Henry Schein Reports Record Second Quarter Results
Sales increase 19% to $1.6 billion
Diluted EPS from continuing operations up 18% to $0.71
MELVILLE, N.Y.--(BUSINESS WIRE)--Aug. 5, 2008--Henry Schein, Inc. (NASDAQ: HSIC), the largest provider of healthcare products and services to office-based practitioners in the combined North American and European markets, today reported record financial results for the quarter ended June 28, 2008.
Net sales for the second quarter of 2008 were $1.6 billion, an increase of 18.6% compared with the second quarter of 2007. This increase includes 13.6% local currency growth (4.0% internally generated and 9.6% from acquisitions) and 5.0% related to foreign currency exchange. (See Exhibit A for details of sales growth.) The Company previously announced an initiative of reducing sales of certain lower-margin pharmaceutical products. Excluding sales of those products, internal net sales growth in local currencies was 6.6%.
Income from continuing operations for the second quarter of 2008 was $65.5 million, or $0.71 per diluted share, up 20.3% and 18.3%, respectively, compared with the prior-year second quarter. There was no impact from discontinued operations on our 2008 results.
"Second quarter financial results reflect a strong contribution from our International Group, as well as solid growth in our Dental Group," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein. "These results illustrate Henry Schein's ability to deliver consistent sales and earnings growth."
Dental Group sales of $660 million increased 9.7%, including 8.7% growth in local currencies (7.2% internally generated and 1.5% from acquisitions) and 1.0% growth related to foreign currency exchange. Of the 8.7% local currency growth, Dental consumable merchandise sales increased 7.9% (6.3% internal growth and 1.6% acquisition growth) and Dental equipment sales and service revenues were up 11.0% (9.9% internal growth and 1.1% acquisition growth).
"Our Dental Group continues to gain market share in consumable merchandise and in equipment," commented Mr. Bergman. "We recorded another quarter of double-digit growth in equipment sales and service revenues, highlighted by gains in high-tech products, including acceleration in sales of the E4D CAD/CAM product compared with the first quarter."
Medical Group sales of $329 million declined 8.3% (8.9% decline in internal growth and 0.6% acquisition growth). Excluding sales of certain lower-margin pharmaceutical products, noted above, internal Medical Group net sales growth was approximately 1%.
"With the progress we have made under the Medical One World initiative, coupled with the growth we have seen in Privileges enrollment, we look forward to capitalizing on future sales growth opportunities within our Medical Group," said Mr. Bergman. "We are also optimistic about the upcoming influenza vaccine season, based on current market conditions and customer order activity."
For the quarter, International Group sales of $615 million increased 55.7%, including 39.7% growth in local currencies (10.9% internally generated and 28.8% from acquisitions) and 16.0% related to foreign currency exchange.
"Our International Group reported strong growth in all major markets, highlighted by solid Dental growth," added Mr. Bergman. "We are also pleased to report that W. & J. Dunlop continues to perform above expectations."
Technology and Value-Added Services Group sales of $41 million increased 29.0%, including 28.6% growth in local currencies (1.8% internally generated and 26.8% acquisition growth) and 0.4% growth related to foreign currency exchange.
"Results reflect good growth in electronic and financial services, as well as last year's acquisition of Software of Excellence, a leading supplier of innovative clinical and practice management solutions to dentists," stated Mr. Bergman. "During the second quarter we launched Easy Dental 2008, offering dentists increased functionality and improved productivity."
Year-to-Date Results
For the first six months of 2008, net sales of $3.2 billion represent an increase of 17.6% compared with the first six months of 2007. This increase includes 12.8% local currency growth (3.5% internally generated and 9.3% from acquisitions) and 4.8% related to foreign currency exchange. Excluding sales of certain lower-margin pharmaceutical products, noted above, internal net sales growth was 6.0%. Income from continuing operations for the first six months of 2008 was $117.8 million, reflecting 20.4% growth compared with the prior year. Earnings per diluted share from continuing operations of $1.28 for the first six months of 2008 represents 18.5% growth over the comparable period in 2007.
