Henry Schein Reports Record Second Quarter Diluted EPS of $0.86, up 16%; Net Sales Increase 22% to a Q2 Record of $945.7 Million
MELVILLE, N.Y.--(BUSINESS WIRE)--July 27, 2004--Henry Schein, Inc. (Nasdaq NM: HSIC), the largest provider of healthcare products and services to office-based practitioners in the combined North American and European markets, today reported financial results for the quarter ended June 26, 2004.
Net sales for the second quarter of 2004 were a record $945.7 million, an increase of 21.8% from the second quarter of 2003 (See Exhibit A for details of sales growth). This increase includes 20.3% local currency growth (12.4% internally generated and 7.9% from acquisitions net of a divestiture) and 1.5% related to foreign currency exchange. Record second quarter net income was $38.7 million, an increase of 17.9% compared with the second quarter of 2003. Earnings per diluted share of $0.86 represents an increase of 16.2% compared with the second quarter of 2003.
"Growth in net sales during the second quarter was outstanding, and reflects meaningful market-share gains in our Dental, Medical and International business groups through strong internal growth complemented by strategic acquisitions," said Stanley M. Bergman, Chairman, Chief Executive Officer and President of Henry Schein.
Dental sales increased by 17.1% including 16.9% growth in local currencies (13.2% internally generated and 3.7% from acquisitions) and 0.2% related to foreign currency exchange. In local currencies, Dental consumable merchandise sales increased 16.9% (13.1% internal growth) and Dental equipment sales and service revenues were up 16.8% (13.2% internal growth).
"Our Dental Group's impressive internal growth rate was two to three times our estimate for market growth and was enhanced by the successful introductions of the Colgate and Pentron product lines," explained Mr. Bergman.
Medical sales increased 24.0% (14.3% internal growth and 9.7% acquisition growth), Technology and Value-Added Services sales grew 9.7% (6.0% internal growth and 3.7% acquisition growth) and International sales improved 30.2% including 22.2% in local currencies (7.2% internally generated and 15.0% from acquisitions net of a divestiture) and 8.0% due to foreign currency exchange.
"Second quarter sales by our Medical Group continued to reflect total and internal growth significantly above market growth rates. Technology and Value-Added Services sales gains were highlighted by strong performance at our electronic services business, including dental claims processing. International Group internal sales gains in local currencies solidly exceeded our estimate for market growth, with particular strength in France, Spain and the United Kingdom. A highlight of the quarter was completing the acquisition of the demedis full-service businesses in Germany and the Benelux countries, and the KRUGG direct-marketing dental and veterinary business in Italy. We look forward to further international success, particularly in Europe, as we continue to execute our full-service dental strategy across the continent, " Mr. Bergman added.
"We are excited about our recent entry into the large, fast growing and highly profitable market for dental implants through Camlog GmbH. This excellent, new product line is consistent with our goal to bring our customers an increasing number of value-added products and services," noted Mr. Bergman.
Second quarter operating margin decline reflects a continuation of the change in product sales mix experienced during the first quarter. This change in sales mix was primarily in the injectable pharmaceutical component of the Company's Medical Group as well as, to a lesser extent, within the Technology and Value-Added Services Group.
Cash flow from operations for the second quarter of 2004 was $81.0 million, compared with $55.1 million for the second quarter of 2003.
Stock Repurchase Plan
The Company reported that under a repurchase program of up to two million shares of common stock announced in March 2003, 406,600 shares were repurchased during the second quarter of 2004 at an average price of $68.72 per share and, to date, the entire two million shares have been repurchased at an average price of $53.87. The impact of this share repurchase on second quarter diluted EPS was not meaningful. On June 21, 2004 the Company reported that, in addition to the previously announced share repurchase program, its Board of Directors has authorized the repurchase of up to $100 million worth of shares of the Company's common stock.
2004 EPS Guidance
Henry Schein reaffirmed previous financial guidance for 2004. The Company expects full-year 2004 earnings per diluted share of $3.55 to $3.61. This represents growth of 15% to 17% compared with 2003 results from continuing operations. The Company noted that this 2004 EPS guidance is for current operations including completed acquisitions, and does not include the impact of potential future acquisitions.
Second Quarter Conference Call Webcast
The Company will hold a conference call to discuss second quarter financial results today, beginning at 10 a.m. Eastern Time. Individual investors are invited to listen to the conference call over the Internet through Henry Schein's Web site at www.henryschein.com. In addition, a replay will be available beginning shortly after the call has ended.
About Henry Schein
Henry Schein, a Fortune 500(R) company, is recognized for its excellent customer service and highly competitive prices. The Company's four business groups - Dental, Medical, International and Technology - serve more than 450,000 customers worldwide, including dental practices and laboratories, physician practices and veterinary clinics, as well as government and other institutions. The Company's sales reached a record $3.4 billion in 2003. The Company operates through a centralized and automated distribution network, which provides customers in more than 125 countries with a comprehensive selection of over 90,000 national and Henry Schein private-brand products.
