Henry Schein Reports Record First Quarter 2019 Financial Results from Continuing Operations

  • Q1 GAAP net income per diluted share from continuing operations of
    $0.78 versus prior-year GAAP net income per diluted share from
    continuing operations of $0.72
  • Q1 non-GAAP diluted EPS from continuing operations of $0.80 versus
    prior-year non-GAAP diluted EPS from continuing operations of $0.74
  • Raises top end of guidance range for 2019 non-GAAP diluted EPS from
    continuing operations

MELVILLE, N.Y.–(BUSINESS WIRE)–Henry Schein, Inc. (Nasdaq: HSIC), the world’s largest provider of
health care solutions to office-based dental and medical practitioners,
today reported record first quarter financial results from continuing
operations. Note that results from continuing operations exclude
contributions from Henry Schein’s former Animal Health business, which
was spun off in February 2019 to form a new publicly traded company,
Covetrus.

Net sales from continuing operations for the quarter ended March 30,
2019, were $2.4 billion, an increase of 3.8% compared with the first
quarter of 2018. The 3.8% increase consisted of 6.6% growth in local
currencies and a 2.8% decline related to foreign currency exchange. In
local currencies, internally generated sales increased 4.3% and
acquisition growth was 2.3%. Excluding approximately $15.0 million in
corporate revenues from product sales to Covetrus under the transition
services agreement entered into in connection with the Animal Health
spin-off, normalized internal sales growth in local currencies was 3.7%
(see Exhibit A for details of sales growth and a reconciliation of this
non-GAAP measure to GAAP sales).

Net income attributable to Henry Schein, Inc. from continuing operations
for the first quarter of 2019 was $118.4 million, or $0.78 per diluted
share, compared with prior-year net income from continuing operations of
$111.5 million, or $0.72 per diluted share. Non-GAAP net income from
continuing operations for the first quarter of 2019 was $120.6 million,
or $0.80 per diluted share, compared with non-GAAP net income from
continuing operations of $113.6 million, or $0.74 per diluted share, for
the first quarter of 2018. Non-GAAP results for the first quarter of
2019 and 2018 exclude certain items noted in Exhibit B, which provides a
reconciliation of GAAP net income from continuing operations and diluted
EPS from continuing operations to non-GAAP net income and diluted EPS
from continuing operations.

“We are pleased with our performance to date as we execute on our 2018
to 2020 strategic plan. We have completed the first quarter of what we
have characterized as a transition year as we continue to separate
operations of our former Animal Health business. Throughout this
transition, we believe we gained market share in both of our global
Dental and Medical businesses, and are confident that Henry Schein is
well-positioned for operational success over the long-term,” said
Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of
Henry Schein.

“We will continue to focus on supporting our customers around the world
with the broadest array of products and services, along with innovative
technology that expands our value-added solutions offering while
pursuing new investment opportunities,” Mr. Bergman continued.

Dental sales of $1.5 billion decreased 0.1%, consisting of 3.8% growth
in local currencies and a 3.9% decline related to foreign currency
exchange. In local currencies, internally generated sales increased 3.2%
and acquisition growth was 0.6%. The 3.2% internal growth in local
currencies included 2.7% growth in North America and 4.0% growth
internationally.

“First quarter dental consumables internal sales growth in North America
was 2.5%, reflecting modest market-share gains in a stable end market.
Dental equipment internal sales growth of 3.3% in local currencies
improved sequentially, driven by double-digit growth in CAD/CAM
equipment sales,” commented Mr. Bergman. “Internationally, dental
consumables internal sales in local currencies had robust growth of
5.5%. Dental equipment internal sales in local currencies declined by
1.2%, due largely to the timing of the International Dental Show (IDS)
in Cologne, Germany, in March, which customarily results in lower
international equipment sales in the first quarter that typically
accelerate in the second quarter.”

