Henry Schein Announces Third Quarter Results; 17% Sales Growth; EPS of $.40; Company Provides Further Outlook
MELVILLE, N.Y.--(BUSINESS WIRE)--Oct. 21, 1999--Henry Schein, Inc. (NASDAQ: HSIC) today announced financial results for the 1999 third quarter.
For the three months ended September 25, 1999, net sales increased 17% to $579 million, from $493 million for the third quarter last year. Excluding merger and integration costs and including pro-forma adjustments, adjusted net income increased 5% to $16.6 million, as compared with $15.8 million for the same quarter last year. Diluted earnings per share after adjustments grew 5% to $.40 versus $.38 in the 1998 third quarter.
The 1999 third quarter results were impacted by: -- Lower than anticipated profitability in the Company's North American Dental business;
-- Reduced influenza vaccine sales caused by supplier production delays; and
-- Delayed shipment of anesthetic product by an affiliated company.
The Company stated that while total Dental sales for the third quarter were consistent with its expectations at $259 million, or 2.5% below the 1998 third quarter, the gross profit margin of the North American Dental business was approximately 70 basis points below expectations. This is primarily a result of continued weakness in the dental equipment sales and service business, which carries a higher gross profit margin. Also contributing to the gross profit margin decline was reduced manufacturers' rebates due to lower than expected annual sales volume.
The Company further noted that third quarter influenza vaccine sales were impacted by a delay in the manufacturers' delivery of the product. Henry Schein added, however, that it expects receipt of this product during the fourth quarter. In addition, Novocol Pharmaceutical of Canada, Inc., an affiliated company in which Henry Schein owns a non-controlling interest, experienced shipment delays of its anesthetic product while awaiting approval to resume production from the United States Food and Drug Administration.
Year to date, net sales of $1.67 billion represent an 18% increase over last year. Adjusted net income, excluding merger and integration costs and including pro-forma adjustments, grew by 15% to $44.3 million compared to the same period last year. Diluted earnings per share after adjustments improved by 16% to $1.07 from $.92 in the prior year.
Based on its third quarter financial results, the Company has revised its outlook for the 1999 fourth quarter, and expects Dental sales to be below prior year fourth quarter levels, driven largely by additional softness in the equipment sales and service business. Fourth quarter 1999 gross profit margin will likely continue to be impacted by the same factors affecting the 1999 third quarter. Henry Schein also anticipates that the shortfalls in Dental sales and margin will result in net income and earnings per share for the fourth quarter to be flat to slightly down as compared with the third quarter of 1999. For the year 2000, the Company expects to resume positive earnings growth.
Stanley M. Bergman, Chairman, Chief Executive Officer and President of Henry Schein, Inc., stated, "Our newly structured Dental management team has developed a comprehensive turnaround plan and has begun immediate and strategic initiatives. We are highly confident that these actions will translate into a more profitable dental business." Highlights of the plan include:
-- Rightsizing the Dental infrastructure to accommodate our current level of business;
-- Cancelling the planned opening of a new 136,000 square foot distribution center in Jacksonville, Florida;
-- Creating a distinct, fully-dedicated management team for the equipment segment of our U.S. Dental business, which will provide focus on growth in sales and profitability; and
-- Recruiting a new Vice President of U.S. Dental Sales.
In conclusion, Mr. Bergman stated, "Although we are disappointed with our third quarter financial results given the Company's past performance, we remain confident in our long-term business prospects and success. We continue to enjoy strong profitability highlighted by expanding operating margins, a solid balance sheet and positive cash flow. We also are extremely enthusiastic about capitalizing on our emerging e-commerce business. In addition, our Medical, Veterinary, Technology and International businesses, which comprise more than one-half of our total revenues, continue to expand and contribute to the strength of our business."
Henry Schein, Inc. is the largest distributor of healthcare products and services to office-based healthcare practitioners, including dental practices and laboratories, physician practices and veterinary clinics. The Company, recognized for its excellent customer service and low prices, serves more than 300,000 customers worldwide.