Henry Schein also offers a wide range of innovative value-added practice solutions, including such leading practice management software systems as DENTRIX(R) and Easy Dental(R) for dental practices, and AVImark(R) for veterinary clinics, which are installed in over 50,000 practices; and ArubA(R), Henry Schein's electronic catalog and ordering system.
Headquartered in Melville, N.Y., Henry Schein employs more than 9,000 people and has operations in 18 countries. For more information, visit the Henry Schein Web site at 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.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net sales $ 945,690 $ 776,166 $ 1,832,321 $ 1,514,163
Cost of sales 693,975 555,637 1,349,779 1,092,217
------------ ------------ ------------ ------------
Gross profit 251,715 220,529 482,542 421,946
Operating
expenses:
Selling, general
and
administrative 188,130 164,499 372,657 323,711
------------ ------------ ------------ ------------
Operating income 63,585 56,030 109,885 98,235
Other income (expense):
Interest income 2,451 1,921 4,667 4,313
Interest expense (3,114) (4,595) (6,116) (9,328)
Other, net 180 242 331 927
------------ ------------ ------------ ------------
Income before
taxes,
minority
interest and
equity in
earnings of
affiliates 63,102 53,598 108,767 94,147
Taxes on income (23,412) (20,207) (40,444) (35,413)
Minority interest
in net income of
subsidiaries (1,254) (874) (1,779) (1,611)
Equity in earnings
of affiliates 300 338 585 498
------------ ------------ ------------ ------------
Net income $ 38,736 $ 32,855 $ 67,129 $ 57,621
============ ============ ============ ============
Earnings per
common share:
Basic $ 0.88 $ 0.76 $ 1.53 $ 1.32
============ ============ ============ ============
Diluted $ 0.86 $ 0.74 $ 1.49 $ 1.29
============ ============ ============ ============
Weighted-average
common shares
outstanding:
Basic 43,914 43,500 43,850 43,754
============ ============ ============ ============
Diluted 45,040 44,549 45,073 44,780
============ ============ ============ ============
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 26, December 27,
2004 2003
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 106,337 $ 157,351
Accounts receivable, net of reserves of
$45,970 and $43,203 518,808 467,085
Inventories 444,979 385,846
Deferred income taxes 30,108 30,559
Prepaid expenses and other 146,442 115,643
------------ ------------
Total current assets 1,246,674 1,156,484
Property and equipment, net 158,036 154,205
Goodwill 570,420 398,888
Other intangibles, net 99,861 37,551
Investments and other 125,282 72,242
------------ ------------
Total assets $ 2,200,273 $ 1,819,370
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 287,714 $ 278,163
Bank credit lines 85,033 6,059
Current maturities of long-term debt 3,114 3,253
Accrued expenses:
Payroll and related 89,633 68,214
Taxes 58,565 45,969
Other 125,077 117,530
------------ ------------
Total current liabilities 649,136 519,188
Long-term debt 420,877 247,100
Deferred income taxes 54,627 32,938
Other liabilities 13,816 4,494
Minority interest 13,263 11,532
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 authorized,
none outstanding - -
Common stock, $.01 par value,
120,000,000 authorized,
43,737,962 and 43,761,973
outstanding 437 438
Additional paid-in capital 453,383 445,118
Retained earnings 575,123 533,654
Accumulated other comprehensive income 20,125 24,999
Deferred compensation (514) (91)
------------ ------------
Total stockholders' equity 1,048,554 1,004,118
------------ ------------
Total liabilities and
stockholders' equity $ 2,200,273 $ 1,819,370
============ ============
NOTE: Certain prior period amounts have been reclassified to conform
with the current period presentation.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Cash flows from
operating
activities:
Net income $ 38,736 $ 32,855 $ 67,129 $ 57,621
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation
and
amortization 10,342 8,571 19,984 17,115
Provision for
losses and
allowances on
trade
receivables 744 1,660 1,153 3,820
Provision for
deferred
income taxes 2,831 1,825 3,396 3,893
Undistributed
earnings of
affiliates (300) (338) (585) (498)
Minority
interest in
net income of
subsidiaries 1,254 874 1,779 1,611
Other (56) (161) 88 (246)
Changes in
operating
assets and
liabilities,
net of effect
of
acquisitions:
Accounts
receivable (8,118) (20,416) (14,933) (33,578)
Inventories 1,959 13,305 (21,150) 4,481
Other current
assets (8,600) 1,690 9,738 12,527
Accounts
payable and
accrued
expenses 42,253 15,251 (5,856) (25,715)
------------ ------------ ------------ ------------
Net cash provided
by operating
activities 81,045 55,116 60,743 41,031
------------ ------------ ------------ ------------
Cash flows from
investing
activities:
Purchases of
capital
expenditures (8,135) (7,813) (13,789) (21,321)
Payments for
business
acquisitions,
net of cash
acquired (88,441) (64,473) (135,807) (66,754)
Payments related
to pending
business
acquisitions (13,375) - (56,441) -
Purchases of
marketable
securities - (17,094) - (21,195)
Proceeds from
sales of
marketable
securities - - 14,472 -
Proceeds from
maturities of
marketable
securities - 2,100 - 28,530
Other 840 3,348 (5,417) 1,861
------------ ------------ ------------ ------------
Net cash used in
investing
activities (109,111) (83,932) (196,982) (78,879)
------------ ------------ ------------ ------------
Cash flows from
financing
activities:
Proceeds from
bank borrowings 180,000 - 180,000 -
Repayment of debt
assumed in
business
acquisitions (113,779) - (113,779) -
Principal
payments on
long-term debt (1,448) (4,700) (1,710) (4,954)
Proceeds from
issuance of
stock upon
exercise of
stock options 5,195 6,729 17,878 11,329
Net proceeds from
(payments on)
short-term bank
borrowings 26,278 735 50,695 (46,152)
Payments for
repurchases of
common stock (34,910) (39,669) (45,964) (940)
Other (160) (158) (506) (93)
------------ ------------ ------------ ------------
Net cash provided
by (used in)
financing
activities 61,176 (37,063) 86,614 (40,810)
------------ ------------ ------------ ------------
Net change in cash
and cash
equivalents 33,110 (65,879) (49,625) (78,658)
Effect of exchange
rate changes on
cash and cash
equivalents 141 45 (1,389) (832)
Cash and cash
equivalents,
beginning of
period 73,086 186,995 157,351 200,651
------------ ------------ ------------ ------------
Cash and cash
equivalents, end
of period $ 106,337 $ 121,161 $ 106,337 $ 121,161
============ ============ ============ ============
NOTE: Certain prior period amounts have been reclassified to conform
with the current period presentation.
