Henry Schein Reports Third Quarter Results
EPS from continuing operations increases 14% to $0.75
Company introduces 2009 guidance
MELVILLE, N.Y.--(BUSINESS WIRE)--Nov. 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 financial results for the quarter ended September 27, 2008.
Net sales for the third quarter of 2008 were $1.7 billion, an increase of 9.6% compared with the third quarter of 2007. This increase includes 8.0% local currency growth (2.2% internally generated and 5.8% from acquisitions) and 1.6% 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 4.5%.
Income from continuing operations for the third quarter of 2008 was $68.4 million, or $0.75 per diluted share. These results include a pretax charge of $4.5 million (or $0.03 per diluted share, after-tax) related to the Lehman Brothers bankruptcy, primarily due to foreign exchange hedging contracts. Excluding the impact of this charge, income from continuing operations for the quarter was $71.5 million, or $0.78 per diluted share, an increase of 17.8% and 18.2%, respectively, compared with the third quarter of 2007. There was no impact from discontinued operations on 2008 results.
"Our worldwide sales growth of almost 10% reflects the benefit of our diversified operations," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein. "Earnings growth this quarter was highlighted by operating margin expansion in line with our long-term financial objectives."
Dental Group sales of $645 million increased 4.5%, including 4.4% growth in local currencies (all internally generated) and 0.1% growth related to foreign currency exchange. Of the 4.4% internal growth in local currencies, Dental consumable merchandise sales increased 4.8%, and Dental equipment sales and service revenues were up 3.4%.
"As evidenced by our consumable merchandise sales growth this quarter, dentists continue to have busy practices," commented Mr. Bergman. "We do believe, however, that the current economic environment had an impact on our sales of dental equipment."
Medical Group sales of $427 million declined 4.1%. Excluding sales of certain lower-margin pharmaceutical products, noted above, internal Medical Group sales growth was approximately 3.4%, or approximately 2% excluding sales of influenza vaccine.
"During the third quarter we sold 10.5 million doses of influenza vaccine," said Mr. Bergman. "We were pleased that our manufacturing partners received early FDA approval this year, which we were able to leverage to better serve the needs of our customers."
For the quarter, International Group sales of $538 million increased 30.7%, including 24.7% growth in local currencies (5.2% internally generated and 19.5% from acquisitions) and 6.0% related to foreign currency exchange.
"International Group results reflect solid internal sales growth in all of our major markets, as well as the impact of certain successful strategic acquisitions," added Mr. Bergman.
Technology and Value-Added Services Group sales of $41 million increased 28.8% during the quarter (11.3% internally generated and 17.5% acquisition growth).
"Results for this group reflect continued strong growth in financial services, as equipment and practice financing transactions increased by over 30%. Sales growth also reflects last year's acquisition of Software of Excellence, a leading supplier of innovative clinical and practice management solutions to dentists," stated Mr. Bergman.
Year-to-Date Results
For the first nine months of 2008, net sales of $4.8 billion represent an increase of 14.7% compared with the first nine months of 2007. This increase includes 11.2% local currency growth (3.0% internally generated and 8.2% from acquisitions) and 3.5% related to foreign currency exchange. Excluding sales of certain lower-margin pharmaceutical products, noted above, year-to-date internal net sales growth in local currencies was 5.5%.
Income from continuing operations for the first nine months of 2008 was $186.2 million, or $2.03 per diluted share. Excluding the charge in the third quarter of 2008 related to the Lehman Brothers bankruptcy, income from continuing operations for the first nine months of 2008 was $189.3 million, or $2.06 per diluted share, reflecting growth of 19.4% and 17.7%, respectively, compared with the prior year.
Expense Reduction Initiative
To reduce costs in light of the current economic environment, Henry Schein will be eliminating approximately 300 positions from its operations around the world, or approximately 2.5% of its workforce, and closing several smaller facilities. The Company expects one-time pretax costs associated with this initiative to be $22 million to $25 million, which we expect to record in the fourth quarter of 2008. Annual pretax cost savings from this initiative are expected to be approximately $24 million to $27 million.
