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Henry Schein (HSIC) Q2 Earnings Beat Estimates, Revenues Miss

Zacks Equity Research

Henry Schein, Inc. HSIC reported adjusted earnings per share (EPS) from continuing operations of 84 cents in the second quarter of 2019, up 10.5% year over year. Adjusted EPS beat the Zacks Consensus Estimate by 1.2% on revenue growth across global Medical and Technology and Value-added Services businesses.

On a reported basis, EPS from continuing operations was 78 cents, showing an 8.3% improvement on a year-over-year basis.

Revenues in Detail

Henry Schein reported net sales of $2.45 billion in the second quarter, up 5.6% year over year. The metric missed the Zacks Consensus Estimate by 1.2%. The year-over-year improvement came on the back of 3.5% internal sales growth in local currencies along with acquisition growth of 4.3%. The top line was adversely impacted by 2.1% owing to unfavorable foreign currency exchange.

 

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

 

Excluding $23.9 million in corporate revenues from product sales to Covetrus under the transition services agreement related to Henry Schein’s Animal Health spin-off, normalized internal sales growth in local currencies was 2.4%.

In the quarter under review, the company recorded sales of $1.76 billion in the North American market, up 7.5% year over year. Sales totaled $683.8 million in the international market, up 1.4% year over year.

Segment Analysis    

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

In the second quarter, the company derived $1.60 billion of global Dental sales, down 0.7% year over year. This includes 2.1% growth in local currencies and 2.8% adverse impact from foreign currency exchange. At local currencies, internally-generated sales increased 0.7% and acquisition growth was 1.4%.

Worldwide Medical revenues climbed 13.6% year over year to $697.6 million. Growth in local currencies was 13.8% while there was a 0.2% decline related to foreign exchange headwind.

Revenues from global Technology and Value-added Services grew 39.9% to $125.1 million. This included 41.2% growth in local currencies and 1.3% decrease owing to adverse currency movements.

Margin Trend         

Gross profit increased 6.8% to $767.4 million in the reported quarter. Gross margin expanded 34 basis points (bps) from the year-ago quarter to 31.4%.

The company reported a 7.3% rise in selling, general & administrative expenses to $593.2 million in the second quarter. However, adjusted operating income improved 5.2% year over year to $174.2 million. Adjusted operating margin contracted 3 bps to 7.1%.

Financial Position

The company exited second-quarter 2019 with cash and cash equivalents of $84.9 million, compared with $88.1 million at the end of the first quarter. Year-to-date net cash provided by operating activities from continuing operations was $298.8 million compared with 111.9 million in the year- ago period.

During the quarter under review, Henry Schein repurchased 1.2 million shares of its common stock for approximately $77 million. At the end of the second quarter, the company had $173 million authorized for repurchase of common stock.

2019 Guidance

The company reaffirmed its EPS guidance for 2019. It expects adjusted EPS in the range of $3.38-$3.50, reflecting 7-10% growth from 2018. The Zacks Consensus Estimate for 2019 adjusted EPS of $3.46 is within the guided range.

Our Take

Henry Schein exited the second quarter of 2019 on a mixed note. The company saw solid performance by the global Medical and Technology and Value-added Services businesses during the second quarter. Henry Schein's strong share gains in the North American market raise optimism. Year-over-year revenue growth is also encouraging. Nonetheless, we are disappointed with the sluggish dental sales and the contraction in adjusted operating margin in the reported quarter.

Zacks Rank & Key Picks

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

A few better-ranked companies, which posted solid results this earnings season, are Stryker Corporation SYK, Baxter International Inc. BAX and Intuitive Surgical, Inc. ISRG.

Baxter delivered second-quarter 2019 adjusted EPS of 89 cents, which surpassed the Zacks Consensus Estimate of 81 cents by 9.9%. Revenues of $2.84 billion beat the Zacks Consensus Estimate of $2.79 billion by 1.9%. The company holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered second-quarter 2019 adjusted EPS of $1.98, beating the Zacks Consensus Estimate by 2.6%. Revenues of $3.65 billion surpassed the Zacks Consensus Estimate by 1.4%. The company carries a Zacks Rank of 2.

Intuitive Surgical reported second-quarter 2019 adjusted EPS of $3.25, which beat the Zacks Consensus Estimate of $2.85. Revenues were $1.1 billion, surpassing the Zacks Consensus Estimate of $1.03 billion. The company sports a Zacks Rank #2.

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