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Henry Schein (HSIC) Up 4.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Henry Schein (HSIC). Shares have added about 4.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Henry Schein due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Henry Schein Q4 Earnings Top Estimates, Margins Dip

Henry Schein reported adjusted earnings per share of $1.00 from continuing operations in the fourth quarter of 2020, reflecting an improvement of 3.1% from the year-ago earnings per share of 97 cents. Moreover, adjusted earnings per share surpassed the Zacks Consensus Estimate by 4.2%. The quarter’s adjustments exclude the impact of certain restructuring charges.

GAAP earnings per share in the fourth quarter was 99 cents, down by 56% from the year-ago earnings per share of $2.25.

The year-over-year earnings were primarily driven by a strong rebound in sales along with strength in demand for personal protective equipment (PPE) and COVID-19-related products.

Full-year adjusted earnings per share was $2.97, reflecting a 15.4% decrease from the year-ago period. However, the metric surpassed the Zacks Consensus Estimate marginally by 1%.

Full-year GAAP earnings per share was $2.81, reflecting a plunge of 40.1% from the year-ago period.

Revenues in Detail

Henry Schein reported net sales of $3.17 billion in the fourth quarter, up 18.6% year over year. The metric beat the Zacks Consensus Estimate by 10.7%.

The year-over-year uptick resulted from strong business recovery and included 17.1% internal growth in local currencies, 0.3% growth from acquisitions and 1.2% growth related to foreign currency exchange.

In the quarter under review, the company recorded sales of $2.32 billion in the North American market, up 18.9% year over year. Sales totaled $850.6 million in the international market, up 18% year over year.

Full-year revenues were $10.12 billion, reflecting a 1.3% uptick from the year-ago period. Again, the metric surpassed the Zacks Consensus Estimate by 3.2%.

Segment Analysis

Henry Schein derives revenues from three operating segments — Dental, Medical, and Technology and Value-added Services.

In the fourth quarter, the company derived $1.85 billion of global Dental sales, up 7.2% year over year. The segment’s revenues include internally generated sales growth of 5.1%, 0.4% growth from acquisitions and 1.7% growth related to foreign currency exchange. Further, the internal growth in local currencies of 5.1% included a fall of 0.7% in North America and an increase of 14.2% internationally.

North America’s dental consumable merchandise’s internal sales in local currencies rose 5.3% whereas dental equipment internal sales in local currencies fell by 13.2%. Internationally, dental consumable merchandise internal sales and dental equipment internal sales, both in local currencies, improved 16.7% and 6.8%, respectively.

Global Medical revenues surged 48.5% year over year to $1.17 billion. The segment’s revenues include internally generated sales growth of 48.2% and 0.3% growth related to foreign currency exchange. Acquisition growth in this segment for the quarter was absent.

The business registered strong demand for PPE and COVID-19-related products (especially for COVID-19 test sales) in the quarter under review.

Revenues from global Technology and Value-added Services inched up 1.2% to $138.7 million. This included a fall of 0.7% in internal local currency sales, which was offset by 1.2% growth from acquisitions and 0.7% growth related to foreign currency exchange.

The marginally lower revenues in the company’s Technology and Value-Added Services resulted from lower transactional revenues associated with a lower number of patient visits unlike the pre-COVID-19 practice volume. Additionally, lower dental equipment sales volume in North America impacted the company’s hardware revenues.

Margin Trend

In the reported quarter, gross profit totaled $859.7 million, a 6.1% uptick year over year. Despite that, gross margin contracted 321 basis points (bps) to 27.2%.

Selling, general and administrative expenses rose 9.6% to $674.1 million in the quarter under review.

Overall adjusted operating profit was $185.6 million, down 4.9% year over year. Adjusted operating margin contracted 145 bps year over year to 5.9%.

Financial Position

The company exited 2020 with cash and cash equivalents of $421.2 million compared with $106.1 million at the end of 2019. Long-term debt for the company at the end of 2020 was $515.8 million compared with $622.9 million at the end of 2019.

Cumulative net cash provided by operating activities from continuing operations at the end of 2020 was $593.5 million compared with net cash provided by operating activities from continuing operations of $820.5 million in the year-ago period.

2021 Guidance

Henry Schein has issued the guidance for 2021’s adjusted earnings per share from continuing operations which is expected to be at or above the 2019 comparable figure of $3.51. The Zacks Consensus Estimate for the same is currently pegged at $3.65.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Henry Schein has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Henry Schein has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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