"Given the recent changes in the economic climate, we expect that the markets Henry Schein serves will continue to grow, but at somewhat slower rates during these challenging economic times. While we remain confident in our ability to achieve our financial goals, we are taking these actions in light of our view that sales growth for 2009 may moderate somewhat from what we have experienced over the past several years," commented Mr. Bergman. "This is a difficult decision, but by taking these steps to reduce costs, Henry Schein will remain well positioned to help our customers operate more successful practices and deliver high quality care to patients."
Stock Repurchase Plan
Henry Schein repurchased 451,300 shares of common stock during the third quarter of 2008 for a total purchase price of approximately $23 million. The impact of the share repurchases during the third quarter was immaterial to diluted EPS. An additional 568,410 shares have been repurchased during the fourth quarter of 2008 for a total purchase price of approximately $28 million. Approximately $58 million remains authorized for future common stock repurchases.
2008 EPS Guidance
Henry Schein updates 2008 financial guidance, as follows:
-- 2008 diluted EPS is expected to be $2.94 to $2.96,
representing growth of 14% to 15% compared with 2007. This
2008 guidance excludes the charge related to the Lehman
Brothers bankruptcy, as well as costs associated with the
expense reduction initiative. This compares with previous
guidance for 2008 diluted EPS to be $2.93 to $3.00.
-- This 2008 diluted EPS guidance includes Henry Schein's
expectation that it will distribute approximately 4.5 million
doses of influenza vaccine during the fourth quarter.
-- 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.
2009 EPS Guidance
Henry Schein introduces 2009 financial guidance, as follows:
-- 2009 diluted EPS is expected to be $3.27 to $3.36,
representing growth of 11% to 14% compared with the midpoint
of 2008 guidance, excluding the charge related to the Lehman
Brothers bankruptcy, as well as costs associated with the
expense reduction initiative.
-- This diluted EPS guidance includes Henry Schein's expectation
that it will distribute 12 million to 13 million doses of
influenza vaccine during 2009.
-- 2009 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.
Third Quarter Conference Call Webcast
The Company will hold a conference call to discuss third 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 Nine Months Ended
---------------------- ----------------------
September September September September
27, 29, 27, 29,
2008 2007 2008 2007
---------- ---------- ---------- ----------
Net sales $1,650,771 $1,505,575 $4,821,367 $4,202,720
Cost of sales 1,172,190 1,076,245 3,403,138 2,968,567
---------- ---------- ---------- ----------
Gross profit 478,581 429,330 1,418,229 1,234,153
Operating expenses:
Selling, general and
administrative 363,303 332,630 1,104,367 972,880
---------- ---------- ---------- ----------
Operating income 115,278 96,700 313,862 261,273
Other income (expense):
Interest income 4,260 4,378 12,217 12,766
Interest expense (7,933) (6,216) (23,040) (18,381)
Other, net (1) (4,791) 3,917 (5,465) 4,342
---------- ---------- ---------- ----------
Income from
continuing
operations
before
taxes, minority
interest and
equity in
earnings
(losses) of
affiliates 106,814 98,779 297,574 260,000
Income taxes (34,713) (33,682) (99,703) (89,788)
Minority interest in net
income of subsidiaries (5,278) (4,247) (15,659) (11,004)
Equity in earnings
(losses) of affiliates 1,602 (182) 4,020 (687)
---------- ---------- ---------- ----------
Income from continuing
operations 68,425 60,668 186,232 158,521
