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Henry Schein (HSIC) Q2 Earnings Top Estimates, Margins Dip

Zacks Equity Research

Henry Schein, Inc. HSIC reported breakeven adjusted earnings per share (EPS) from continuing operations in the second quarter of 2020 compared with EPS of 84 cents in the year-ago quarter. However, adjusted EPS compared favorably with the Zacks Consensus Estimate of a loss of 16 cents. The quarter’s adjustments exclude the impact of certain restructuring charges.

The year-over-year earnings were primarily impacted by pandemic-led business disruptions, especially in the company’s Dental business.

Revenues in Detail

Henry Schein reported net sales of $1.68 billion in the second quarter, down 31.2% year over year. The metric beat the Zacks Consensus Estimate by 19.9%.

The year-over-year decline resulted from pandemic-led impacts on business and 30.3% decline in local currencies. In local currencies, internally-generated sales declined 30.5%. Further, acquisition growth was 0.2%. However, unfavorable foreign currency exchange made a 0.9% impact on the top line.

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

In the quarter under review, the company recorded sales of $1.21 billion in the North American market, down 31.7% year over year. Sales totaled $478.9 million in the international market, down 29.9% year over year.

Segment Analysis

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

In the second quarter, the company derived $941.3 million of global Dental sales, down 41.2% year over year. This includes a 40% decline in local currencies and 1.2% adverse impact of foreign currency exchange. At local currencies, internally-generated sales declined 40.1%, which included a decrease of 46.9% in North America and a drop of 29.5% internationally. However, acquisition growth was 0.1%.

North America’s dental consumable merchandise internal sales in local currencies fell 47.5% whereas dental equipment internal sales in local currencies declined 44.9%. Internationally, dental consumable merchandise internal sales and dental equipment internal sales, both in local currencies, declined 29.2% and 30.5% respectively.

Global Medical revenues plunged 11.4% year over year to $617.8 million, resulting from an 11.4% fall in local currencies. In local currencies, internally-generated sales declined 11.4% and acquisition growth was flat. Foreign currency exchange had no impact.

The business registered strong demand for personal protective equipment (PPE) in the quarter under review. Further, the fall in sales of consumable merchandise was lower than the company’s expectations. The company, while responding to the pandemic, made available a wide menu of COVID-19 point-of-care diagnostic tests and related solutions to its medical customers.

Revenues from global Technology and Value-added Services plunged 15.9% to $105.2 million. This included a 15.4% fall in local currencies and a 0.5% drop owing to adverse currency translation. At local currencies, internally-generated sales declined 17% but acquisition growth was 1.6%.

Despite the plunging revenues, the segment registered some positives during the quarter. Henry Schein One’s dental software sales witnessed improvement as the second quarter progressed, in line with the resumption of dental practice operations. Notably, the monthly trend for transactional software revenues improved resulting from more patients visiting the dental offices across the globe.

Margin Trend

In the reported quarter, gross profit totaled $454.3 million. Gross margin contracted 438 basis points (bps) to 26.9% on a 40.8% fall in gross profit.

Selling, general and administrative expenses declined 24.9% to $445.8 million in the quarter under review.

Overall adjusted operating profit was $8.5 million, down 95.1% year over year. Further, adjusted operating margin contracted 661 bps year over year to 0.5%.

Financial Position

The company exited the second quarter of 2020 with cash and cash equivalents of $296.1 million compared with $617.4 million at the end of the first quarter. Long-term debt for the company at the end of the second quarter was $515.8 million compared with $865.8 million at the end of the first quarter of 2020.

Cumulative net cash used in operating activities from continuing operations at the end of the second quarter was $843 million compared with net cash provided by operating activities from continuing operations of $298.8 million in the year-ago period.

2020 Guidance

As the uncertainty of the pandemic and its impact on business operations cannot be ascertained at present, the company is not providing any financial guidance for the year at present.

Our Take

Henry Schein exited the second quarter of 2020 with better-than-expected results despite adversities posed by the coronavirus outbreak. The company saw dismal performances by all three of its operating businesses. The company’s international as well as North American performance were also disappointing. Contraction of both margins is deterring as well. The company’s inability to provide financial guidance raises apprehensions.

Meanwhile, the company witnessed strong demand for PPE in its Medical business. The company’s response to the pandemic by providing a variety of COVID-19 point-of-care diagnostic tests and related solutions to its medical customers buoys optimism.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Hologic, Inc. HOLX.

West Pharmaceutical reported second-quarter 2020 adjusted EPS of $1.25, beating the Zacks Consensus Estimate by 37.4%. Net revenues of $527.2 million outpaced the consensus estimate by 6.9%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher, a Zacks Rank #2 (Buy) company, reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.

Hologic reported reported third-quarter fiscal 2020 adjusted EPS of 75 cents, surpassing the Zacks Consensus Estimate by a stupendous 108.3%. Net revenues of $822.9 million exceeded the Zacks Consensus Estimate by 37.1%. It currently sports a Zacks Rank #1.

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