Stock Repurchase Plan
Henry Schein announced that it repurchased 602,000 shares of common stock during the second quarter of 2008 for a total purchase price of nearly $32 million. Approximately $109 million remains authorized for future common stock repurchases. The impact of the share repurchases during the quarter was immaterial to diluted EPS.
2008 EPS Guidance
Henry Schein affirms 2008 financial guidance, as follows:
-- 2008 diluted EPS is expected to be $2.93 to $3.00,
representing growth of 14% to 16% compared with 2007.
-- This 2008 diluted EPS guidance includes Henry Schein's
expectation that it will distribute 12 million to 15 million
doses of influenza vaccine during the year, representing
earnings of $0.13 to $0.16 per diluted share.
-- 2008 diluted EPS guidance is for current continuing operations
including completed or previously announced acquisitions, and
does not include the impact of potential future acquisitions,
if any.
Second Quarter Conference Call Webcast
The Company will hold a conference call to discuss second quarter financial results today, beginning at 10:00 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 and a member of the NASDAQ 100(R) Index, 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 550,000 customers worldwide, including dental practitioners and laboratories, physician practices and animal health clinics, as well as government and other institutions.
The Company operates through a centralized and automated distribution network, which provides customers in more than 200 countries with a comprehensive selection of more than 90,000 national and Henry Schein private-brand products in stock, as well as more than 100,000 additional products available as special-order items.
Henry Schein also offers a wide range of innovative value-added practice solutions for healthcare professionals, such as ArubA(R), the Company's electronic catalog and ordering system. Its leading practice-management software solutions have an installed user base of more than 52,000 practices, including DENTRIX(R), Easy Dental(R), Oasis(R) and EXACT(R) for dental practices, MicroMD(R) for physician practices, and AVImark(R) for animal health clinics.
Headquartered in Melville, N.Y., Henry Schein employs over 12,000 people and has operations or affiliates in 20 countries. The Company's net sales reached a record $5.9 billion in 2007. For more information, visit the Henry Schein Web site at www.henryschein.com.
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 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: competitive factors; changes in the healthcare industry; changes in regulatory requirements that affect us; risks associated with our international operations; fluctuations in quarterly earnings; our dependence on third parties for the manufacture and supply of our products; transitional challenges associated with acquisitions, including the failure to achieve anticipated synergies; financial risks associated with acquisitions; regulatory and litigation risks; the dependence on our continued product development, technical support and successful marketing in the technology segment; our dependence upon sales personnel and key customers; our dependence on our senior management; possible increases in the cost of shipping our products or other service trouble with our third-party shippers; risks from rapid technological change; risks from potential increases in variable interest rates; possible volatility of the market price of our common stock; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation that affect us. 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.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
---------------------- ----------------------
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
----------- ----------- ----------- -----------
Net sales $1,644,977 $1,387,017 $3,170,596 $2,697,145
Cost of sales 1,156,562 973,240 2,230,948 1,892,322
---------- ---------- ---------- ----------
Gross profit 488,415 413,777 939,648 804,823