Medical sales of $683.7 million increased 6.8%, consisting of 7.0%
growth in local currencies and a 0.2% decline related to foreign
currency exchange. In local currencies, internally generated sales
increased 5.1% and acquisition growth was 1.9%.

“We were pleased with Medical internal sales growth of 5.1% in local
currencies during the first quarter, despite a fairly light influenza
season that adversely impacted patient office visits,” remarked Mr.
Bergman. “We are well-positioned in our partnerships with large group
practices, independent physician offices, and alternate sites of care,
which are driving our continued market-share gains.”

Technology and Value-Added Services sales from continuing operations of
$115.5 million increased 35.1%, consisting of 36.8% growth in local
currencies and a 1.7% decline related to foreign currency exchange. In
local currencies, internally generated sales increased 2.1% and
acquisition growth was 34.7%.

“Technology and Value-Added Services growth in the first quarter was
primarily driven by the formation of Henry Schein One. North America
internal sales growth in local currencies was 0.9%. Internal sales
increased by 7.0% in local currencies in our international business.
With a single connected platform in Henry Schein One, we are helping our
customers leverage technology solutions to automate tasks, share data,
and better communicate with their patients. We expect these solutions
will drive long-term growth in our technology, as well as our
distribution businesses,” said Mr. Bergman.

Stock Repurchase Plan

The Company repurchased approximately 2.5 million shares of its common
stock during the first quarter at an average price of $59.45 per share,
or a total of approximately $150 million. The impact of the repurchase
of shares on first quarter 2019 diluted EPS was immaterial. At the end
of the first quarter of 2019, Henry Schein had approximately $250
million authorized and available for future stock repurchases.

Restructuring Program

Henry Schein previously disclosed a comprehensive restructuring
initiative designed to increase profitability by improving business
efficiencies, reducing redundancies and maximizing the Company’s
infrastructure. The Company recorded a pretax restructuring charge in
the first quarter of 2019 of $4.6 million, or $0.02 per diluted share.
These charges primarily include severance pay, facility closing costs,
and outside professional and consulting fees directly related to the
restructuring.

2019 EPS Guidance

Henry Schein today raises 2019 non-GAAP financial guidance. At this time
the Company is not providing GAAP guidance as it is unable to provide an
accurate estimate of costs related to its restructuring initiative on
full-year 2019 financial results. Guidance is as follows:

  • 2019 non-GAAP diluted EPS from continuing operations attributable to
    Henry Schein, Inc. is expected to be $3.38 to $3.50, reflecting growth
    of 7% to 10% compared with 2018 non-GAAP diluted EPS from continuing
    operations of $3.17. This compares to prior guidance of $3.38 to
    $3.46, reflecting growth of 7% to 9%. The Company’s Animal Health
    business was spun off to shareholders as of February 7, 2019, and that
    business is classified as a discontinued operation for all current and
    prior periods presented.
  • Guidance for 2019 non-GAAP diluted EPS attributable to Henry Schein,
    Inc. is for current continuing operations as well as completed or
    previously announced acquisitions, and does not include the impact of
    potential future acquisitions, if any. Guidance also assumes foreign
    exchange rates that are generally consistent with current levels.

The Company has provided guidance for 2019 diluted EPS on a non-GAAP
basis as noted above. A reconciliation to the Company’s projected 2019
diluted EPS prepared on a GAAP basis is not provided because the Company
is unable to provide such reconciliation for an estimate of
restructuring costs without unreasonable effort. The inability to
provide a reconciliation is due to the uncertainty and inherent
difficulty predicting the occurrence, the financial impact, and the
periods in which the non-GAAP adjustments may be recognized.

The Company’s 2019 diluted EPS prepared on a GAAP basis will include the
impact of such items as restructuring charges and any litigation
settlement expenses and the tax effect of all such items. Management
does not believe these items are representative of the Company’s
underlying business performance. For the same reasons, the Company is
unable to address the probable significance of the unavailable
information, which could be material to future results.

