Henry Schein, Inc. Announces Second Quarter Results
For the three months ended June 26, 1999, net sales increased 18%, to $559 million, from $476 million for the second quarter last year. Excluding merger and integration costs and including pro forma adjustments, adjusted net income rose 19%, to $16.4 million, as compared to $13.8 million for the same quarter last year. Diluted earnings per share, after adjustments, grew 21%, to $.40 versus $.33 in the 1998 second quarter.
Year-to-date, net sales of $1.1 billion represents 18% growth compared to the first half of 1998. Adjusted net income, excluding merger and integration costs and including pro forma adjustments, grew by 22% to $27.7 million compared to $22.7 million for the same period in 1998. Diluted earnings per share, after adjustments, improved by 22% to $.67 from $.55 in the prior year.
Stanley M. Bergman, Chairman, Chief Executive Officer, and President of Henry Schein, Inc. stated, ``We are pleased once again to report significant improvements in our adjusted operating margin. The second quarter margin of 5.7% is an expansion of 90 basis points from the second quarter of 1998. Year-to-date, our operating margin has expanded by 100 basis points.
``This margin expansion is primarily a result of our basic corporate growth strategy of leveraging our core infrastructure, which was accomplished through the acquisitions of Sullivan Dental Products, Micro Bio-Medics and H. Meer Dental Supply,'' said Mr. Bergman.
Mr. Bergman added, ``The integration of Meer was completed on schedule by the end of the second quarter, concluding the enormous task of combining the number two, three and four competitors in the U.S dental market to create a clear market leader.''
The Company also stated that this nearly two-year integration process resulted in lower than anticipated Dental sales for the quarter, which were $261 million, 8% below prior year. The majority of this shortfall is a result of sales erosion related to the Meer acquisition. In addition, Henry Schein said it expects Dental sales in the third quarter to be in the range of flat to 5% below prior year, and flat to 5% above prior year in the fourth quarter of 1999. The Company anticipates that this Dental sales performance will likely have a disproportionate negative impact on its earnings per share for the balance of the year. Despite this, Henry Schein expects earnings per share growth of between 15% and 20% for the second half of 1999, compared to the prior year.
``It has now become clear that the process of fully implementing our sales and marketing strategy of combining direct marketing and telesales in support of our field sales consultants will take longer than we expected.'' said Mr. Bergman. ``With the closing of eight distribution centers, opening of two new state-of-the-art distribution centers, and the migration to a single computer system now behind us, we believe that the platform is in place to regain our Dental sales growth momentum. We recognize, however, that the results of our efforts may not be fully realized in the near term. Therefore, the improvement in Dental sales will be more gradual than we originally anticipated.
``To increase our focus on improving sales growth, we have realigned our senior Dental management team,'' said Mr. Bergman. ``In addition, we have also implemented a comprehensive customer reactivation program to recapture sales that eroded during the integration process, and we are actively recruiting additional experienced sales representatives.''
Henry Schein's Medical, International, and Technology Groups continued to exhibit strong sales performance and market share growth during the quarter. Medical sales grew by 36% in the quarter and International sales by 95%, largely due to strategic acquisitions. Sales for its Veterinary Group increased 10%, all internally generated. Technology and Value-Added Services sales grew by 97%, all of which were substantially internally generated, and sales processed through Henry Schein's ArubA® E-Commerce suite of systems grew by 170% compared to the second quarter of last year, continuing on a run rate of over $150 million.
The Company also reported that Novocol Pharmaceutical of Canada, Inc., (Novocol), an affiliated company in which it owns a non-controlling interest, has informed the Company that the U.S. Food and Drug Administration (FDA) has completed an inspection of Novocol's manufacturing facility. While Novocol believes that the inspection report will conclude that Novocol has adequately addressed the issues previously raised, they are still awaiting final authorization from the FDA to begin shipping product to the United States. Assuming the final report on the inspection is favorable, Novocol will then resume full production.