Operating expenses:
Selling, general
and
administrative 375,058 322,925 741,064 640,250
---------- ---------- ---------- ----------
Operating
income 113,357 90,852 198,584 164,573
Other income
(expense):
Interest income 3,974 4,269 7,957 8,388
Interest expense (8,205) (6,223) (15,107) (12,165)
Other, net (291) 547 (674) 425
---------- ---------- ---------- ----------
Income from
continuing
operations
before taxes,
minority
interest and
equity in
earnings
(losses) of
affiliates 108,835 89,445 190,760 161,221
Income taxes (37,135) (30,636) (64,990) (56,106)
Minority interest in
net income of
subsidiaries (7,131) (3,842) (10,381) (6,757)
Equity in earnings
(losses) of
affiliates 908 (528) 2,418 (505)
---------- ---------- ---------- ----------
Income from continuing
operations 65,477 54,439 117,807 97,853
Discontinued
operations:
Loss from
operations of
discontinued
components
(including write-
down of long-
lived assets of
$32.7 million) - (32,700) - (32,560)
Income tax benefit - 12,098 - 12,038
---------- ---------- ---------- ----------
Loss from
discontinued
operations - (20,602) - (20,522)
---------- ---------- ---------- ----------
Net income $ 65,477 $ 33,837 $ 117,807 $ 77,331
========== ========== ========== ==========
Earnings from
continuing operations
per share:
Basic $ 0.73 $ 0.62 $ 1.32 $ 1.11
========== ========== ========== ==========
Diluted $ 0.71 $ 0.60 $ 1.28 $ 1.08
========== ========== ========== ==========
Loss from discontinued
operations per share:
Basic $ - $ (0.24) $ - $ (0.23)
========== ========== ========== ==========
Diluted $ - $ (0.23) $ - $ (0.22)
========== ========== ========== ==========
Earnings per share:
Basic $ 0.73 $ 0.38 $ 1.32 $ 0.88
========== ========== ========== ==========
Diluted $ 0.71 $ 0.37 $ 1.28 $ 0.86
========== ========== ========== ==========
Weighted-average
common shares
outstanding:
Basic 89,587 88,390 89,417 88,154
========== ========== ========== ==========
Diluted 92,012 90,591 92,212 90,344
========== ========== ========== ==========
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 28, December 29,
2008 2007
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 271,432 $ 247,590
Available-for-sale securities 11,925 997
Accounts receivable, net of reserves of
$41,472 and $41,315 731,499 708,307
Inventories, net 693,556 666,786
Deferred income taxes 36,203 32,827
Prepaid expenses and other 186,508 192,292
----------- ------------
Total current assets 1,931,123 1,848,799
Property and equipment, net 254,110 247,671
Goodwill 954,203 917,194
Other intangibles, net 191,039 192,420
Investments and other 139,040 107,900
----------- ------------
Total assets $3,469,515 $3,313,984
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 453,800 $ 474,009
Bank credit lines 6,207 8,977
Current maturities of long-term debt 23,624 24,319
Accrued expenses:
Payroll and related 124,213 136,291
Taxes 87,359 73,278
Other 226,615 223,765
----------- ------------
Total current liabilities 921,818 940,639
Long-term debt 424,470 423,274
Deferred income taxes 92,699 80,260
Other liabilities 54,644 53,906
Minority interest 46,816 35,923
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, none
outstanding - -
Common stock, $.01 par value, 240,000,000
shares authorized, 89,762,723
outstanding on June 28, 2008 and
89,603,660 outstanding on December 29,
2007 898 896
Additional paid-in capital 693,133 673,763
Retained earnings 1,103,206 1,005,055
Accumulated other comprehensive income 131,831 100,268
----------- ------------
Total stockholders' equity 1,929,068 1,779,982
----------- ------------
Total liabilities and
stockholders' equity $3,469,515 $3,313,984
=========== ============
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Six Months
Ended Ended
------------------- --------------------
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
--------- --------- --------- ----------
Cash flows from operating
activities:
Net income $ 65,477 $ 33,837 $117,807 $ 77,331
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 20,270 17,670 39,708 35,227