First Quarter 2019 Conference Call Webcast

The Company will hold a conference call to discuss first quarter 2019
financial results today, beginning at 10:00 a.m. Eastern time.
Individual investors are invited to listen to the conference call
through Henry Schein’s website at www.henryschein.com.
In addition, a replay will be available beginning shortly after the call
has ended.

About Henry Schein, Inc.

Henry Schein, Inc. (Nasdaq: HSIC) is a solutions company for health care
professionals powered by a network of people and technology. With more
than 19,000 Team Schein
Members
 worldwide, the Company’s network of trusted advisors
provides more than 1 million customers globally with more than 300
valued solutions that improve operational success and clinical outcomes.
Our Business, Clinical, Technology, and Supply Chain solutions help
office-based dental and medical practitioners
work more efficiently so they can provide quality care more effectively.
These solutions also support dental
laboratories
government
and institutional health care clinics
, as well as other alternate
care sites.

Henry Schein operates through a centralized and automated distribution
network, with a selection of more than 120,000 branded products and
Henry Schein private-brand products in stock, as well as more than
180,000 additional products available as special-order items.

A FORTUNE 500 Company and a member of the S&P 500® and the Nasdaq 100®
indexes, Henry Schein is headquartered in Melville, N.Y., and has
operations or affiliates in 31 countries. The Company’s sales from
continuing operations reached $9.4 billion in 2018, and have grown at a
compound annual rate of approximately 13 percent since Henry Schein
became a public company in 1995.

For more information, visit Henry Schein at www.henryschein.com,
Facebook.com/HenrySchein,
and @HenrySchein
on Twitter
.

Cautionary Note Regarding Forward-Looking Statements and Use of
Non-GAAP Financial Information

In accordance with the “Safe Harbor” provisions of the Private
Securities Litigation Reform Act of 1995, we provide the following
cautionary remarks regarding important factors that, among others, could
cause future results to differ materially from the forward-looking
statements, expectations and assumptions expressed or implied herein.
All forward-looking statements made by us are subject to risks and
uncertainties and are not guarantees of future performance. These
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results,
performance and achievements or industry results to be materially
different from any future results, performance or achievements expressed
or implied by such forward-looking statements. These statements are
identified by the use of such terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,”
“anticipate” or other comparable terms. A full discussion of our
operations and financial condition, including factors that may affect
our business and future prospects, is contained in documents we have
filed with the United States Securities and Exchange Commission, or SEC,
and will be contained in all subsequent periodic filings we make with
the SEC. These documents identify in detail important risk factors that
could cause our actual performance to differ materially from current
expectations.

Risk factors and uncertainties that could cause actual results to differ
materially from current and historical results include, but are not
limited to: effects of a highly competitive and consolidating market;
our dependence on third parties for the manufacture and supply of our
products; our dependence upon sales personnel, customers, suppliers and
manufacturers; our dependence on our senior management; fluctuations in
quarterly earnings; risks from expansion of customer purchasing power
and multi-tiered costing structures; increases in shipping costs for our
products or other service issues with our third-party shippers; general
global macro-economic conditions; risks associated with currency
fluctuations; risks associated with political and economic uncertainty;
disruptions in financial markets; volatility of the market price of our
common stock; changes in the health care industry; implementation of
health care laws; failure to comply with regulatory requirements and
data privacy laws; risks associated with our global operations;
transitional challenges associated with acquisitions, dispositions and
joint ventures, including the failure to achieve anticipated
synergies/benefits; financial and tax risks associated with
acquisitions, dispositions and joint ventures; litigation risks; new or
unanticipated litigation developments; the dependence on our continued
product development, technical support and successful marketing in the
technology segment; our dependence on third parties for certain
technologically advanced components; increased competition by third
party online commerce sites; risks from disruption to our information
systems; cyberattacks or other privacy or data security breaches;
certain provisions in our governing documents that may discourage
third-party acquisitions of us; and changes in tax legislation. The
order in which these factors appear should not be construed to indicate
their relative importance or priority.

