Henry Schein Reports Record Third Quarter Results

Net sales of $1.9 billion, diluted EPS up 18% to $0.94

Company increases low end of 2010 financial guidance, introduces 2011 financial guidance

Oct 29, 2010, 07:00 ET from Henry Schein, Inc.

MELVILLE, N.Y., Oct. 29 /PRNewswire-FirstCall/ -- Henry Schein, Inc. (Nasdaq: HSIC), the largest provider of healthcare products and services to office-based practitioners, today reported record financial results for the quarter ended September 25, 2010.

Net sales for the third quarter of 2010 were $1.9 billion, an increase of 14.1% compared with the third quarter of 2009.  This consists of 16.4% growth in local currencies and a decline of 2.3% related to foreign currency exchange.  Internal sales growth in local currencies was 3.7% (see Exhibit A for details of sales growth).

Income from continuing operations attributable to Henry Schein, Inc. for the third quarter of 2010 was $87.9 million or $0.94 per diluted share, an increase of 20.5% and 17.5%, respectively, compared with third quarter 2009 adjusted net income, which excludes certain unusual items (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

"We are pleased to be reporting strong top-line growth in local currencies for the quarter as we continue to see indications of market stability throughout our global business," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein.  "We also are pleased to increase the low end of our 2010 financial guidance, and to introduce financial guidance for 2011 diluted EPS growth of 10% to 13% compared with the midpoint of our new 2010 guidance range."

North American Dental sales of $665.9 million increased 7.1%, consisting of 6.5% growth in local currencies and 0.6% growth related to foreign currency exchange.  The 6.5% growth in local currencies included 8.1% growth in Dental consumable merchandise sales and 1.4% growth in Dental equipment sales and service revenues.

"Internal Dental consumable merchandise sales growth in local currencies has increased modestly for each of the past four quarters.  This trend and continued sales growth in Dental equipment affirm our confidence that the market will continue to show gradual improvement," commented Mr. Bergman.

North American Medical sales of $391.9 million increased 12.6%.  Sales of seasonal influenza vaccines were very strong during the third quarter of 2010.  Excluding sales of seasonal influenza vaccines from both periods, North American Medical sales increased 0.5%.

"During the third quarter we sold more than 11 million doses of seasonal influenza vaccines, and we expect to sell approximately 13 million doses in total for the year," remarked Mr. Bergman.  "We believe that we gained market share in the office-based physician market during the quarter and that this market continued to experience a decline in patient visits."

North American Animal Health sales increased 259.2% to $225.2 million, reflecting the combined Butler Schein Animal Health business.

"Integration of Butler Schein Animal Health is complete, and we are now turning our focus to various initiatives to drive sales growth by expanding the breadth and depth of our product offering," commented Mr. Bergman.

International sales of $561.4 million declined 3.8%, consisting of 3.4% growth in local currencies and a decline of 7.2% related to foreign currency exchange.

"Our International results reflect continued growth in the Dental business, with notable gains in dental equipment sales and particular strength in Spain, Italy, France, Germany and the U.K." added Mr. Bergman.  "After the close of the quarter we announced a further expansion of our global veterinary operations with an agreement to acquire Provet Holdings Limited, Australasia's largest distributor of animal health products with annual sales of approximately 280 million Australian dollars.  We also entered the Turkish dental market by acquiring a 50% interest in Guney, the largest full-service dental distribution business in Turkey, with annual sales of approximately 17 million Euros.  Including Turkey, we now have operations or affiliates in 24 countries."

Technology and Value-Added Services sales of $49.1 million increased 13.7% during the quarter, including 10.7% internal sales growth in local currencies.  "Our electronic services and software businesses continued to show healthy growth with software sales in Australia, New Zealand and Canada particularly strong for the quarter," explained Mr. Bergman.

Year-to-Date Results

For the first nine months of 2010, net sales of $5.5 billion increased 15.8% compared with the first nine months of 2009.  This increase includes 15.6% growth in local currencies and 0.2% growth related to foreign currency exchange.

Income from continuing operations attributable to Henry Schein, Inc. for the first nine months of 2010 was $232.8 million or $2.50 per diluted share.  Non-GAAP income from continuing operations attributable to Henry Schein, Inc. for the first nine months of 2010 was $241.1 million or $2.59 per diluted share, an increase of 18.3% and 15.1%, respectively, compared with the first nine months of 2009 excluding restructuring costs in both periods, as well as certain unusual items in the prior-year period (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

Stock Repurchase Plan

The Company announced that it repurchased 86,171 shares of common stock during the third quarter at an average price of $55.92 per share, and that it expects to purchase a total of $50 million of common stock by the end of the year.  The impact of the repurchase of shares on third quarter diluted EPS was immaterial.

