Henry Schein Reports Record Third Quarter Results

Industry News · LMT Communications, Inc. · Nov 05, 2013

Henry Schein, Inc., the world's largest provider of health care products and services to office-based dental, animal health and medical practitioners, reported record financial results for the quarter ended September 28, 2013.

Net sales for the third quarter of 2013 were $2.3 billion, an increase of 5.3% compared with the third quarter of 2012. This consisted of 5.2% growth in local currencies and 0.1% growth related to foreign currency exchange. In local currencies, internally generated sales increased 3.4% and acquisition growth was 1.8% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc. for the third quarter of 2013 was $107.4 million or $1.23 per diluted share. Excluding certain one-time items, adjusted net income attributable to Henry Schein, Inc. for the third quarter of 2013 was $106.5 million or $1.22 per diluted share, an increase of 10.1% and 13.0%, respectively, compared with the third quarter of 2012 (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

"Solid growth in sales and earnings during the quarter reflects our strategy of organic growth complemented by strategic acquisitions and our ongoing commitment to controlling expenses," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. "We are pleased to be affirming 2013 financial guidance while introducing guidance for 2014 diluted EPS that represents growth of 10% to 12% compared with the midpoint of our 2013 range."

Global Dental sales of $1.2 billion increased 5.7%, consisting of 5.2% growth in local currencies and 0.5% growth related to foreign currency exchange. In local currencies, internally generated sales increased 3.0% and acquisition growth was 2.2%. The 3.0% internal growth in local currencies included 4.8% growth in North America and a 0.1% decline in International.

"North America Dental sales gains were highlighted by nearly 10% internal growth in local currencies for equipment sales and service revenue. Consumable merchandise growth was in line with the previous quarter when considering the timing of various holidays," commented Mr. Bergman. "International Dental equipment internal sales in local currencies increased slightly following a strong quarter that benefitted from the biennial International Dental Show (IDS) in Germany."

Global Animal Health sales of $642.3 million increased 7.4%, including 8.0% growth in local currencies and a 0.6% decline related to foreign currency exchange. In local currencies, internally generated sales increased 5.9% and acquisition growth was 2.1%. The 5.9% internal growth in local currencies included 10.4% growth in North America and 2.1% growth in International.

"Our Global Animal Health business continued to perform well during the quarter. North America internal sales performed slightly above our expectations for growth in the high single digits," commented Mr. Bergman. "In addition, we are delighted to return to positive internal growth in local currencies for International Animal Health, with modest growth in most countries we serve."

Global Medical sales of $444.5 million increased 0.5%, including 0.3% growth in local currencies and 0.2% growth related to foreign currency exchange. Sales of seasonal influenza vaccines were lower this quarter than in the prior-year quarter. Excluding sales of seasonal influenza vaccines from both periods, Global Medical sales increased 2.6%, with 2.4% growth in local currencies including 2.8% growth in North America.

"We believe that patient traffic to U.S. physician offices was slightly down during the quarter compared to recent trends. However, we remain confident that our focus on large practices will allow us to continue to gain market share," remarked Mr. Bergman. "We sold approximately 6.3 million doses of seasonal influenza vaccines during the third quarter and as of today we have sold approximately 8.3 million doses, representing essentially all of this season's supply."

Global Technology and Value-Added Services sales of $78.9 million increased 11.2%, including 11.8% growth in local currencies and a 0.6% decline related to foreign currency exchange. In local currencies, internally generated sales increased 8.5% and acquisition growth was 3.3%.

"Technology and Value-Added Services sales growth continued to be strong during the quarter, in particular in International markets," commented Mr. Bergman. "Once again sales growth was driven by electronic services recurring revenue and software sales."

Stock Repurchase Plan

The Company announced that it repurchased approximately 730,000 shares of its common stock during the third quarter at an average price of $102.74 per share, or approximately $75.0 million. The impact of the repurchase of shares on third quarter diluted EPS was immaterial. At the close of the third quarter, Henry Schein had approximately $74 million authorized for future repurchases of its common stock.

Year-to-Date Results

For the first nine months of 2013, net sales of $7.0 billion increased 7.7% compared with the first nine months of 2012. There was no impact from foreign currency exchange in the nine-month period. Internally generated sales increased 3.6% and acquisition growth was 4.1%.

Net income attributable to Henry Schein, Inc. for the first nine months of 2013 was $307.3 million or $3.49 per diluted share. Excluding certain one-time items, adjusted net income attributable to Henry Schein, Inc. for the first nine months of 2013 was $309.1 million or $3.51 per diluted share, an increase of 8.0% and 10.4%, respectively, compared with adjusted net income for the first nine months of 2012 (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

2013 EPS Guidance

Henry Schein today affirmed 2013 financial guidance, as follows:

For 2013 the Company expects adjusted diluted EPS attributable to Henry Schein, Inc. to be $4.86 to $4.91. This represents growth of 9% to 11% compared with 2012 results excluding restructuring costs.

Guidance for 2013 adjusted diluted EPS attributable to Henry Schein, Inc. excludes a charge related to the debt refinancing of Butler Schein Animal Health of $0.03 per diluted share, a charge related to divesting a non-controlling interest in a dental wholesale distributor in the Middle East of $0.14 per diluted share and an overseas tax benefit of $0.15 per diluted share.

Guidance for 2013 adjusted diluted EPS attributable to Henry Schein, Inc. is for current continuing operations as well as completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any.

2014 EPS Guidance

Henry Schein today introduced 2014 financial guidance, as follows:

For 2014 the Company expects diluted EPS attributable to Henry Schein, Inc. to be $5.37 to $5.47, which represents growth of 10% to 12% compared with the midpoint of the 2013 guidance range.

Guidance for 2014 diluted EPS attributable to Henry Schein, Inc. is for current continuing operations as well as completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any.

Third Quarter Conference Call Webcast

The Company will hold a conference call to discuss third quarter financial results today, beginning at 10:00 a.m. Eastern time. Individual investors are invited to listen to the conference call over the Internet through Henry Schein's website at www.henryschein.com. In addition, a replay will be available beginning shortly after the call has ended.

2013 Analyst and Investor Day

Henry Schein will host an Analyst and Investor Day event on December 11, 2013 from 8:00 a.m. to 2:00 p.m. Eastern time in New York City. Institutional and analyst attendees must register in advance as space is limited. A live webcast of the presentations will be available in the Investor Relations section of the Company's website at www.henryschein.com.