Henry Schein Reports Record Third Quarter Results

EPS up 9.1% to $1.08

Company raises low end of 2012 financial guidance range, expects 2013 EPS growth of 10-12%

Nov 07, 2012, 06:51 ET from Henry Schein, Inc.

MELVILLE, N.Y., Nov. 7, 2012 /PRNewswire/ -- Henry Schein, Inc. (NASDAQ: HSIC), the world's largest provider of health care products and services to office-based dental, medical and animal health practitioners, today reported record financial results for the quarter ended September 29, 2012.

Net sales for the third quarter of 2012 were $2.2 billion, an increase of 5.7% compared with the third quarter of 2011.  This consists of 8.9% growth in local currencies and a 3.2% decline related to foreign currency exchange.  In local currencies, internally generated sales increased 4.4% and acquisition growth was 4.5% (see Exhibit A for details of sales growth).

The Company noted that seasonal influenza vaccine sales were lower this quarter than in the prior-year quarter, although profitability was higher.  In order to provide more meaningful commentary the Company will be discussing sales results including and excluding this impact.  Excluding sales of seasonal influenza vaccines from both periods, net sales increased 6.4%, with 9.8% growth in local currencies including 5.1% internal sales growth.

Net income attributable to Henry Schein, Inc. for the third quarter of 2012 was $96.8 million or $1.08 per diluted share, an increase of 5.2% and 9.1%, respectively, compared with the third quarter of 2011.

"We gained market share in each of our four business groups during the third quarter and each group also reported accelerated internal sales growth in local currencies compared with the second quarter, after excluding sales of seasonal influenza vaccines from our Global Medical business.  We also are pleased to raise the low end of our 2012 EPS guidance range and to introduce guidance for 2013 that represents growth in EPS of approximately 10% to 12% compared with the mid-point of our 2012 guidance range," commented Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein.  "Through two strategic acquisitions we recently enhanced our dental software offering, in particular to dental schools, and expanded our veterinary footprint to include Ireland.  These transactions illustrate our commitment to advanced technology and to geographic expansion – two key initiatives of our strategic plan."

Global Dental sales of $1.1 billion declined 0.3%, consisting of 3.4% growth in local currencies and a 3.7% decline related to foreign currency exchange.  In local currencies, internally generated sales increased 2.3% and acquisition growth was 1.1%.  The 2.3% internal growth in local currencies included 3.1% growth in North America and 1.0% International growth.

"We believe we gained market share in our Global Dental business despite a challenging environment for dental equipment in many of our markets.  There was also a difficult comparison in Germany due to the timing of the IDS trade show in the prior year.  We remain confident in our Dental strategy and look forward to continue to gain market share in this arena.  Once again, North America dental equipment sales growth was particularly strong," commented Mr. Bergman. 

Global Animal Health sales of $598.1 million increased 19.2%, including 23.9% growth in local currencies and a 4.7% decline related to foreign currency exchange.  In local currencies, internally generated sales increased 9.1% and acquisition growth was 14.8%.  The 9.1% internal growth in local currencies included 12.2% growth in North America and 6.2% International growth.

"During the quarter we continued to gain market share in our Global Animal Health business, with particular strength in North America," commented Mr. Bergman.  "After the close of the third quarter we announced the signing of a definitive agreement to acquire C&M Vetlink.  This acquisition makes Henry Schein a leading veterinary distributor in Ireland and reinforces the established Henry Schein Animal Health UK base in the United Kingdom.  Our veterinary business now has a presence in 11 countries worldwide."

Global Medical sales of $442.5 million increased 4.2%, including 4.8% growth in local currencies and a 0.6% decline related to foreign currency exchange.  In local currencies, internally generated sales increased 3.5% and acquisition growth was 1.3%.  The 3.5% internal growth in local currencies included 3.8% growth in North America and a 2.1% decline in International.  Excluding sales of seasonal influenza vaccines from both periods, Global Medical sales increased 8.4%, with 9.1% growth in local currencies including 7.6% internal sales growth.