2010 EPS Guidance

Today Henry Schein increased the low end of its 2010 financial guidance, as follows:

  • 2010 diluted EPS attributable to Henry Schein, Inc. is expected to be $3.50 to $3.56, compared with previous guidance of $3.46 to $3.56.
  • Guidance for 2010 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.
  • 2010 guidance excludes the impact of restructuring costs.

2011 EPS Guidance

Henry Schein today introduced 2011 financial guidance, as follows:

  • 2011 diluted EPS attributable to Henry Schein, Inc. is expected to be $3.88 to $3.98, up 10% to 13% compared with the midpoint of the Company's 2010 diluted EPS guidance range.
  • Guidance for 2011 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

Henry Schein, a Fortune 500® company and a member of the NASDAQ 100® Index, is recognized for its excellent customer service and highly competitive prices.  The Company's five businesses – North American Dental, North American Medical, North American Animal Health, International and Technology – serve more than 700,000 customers worldwide, including dental practitioners and laboratories, physician practices and animal health clinics, as well as government and other institutions.  The Company operates through a centralized and automated distribution network, which provides customers in more than 200 countries with a comprehensive 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.  Henry Schein also provides exclusive, innovative technology offerings for dental, medical and veterinary professionals, including value-added practice management software and electronic health record solutions.  

Headquartered in Melville, N.Y., Henry Schein employs more than 13,500 people and has operations or affiliates in 24 countries.  The Company's net sales reached a record $6.5 billion in 2009.  For more information, visit the Henry Schein Web site at www.henryschein.com.

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: decreased customer demand and changes in vendor credit terms; disruptions in financial markets; general economic conditions; effects of a highly competitive market; changes in the healthcare industry; changes in regulatory requirements; risks from expansion of customer purchasing power and multi-tiered costing structures; risks associated with our international operations; fluctuations in quarterly earnings; our dependence on third parties for the manufacture and supply of our products; transitional challenges associated with acquisitions, including the failure to achieve anticipated synergies; financial risks associated with acquisitions; regulatory and litigation risks; the dependence on our continued product development, technical support and successful marketing in the technology segment; risks from disruption to our information systems; our dependence upon sales personnel, manufacturers and customers; our dependence on our senior management; possible increases in the cost of shipping our products or other service issues with our third-party shippers; risks from rapid technological change; possible volatility of the market price of our common stock; 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 25,

September 26,

September 25,

September 26,

2010

2009

2010

2009

Net sales

$

1,893,511

$

1,659,433

$

5,503,222

$

4,752,255

Cost of sales

1,356,055

1,183,166

3,907,089

3,361,707

      Gross profit

537,456

476,267

1,596,133

1,390,548

Operating expenses:

   Selling, general and administrative

400,088

362,382

1,204,715

1,060,062

   Restructuring costs

-

-

12,285

4,043

      Operating income

137,368

113,885

379,133

326,443

Other income (expense):

   Interest income

3,422

2,387

10,318

7,674

   Interest expense

(7,824)

(5,171)

(26,096)

(18,329)

   Other, net

29

1,938

388

1,595

      Income from continuing operations before

        taxes, equity in earnings of affiliates and

        noncontrolling interests

132,995

113,039

363,743

317,383

Income taxes

(42,226)

(15,864)

(115,885)

(83,402)

Equity in earnings of affiliates

3,721

1,200

7,047

3,777

Income from continuing operations

94,490

98,375

254,905

237,758

   Income from discontinued operation, net

     of tax

-

2,373

-

2,715

Net income

94,490

100,748

254,905

240,473

   Less: Net income attributable to noncontrolling

     interests

(6,597)

(4,327)

(22,111)

(15,728)

Net income attributable to Henry Schein, Inc.

$

87,893

$

96,421

$

232,794

$

224,745

Amounts attributable to Henry Schein, Inc.:

 Income from continuing operations

$

87,893

$

94,045

$

232,794

$

222,143

 Income from discontinued operation, net

   of tax

-

2,376

-

2,602

 Net income

$

87,893

$

96,421

$

232,794

$

224,745

Earnings per share attributable to

 Henry Schein, Inc.:

From continuing operations:

   Basic

$

0.97

$

1.06

$

2.59

$

2.50

   Diluted

$

0.94

$

1.03

$

2.50

$

2.45

From discontinued operation:

   Basic

$

0.00

$

0.03

$

0.00

$

0.03

   Diluted

$

0.00

$

0.02

$

0.00

$

0.03

From net income:

   Basic

$

0.97

$

1.09

$

2.59

$

2.53

   Diluted

$

0.94

$

1.05

$

2.50

$

2.48

Weighted-average common shares outstanding:

