Henry Schein (HSIC) Q3 Revenues Miss, 2023 Guidance Cut
Henry Schein, Inc. HSIC registered adjusted earnings per share (EPS) of $1.32 in the third quarter of 2023, up 2.3% from the year-ago period’s adjusted EPS. However, the metric missed the Zacks Consensus Estimate by 0.8%.
Revenues in Detail
Henry Schein reported net sales of $3.16 billion in the third quarter, up 3.1% year over year. However, the metric lagged the Zacks Consensus Estimate by 0.9%.
The year-over-year increase included a 1.2% decrease in local currencies, 3.2% growth from acquisitions and a 1.1% increase in net sales related to foreign currency exchange.
Henry Schein, Inc. Price, Consensus and EPS Surprise
Henry Schein, Inc. price-consensus-eps-surprise-chart | Henry Schein, Inc. Quote
Sales of personal protective equipment (PPE) and COVID-19 test kits in the third quarter were $175 million compared with $244 million in the prior-year period. Excluding sales of PPE and COVID-19 test kits, third-quarter internal sales growth in local currencies was 1.1% year over year.
On a geographic basis, the company recorded sales of $2.36 billion in North America, down 0.5% year over year. Sales totaled $799 million in the International market, up 15.3% year over year. Our model projected sales in North America and International regions to be $2.40 billion and $799.7 million, respectively.
Segmental Analysis
Henry Schein derives revenues from three operating segments — Dental, Medical and Technology and Value-Added Services.
Dental
In the third quarter, the company recorded $1.88 billion in global Dental sales, up 5.4% year over year. This compares with our model’s projected revenues of $1.93 billion.
The segment’s revenues included an internally generated sales decrease of 0.2% in local currencies and reflected a 0.9% decrease in North America and 0.9% growth internationally and an increase of 0.3% in local currencies, excluding sales of PPE products.
Medical
Global Medical revenues declined 3.3% year over year to $1.07 billion. Our model projected the segment’s revenues to be $1.08 billion.
The segment’s revenues included an internally generated sales increase of 0.8% in local currencies and continued to be impacted by a difficult prior-year comparison of 9.3% sales growth and a product mix shift to generic pharmaceuticals and corporate brand products.
Technology and Value-Added Services
Revenues from global Technology and Value-Added Services rose 19.3% to $210 million. Our model’s projection was $187.2 million.
The figure included 9.6% internal sales growth in local currencies and 8.6% growth from acquisitions, including Large Practice Sales LLC.
Margin Trend
In the reported quarter, the gross profit totaled $995 million, reflecting an 8.9% increase year over year. The gross margin expanded 167 basis points (bps) to 31.5%.
SG&A expenses rose 11.9% to $725 million in the quarter under review. The adjusted operating profit in the third quarter was $270 million, an increase of 1.5% year over year. Meanwhile, the adjusted operating margin contracted 13 bps year over year to 8.5%.
Liquidity Position
In the third quarter of 2023, HSIC repurchased nearly 660,000 shares of its common stock for $50 million. The company had approximately $315 million authorized and available for future stock repurchases at the end of the reported quarter.
2023 Guidance
Henry Schein provided an updated 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 $4.43-$4.71, narrowing the previous guidance range ($5.18-$5.35) for the underlying business to the $5.18-$5.26 band. The Zacks Consensus Estimate for the metric is currently pegged at $5.26.
For 2023, Henry Schein expects sales growth of nearly 1%-3% lower compared with the 2022 figure (the earlier outlook was 1%-3% sales growth). The Zacks Consensus Estimate for revenues is currently pegged at $12.82 billion.
Our Take
Henry Schein ended the third quarter of 2023 with both earnings and revenues missing estimates. However, the metrics increased year over year despite continued lower sales of PPE products and COVID-19 test kits. The company’s profitability benefitted from technology, value-added services and dental specialty products while progressing toward the goal of achieving 40% of operating income from sales of high-growth, high-margin products. The gross margin expansion sounds promising.
Meanwhile, Henry Schein lowered its outlook for the full year, which reflected softening macroeconomic conditions and an estimated impact due to business interruption from the recent cybersecurity incident. Management updated that the incident has now been contained, which primarily affected the dental and medical distribution businesses. The company is making significant progress in resuming normal-course operations.
Zacks Rank & Key Picks
Henry Schein currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are DexCom DXCM, Medpace MEDP and The Ensign Group ENSG.
DexCom, carrying a Zacks Rank of 2 (Buy), reported a third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 47.1%. Revenues of $975 million outpaced the consensus mark by 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DexCom has a long-term estimated growth rate of 33.6%. DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%.
Medpace reported a third-quarter 2023 adjusted EPS of $2.22, beating the Zacks Consensus Estimate by 8.8%. Revenues of $492.5 million surpassed the Zacks Consensus Estimate by 3.4%. It currently carries a Zacks Rank #2.
Medpace has an estimated earnings growth rate of 16.2% for the next year. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 14.6%.
The Ensign Group reported a third-quarter 2023 adjusted EPS of $1.20, beating the Zacks Consensus Estimate by 1.7%. Revenues of $940.8 million surpassed the Zacks Consensus Estimate by 0.2%. It currently carries a Zacks Rank #2.
The Ensign Group has a long-term estimated growth rate of 15%. ENSG’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 1.5%.
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