"We are very pleased with third quarter growth in our Global Medical business.  We sold approximately 6.8 million doses of influenza vaccine during the quarter, and as of today we have sold approximately 8 million doses, representing essentially all of this season's sales," remarked Mr. Bergman.  "Our continued gains in market share in North America reflect increased penetration of integrated delivery networks, larger group practices and ambulatory surgery centers, as well as solid growth in sales of pharmaceutical products and medical equipment."

Global Technology and Value-Added Services sales of $71.0 million increased 14.1%, including 14.7% growth in local currencies and a 0.6% decline related to foreign currency exchange.  In local currencies, internally generated sales increased 11.2% and acquisition growth was 3.5%.  The 11.2% internal growth in local currencies included 12.3% growth in North America and 4.7% International growth.

"Late in the third quarter we acquired a majority interest in The Exan Group, a Canadian dental software company serving dental schools and general practice dentists in the U.S. and Canada.  We are optimistic about the growth opportunities for the Exan line, as it complements our enterprise business and provides access to dental schools for our special markets merchandise," commented Mr. Bergman. "More than 85% of revenue from our Technology and Value-Added Services business is derived from North America, and quarterly results included particular strength in recurring revenue streams on both the technology and financial services sides of the business."

Stock Repurchase Plan

The Company announced that it repurchased approximately 760,000 shares of its common stock during the third quarter at an average price of $77.52 per share, or approximately $58.8 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 $84.3 million authorized for future repurchases of its common stock.

Year-to-Date Results

For the first nine months of 2012, net sales of $6.5 billion increased 5.5% compared with the first nine months of 2011.  This increase includes 7.9% growth in local currencies and a 2.4% decline related to foreign currency exchange.  In local currencies, internally generated sales increased 5.6% and acquisition growth was 2.3%.

Net income attributable to Henry Schein, Inc. for the first nine months of 2012 was $275.6 million or $3.06 per diluted share.  Excluding restructuring costs of $15.2 million pre-tax or $0.12 per diluted share, net income attributable to Henry Schein, Inc. for the first nine months of 2012 was $286.1 million or $3.18 per diluted share, an increase of 8.8% and 12.8%, respectively, compared with the first nine months of 2011 (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

2012 EPS Guidance

Henry Schein today raised the low end of its 2012 financial guidance range, as follows:

  • For 2012 the Company expects diluted EPS attributable to Henry Schein, Inc. to be $4.35 to $4.40, which represents growth of 10% to 11% compared with 2011 results and compares with previous guidance of $4.30 to $4.40.
  • The Company notes that the fourth quarter of 2012 has one less week compared with the fourth quarter of 2011.
  • Guidance for 2012 diluted EPS attributable to Henry Schein, Inc. excludes restructuring costs.
  • Guidance for 2012 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.

2013 EPS Guidance

Henry Schein today introduced 2013 financial guidance, as follows:

  • For 2013 the Company expects diluted EPS attributable to Henry Schein, Inc. to be $4.81 to $4.91, which represents growth of approximately 10% to 12% compared with the midpoint of the 2012 guidance range.
  • Guidance for 2013 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 Web site at www.henryschein.com.  In addition, a replay will be available beginning shortly after the call has ended.

About Henry Schein, Inc.

Henry Schein, Inc. is the world's largest provider of health care products and services to office-based dental, medical and animal health practitioners.  The Company also serves dental laboratories, government and institutional health care clinics, and other alternate care sites.  A Fortune 500® Company and a member of the NASDAQ 100® Index, Henry Schein employs more than 15,000 Team Schein Members and serves approximately 775,000 customers.

The Company offers a comprehensive selection of products and services, including value-added solutions for operating efficient practices and delivering high-quality care.  Henry Schein operates through a centralized and automated distribution network, with a selection of more than 90,000 national and Henry Schein private-brand products in stock, as well as more than 100,000 additional products available as special-order items. The Company also offers its customers exclusive, innovative technology solutions, including practice management software and e-commerce solutions, as well as a broad range of financial services.