We caution that these factors may not be exhaustive and that many of
these factors are beyond our ability to control or predict. Accordingly,
any forward-looking statements contained herein should not be relied
upon as a prediction of actual results. We undertake no duty and have no
obligation to update forward-looking statements.

Included within the press release are non-GAAP financial measures that
supplement the Company’s Consolidated Statements of Income prepared
under generally accepted accounting principles (GAAP). These non-GAAP
financial measures adjust the Company’s actual results prepared under
GAAP to exclude certain items. In the schedules attached to this press
release, the non-GAAP measures have been reconciled to and should be
considered together with the Consolidated Statements of Income.
Management believes that non-GAAP financial measures provide investors
with useful supplemental information about the financial performance of
our business, enable comparison of financial results between periods
where certain items may vary independent of business performance and
allow for greater transparency with respect to key metrics used by
management in operating our business. These non-GAAP financial measures
are presented solely for informational and comparative purposes and
should not be regarded as a replacement for corresponding, similarly
captioned, GAAP measures.

(TABLES TO FOLLOW)

 
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
     
Three Months Ended
March 30, March 31,
2019 2018
 
Net sales $ 2,360,268 $ 2,273,450
Cost of sales   1,608,578   1,554,321
Gross profit 751,690 719,129
Operating expenses:
Selling, general and administrative 574,608 554,214
Restructuring costs   4,641   2,675
Operating income 172,441 162,240
Other income (expense):
Interest income 4,771 3,453
Interest expense (16,301) (16,904)
Other, net   (419)   (750)
Income from continuing operations before taxes,
equity in earnings of affiliates and noncontrolling interests 160,492 148,039
Income taxes (39,482) (36,142)
Equity in earnings of affiliates   2,630   2,820
Net income from continuing operations 123,640 114,717
Income (loss) from discontinued operations   (8,996)   33,914
Net Income 114,644 148,631
Less: Net income attributable to noncontrolling interests (5,227) (3,183)
Less: Net income (loss) attributable to noncontrolling interests
from discontinued operations
  366   (5,230)
Net income attributable to Henry Schein, Inc. $ 109,783 $

140,218

 
Amounts attributable to Henry Schein, Inc:
Continuing operations $ 118,413 $ 111,534
Discontinued operations   (8,630)   28,684
Net income attributable to Henry Schein, Inc. $ 109,783 $ 140,218
 
Earnings per share from continuing operations attributable to Henry
Schein, Inc.:
 
Basic $ 0.79 $ 0.73
Diluted $ 0.78 $ 0.72
 
Earnings (loss) per share from discontinued operations attributable
to Henry Schein, Inc.:
 
Basic $ (0.06) $ 0.19
Diluted $ (0.06) $ 0.19
 
Earnings per share attributable to Henry Schein, Inc.:
 
Basic $ 0.73   0.92
Diluted $ 0.73   0.91
 
Weighted-average common shares outstanding:
Basic   150,257   153,106
Diluted   151,156   154,130
 
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
       
 
 
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
March 30, December 29,
2019 2018
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 88,115 $ 56,885
Accounts receivable, net of reserves of $52,205 and $53,121 1,193,054 1,168,776
Inventories, net 1,370,376 1,415,512
Prepaid expenses and other 457,566 451,033
Assets of discontinued operations     1,083,014
Total current assets 3,109,111 4,175,220
Property and equipment, net 315,393 314,221
Operating lease right-of-use asset, net 248,122
Goodwill 2,413,566 2,081,029
Other intangibles, net 654,668 376,031
Investments and other 404,004 420,367
Assets of discontinued operations     1,133,659
Total assets $ 7,144,864 $

