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Henry Schein's (HSIC) Q1 Earnings, Revenues Beat Estimates

Urmimala Biswas

Henry Schein, Inc. HSIC reported adjusted earnings per share (EPS) from continuing operations of 80 cents in the first quarter of 2019, up 8.1% year over year. Adjusted EPS beat the Zacks Consensus Estimate by 5.3% on revenue growth across global Medical and Technology and Value-added Services businesses.

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

Revenues in Detail

Henry Schein reported net sales of $2.36 billion in the first quarter, up 3.8% year over year. The metric exceeded the Zacks Consensus Estimate by 0.9%. The year-over-year improvement came on the back of 4.3% internal sales growth in local currencies along with acquisition growth of 2.3%. The top line was adversely impacted by 2.8% from unfavorable foreign currency exchange.

Henry Schein, Inc. Price, Consensus and EPS Surprise

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

Excluding $15 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 3.7%.

In the quarter under review, the company recorded sales of $1.68 billion in the North American market, up 5.9% year over year. Sales totaled $674.2 million in the international market, down 1% year over year.

Segment Analysis    

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

In the first quarter, the company derived $1.55 billion of global Dental sales, down 0.1% year over year. This includes 3.8% growth in local currencies and 3.9% adverse impact from foreign currency exchange. At local currencies, internally-generated sales increased 3.2% and acquisition growth was 0.6%.

Worldwide Medical revenues climbed 7.5% year over year to $683.7 million. Growth in local currencies was 7% while there was a 0.2% decline related to foreign exchange headwind.

Revenues from global Technology and Value-added Services grew 35.1% to $115.5 million. This included 36.8% growth in local currencies and 1.7% decrease owing to adverse currency movements.

Margin Trend         

Gross profit increased 4.5% to $751.7 million in the reported quarter. Gross margin expanded 22 basis points (bps) from the year-ago quarter to 31.8%.  

The company reported a 3.7% rise in selling, general & administrative expenses to $574.6 million in the first quarter. However, adjusted operating income improved 7.4% year over year to $177.1 million. Adjusted operating margin expanded 25 bps year over year to 7.5% in the reported quarter.

Financial Position

The company exited first-quarter 2019 with cash and cash equivalents of $88.1 million, compared with $56.9 million at the end of 2018. Net cash provided by operating activities from continuing operations at the end of the first quarter was $133.3 million compared with net cash used in operating activitiesfrom continuing operationsof $64.6 million a year ago.

During the quarter under review, Henry Schein repurchased 2.5 million shares of its common stock for approximately $150 million. At the end of the first quarter, the company had $250 million authorized for repurchase of common stock.

2019 Guidance

The company has increased the upper end of its earlier-provided EPS guidance for 2019. It expects adjusted EPS in the range of $3.38-$3.50, reflecting 7-10% growth from the 2018 (earlier EPS expectation band was $3.38-$3.46). The Zacks Consensus Estimate for 2019 adjusted EPS of $4.43 is within the guided range.

Our Take

Henry Schein exited the first quarter of 2019 on a promising note. The company saw solid performance by the global Medical and Technology and Value-added Services businesses. Henry Schein's strong share gains in the North American market raise optimism. Nonetheless, we are disappointed with the sluggish dental sales in the reported quarter.

Meanwhile, Henry Schein divested its Animal Health business in February to form a new publicly traded company, Covetrus.

Zacks Rank & Key Picks

Henry Schein currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks with solid results this earnings season are Stryker Corp. SYK, Abbott Laboratories ABT and CONMED Corp. CNMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 adjusted EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Meanwhile, revenues of $3.52 billion were in line with the consensus estimate.

Abbott reported first-quarter 2019 adjusted EPS of 63 cents, topping the Zacks Consensus Estimate by 3.3%. Moreover, worldwide sales of $7.54 billion came above the consensus estimate of $7.47 billion.

CONMED posted first-quarter 2019 adjusted EPS of 57 cents, which exceeded the Zacks Consensus Estimate of 54 cents. Also, revenues of $218.4 million outshined the consensus mark of $213 million.

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