Headquartered in Melville, N.Y., Henry Schein has operations or affiliates in 25 countries.  The Company's sales reached a record $8.5 billion in 2011, and have grown at a compound annual rate of 18 percent since Henry Schein became a public company in 1995.  For more information, visit the Henry Schein Web site at www.henryschein.com.

Cautionary Note Regarding Forward-Looking Statements

In accordance with the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein.  All forward-looking statements made by us are subject to risks and uncertainties and are not guarantees of future performance.  These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  These statements are identified by the use of such terms as "may," "could," "expect," "intend," "believe," "plan," "estimate," "forecast," "project," "anticipate" or other comparable terms.  A full discussion of our operations and financial condition, including factors that may affect our business and future prospects, is contained in documents we have filed with the SEC and will be contained in all subsequent periodic filings we make with the SEC. These documents identify in detail important risk factors that could cause our actual performance to differ materially from current expectations.

Risk factors and uncertainties that could cause actual results to differ materially from current and historical results include, but are not limited to: effects of a highly competitive market; our dependence on third parties for the manufacture and supply of our products; our dependence upon sales personnel, customers, suppliers and manufacturers; our dependence on our senior management; fluctuations in quarterly earnings; risks from expansion of customer purchasing power and multi-tiered costing structures; possible increases in the cost of shipping our products or other service issues with our third-party shippers; general global macro-economic conditions; disruptions in financial markets; possible volatility of the market price of our common stock; changes in the health care industry; implementation of health care laws; failure to comply with regulatory requirements and data privacy laws; risks associated with our international operations; transitional challenges associated with acquisitions and joint ventures, including the failure to achieve anticipated synergies; financial risks associated with acquisitions and joint ventures; litigation risks; the dependence on our continued product development, technical support and successful marketing in the technology segment; risks from rapid technological change; risks from disruption to our information systems; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation. The order in which these factors appear should not be construed to indicate their relative importance or priority. 

We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control or predict.  Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction of actual results.  We undertake no duty and have no obligation to update forward-looking statements.

(TABLES TO FOLLOW)

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

Three Months Ended

Nine Months Ended

September 29,

September 24,

September 29,

September 24,

2012

2011

2012

2011

Net sales

$

2,231,058

$

2,111,693

$

6,531,529

$

6,190,094

Cost of sales

1,622,014

1,524,273

4,687,511

4,424,628

Gross profit

609,044

587,420

1,844,018

1,765,466

Operating expenses:

Selling, general and administrative

459,422

444,159

1,391,207

1,346,690

Restructuring costs

-

-

15,192

-

Operating income

149,622

143,261

437,619

418,776

Other income (expense):

Interest income

3,283

3,830

10,222

11,955

Interest expense

(7,308)

(6,813)

(22,659)

(22,800)

Other, net

988

232

2,343

1,313

Income before taxes and equity in earnings

of affiliates

146,585

140,510

427,525

409,244

Income taxes

(44,709)

(44,261)

(133,750)

(130,754)

Equity in earnings of affiliates

3,434

4,559

7,898

10,345

Net income

105,310

100,808

301,673

288,835

Less: Net income attributable to noncontrolling interests

(8,539)

(8,847)

(26,064)

(25,904)

Net income attributable to Henry Schein, Inc.