Exhibit A
Henry Schein, Inc.
2004 Second Quarter and Year to Date
Sales Growth Rate Summary
(unaudited)
Q2 2004 over Q2 2003
--------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal 12.4% 13.2% 14.3% 7.2% 6.0%
Acquisitions 9.0% 3.7% 9.7% 20.4% 3.7%
Divestiture -1.1% - - -5.4% -
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 20.3% 16.9% 24.0% 22.2% 9.7%
Foreign Currency
Exchange 1.5% 0.2% - 8.0% -
------------ ------ ------- ------------- ----------
Total Sales
Growth 21.8% 17.1% 24.0% 30.2% 9.7%
============ ====== ======= ============= ==========
YTD Q2 2004 over YTD Q2 2003
----------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal 11.0% 10.7% 13.3% 7.3% 7.3%
Acquisitions 8.5% 4.4% 10.0% 16.0% 3.7%
Divestiture -1.1% - - -5.9% -
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 18.4% 15.1% 23.3% 17.4% 11.0%
Foreign Currency
Exchange 2.6% 0.5% - 13.1% -
------------ ------ ------- ------------- ----------
Total Sales
Growth 21.0% 15.6% 23.3% 30.5% 11.0%
============ ====== ======= ============= ==========
Exhibit B
HENRY SCHEIN, INC.
2004 Second Quarter and Year to Date
Details of "Comparable Basis" Growth Comparison
Income Statement Summary
(in thousands, except per share data)
(unaudited)
Second Quarter % Year to Date %
2004 2003 Growth 2004 2003 Growth
As Reported
----------------------------------------------------------------------
Net Income $38,736 $32,855 17.9% $67,129 $57,621 16.5%
Diluted EPS 0.86 0.74 16.2% 1.49 1.29 15.5%
----------------------------------------------------------------------
Subtract: Gain
on Real Estate
Transaction (1)
Net Income - - - $ (454)
Diluted EPS - - - (0.01)
Comparable Basis
----------------------------------------------------------------------
Net Income $38,736 $32,855 17.9% $67,129 $57,167 17.4%
Diluted EPS 0.86 0.74 16.2% 1.49 1.28 16.4%
----------------------------------------------------------------------
(1) In the first quarter of 2003, there was a $726 thousand pre-tax
gain ($454 thousand after-tax) related to a real estate
transaction. This gain was included in the "Other, net" line on
the consolidated income statement.
Use of Non-GAAP Measures
The above 'Comparable Basis' net income and diluted earnings per share are financial measures that are not calculated and presented in accordance with accounting principles generally accepted in the United States ("GAAP"). The above table reconciles net income and diluted earnings per share, the Company's most directly comparable financial measures calculated and presented in accordance with GAAP, to 'Comparable Basis' net income and diluted earnings per share as adjusted to eliminate the effect of a real estate transaction gain which is not part of our ongoing healthcare distribution and technology operations.
Management eliminates the effect of such items to assist in evaluating the underlying operational performance of the Company's business segments over the periods presented. Management believes that this presentation is appropriate and facilitates such an evaluation by management, investors and analysts. In addition, management uses these measures for budgeting and planning purposes. These measures should be considered supplemental to, and not a substitute for or superior to, financial measures calculated in accordance with GAAP.
CONTACT: Henry Schein, Inc.
Executive Vice President and Chief Financial Officer
Steven Paladino, 631-843-5500
steven.paladino@henryschein.com
or
Director, Investor and Public Relations
Susan Vassallo, 631-843-5562
susan.vassallo@henryschein.com
SOURCE: Henry Schein, Inc.