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Henry Schein (HSIC) Down 10.9% Since Last Earnings Report: Can It Rebound?

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  • HSIC

A month has gone by since the last earnings report for Henry Schein (HSIC). Shares have lost about 10.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

Henry Schein Q3 Earnings Top Estimates, 2021 EPS View Up

Henry Schein reported adjusted earnings per share of 5 $1.10 from continuing operations in the third quarter of 2021 reflecting a 6.8% rise year over year. Moreover, adjusted earnings per share surpassed the Zacks Consensus Estimate by 17%. The quarter’s adjustments exclude the impact of certain restructuring charges, and settlement and litigation costs, among others.

GAAP earnings per share in the third quarter was $1.15 against the year-ago earnings per share of 99 cents.

Revenues in Detail

Henry Schein reported net sales of $3.18 billion in the third quarter, up 11.9% year over year. The metric beat the Zacks Consensus Estimate by 8%.

The year-over-year uptick included 7.2% internal growth in local currencies, 3.9% growth from acquisitions and 0.8% growth related to foreign currency exchange.

In the quarter under review, the company recorded sales of $2.43 billion in the North American market, up 13.8% year over year. Sales totaled $752.2 million in the international market, up 6.3% year over year.

The year-over-year revenue growth was primarily driven by strengthening demand in the global dental and medical markets.

Segment Analysis

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

In the third quarter, the company recorded $1.80 billion of global Dental sales, up 10.5% year over year. In local currencies, the segment’s revenues include internally-generated sales growth of 5.2%, 3.9% growth from acquisitions and 1.4% growth related to foreign currency exchange. Further, the internal growth in local currencies of 5.2% included an increase of 4.7% in North America and an increase of 5.9% internationally.

Henry Schein’s uptick in overall dental sales performance reflects continued recovery in patient traffic compared to pre-pandemic levels.

North America’s dental consumable merchandise’s internal sales in local currencies rose 3.9% whereas dental equipment internal sales in local currencies rose 7.8%. Internationally, dental consumable merchandise internal sales and dental equipment internal sales, both in local currencies, improved 1.3% and 23.9%, respectively.

Global Medical revenues surged 15.5% year over year to $1.20 billion. The segment’s revenues include 13.1% internal growth in local currencies and 2.4% growth from acquisitions. There was no impact related to foreign currency exchange.

Revenues from global Technology and Value-added Services rose 21.9% to $168.6 million. This included a rise of 6.3% in internal local currency sales, 14.7% growth from acquisitions and 0.9% growth related to foreign currency exchange.

Margin Trend

In the reported quarter, gross profit totaled $912.1 million, reflecting a 20.9% uptick year over year. Gross margin expanded 214 basis points (bps) to 28.7%.

Selling, general and administrative expenses rose 25.4% to $701.5 million in the quarter under review.

Overall adjusted operating profit was $210.6 million, reflecting a rise of 8.2% year over year. Yet, adjusted operating margin contracted 23 bps year over year to 6.6%.

Financial Position

The company exited the third quarter of 2021 with cash and cash equivalents of $119.1 million compared with $167.2 million at the end of second-quarter 2021. Long-term debt for the company at the end of the third quarter of 2021 was $705.5 million compared with $706.5 million at the end of second-quarter 2021.

Cumulative net cash provided by operating activities from continuing operations till the end of the third quarter of 2021 was $432.9 million compared with net cash used by operating activities from continuing operations of $248.4 million in the year-ago period.

During the third quarter of 2021, the company repurchased shares of its common stock for a total of approximately $50 million.

2021 Guidance

Henry Schein has raised the guidance for 2021 adjusted earnings per share from continuing operations, which is now expected to be in the range of $4.27 to $4.35, reflecting growth of 44-46% compared with 2020. The earlier-provided expectation was at or above $3.85. The Zacks Consensus Estimate for the same is currently pegged at $4.32.

2022 Guidance

Henry Schein also introduced preliminary guidance for 2022 adjusted earnings per share from continuing operations, which is expected to be in mid-to-high single-digit growth over 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -11.81% due to these changes.

VGM Scores

Currently, Henry Schein has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 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.


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