Discontinued operations:
Loss from
operations of
discontinued
components
(including write-
down of long-
lived assets of
$32.7 million
and a loss on
sale of
discontinued
operation of $1.5
million) - (1,742) - (34,302)
Income tax benefit - 647 - 12,685
---------- ---------- ---------- ----------
Loss from
discontinued
operations - (1,095) - (21,617)
---------- ---------- ---------- ----------
Net income $ 68,425 $ 59,573 $ 186,232 $ 136,904
========== ========== ========== ==========
Earnings from continuing
operations per share:
Basic $ 0.77 $ 0.68 $ 2.09 $ 1.79
========== ========== ========== ==========
Diluted $ 0.75 $ 0.66 $ 2.03 $ 1.75
========== ========== ========== ==========
Loss from discontinued
operations per share:
Basic $ 0.00 $ (0.01) $ 0.00 $ (0.24)
========== ========== ========== ==========
Diluted $ 0.00 $ (0.01) $ 0.00 $ (0.24)
========== ========== ========== ==========
Earnings per share:
Basic $ 0.77 $ 0.67 $ 2.09 $ 1.55
========== ========== ========== ==========
Diluted $ 0.75 $ 0.65 $ 2.03 $ 1.51
========== ========== ========== ==========
Weighted-average common
shares outstanding:
Basic 88,930 88,790 89,216 88,383
========== ========== ========== ==========
Diluted 91,376 91,399 91,908 90,779
========== ========== ========== ==========
(1) Other, net, for the three and nine months ended September 27,
2008, includes a $4.5 million charge related to the bankruptcy of
Lehman Brothers.
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 27, December 29,
2008 2007
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 288,364 $ 247,590
Available-for-sale securities - 997
Accounts receivable, net of reserves of
$40,750 and $41,315 767,304 708,307
Inventories, net 731,514 666,786
Deferred income taxes 32,340 32,827
Prepaid expenses and other 194,740 192,292
------------- ------------
Total current assets 2,014,262 1,848,799
Property and equipment, net 247,345 247,671
Goodwill 917,258 917,194
Other intangibles, net 174,772 192,420
Investments and other 152,937 107,900
------------- ------------
Total assets $ 3,506,574 $3,313,984
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 511,655 $ 474,009
Bank credit lines 6,226 8,977
Current maturities of long-term debt 153,802 24,319
Accrued expenses:
Payroll and related 132,000 136,291
Taxes 81,577 73,278
Other 215,438 223,765
------------- ------------
Total current liabilities 1,100,698 940,639
Long-term debt 268,990 423,274
Deferred income taxes 86,351 80,260
Other liabilities 52,303 53,906
Minority interest 50,710 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,
89,909,757 outstanding on September 27,
2008 and 89,603,660 outstanding on
December 29, 2007 899 896
Additional paid-in capital 712,670 673,763
Retained earnings 1,156,950 1,005,055
Accumulated other comprehensive income 77,003 100,268
------------- ------------
Total stockholders' equity 1,947,522 1,779,982
------------- ------------
Total liabilities and
stockholders' equity $ 3,506,574 $3,313,984
============= ============
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
-------------------- --------------------
September September September September
27, 29, 27, 29,
2008 2007 2008 2007
--------- --------- --------- ---------
Cash flows from operating
activities:
Net income $ 68,425 $ 59,573 $ 186,232 $ 136,904
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Loss on sale of
discontinued
operation, net
of tax - 929 - 929
Depreciation and
amortization 19,475 17,794 59,183 53,021
Stock-based
compensation
expense 6,844 5,995 23,060 16,720
Impairment from
write-down of
long- lived
assets of
discontinued
operations - - - 32,667
Provision for
losses on trade
and other
accounts
receivable 1,107 830 3,711 1,062
Provision for