Headquartered in Melville, New York, the Company employs over 6,000 people in 16 countries. Sales in 1998 were $1.9 billion. For more information, visit the Henry Schein website at http://www.henryschein.com.
Certain information contained herein includes information that is forward-looking. The matters referred to in forward-looking statements may be affected by the risks and uncertainties involved in the Company's business. These forward-looking statements are qualified in their entirety by the cautionary statements contained in the Company's Securities and Exchange Commission filings. (TABLES TO FOLLOW) -0-
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
------------------------------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1999 1998 1999 1998
------------------------------------------
Net sales $578,794 $492,634 $1,674,439 $1,418,968
Cost of sales 404,830 338,935 1,163,008 978,979
------------------------------------------
Gross profit 173,964 153,699 511,431 439,989
Operating expenses:
Selling, general
and administrative 141,452 128,631 423,222 377,272
Merger and
integration costs 5,993 20,240 13,467 32,640
------------------------------------------
Operating income 26,519 4,828 74,742 30,077
Other income (expense):
Interest income 1,386 1,638 5,207 4,826
Interest expense (5,526) (2,606) (16,566) (8,556)
Other - net 207 289 315 850
------------------------------------------
Income before taxes
on income, minority
interest and equity in
earnings (losses)
of affiliates 22,586 4,149 63,698 27,197
Taxes on income 10,114 2,572 26,199 12,483
Minority interest
in net income (loss)
of subsidiaries 353 86 1,272 (57)
Equity in earnings
(losses) of affiliates (596) 815 (1,454) 1,470
==========================================
Net income $11,523 $2,306 $34,773 $16,241
==========================================
Adjusted net income:
Net income $11,523 $2,306 $34,773 $16,241
Adjustments:
Merger and
integration costs 5,993 20,240 13,467 32,640
Tax effect on merger
and integration costs (961) (4,504) (3,983) (7,835)
Pro-forma tax adjustment -
Meer -- (2,240) -- (2,579)
------------------------------------------
Adjusted net income $16,555 $15,802 $44,257 $38,467
==========================================
Adjusted net income
per common share:
Basic $0.41 $0.40 $1.09 $0.97
==========================================
Diluted $0.40 $0.38 $1.07 $0.92
==========================================
Weighted average shares:
Basic 40,608 39,787 40,546 39,729
==========================================
Diluted 41,104 41,828 41,437 41,588
==========================================
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Sept. 25, Dec. 26,
1999 1998
--------- ------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 39,065 $ 28,222
Accounts receivable, less
reserves of $21,107 and
$20,136, respectively 386,997 338,121
Inventories 267,824 270,008
Deferred income taxes 12,926 14,532
Prepaid expenses and other 61,681 53,646
------------ -----------
Total current assets 768,493 704,529
Property and equipment, net of
accumulated depreciation
and amortization of $63,716
and $53,756, respectively 74,955 67,646
Goodwill and other intangibles,
net of accumulated
amortization of $28,556
and $18,123, respectively 282,249 148,428
Investments and other 43,166 41,437
------------ -----------
$ 1,168,863 $ 962,040
============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 185,607 $ 169,860
Bank credit lines 46,238 19,372
Accruals:
Salaries and related
expenses 30,718 29,675
Merger and
integration costs 15,739 21,992
Other 75,086 50,404
Current maturities of
long-term debt 5,571 9,634
------------ -----------
Total current
liabilities 358,959 300,937
Long-term debt 293,503 180,445
Other liabilities 10,095 11,720
------------ -----------
Total liabilities 662,557 493,102
------------ -----------
Minority interest 7,259 5,904
------------ -----------
Stockholders' equity:
Common stock,
$.01 par value,
authorized 120,000,000;
issued and outstanding 40,760,532
and 40,250,936, respectively 407 402
Additional paid-in capital 357,380 348,119
Retained earnings 152,269 119,064
Treasury stock, at cost
(62,479 shares) (1,156) (1,156)
Accumulated comprehensive income
(8,684) (2,057)
Deferred compensation
(1,169) (1,338)
------------ -----------
Total stockholders' equity 499,047 463,034
------------ -----------
$ 1,168,863 $ 962,040
============ ===========
*T