Henry Schein Third Quarter Net Sales Top $1 Billion, up 16%; Company Introduces 2005 Diluted EPS Guidance
MELVILLE, N.Y.--(BUSINESS WIRE)--Oct. 26, 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 September 25, 2004.
Net sales for the third quarter of 2004 were a record $1.03 billion, an increase of 15.8% from the third quarter of 2003 (See Exhibit A for details of sales growth). "We are proud to report our first $1 billion quarter, marking a major financial milestone in our company's history," said Stanley M. Bergman, Chairman, Chief Executive Officer and President of Henry Schein. This increase includes 14.2% local currency growth (0.6% internally generated and 13.6% from acquisitions net of a divestiture) and 1.6% related to foreign currency exchange. Third quarter net income was $31.5 million, and earnings per diluted share was $0.71. Third quarter financial results were adversely impacted by the absence of Fluvirin(R) influenza vaccine, as previously announced on October 5, 2004. On that date, Chiron Corporation (Nasdaq: CHIR) announced that it would not supply Fluvirin(R) influenza vaccine for the current influenza season. Henry Schein is the primary distributor of Fluvirin to the U.S. market.
Dental sales increased by 17.7%, including 17.3% growth in local currencies (16.6% internally generated and 0.7% from acquisitions) and 0.4% related to foreign currency exchange. Of the 17.3% local currency growth, Dental consumable merchandise sales increased 15.5% (all internally generated) and Dental equipment sales and service revenues were up 24.8% (21.3% internal growth).
"Our Dental Group's impressive internal growth rate was approximately three times our estimate for market growth, and continues to be enhanced by the successful introduction of the Colgate and Pentron product lines which accounted for 7.5% of the local Dental consumable merchandise growth," explained Mr. Bergman. "Our continued success in growing Dental sales reflects the ongoing successful execution of our dental growth strategy."
"We are also optimistic about our prospects in the large, fast growing and highly profitable market for dental implants. Earlier this month we officially launched the Camlog product line in the U.S., thereby bringing a leading product offering to our customers and furthering our corporate goal to offer our customers an increasing number of value-added products and services," noted Mr. Bergman.
Medical sales declined 8.3% during the third quarter, reflecting the absence of Fluvirin sales. Excluding $94.5 million in Fluvirin sales from the third quarter of last year, third quarter 2004 Medical sales growth was 20.4% (11.3% internal and 9.1% from acquisitions - See Exhibit B for details). "Our Medical Group distributes more than 30,000 SKUs, including medical/surgical products, equipment, specialty pharmaceuticals, and injectables and vaccines. Market share growth in the Group's core operations during the third quarter was excellent, as evidenced by double digit percentage growth without the Fluvirin impact," commented Mr. Bergman.
Technology and Value-Added Services sales grew 13.1%, (all internally generated) and International sales improved 80.5%, including 71.1% in local currencies (5.0% internally generated and 66.1% from acquisitions net of a divestiture) and 9.4% due to foreign currency exchange. "Third quarter Technology and Value-Added Services sales gains were highlighted by strong performance across the board in our software and electronic services businesses. International Group internal sales gains in local currencies exceeded our estimate for market growth, while total International Group sales growth was significantly bolstered by the acquisition of the Demedis full-service businesses in Germany and the Benelux countries, and the KRUGG direct-marketing dental business in Italy. We look forward to further international success, particularly in Europe, as we complete the integration of the acquired businesses into Henry Schein," Mr. Bergman added.
The third quarter operating margin decline primarily is a reflection of the absence of Fluvirin sales. Cash flow from operations for the third quarter of 2004 was negative $3.2 million, compared with a negative $22.9 million for the third quarter of 2003.
Stock Repurchase Plan
The Company announced in June 2004 a share repurchase program of up to $100 million worth of common stock, under which 455,000 shares were repurchased during the third quarter at an average price of $62.27 per share. The impact of the repurchase of shares under this program on third quarter diluted EPS was not significant.
2004 and 2005 EPS Guidance
Based on third quarter 2004 financial performance, Henry Schein narrowed its guidance for 2004 earnings per diluted share to $3.03 to $3.07, compared with prior Company guidance of $3.01 to $3.07. Henry Schein also introduced 2005 earnings per diluted share guidance. For 2005 the Company expects diluted earnings per share in the range of $4.00 - $4.08. This represents growth of 31% to 34% over the midpoint of the 2004 annual guidance. This guidance reflects mid-teens diluted EPS growth over 2004 plus the annualized impact of the Demedis Group acquisition as well as related synergies. This also assumes (although there can be no assurance) a resumption of the availability of Fluvirin product for 2005. Should Fluvirin not be available in 2005, in addition to lost earnings, Henry Schein will record a pre-tax one-time charge of approximately $13 million related to the Fluvirin contract. The Company noted that this 2004 and 2005 EPS guidance is for current operations including completed acquisitions, and does not include the impact of potential future acquisitions.
