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Henry Schein (HSIC) Q1 Earnings Top Estimates, '21 EPS View Up

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·6 min read
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Henry Schein, Inc. HSIC reported adjusted earnings per share (“EPS”) of $1.24 from continuing operations in the first quarter of 2021, reflecting an improvement of 31.9% from the year-ago EPS of 94 cents. Moreover, adjusted EPS surpassed the Zacks Consensus Estimate by 49.4%. The quarter’s adjustments exclude the impact of certain restructuring charges, and settlement and litigation costs, among others.

GAAP EPS in the first quarter was $1.16, up by 27.5% from the year-ago EPS of 91 cents.

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.

Revenues in Detail

Henry Schein reported net sales of $2.92 billion in the first quarter, up 20.4% year over year. The metric beat the Zacks Consensus Estimate by 3.6%.
The year-over-year uptick resulted from overall market recovery and included 14.9% internal growth in local currencies, 3.3% growth from acquisitions and 2.2% growth related to foreign currency exchange.

In the quarter under review, the company recorded sales of $2.13 billion in the North American market, up 19.8% year over year. Sales totaled $793.1 million in the international market, up 22.2% year over year.

Segment Analysis

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

In the first quarter, the company derived $1.79 billion of global Dental sales, up 21.3% year over year. In local currencies, the segment’s revenues include internally generated sales growth of 13.7%, 4.2% growth from acquisitions and 3.4% growth related to foreign currency exchange. Further, the internal growth in local currencies of 13.7% included an increase of 10.9% in North America and an increase of 17.9% internationally.

Henry Schein, Inc. Price, Consensus and EPS Surprise

Henry Schein, Inc. Price, Consensus and EPS Surprise
Henry Schein, Inc. Price, Consensus and EPS Surprise

Henry Schein, Inc. price-consensus-eps-surprise-chart | Henry Schein, Inc. Quote

North America’s dental consumable merchandise’s internal sales in local currencies rose 9.3% whereas dental equipment internal sales in local currencies surged 17.4%. Internationally, dental consumable merchandise internal sales and dental equipment internal sales, both in local currencies, improved 19.2% and 12.9%, respectively.

Global Medical revenues surged 24% year over year to $993 million. The segment’s revenues include 22.1% internal growth in local currencies, 1.6% growth from acquisitions and 0.3% growth related to foreign currency exchange.

The business registered continued 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 8.4% to $142.9 million. This included a rise of 3.6% in internal local currency sales, 3.4% growth from acquisitions and 1.4% growth related to foreign currency exchange.

The uptick in the company’s Technology and Value-Added Services resulted from a strong Henry Schein One portfolio and strong financial services internal sales in local currencies (which was partly driven by higher sales of dental equipment).

Margin Trend

In the reported quarter, gross profit totaled $890.9 million, reflecting a 19.4% uptick year over year. Despite that, gross margin contracted 26 basis points (bps) to 30.5%.

Selling, general and administrative expenses rose 15.9% to $657.9 million in the quarter under review.

Overall adjusted operating profit was $232.9 million, up 30.3% year over year. Adjusted operating margin expanded 61 bps year over year to 7.9%.

Financial Position

The company exited the first quarter of 2021 with cash and cash equivalents of $144.5 million compared with $421.2 million at the end of 2020. Long-term debt for the company at the end of the first quarter of 2021 was $506.5 million compared with $515.8 million at the end of 2020.

During the first quarter of 2021, the company repurchased shares of its common stock for a total of approximately $88.7 million.

Net cash provided by operating activities from continuing operations at the end of the first quarter of 2021 was $63.3 million compared with net cash provided by operating activities from continuing operations of $78.8 million in the year-ago period.

2021 Guidance

Henry Schein has raised the guidance for 2021’s adjusted EPS from continuing operations, which is now expected to be at or above $3.70 (up from its earlier-provided expectations of the adjusted EPS being at or above 2019’s comparable figure of $3.51). The Zacks Consensus Estimate for the same is currently pegged at $3.69.

Our Take

Henry Schein exited the first quarter of 2021 with better-than-expected results despite adversities posed by the coronavirus outbreak. The company saw robust performances by all three of its operating businesses. The company’s international performance was also impressive. The company witnessed strong demand for PPE and COVID-19-related products, along with a strong rebound in sales. Strength in the company’s Henry Schein One portfolio also looks impressive. Expansion of the operating margin bodes well for the stock.

Meanwhile, continued pandemic-led challenges faced by the end markets in most geographies is concerning. Contraction of gross margin is deterring. The company’s inability to provide a detailed financial guidance raises apprehensions.

Zacks Rank and Key Picks

Henry Schein currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Boston Scientific Corporation BSX, CONMED Corporation CNMD and HCA Healthcare, Inc. HCA.

Boston Scientific reported first-quarter 2021 adjusted EPS of 37 cents, beating the Zacks Consensus Estimate by 23.3%. Net revenues of $2.75 billion outpaced the consensus estimate by 5.3%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CONMED, a Zacks Rank #2 company, reported first-quarter 2021 adjusted EPS of 63 cents, beating the Zacks Consensus Estimate by 46.5%. Revenues of $232.7 million outpaced the consensus mark by 7%.

HCA Healthcare reported first-quarter 2021 adjusted EPS of $4.14, surpassing the Zacks Consensus Estimate by 23.6%. Net revenues of $14 billion exceeded the Zacks Consensus Estimate by 2.2%. It currently carries a Zacks Rank #2.

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