude the sales of these products from both periods, our net sales increased by 15.4% in local currencies. Again, you can note the details of sales growth contained in Exhibit A of our earnings news release that was issued this morning.

Gross margin for the fourth quarter of 2010 was 28.4%, a decline of about 106 basis points compared with the fourth quarter of 2009. This decline is entirely due to our North American Animal Health business and as a result of product mix. Please keep in mind that our animal health gross margin is less than our other businesses, and that animal health now represents a much larger percentage of net sales. More specifically, in the fourth quarter of 2009, our North American Animal Health business was approximately 3% of company's total sales, and today, for the fourth quarter of 2010, it represents approximately 11% of the total.

Selling, general and administrative expenses for the fourth quarter of 2010 were $432.7 million, representing a 21.4% of sales, and that compares with 21.8% of sales for the fourth quarter of 2009 and this is an improvement of 43 basis points. Excluding the seasonal Influenza Vaccine business from both periods, SG&A expenses improved by 49 basis points as a percentage of sales.

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