Third Quarter Conference Call Webcast
The Company will hold a conference call to discuss third 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 17 countries. 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, the Company provides the following cautionary remarks regarding important factors which, 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 which may cause the Company's 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 the Company's operations and financial condition, including factors that may affect its business and future prospects, is contained in documents the Company has filed with the SEC and will be contained in all subsequent periodic filings made with the SEC. These documents identify, in detail, important risk factors that could cause the Company's actual performance to differ materially from current expectations.
Risk factors and uncertainties which 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 government regulations that affect the Company; financial risks associated with the Company's international operations; fluctuations in quarterly earnings; transitional challenges associated with acquisitions; regulatory and litigation risks; the dependence on the Company's continued product development, technical support and successful marketing in the technology segment; the Company's dependence upon sales personnel and key customers; the Company's dependence on its senior management; the Company's dependence on third parties for the manufacture and supply of its products; possible increases in the cost of shipping the Company's products or other service trouble with the Company's third-party shippers; risks from rapid technological change; and risks from potential increases in variable interest rates.
The order in which these factors appear should not be construed to indicate their relative importance or priority. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty and has 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
25, 2004 27, 2003 25, 2004 27, 2003
---------- ---------- ----------- ----------
Net sales $1,033,625 $892,718 $2,865,946 $2,406,881
Cost of sales 759,597 641,218 2,109,376 1,733,435
---------- ---------- ----------- ----------
Gross profit 274,028 251,500 756,570 673,446
Operating expenses:
Selling, general and
administrative 220,873 175,100 593,530 498,811
---------- ---------- ----------- ----------
Operating income 53,155 76,400 163,040 174,635
Other income (expense):
Interest income 1,684 2,197 6,351 6,510
Interest expense (6,251) (4,812) (12,367) (14,140)
Other, net 120 328 451 1,255
---------- ---------- ----------- ----------
Income before taxes,
minority interest,
equity in earnings
of affiliates and
loss on sale of
discontinued
operation 48,708 74,113 157,475 168,260
Taxes on income from
continuing operations (18,022) (27,569) (58,466) (62,982)
Minority interest in net
loss (income) of
subsidiaries 72 (363) (1,707) (1,974)
Equity in earnings of
affiliates 746 178 1,331 676
---------- ---------- ----------- ----------
Net income from
continuing operations 31,504 46,359 98,633 103,980
Loss on sale of
discontinued operation,
net of tax - (2,012) - (2,012)
---------- ---------- ----------- ----------
Net income $31,504 $44,347 $98,633 $101,968
========== ========== =========== ==========
Earnings from continuing
operations per common
share:
Basic $0.72 $1.06 $2.26 $2.38
========== ========== =========== ==========
Diluted $0.71 $1.03 $2.20 $2.32
========== ========== =========== ==========
Loss on sale of
discontinued operation,
net of tax per common
share:
Basic $- $(0.05) $- $(0.05)
========== ========== =========== ==========
Diluted $- $(0.04) $- $(0.04)
========== ========== =========== ==========
Earnings per common
share:
Basic $0.72 $1.02 $2.26 $2.33
========== ========== =========== ==========
Diluted $0.71 $0.99 $2.20 $2.27
========== ========== =========== ==========
Weighted-average common
shares outstanding:
Basic 43,520 43,609 43,737 43,706
========== ========== =========== ==========
Diluted 44,495 44,885 44,884 44,896
========== ========== =========== ==========
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 25, December 27,
2004 2003
--------------- ---------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 72,971 $ 157,351
Accounts receivable, net of reserves
of $41,037 and $43,203 542,523 467,085
Inventories 449,844 385,846
Deferred income taxes 28,696 30,559
Prepaid expenses and other 166,219 115,643
--------------- ---------------
Total current assets 1,260,253 1,156,484
Property and equipment, net 171,683 154,205
Goodwill 564,236 398,888
Other intangibles, net 134,620 37,551
Investments and other 81,479 72,242
--------------- ---------------
Total assets $2,212,271 $1,819,370
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 262,083 $ 278,163