8,500,527

 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 695,204 $ 785,756
Bank credit lines 299,914 951,458
Current maturities of long-term debt 9,117 8,280
Operating lease liabilities 68,460
Liabilities of discontinued operations 577,607
Accrued expenses:
Payroll and related 210,016 242,876
Taxes 162,483 154,613
Other   433,582   498,237
Total current liabilities 1,878,776 3,218,827
Long-term debt 973,500 980,344
Deferred income taxes 76,850 27,218
Operating lease liabilities 187,308
Other liabilities 327,057 357,741
Liabilities of discontinued operations     62,453
Total liabilities 3,443,491 4,646,583
 
Redeemable noncontrolling interests 286,700 219,724
Redeemable noncontrolling interests of discontinued operations 92,432
Commitments and contingencies
 
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding
Common stock, $.01 par value, 480,000,000 shares authorized,
148,996,092 outstanding on March 30, 2019 and
151,401,668 outstanding on December 29, 2018 1,490 1,514
Additional paid-in capital 86,128
Retained earnings 2,859,182 3,208,589
Accumulated other comprehensive loss   (149,878)   (248,771)
Total Henry Schein, Inc. stockholders’ equity 2,796,922 2,961,332
Noncontrolling interests   617,751   580,456
Total stockholders’ equity   3,414,673   3,541,788
Total liabilities, redeemable noncontrolling interests and
stockholders’ equity
$ 7,144,864 $ 8,500,527
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
 
 
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
              Three Months Ended
March 30,   March 31,
2019 2018
 
Cash flows from operating activities:
Net income $ 114,644 $ 148,631
Income (loss) from discontinued operations   (8,996)   33,914
Income from continuing operations 123,640 114,717
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 40,300 35,706
Stock-based compensation expense 7,110 7,699
Provision for losses on trade and other accounts receivable 1,784 2,783
Provision for deferred income taxes 7,932 4,666
Equity in earnings of affiliates (2,630) (2,820)
Distributions from equity affiliates 52,301 3,548
Changes in unrecognized tax benefits 3,214 2,413
Other 1,239 (5,087)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (11,580) (11,688)
Inventories 77,881 (61,210)
Other current assets (17,782) 9,688
Accounts payable and accrued expenses   (150,075)   (165,023)
Net cash provided by (used in) operating activities from continuing
operations
133,334 (64,608)
Net cash used in operating activities from discontinued operations   (167,073)   (6,336)
Net cash used in operating activities   (33,739)   (70,944)
 
Cash flows from investing activities:
Purchases of fixed assets (15,918) (13,643)
Payments for equity investments and business
acquisitions, net of cash acquired (603,973) (364)
Proceeds from sale of equity investment 10,500
Proceeds/(payments) for loan to affiliate 15,940 (4,500)
Other   (3,076)   (3,421)
Net cash used in investing activities from continuing operations (596,527) (21,928)
Net cash used in investing activities from discontinued operations   (2,064)   (13,238)
Net cash used in investing activities   (598,591)   (35,166)
 
Cash flows from financing activities:
Proceeds from (repayments of) bank borrowings (652,117) 212,055
Proceeds from issuance of debt 741 100,000
Principal payments for long-term debt (7,376) (7,341)
Debt issuance costs (30)
Proceeds from issuance of stock upon exercise of stock options 34 3,022
Payments for repurchases of common stock (150,000)
Payments for taxes related to shares withheld for employee taxes (9,671) (15,012)
Distribution received related to Animal Health Spin-off 1,120,000
Proceeds related to Animal Health Share Sale 361,090
Proceeds from (distributions to) noncontrolling stockholders 52,205 (549)
Acquisitions of noncontrolling interests in subsidiaries (6,057) (261,433)
Payments to Henry Schein Animal Health Business   (224,773)   (23,503)
Net cash provided by financing activities from continuing operations 484,076 7,209
Net cash provided by financing activities from discontinued
operations
  148,053   20,550
Net cash provided by financing activities   632,129   27,759
 
