Henry Schein, Inc. (HSIC)

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Henry Schein (HSIC)

Q2 2011 Earnings Call

August 02, 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

Garrett Chase - Barclays Capital

Steven Valiquette - UBS Investment Bank

Robert Willoughby

Albert Rice - Susquehanna Financial Group, LLLP

Glen Santangelo - Crédit Suisse AG

Larry Marsh - Lehman Brothers

Robert Jones - Goldman Sachs Group Inc.

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



Good morning, ladies and gentlemen and welcome to the Henry Schein Second Quarter Conference Call. [Operator Instructions] As a reminder, this call is being recorded. 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 Vassallo

Thank you, operator, and my thanks to each of you for joining us to discuss Henry Schein's second 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, today, August 2, 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 you please 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. Thank you very much. And with that said, I'd like to turn the call over to Mr. Stanley Bergman.

Stanley Bergman

Good morning, everyone and thank you, Susan. And thank you everyone for joining us today in this call. We are most proud and pleased to report double-digit sales growth in local currencies during the second quarter as each 1 of our 5 businesses continues to gain market share. Local currencies sales growth was bolstered by favorable currency exchange, which is also going to end in an increase in net sales of approximately 15%. Growth in net income was also quite impressive, with diluted EPS up slightly more than 12% over the prior year's second quarter.

In a moment, I'll provide some commentary on each of our business units. But let me first -- let me ask our CFO, Steve Paladino, to provide an overview of our quarterly financial results. Steven?

S. Paladino

Okay, thank you Stan, and good morning to everyone also. I'm also pleased to be reporting solid results for the second quarter of 2011. Our net sales for the quarter ended June 25, 2011 was $2.1 billion, reflecting a 15.2% increase compared with the second quarter of 2010. This consists of 10.1% growth in local currencies and 5.1% increase related to foreign currency exchange. In local currencies, internally generated sales were up 5.6% while acquisition growth was 4.5%. You can see all the details of our sales growth that's contained in Exhibit A in our earnings news release that was issued earlier today.

Our operating margin for the second quarter of 2011 was 7.1% and declined by 37 basis points compared with the second quarter of 2010. However, it's important to note that excluding the impact of current year acquisitions, our operating margin was essentially flat compared with the prior year. As we discussed last quarter, acquisitions or new acquisitions, which carry lower margins than our existing businesses serve to reset our base operating margin. Our effective tax rate for the quarter was 31.9%, which is in line with our guidance and is up slightly from 31.2% in the second quarter of 2010. We expect our effective tax rate to remain in the 31% to 32% range for the balance of the year.

Our net income attributable to Henry Schein Inc. for the second quarter of 2011 was $94.5 million or $1.01 per diluted share. This represents growth compared with the 2010 second quarter of 12.5% and 12.2%, respectively.

Now I'd like to provide some detail on our sales results for the quarter. Our North American Dental sales for the second quarter increased 4.7% to $709.3 million, consisting of 4% growth in local currencies and a 0.7% increase related to foreign currency exchange. Consumable merchandise sales increased 4.8% in local currencies and that included a 4% increase in internal sales and a 0.8% increase related to acquisition growth. Our Dental equipment sales increased 1.3% compared with the prior year quarter in local currencies and all of that was internally generated. When excluding the sales of products manufactured by BIOLASE from both periods, our Dental equipment sales growth was 3.8% in local currencies. On an overall basis, with growth in local currencies up 4% for our North American Dental group, we believe we continue to gain market share in this market. Our North American Medical sales were at $317.3 million in the second quarter, and that's an increase of 10.8%. Internally generated sales increased 8.7% and acquisition growth contributed an additional 2.1%. We're really very pleased to report a second consecutive quarter of double-digit sales growth in our medical business, and we believe that we continue to gain market share in this market.

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