   Basic

90,326

88,796

89,932

88,843

   Diluted

93,270

91,513

93,098

90,576

HENRY SCHEIN, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

September 25,

December 26,

2010

2009

(unaudited)

ASSETS

Current assets:

   Cash and cash equivalents

$

203,730

$

471,154

   Accounts receivable, net of reserves of $54,226 and $51,724

923,026

725,397

   Inventories, net

849,541

775,199

   Deferred income taxes

40,860

48,001

   Prepaid expenses and other

230,617

183,782

           Total current assets

2,247,774

2,203,533

Property and equipment, net

254,004

259,576

Goodwill

1,425,651

986,395

Other intangibles, net

413,701

204,445

Investments and other

263,329

182,036

           Total assets

$

4,604,459

$

3,835,985

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

   Accounts payable

$

532,274

$

521,079

   Bank credit lines

201,142

932

   Current maturities of long-term debt

25,122

23,560

   Accrued expenses:

      Payroll and related  

154,103

155,298

      Taxes

107,040

86,034

      Other  

267,966

289,351

           Total current liabilities

1,287,647

1,076,254

Long-term debt

383,495

243,373

Deferred income taxes

190,565

100,976

Other liabilities

75,582

75,304

           Total liabilities

1,937,289

1,495,907

Redeemable noncontrolling interests

299,101

178,570

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,

      92,366,321 outstanding on September 25, 2010 and

      90,630,889 outstanding on December 26, 2009

924

906

  Additional paid-in capital

592,646

603,772

  Retained earnings

1,722,146

1,492,607

  Accumulated other comprehensive income

50,932

64,194

  Total Henry Schein, Inc. stockholders' equity

2,366,648

2,161,479

  Noncontrolling interest

1,421

29

           Total stockholders' equity

2,368,069

2,161,508

           Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

4,604,459

$

3,835,985

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

September 25,

September 26,

September 25,

September 26,

2010

2009

2010

2009

Cash flows from operating activities:

   Net income

$

94,490

$

100,748

$

254,905

$

240,473

   Adjustments to reconcile net income to net cash

      provided by operating activities:

           Gain on sale of discontinued operation,

                net of tax

-

(2,382)

-

(2,382)

           Depreciation and amortization

25,166

20,196

75,510

60,930

           Amortization of bond discount

872

1,509

4,007

4,473

           Stock-based compensation expense

6,746

6,041

19,745

18,344

           Provision for losses on trade and other

                accounts receivable

607

1,042

2,929

2,754

           Provision for (benefit from) deferred

                income taxes

3,763

(23,712)

(2,068)

(29,633)

           Stock issued to 401(k) plan

5,721

5,301

5,721

5,301

           Undistributed earnings of affiliates

(3,721)

(1,200)

(7,047)

(3,777)

           Other

2,626

1,044

5,275

2,535

           Changes in operating assets and liabilities,

                net of acquisitions:

                  Accounts receivable

(70,865)

(27,231)

(104,719)

(12,788)

                  Inventories

(26,465)

(23,482)

5,799

(10,234)

                  Other current assets

(19,115)

(3,276)

(37,526)

(806)

                  Accounts payable and accrued expenses

28,012

84,204

(45,706)

(56,813)

Net cash provided by operating activities

47,837

138,802

176,825

218,377

Cash flows from investing activities:

   Purchases of fixed assets

(9,384)

(10,014)

(26,926)

(38,417)

   Payments for equity investment and business

       acquisitions, net of cash acquired

(101,730)

(18,969)

(353,305)

(45,458)

   Cash received from business divestiture

-

12,716

-

12,716

   Purchases of available-for-sale securities

-

-

(26,984)

-

   Proceeds from sales of available-for-sale securities

4,550

4,690

5,950

8,730

   Proceeds from maturities of available-for-sale

       securities

14,988

-

26,984

-

   Net proceeds from foreign exchange forward

       contract settlements

-

-

-

275

   Other

12

(8,578)

319

(11,258)

Net cash used in investing activities

(91,564)

(20,155)

(373,962)

(73,412)

Cash flows from financing activities:

   Proceeds from (repayments of) bank borrowings

200,863

(436)

200,195

(3,829)

   Proceeds from issuance of long-term debt

100,000

-

100,000

-

   Principal payments for long-term debt

(241,501)

(150,840)

(244,699)

(153,452)

   Proceeds from issuance of stock upon exercise

       of stock options

4,314

5,761

25,350

9,689

   Payments for repurchases of common stock

(4,819)

-

(4,819)