$

96,771

$

91,961

$

275,609

$

262,931

Earnings per share attributable to Henry Schein, Inc.:

Basic

$

1.11

$

1.02

$

3.14

$

2.90

Diluted

$

1.08

$

0.99

$

3.06

$

2.82

Weighted-average common shares outstanding:

Basic

87,465

90,251

87,802

90,582

Diluted

89,647

92,869

90,075

93,195

HENRY SCHEIN, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

September 29,

December 31,

2012

2011

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

89,336

$

147,284

Accounts receivable, net of reserves of $65,679 and $65,853

1,035,529

888,248

Inventories, net

1,070,854

947,849

Deferred income taxes

59,429

54,970

Prepaid expenses and other

257,031

234,157

Total current assets

2,512,179

2,272,508

Property and equipment, net

258,683

262,088

Goodwill

1,591,482

1,497,108

Other intangibles, net

471,143

409,612

Investments and other

278,045

298,828

Total assets

$

5,111,532

$

4,740,144

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

707,641

$

621,468

Bank credit lines

155,219

55,014

Current maturities of long-term debt

17,739

22,819

Accrued expenses:

Payroll and related

175,089

191,173

Taxes

130,576

121,234

Other

262,694

259,932

Total current liabilities

1,448,958

1,271,640

Long-term debt

436,426

363,524

Deferred income taxes

180,977

188,739

Other liabilities

96,402

80,568

Total liabilities

2,162,763

1,904,471

Redeemable noncontrolling interests

375,661

402,050

Commitments and contingencies

Stockholders' equity:

   Preferred stock, $.01 par value, 1,000,000 shares authorized,

none outstanding

-

-

Common stock, $.01 par value, 240,000,000 shares authorized,

88,264,853 outstanding on September 29, 2012 and

89,928,082 outstanding on December 31, 2011

883

899

Additional paid-in capital

404,867

401,262

Retained earnings

2,130,476

2,007,477

Accumulated other comprehensive income

35,475

22,584

Total Henry Schein, Inc. stockholders' equity

2,571,701

2,432,222

Noncontrolling interests

1,407

1,401

Total stockholders' equity

2,573,108

2,433,623

Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

5,111,532

$

4,740,144

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

September 29,

September 24,

September 29,

September 24,

2012

2011

2012

2011

Cash flows from operating activities:

Net income

$

105,310

$

100,808

$

301,673

$

288,835

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization

30,600

28,571

91,989

86,040

Stock-based compensation expense

11,818

8,085

31,867

26,045

Provision for losses on trade and other

accounts receivable

701

914

3,338

3,636

Benefit from deferred income taxes

(763)

(2,563)

(8,478)

(12,828)

Stock issued to 401(k) plan

-

5,798

-

5,798

Equity in earnings of affiliates

(3,434)

(4,559)

(7,898)

(10,345)

Distributions from equity affiliates

3,290

8,978

9,297

10,158

Other

6,629

786

10,488

3,028

Changes in operating assets and liabilities,

  net of acquisitions:

Accounts receivable

(46,632)

(40,883)

(105,961)

(50,785)

Inventories

(73,687)

(18,559)

(85,027)

(14,657)

Other current assets

(18,710)

(7,437)

(26,788)

(18,537)

Accounts payable and accrued expenses

63,423

10,388

(6,062)

(39,589)

Net cash provided by operating activities

78,545

90,327

208,438

276,799

Cash flows from investing activities:

Purchases of fixed assets

(11,562)

(11,783)

(32,934)

(32,547)

Payments for equity investments and business

acquisitions, net of cash acquired

(85,913)

-

(206,261)

(143,636)

Proceeds from sales of available-for-sale securities

2,000

300

6,025

2,450

Other

255

(877)

(4,130)

1,020

Net cash used in investing activities

(95,220)

(12,360)

(237,300)

(172,713)

Cash flows from financing activities:

Proceeds from (repayments of) bank borrowings

71,677

(9,272)

98,061

(1,601)

Proceeds from issuance of long-term debt

5,082

-

105,132

3,101

Debt issuance costs

(1,191)

-

(1,404)

(2,847)

Principal payments for long-term debt

(2,842)

(740)

(38,217)

(24,656)

Proceeds from issuance of stock upon exercise

      of stock options

3,058

2,312

43,773

30,250

Payments for repurchases of common stock

(58,798)

