Henry Schein (HSIC) Down 1.5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Henry Schein (HSIC). Shares have lost about 1.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Henry Schein due for a breakout? 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 catalysts.
Henry Schein Q2 Earnings Top, Operating Margin Dips
Henry Schein registered adjusted earnings per share of $1.31 in the second quarter of 2023, up 0.8% from the year-ago period’s adjusted EPS. The metric beat the Zacks Consensus Estimate by 4.8%.
Revenues in Detail
Henry Schein reported net sales of $3.1 billion in the second quarter, up 2.3% year over year. The metric missed the Zacks Consensus Estimate by 0.3%.
The year-over-year increase included a 0.2% internal decrease in local currencies, 2.9% growth from acquisitions and a 0.4% decline related to unfavorable foreign exchange.
Sales of personal protective equipment (PPE) and COVID-19 test kits in the second quarter were $163 million, compared with $259 million in the prior-year period. Excluding sales of PPE and COVID-19 test kits, second-quarter internal sales growth in local currencies was 3.3% year over year.
On a geographic basis, the company recorded sales of $2.26 billion in North America, up 0.1% year over year. Sales totaled $838 million in the International market, up 8.7% year over year. Our model projected sales in North America and International sales to be $2.33 billion and $774.5 million, respectively.
Segmental Analysis
Henry Schein derives revenues from three operating segments — Dental, Medical and Technology and Value-added Services.
Dental
In the second quarter, the company recorded $1.96 billion in global Dental sales, up 5.6% year over year. This compares with our model’s projected year-over-year improvement of 4.6%.
The segment’s revenues included an internally generated sales increase of 2% in local currencies and 4.2% growth from acquisitions. The business registered a 0.6% decline related to foreign currency exchange.
Medical
Global Medical revenues declined 4.6% year over year to $950 million. Our model projected the segment’s revenues to decline 2.1%.
The segment’s revenues included an internally generated sales decline of 5.3% in local currencies, 0.8% growth from acquisitions and a 0.1% decline related to foreign currency exchange.
Technology and Value-Added Services
Revenues from global Technology and Value-added Services rose 6.6% to $193 million. Our model’s projection was a 6.2% improvement year over year.
The figure included 5.5% internal sales growth in local currencies, 1.5% growth from acquisitions and a 0.3% decline related to foreign currency exchange.
Margin Trend
In the reported quarter, the gross profit totaled $975 million, reflecting a 3.2% increase year over year. The gross margin expanded 26 basis points (bps) to 31.6%.
SG&A expenses rose 4% to $707 million in the quarter under review.
The adjusted operating profit in the second quarter was $268 million, an increase of 1.1% year over year. Meanwhile, the adjusted operating margin contracted 10 bps year over year to 8.6%.
Financial Position
Henry Schein exited the second quarter of 2023 with cash and cash equivalents of $137 million compared with $117 million as of Dec 31, 2022. The long-term debt of the company at the end of the second quarter was $1.13 billion compared with $1.04 billion at the end of 2022.
The cumulative net cash provided by operating activities at the end of the second quarter of 2023 was $274 million compared with $157 million in the year-ago period.
In the second quarter of 2023, HSIC repurchased nearly 638,000 shares of its common stock for $50 million. The company had approximately $365 million authorized and available for future stock repurchases at the end of the reported quarter.
2023 Guidance
Henry Schein reiterated its outlook for 2023, which considers the current continuing operations and recently announced acquisitions. The guidance also assumes that present foreign currency exchange rates will prevail, and end markets will remain consistent with current market conditions.
For 2023, the company expects adjusted EPS in the range of $5.18-$5.35 (unchanged). The Zacks Consensus Estimate for the metric is currently pegged at $5.26.
For 2023, Henry Schein expects sales growth of nearly 1 compared with the 2022 figure (unchanged from the previous guidance). The Zacks Consensus Estimate for revenues is currently pegged at $12.83 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Henry Schein has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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.
Performance of an Industry Player
Henry Schein belongs to the Zacks Medical - Dental Supplies industry. Another stock from the same industry, Align Technology (ALGN), has gained 3% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
Align Technology reported revenues of $1 billion in the last reported quarter, representing a year-over-year change of +3.4%. EPS of $2.22 for the same period compares with $2 a year ago.
Align Technology is expected to post earnings of $2.26 per share for the current quarter, representing a year-over-year change of +66.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.7%.
Align Technology has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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