Why Is Henry Schein (HSIC) Down 4.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Henry Schein (HSIC). Shares have lost about 4.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Henry Schein due for a breakout? 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 Q1 Earnings Top Estimates, '21 Earnings Per Share View Up
Henry Schein reported adjusted earnings per share of $1.24 from continuing operations in the first quarter of 2021, reflecting an improvement of 31.9% from the year-ago earnings per share of 94 cents. Moreover, adjusted earnings per share surpassed the Zacks Consensus Estimate by 49.4%. The quarter’s adjustments exclude the impact of certain restructuring charges, and settlement and litigation costs, among others.
GAAP earnings per share in the first quarter was $1.16, up by 27.5% from the year-ago earnings per share of 91 cents.
The year-over-year earnings were primarily driven by a strong rebound in sales, along with strength in demand for PPE and COVID-19-related products.
Revenues in Detail
Henry Schein reported net sales of $2.92 billion in the first quarter, up 20.4% year over year. The metric beat the Zacks Consensus Estimate by 3.6%.
The year-over-year uptick resulted from overall market recovery and included 14.9% internal growth in local currencies, 3.3% growth from acquisitions and 2.2% growth related to foreign currency exchange.
In the quarter under review, the company recorded sales of $2.13 billion in the North American market, up 19.8% year over year. Sales totaled $793.1 million in the international market, up 22.2% year over year.
Segment Analysis
Henry Schein derives revenues from three operating segments — Dental, Medical, and Technology and Value-added Services.
In the first quarter, the company derived $1.79 billion of global Dental sales, up 21.3% year over year. In local currencies, the segment’s revenues include internally generated sales growth of 13.7%, 4.2% growth from acquisitions and 3.4% growth related to foreign currency exchange. Further, the internal growth in local currencies of 13.7% included an increase of 10.9% in North America and an increase of 17.9% internationally.
North America’s dental consumable merchandise’s internal sales in local currencies rose 9.3% whereas dental equipment internal sales in local currencies surged 17.4%. Internationally, dental consumable merchandise internal sales and dental equipment internal sales, both in local currencies, improved 19.2% and 12.9%, respectively.
Global Medical revenues surged 24% year over year to $993 million. The segment’s revenues include 22.1% internal growth in local currencies, 1.6% growth from acquisitions and 0.3% growth related to foreign currency exchange.
The business registered continued strong demand for PPE and COVID-19-related products (especially for COVID-19 test sales) in the quarter under review.
Revenues from global Technology and Value-added Services inched up 8.4% to $142.9 million. This included a rise of 3.6% in internal local currency sales, 3.4% growth from acquisitions and 1.4% growth related to foreign currency exchange.
The uptick in the company’s Technology and Value-Added Services resulted from a strong Henry Schein One portfolio and strong financial services internal sales in local currencies (which was partly driven by higher sales of dental equipment).
Margin Trend
In the reported quarter, gross profit totaled $890.9 million, reflecting a 19.4% uptick year over year. Despite that, gross margin contracted 26 basis points (bps) to 30.5%.
Selling, general and administrative expenses rose 15.9% to $657.9 million in the quarter under review.
Overall adjusted operating profit was $232.9 million, up 30.3% year over year. Adjusted operating margin expanded 61 bps year over year to 7.9%.
Financial Position
The company exited the first quarter of 2021 with cash and cash equivalents of $144.5 million compared with $421.2 million at the end of 2020. Long-term debt for the company at the end of the first quarter of 2021 was $506.5 million compared with $515.8 million at the end of 2020.
During the first quarter of 2021, the company repurchased shares of its common stock for a total of approximately $88.7 million.
Net cash provided by operating activities from continuing operations at the end of the first quarter of 2021 was $63.3 million compared with net cash provided by operating activities from continuing operations of $78.8 million in the year-ago period.
2021 Guidance
Henry Schein has raised the guidance for 2021’s adjusted earnings per share from continuing operations, which is now expected to be at or above $3.70 (up from its earlier-provided expectations of the adjusted earnings per share being at or above 2019’s comparable figure of $3.51). The Zacks Consensus Estimate for the same is currently pegged at $3.69.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 5.06% due to these changes.
VGM Scores
At this time, Henry Schein has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Henry Schein has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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