Stock-based
compensation
expense 6,956 6,608 16,216 10,725
Impairment from
write-down of
long-lived assets
of discontinued
operations - 32,667 - 32,667
Provision for
losses on trade
and other
accounts
receivable 1,467 1 2,604 232
Provision for
(benefit from)
deferred income
taxes 448 (11,833) (2,891) (18,688)
Undistributed
(earnings) losses
of affiliates (908) 528 (2,418) 505
Minority interest
in net income of
subsidiaries 7,131 3,842 10,381 6,757
Other (891) 151 (1,317) (570)
Changes in
operating assets
and liabilities,
net of
acquisitions:
Accounts
receivable (23,256) (12,809) (6,752) (16,756)
Inventories 16,023 11,510 (5,064) 15,446
Other
current
assets 8,452 (7,413) 10,955 4,469
Accounts
payable
and
accrued
expenses 24,108 39,884 (40,612) (66,604)
-------- -------- -------- ---------
Net cash provided by
operating activities 125,277 114,643 138,617 80,741
-------- -------- -------- ---------
Cash flows from investing
activities:
Purchases of fixed assets (9,723) (12,403) (23,466) (21,336)
Payments for equity
investment and business
acquisitions, net of
cash acquired (15,057) (14,391) (23,581) (41,823)
Purchases of available-
for-sale securities - (70,501) (35,925) (88,001)
Proceeds from sales of
available-for-sale
securities - 30,000 847 48,000
Net payments for foreign
exchange forward
contract settlements (3,048) (7,692) (5,052) (11,613)
Other 5,306 653 4,571 (4,609)
-------- -------- -------- ---------
Net cash used in investing
activities (22,522) (74,334) (82,606) (119,382)
-------- -------- -------- ---------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt - 55 - 483
Repayments of bank
borrowings (2,589) (26) (6,508) (281)
Principal payments for
long-term debt (4,976) (17,468) (5,949) (17,925)
Proceeds from issuance of
stock upon exercise of
stock options 5,523 12,929 12,695 23,620
Payments for repurchases
of common stock (31,647) - (31,647) (30,689)
Excess tax benefits
related to stock-based
compensation 1,244 2,169 4,673 8,022
Other (977) (721) (1,401) (1,457)
-------- -------- -------- ---------
Net cash used in financing
activities (33,422) (3,062) (28,137) (18,227)
-------- -------- -------- ---------
Net change in cash and cash
equivalents 69,333 37,247 27,874 (56,868)
Effect of exchange rate
changes on cash and cash
equivalents (937) (732) (4,032) (808)
Cash and cash equivalents,
beginning of period 203,036 154,456 247,590 248,647
-------- -------- -------- ---------
Cash and cash equivalents,
end of period $271,432 $190,971 $271,432 $ 190,971
======== ======== ======== =========
Exhibit A
Henry Schein, Inc.
2008 Second Quarter
Sales Growth Rate Summary
(unaudited)
Q2 2008 over Q2 2007
----------------------------------------------------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 4.0% 7.2% -8.9% 10.9% 1.8%
Acquisitions 9.6% 1.5% 0.6% 28.8% 26.8%
------------ ------ ------- ------------- ----------
Local
Currency
Sales
Growth 13.6% 8.7% -8.3% 39.7% 28.6%
Foreign Currency
Exchange 5.0% 1.0% - 16.0% 0.4%
------------ ------ ------- ------------- ----------
Total Sales
Growth 18.6% 9.7% -8.3% 55.7% 29.0%
============ ====== ======= ============= ==========
Q2 YTD 2008 over Q2 YTD 2007
----------------------------------------------------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 3.5% 6.4% -6.7% 8.3% 5.9%
Acquisitions 9.3% 1.6% 0.7% 27.7% 26.2%
------------ ------ ------- ------------- ----------
Local
Currency
Sales
Growth 12.8% 8.0% -6.0% 36.0% 32.1%
Foreign Currency
Exchange 4.8% 1.2% - 14.8% 0.4%
------------ ------ ------- ------------- ----------
Total Sales
Growth 17.6% 9.2% -6.0% 50.8% 32.5%
============ ====== ======= ============= ==========
CONTACT: Steven Paladino, 631-843-5500
Executive Vice President and Chief Financial Officer
steven.paladino@henryschein.com
or
Investors:
Neal Goldner, 631-845-2820
Vice President, Investor Relations
neal.goldner@henryschein.com
or
Media:
Susan Vassallo, 631-843-5562
Vice President, Corporate Communications
susan.vassallo@henryschein.com
SOURCE: Henry Schein, Inc.