(100,377)

(215,689)

(132,475)

Excess tax benefits related to stock-based

compensation

592

573

10,643

7,425

Distributions to noncontrolling shareholders

(2,986)

(1,461)

(11,581)

(7,878)

Acquisitions of noncontrolling interests in 

      subsidiaries

-

(11,833)

(20,013)

(15,199)

Other

-

-

-

(90)

Net cash provided by (used in) financing activities

14,592

(120,798)

(29,295)

(143,970)

Net change in cash and cash equivalents

(2,083)

(42,831)

(58,157)

(39,884)

Effect of exchange rate changes on cash and

cash equivalents

3,523

(12,086)

209

(3,592)

Cash and cash equivalents, beginning of period

87,896

161,789

147,284

150,348

Cash and cash equivalents, end of period

$

89,336

$

106,872

$

89,336

$

106,872

 

Note: Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Exhibit A1 - QTD Sales

Henry Schein, Inc.

2012 Third Quarter

Sales Summary

(in thousands)

(unaudited)

Q3 2012 over Q3 2011

Global

Q3 2012

Q3 2011

Total Sales Growth

    Dental

$1,119,430

$1,123,021

-0.3%

    Animal Health

598,124

501,884

19.2%

    Medical

442,538

424,596

4.2%

Total Health Care Distribution

2,160,092

2,049,501

5.4%

Technology and Value-Added Services

70,966

62,192

14.1%

Total Global

$2,231,058

$2,111,693

5.7%

North America

Q3 2012

Q3 2011

Total Sales

Growth

    Dental

$714,731

$687,288

4.0%

    Animal Health

276,435

246,452

12.2%

    Medical

424,086

403,326

5.1%

Total Health Care Distribution

1,415,252

1,337,066

5.8%

Technology and Value-Added Services

61,233

53,565

14.3%

Total North America

$1,476,485

$1,390,631

6.2%

International

Q3 2012

Q3 2011

Total Sales

Growth

    Dental

$404,699

$435,733

-7.1%

    Animal Health

321,689

255,432

25.9%

    Medical

18,452

21,270

-13.2%

Total Health Care Distribution

744,840

712,435

4.5%

Technology and Value-Added Services

9,733

8,627

12.8%

Total International

$754,573

$721,062

4.6%

 

 

 

Exhibit A1 - YTD Sales

Henry Schein, Inc.

2012 Third Quarter Year to Date

Sales Summary

(in thousands)

(unaudited)

Q3 2012 YTD over Q3 2011 YTD

Global

Q3 2012 YTD

Q3 2011 YTD

Total Sales Growth

    Dental

$3,461,015

$3,419,609

1.2%

    Animal Health

1,709,972

1,484,053

15.2%

    Medical

1,158,486

1,106,537

4.7%

Total Health Care Distribution

6,329,473

6,010,199

5.3%

Technology and Value-Added Services

202,056

179,895

12.3%

Total Global

$6,531,529

$6,190,094

5.5%

North America

Q3 2012 YTD

Q3 2011 YTD

Total Sales

Growth

    Dental

$2,152,532

$2,070,879

3.9%

    Animal Health

840,681

737,324

14.0%

    Medical

1,098,925

1,042,406

5.4%

Total Health Care Distribution

4,092,138

3,850,609

6.3%

Technology and Value-Added Services

174,062

154,660

12.5%

Total North America

$4,266,200

$4,005,269

6.5%

International

Q3 2012 YTD

Q3 2011 YTD

Total Sales

Growth

    Dental

$1,308,483

$1,348,730

-3.0%

    Animal Health

869,291

746,729

16.4%

    Medical

59,561

64,131

-7.1%

Total Health Care Distribution

2,237,335

2,159,590

3.6%

Technology and Value-Added Services

27,994

25,235

10.9%

Total International

$2,265,329

$2,184,825

3.7%

 

Exhibit A2 - QTD Sales Growth

Henry Schein, Inc.

