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Why Is Henry Schein (HSIC) Up 2.1% Since Last Earnings Report?

Zacks Equity Research
Fortive (FTV) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

It has been about a month since the last earnings report for Henry Schein (HSIC). Shares have added about 2.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Henry Schein due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Henry Schein Rides on Strength in Medical Arm in Q4

Henry Scheinreported adjusted earnings per share (EPS) of $1.12 in the fourth quarter of 2018, up 15.5% year over year. Adjusted EPS beat the Zacks Consensus Estimate of $1.11 by 0.9% on revenue growth across global Medical and Technology and Value-added Services businesses.

On a reported basis, EPS came in at 87 cents against net loss of 6 cents in the year-ago quarter.

Adjusted EPS in 2018 was $4.13, up 14.7% year over year. The figure surpassed the Zacks Consensus Estimate of $4.12 by 0.2%.

Revenues in Detail

Henry Schein reported net sales of $3.38 billion in the fourth quarter, up 1.8% year over year. However, the metric missed the Zacks Consensus Estimate by 2.9%. The year-over-year improvement came on the back of 2.1% internal sales growth in local currencies along with acquisition growth of 1.2%. The top line was adversely impacted by 1.6% from unfavorable foreign currency exchange.

Revenues in 2018 came in at $13.20 billion, up 5.9% year over year. However, the figure missed the Zacks Consensus Estimate of $13.30 billion.

In the quarter under review, the company recorded sales of $2.26 billion in the North American market, up 3.2% year over year. Sales totaled $1.11 billion in the international market, down 1.1% 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 fourth quarter, the company derived $1.67 billion of global Dental sales, down 0.2% year over year. This includes 1.8% growth in local currencies and 2% adverse impact from foreign currency exchange. At local currencies, internally-generated sales increased 1.5% and acquisition growth was 0.3%. Internal growth at local currencies included 0.6% improvement in North America and 2.8% growth internationally.

The company's global Animal Health segment witnessed a 1.4% decline in revenues to $877.6 million. This includes 0.7% growth in local currencies and 2.1% adverse impact from foreign currency exchange. At local currencies, internally-generated sales declined 0.6% and acquisition growth was 1.3%. The internal growth in local currencies included 1.9% decline in North America and 0.8% improvement internationally.

Worldwide Medical revenues climbed 7.5% year over year to $684.8 million. Growth in local currencies was 7.6%.

Revenues from global Technology and Value-added Services grew 21.4% to $139.1 million. This included 22.1% growth in local currencies and 0.7% decrease owing to adverse currency movements.

Margin Trend         

Gross profit increased 1% to $909.9 million in the reported quarter. However, gross margin contracted 20 basis points (bps) from the year-ago quarter to 26.9% on a 2.1% escalation in cost of sales.  

Owing to a 2.3% rise in selling, general & administrative expenses to $674.7 million, adjusted operating income declined 2.5% year over year to $235.2 million. Also, adjusted operating margin shrunk 30 bps year over year to 7% in the reported quarter.

Financial Position

The company exited 2018 with cash and cash equivalents of $80.2 million, compared with $1.75 billion in 2017. Net cash provided by operating activities was $684.7 million compared with $545.5 million a year ago.

During the quarter under review, Henry Schein repurchased 997,000 shares of its common stock for approximately $86 million. At the end of the fourth quarter, the company had $400 million authorized for repurchase of common stock.

2019 Guidance

The company has provided its 2019 EPS guidance. It expects EPS in the range of $3.38-$3.46, reflecting 7-9% growth from the 2018 figure of $3.17. The Zacks Consensus Estimate for 2019 adjusted EPS of $4.32 is above the guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -25.49% due to these changes.

VGM Scores

Currently, Henry Schein has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Henry Schein has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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