Effect of exchange rate changes on cash & cash
equivalents-continuing operations
10,347 1,572
Effect of exchange rate changes on cash & cash
equivalents-discontinued operations
(2,240) 1,356
Net change in cash and cash equivalents from continuing operations 31,230 (77,755)
Net change in cash and cash equivalents from discontinued operations (23,324) 2,332
Cash and cash equivalents, beginning of period   56,885   158,002
Cash and cash equivalents, end of period $ 88,115 $

80,247

 
               
Exhibit A – QTD Sales
 
Henry Schein, Inc.
2019 First Quarter
Sales Summary
(in thousands)
(unaudited)
 

Q1 2019 over Q1 2018

 

Global

Q1 2019 Q1 2018 Total Sales Growth Foreign Exchange Growth Local Currency Growth Acquisition Growth Local Internal Growth
 
Dental $ 1,546,468 $ 1,547,558 -0.1% -3.9% 3.8% 0.6% 3.2%
 
Medical   683,660   640,400 6.8% -0.2% 7.0% 1.9% 5.1%
 
Total Health Care Distribution 2,230,128 2,187,958 1.9% -2.9% 4.8% 1.0% 3.8%
 
Technology and value-added services   115,510   85,492 35.1% -1.7% 36.8% 34.7% 2.1%
 
Total excluding Corporate TSA Revenue 2,345,638 2,273,450 3.2% -2.8% 6.0% 2.3% 3.7%
 
Corporate TSA Revenue (1)   14,630   n/a n/a n/a n/a n/a
 
Total Global $ 2,360,268

$

2,273,450

3.8% -2.8% 6.6% 2.3% 4.3%
 

North America

Q1 2019 Q1 2018 Total Sales Growth Foreign Exchange Growth Local Currency Growth Acquisition Growth Local Internal Growth
 
Dental $ 923,594 $ 904,041 2.2% -0.5% 2.7% 0.0% 2.7%
 
Medical   662,295   619,393 6.9% 0.0% 6.9% 2.0% 4.9%
 
Total Health Care Distribution 1,585,889 1,523,434 4.1% -0.3% 4.4% 0.8% 3.6%
 
Technology and value-added services   98,917   69,241 42.9% -0.1% 43.0% 42.1% 0.9%
 
Total excluding Corporate TSA Revenue 1,684,806 1,592,675 5.8% -0.3% 6.1% 2.7% 3.4%
 
Corporate TSA Revenue (1)   1,261   n/a n/a n/a n/a n/a
 
Total North America $ 1,686,067

$

1,592,675

5.9% -0.2% 6.1% 2.6% 3.5%
 

International

Q1 2019 Q1 2018 Total Sales Growth Foreign Exchange Growth Local Currency Growth Acquisition Growth Local Internal Growth
 
Dental $ 622,874 $ 643,517 -3.2% -8.7% 5.5% 1.5% 4.0%
 
Medical   21,365   21,007 1.7% -8.2% 9.9% 0.0% 9.9%
 
Total Health Care Distribution 644,239 664,524 -3.1% -8.7% 5.6% 1.4% 4.2%
 
Technology and value-added services   16,593   16,251 2.1% -8.0% 10.1% 3.1% 7.0%
 
Total excluding Corporate TSA Revenue 660,832 680,775 -2.9% -8.6% 5.7% 1.4% 4.3%
 
Corporate TSA Revenue (1)   13,369   n/a n/a n/a n/a n/a
 
Total International $ 674,201

$

680,775

-1.0% -8.7% 7.7% 1.5% 6.2%
 

Contacts

Investors
Steven Paladino
Executive
Vice President and Chief Financial Officer
steven.paladino@henryschein.com
(631)
843-5500

Carolynne Borders
Vice President, Investor Relations
carolynne.borders@henryschein.com
(631)
390-8105

Media
Ann Marie Gothard
Vice
President, Corporate Media Relations
annmarie.gothard@henryschein.com
(631)
390-8169

Read full story here

Author: dmnnewswire