2012 Third Quarter

Sales Growth Rate Summary

(unaudited)

Q3 2012 over Q3 2011

Global

Consolidated

Dental

Animal

Health

Medical

Technology /

VAS

Local Internal Sales Growth

4.4%

2.3%

9.1%

3.5%

11.2%

Acquisitions

4.5%

1.1%

14.8%

1.3%

3.5%

Local Currency Sales Growth

8.9%

3.4%

23.9%

4.8%

14.7%

Foreign Currency Exchange

-3.2%

-3.7%

-4.7%

-0.6%

-0.6%

     Total Sales Growth

5.7%

-0.3%

19.2%

4.2%

14.1%

Total sales growth excluding

influenza vaccine sales

6.4%

8.4%

Local currency internal sales growth

excluding influenza vaccine sales

5.1%

7.6%

North America

Consolidated

Dental

Animal

Health

Medical

Technology /

VAS

Local Internal Sales Growth

5.3%

3.1%

12.2%

3.8%

12.3%

Acquisitions

1.0%

1.1%

0.0%

1.3%

2.1%

.

Local Currency Sales Growth

6.3%

4.2%

12.2%

5.1%

14.4%

Foreign Currency Exchange

-0.1%

-0.2%

0.0%

0.0%

-0.1%

     Total Sales Growth

6.2%

4.0%

12.2%

5.1%

14.3%

Total sales growth excluding

influenza vaccine sales

7.4%

9.8%

Local currency internal sales growth

excluding influenza vaccine sales

6.4%

8.2%

International

Consolidated

Dental

 Animal

Health

Medical

Technology /

VAS

Local Internal Sales Growth

2.8%

1.0%

6.2%

-2.1%

4.7%

Acquisitions

11.0%

1.0%

29.0%

0.0%

12.1%

Local Currency Sales Growth

13.8%

2.0%

35.2%

-2.1%

16.8%

Foreign Currency Exchange

-9.2%

-9.1%

-9.3%

-11.1%

-4.0%

     Total Sales Growth

4.6%

-7.1%

25.9%

-13.2%

12.8%

 

Exhibit A2 - YTD Sales Growth

Henry Schein, Inc.

2012 Third Quarter Year to Date

Sales Growth Rate Summary

(unaudited)

Q3 2012 YTD over Q3 2011 YTD

Global

Consolidated

Dental

Animal

Health

Medical

Technology /

VAS

Local Internal Sales Growth

5.6%

3.5%

10.7%

4.5%

9.7%

Acquisitions

2.3%

0.6%

7.4%

0.7%

3.1%

Local Currency Sales Growth

7.9%

4.1%

18.1%

5.2%

12.8%

Foreign Currency Exchange

-2.4%

-2.9%

-2.9%

-0.5%

-0.5%

     Total Sales Growth

5.5%

1.2%

15.2%

4.7%

12.3%

Total sales growth excluding

influenza vaccine sales

5.8%

6.1%

Local currency internal sales growth

excluding influenza vaccine sales

5.8%

5.9%

North America

Consolidated

Dental

Animal

Health

Medical

Technology /

VAS

Local Internal Sales Growth

6.1%

3.6%

14.0%

4.7%

10.4%

Acquisitions

0.6%

0.7%

0.0%

0.7%

2.2%

.

Local Currency Sales Growth

6.7%

4.3%

14.0%

5.4%

12.6%

Foreign Currency Exchange

-0.2%

-0.4%

0.0%

0.0%

-0.1%

     Total Sales Growth

6.5%

3.9%

14.0%

5.4%

12.5%

Total sales growth excluding

influenza vaccine sales

6.9%

7.0%

Local currency internal sales growth

excluding influenza vaccine sales

6.5%

6.2%

International

Consolidated

Dental

 Animal

Health

Medical

Technology /

VAS

Local Internal Sales Growth

4.7%

3.3%

7.4%

0.9%

5.0%