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.
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
-------------------- -------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---------- -------- -------------------
(restated) (restated)
Net sales $ 559,310 $ 475,992 $ 1,095,645 $ 926,334
Cost of sales 385,260 326,409 758,178 640,044
-------------------- -------------------
Gross profit 174,050 149,583 337,467 286,290
Operating expenses:
Selling, general and
administrative 142,001 126,735 281,770 248,641
Merger and integration
costs 5,271 8,536 7,474 12,400
-------------------- -------------------
Operating income 26,778 14,312 48,223 25,249
Other income (expense):
Interest income 1,488 1,448 3,821 3,188
Interest expense
(5,316) (3,165) (11,040) (5,950)
Other - net 297 227 108 561
-------------------- -------------------
Income before taxes on
income, minority
interest and equity
in earnings (losses)
of affiliates 23,247 12,822 41,112 23,048
Taxes on income 8,958 5,618 16,085 9,911
Minority interest in net
income (loss) of
subsidiaries 322 (144) 919 (143)
Equity in earnings
(losses) of
affiliates (630) 474 (858) 655
-------------------- -------------------
Net income $ 13,337 $ 7,822 $ 23,250 $ 13,935
==================== ===================
Adjusted net income:
Net income $ 13,337 $ 7,822 $ 23,250 $ 13,935
Adjustments:
Merger and integration
costs 5,271 8,536 7,474 12,400
Tax effect on merger and
integration costs (2,163) (2,294) (3,022) (3,331)
Pro forma tax adjustment
- Meer -- (263) -- (339)
========== ======== ===================
Adjusted net income $ 16,445 $ 13,801 $ 27,702 $ 22,665
==================== ===================
Adjusted net income per
common share:
Basic $ 0.41 $ 0.35 $ 0.68 $ 0.58
==================== ===================
Diluted $ 0.40 $ 0.33 $ 0.67 $ 0.55
==================== ===================
Weighted average shares:
Basic 40,491 39,738 40,456 39,299
==================== ===================
Diluted 41,547 41,710 41,621 41,195
==================== ===================
Restated to reflect results of the H. Meer Dental Supply Co., which
was accounted for under the pooling of interests method of accounting.
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 26, Dec. 26,
1999 1998
--------------------------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $25,075 $28,222
Accounts receivable,
less reserves of $21,763
and $20,136, respectively 361,340 338,121
Inventories 278,774 270,008
Deferred income taxes 14,011 14,532
Prepaid expenses and other 64,447 53,646
--------------------------------
Total current assets 743,647 704,529
Property and equipment, net of
accumulated depreciation
and amortization of $60,229 and
$53,756, respectively 72,115 67,646
Goodwill and other intangibles,
net of accumulated
amortization of $24,685 and
$18,123, respectively 286,565 148,428
Investments and other 43,382 41,437
--------------------------------
$1,145,709 $962,040
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $165,705 $169,860
Bank credit lines 40,458 19,372
Accruals:
Salaries and
related expenses 30,613 29,675
Merger and
integration costs 13,901 21,992
Other 69,362 50,404
Current maturities of
long-term debt 6,257 9,634
--------------------------------
Total current liabilities 326,296 300,937
Long-term debt 318,157 180,445
Other liabilities 9,153 11,720
--------------------------------
Total liabilities 653,606 493,102
--------------------------------
Minority interest 6,900 5,904
--------------------------------
Stockholders' equity:
Common stock, $.01 par value,
authorized 120,000,000;
issued and outstanding
40,578,109 and 40,250,936,
respectively 406 402
Additional paid-in capital 355,078 348,119
Retained earnings 140,746 119,064
Treasury stock, at cost
(62,479 shares) (1,156) (1,156)
Accumulated comprehensive income (8,533) (2,057)
Deferred compensation (1,338) (1,338)
--------------------------------
Total stockholders' equity 485,203 463,034
--------------------------------
$1,145,709 $962,040
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