(benefit from)
deferred income
taxes 1,600 1,958 (1,291) (16,730)
Stock issued to
401(k) plan 4,662 4,104 4,662 4,104
Undistributed
(earnings)
losses of
affiliates (1,602) 182 (4,020) 687
Minority interest
in net income of
subsidiaries 5,278 4,247 15,659 11,004
Other (815) (2,300) (2,132) (2,870)
Changes in
operating assets
and liabilities,
net of
acquisitions:
Accounts
receivable (59,999) (65,765) (66,751) (82,521)
Inventories (63,118) (47,387) (68,182) (31,941)
Other
current
assets (14,449) (14,310) (3,494) (9,841)
Accounts
payable
and
accrued
expenses 82,539 103,334 41,927 36,730
--------- --------- --------- ---------
Net cash provided by
operating activities 49,947 69,184 188,564 149,925
--------- --------- --------- ---------
Cash flows from investing
activities:
Purchases of fixed
assets (14,653) (11,687) (38,119) (33,023)
Payments for equity
investment and business
acquisitions, net of
cash acquired (2,349) (82,475) (25,930) (124,298)
Cash received from
business divestitures - 5,061 - 5,061
Purchases of available-
for-sale securities - (27,065) (35,925) (115,066)
Proceeds from sales of
available-for-sale
securities 725 87,315 1,572 135,315
Net proceeds from
(payments for) foreign
exchange forward
contract settlements 14,142 (5,367) 9,090 (16,980)
Other (864) (6,428) 3,707 (11,037)
--------- --------- --------- ---------
Net cash used in investing
activities (2,999) (40,646) (85,605) (160,028)
--------- --------- --------- ---------
Cash flows from financing
activities:
Proceeds from issuance
of long-term debt - - - 483
Proceeds from
(repayments of) bank
borrowings 722 (4,273) (5,786) (4,554)
Principal payments for
long-term debt (24,190) (24,604) (30,139) (42,529)
Proceeds from issuance
of stock upon exercise
of stock options 12,346 9,099 25,041 32,719
Payments for repurchases
of common stock (23,298) - (54,945) (30,689)
Excess tax benefits
related to stock-based
compensation 5,962 3,575 10,635 11,597
Other (455) (422) (1,856) (1,879)
--------- --------- --------- ---------
Net cash used in financing
activities (28,913) (16,625) (57,050) (34,852)
--------- --------- --------- ---------
Net change in cash and cash
equivalents 18,035 11,913 45,909 (44,955)
Effect of exchange rate
changes on cash and cash
equivalents (1,103) 4,574 (5,135) 3,766
Cash and cash equivalents,
beginning of period 271,432 190,971 247,590 248,647
--------- --------- --------- ---------
Cash and cash equivalents,
end of period $ 288,364 $ 207,458 $ 288,364 $ 207,458
========= ========= ========= =========
Exhibit A
Henry Schein, Inc.
2008 Third Quarter
Sales Growth Rate Summary
(unaudited)
Q3 2008 over Q3 2007
----------------------------------------------------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 2.2% 4.4% -4.2% 5.2% 11.3%
Acquisitions 5.8% 0.0% 0.1% 19.5% 17.5%
------------ ------ ------- ------------- ----------
Local
Currency
Sales Growth 8.0% 4.4% -4.1% 24.7% 28.8%
Foreign Currency
Exchange 1.6% 0.1% 0.0% 6.0% 0.0%
------------ ------ ------- ------------- ----------
Total Sales
Growth 9.6% 4.5% -4.1% 30.7% 28.8%
============ ====== ======= ============= ==========
Q3 YTD 2008 over Q3 YTD 2007
----------------------------------------------------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 3.0% 5.7% -5.7% 7.2% 7.8%
Acquisitions 8.2% 1.0% 0.4% 25.2% 23.1%
------------ ------ ------- ------------- ----------
Local
Currency
Sales Growth 11.2% 6.7% -5.3% 32.4% 30.9%
Foreign Currency
Exchange 3.5% 0.9% 0.0% 11.4% 0.4%
------------ ------ ------- ------------- ----------
Total Sales
Growth 14.7% 7.6% -5.3% 43.8% 31.3%
============ ====== ======= ============= ==========
CONTACT: Henry Schein, Inc.
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.