-

   Excess tax benefits related to stock-based

       compensation

1,235

2,138

7,586

2,821

   Distributions to noncontrolling shareholders

(2,003)

(289)

(9,739)

(1,858)

   Acquisitions of noncontrolling interests in

       subsidiaries

(139,845)

(52,453)

(149,845)

(52,453)

   Other

(89)

(90)

(269)

(269)

Net cash used in financing activities

(81,845)

(196,209)

(76,240)

(199,351)

Net change in cash and cash equivalents

(125,572)

(77,562)

(273,377)

(54,386)

Effect of exchange rate changes on cash and

   cash equivalents

8,186

1,296

5,953

2,423

Cash and cash equivalents, beginning of period

321,116

393,873

471,154

369,570

Cash and cash equivalents, end of period

$

203,730

$

317,607

$

203,730

$

317,607

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

Exhibit A

Henry Schein, Inc.

2010 Third Quarter

Sales Growth Rate Summary

(unaudited)

Q3 2010 over Q3 2009

Consolidated

N.A. Dental

N.A. Medical

N.A. Animal Health

International

Technology/VAS

Internal Sales Growth

3.7%

1.5%

8.9%

0.0%

2.9%

10.7%

Acquisitions

12.7%

5.0%

3.7%

259.2%

0.5%

3.4%

    Local Currency Sales Growth

16.4%

6.5%

12.6%

259.2%

3.4%

14.1%

Foreign Currency Exchange

-2.3%

0.6%

0.0%

0.0%

-7.2%

-0.4%

    Total Sales Growth

14.1%

7.1%

12.6%

259.2%

-3.8%

13.7%

Total Sales Growth excluding

influenza vaccine sales

11.9%

7.1%

0.5%

259.2%

-3.8%

13.7%

Local Currency Sales Growth

excluding influenza vaccine sales

14.2%

6.5%

0.5%

259.2%

3.4%

14.1%

Q3 YTD 2010 over Q3 YTD 2009

Consolidated

N.A. Dental

N.A. Medical

N.A. Animal Health

International

Technology/VAS

Internal Sales Growth

3.0%

1.9%

2.8%

0.8%

4.3%

7.8%

Acquisitions

12.6%

3.4%

3.3%

265.8%

0.8%

4.4%

    Local Currency Sales Growth

15.6%

5.3%

6.1%

266.6%

5.1%

12.2%

Foreign Currency Exchange

0.2%

1.2%

0.0%

0.0%

-0.7%

0.8%

    Total Sales Growth

15.8%

6.5%

6.1%

266.6%

4.4%

13.0%

Total Sales Growth excluding

influenza vaccine sales

15.0%

6.5%

1.5%

266.6%

4.4%

13.0%

Local Currency Sales Growth

excluding influenza vaccine sales

14.8%

5.3%

1.5%

266.6%

5.1%

12.2%

Exhibit B

Henry Schein, Inc.

2010 Third Quarter and YTD

Reconciliation of GAAP results of continuing operations to

non-GAAP results of continuing operations

(in thousands, except per share data)

(unaudited)

Third Quarter

YTD

2010

2009

% Growth

2010

2009

% Growth

From Continuing Operations

Income from Continuing Operations attributable to Henry Schein, Inc.

$87,893

$94,045

-6.5%

$232,794

$222,143

4.8%

Diluted EPS from Continuing Operations attributable to Henry Schein, Inc.

$     0.94

$     1.03

-8.7%

$     2.50

$       2.45

2.0%

Non-GAAP Adjustments (after-tax)

Foreign tax benefit

-

$(20,845)

-

$(20,845)

Costs related to foreign tax benefit

-

1,080

-

1,080

Adjustments related to Lehman Brothers Bankruptcy

-

(338)

-

(338)

Other non-recurring income/expense, net

-

(1,028)

-

(1,028)

Restructuring costs

-

-

$   8,260

2,784

Income from Continuing Operations attributable to Henry Schein, Inc.

$          0

$(21,131)

$   8,260

$(18,347)

Diluted EPS from Continuing Operations attributable to Henry Schein, Inc.

$     0.00

$    (0.23)

$     0.09

$    (0.20)

Adjusted Results From Continuing Operations

Income from Continuing Operations attributable to Henry Schein, Inc.

$87,893

$72,914

20.5%

$241,054

$203,796

18.3%

Diluted EPS from Continuing Operations attributable to Henry Schein, Inc.

$    0.94

$     0.80

17.5%

$      2.59

$       2.25

15.1%

This non-GAAP comparison is being presented in order to provide a more comparable basis for analysis.  Earnings per share numbers may not sum due to rounding.

SOURCE Henry Schein, Inc.



RELATED LINKS

http://www.henryschein.com