Bank credit lines 6,824 6,059
Current maturities of long-term debt 3,896 3,253
Accrued expenses:
Payroll and related 70,259 68,214
Taxes 57,234 45,969
Other 129,761 117,530
--------------- ---------------
Total current liabilities 530,057 519,188
Long-term debt 522,767 247,100
Deferred income taxes 66,540 32,938
Other liabilities 22,226 4,494
Minority interest 11,367 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, 43,374,760
and 43,761,973 outstanding 434 438
Additional paid-in capital 445,825 445,118
Retained earnings 590,536 533,654
Accumulated other comprehensive
income 22,980 24,999
Deferred compensation (461) (91)
--------------- ---------------
Total stockholders' equity 1,059,314 1,004,118
--------------- ---------------
Total liabilities and stockholders'
equity $2,212,271 $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)
For the Periods Ended September 25, 2004 and September 27, 2003
Three Months Ended Nine Months Ended
---------------------- ---------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Cash flows from operating
activities of continuing
operations:
Net income $ 31,504 $ 44,347 $ 98,633 $ 101,968
Loss on sale of
discontinued
operation, net of
tax - 2,012 - 2,012
---------- ---------- ---------- ----------
Net income from
continuing operations 31,504 46,359 98,633 103,980
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities of
continuing operations:
Depreciation and
amortization 13,247 8,841 33,231 25,956
Provision for losses
on trade and other
accounts receivable 636 554 1,789 4,374
Deferred income taxes (197) 3,069 3,199 6,962
Stock issued to 401(k)
plan 2,805 2,300 2,805 2,300
Undistributed earnings
of affiliates (746) (178) (1,331) (676)
Minority interest in
net income (loss) of
subsidiaries (72) 363 1,707 1,974
Other 3,945 144 4,033 (102)
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable (18,119) (82,095) (33,052) (115,673)
Inventories 10,874 (31,937) (10,276) (27,456)
Other current assets (5,135) (7,634) 4,603 4,893
Accounts payable and
accrued expenses (41,906) 37,274 (47,762) 11,559
---------- ---------- ---------- ----------
Net cash provided by (used
in) operating activities
of continuing operations (3,164) (22,940) 57,579 18,091
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchases of fixed
assets (10,898) (7,724) (24,687) (29,045)
Payments for business
acquisitions, net of
cash acquired 26,730 (1) (1,043) (152,029) (67,797)
Payments related to
pending business
acquisitions - - (13,489) -
Purchases of marketable
securities - (17,944) - (39,139)
Proceeds from sales of
marketable securities - 20,104 14,472 20,104
Proceeds from maturities
of marketable
securities - 9,600 - 38,130
Other, including
discontinued operation 3,034 (2,532) (2,383) (671)
---------- ---------- ---------- ----------
Net cash provided by (used
in) investing activities 18,866 461 (178,116) (78,418)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Proceeds from issuance
of long-term debt 240,000 - 240,000 -
Payments for debt
issuance costs (5,154) - (5,154) -
Net proceeds from
(payments on) bank
borrowings (236,776) 1,622 (6,081) 682
Repayment of debt
assumed in business
acquisitions (21,939) - (135,718) -
Principal payments on
long-term debt (1,354) (2,232) (3,064) (7,186)
Proceeds from issuance
of stock upon exercise
of stock options 1,375 7,049 19,253 18,378
Payments for repurchases
of common stock (24,702) (11,575) (70,666) (57,727)
Other (283) (25) (789) (118)
---------- ---------- ---------- ----------
Net cash provided by (used
in) financing activities (48,833) (5,161) 37,781 (45,971)
---------- ---------- ---------- ----------
Net change in cash and
cash equivalents (33,131) (27,640) (82,756) (106,298)
Effect of exchange rate
changes on cash and cash
equivalents (235) (664) (1,624) (1,496)
Cash and cash equivalents,
beginning of period 106,337 121,161 157,351 200,651
---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period $ 72,971 $ 92,857 $ 72,971 $ 92,857
========== ========== ========== ==========
(1) Primarily reflects proceeds received from the divestiture of
DentalMV GmbH in July 2004, as previously disclosed in our Q2 2004
Form 10-Q, which was treated as a reduction of purchase price of
the Demedis Group acquired in June 2004.
NOTE: Certain prior period amounts have been reclassified to conform
with the current period presentation.
Exhibit A
Henry Schein, Inc.
2004 Third Quarter and Year to Date
Sales Growth Rate Summary
(unaudited)
Q3 2004 over Q3 2003
--------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal 0.6% 16.6% -15.2% 5.0% 12.9%
Acquisitions 14.1% 0.7% 6.9% 69.5% -
Divestiture -0.5% - - -3.4% -
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 14.2% 17.3% -8.3% 71.1% 12.9%
Foreign Currency
Exchange 1.6% 0.4% - 9.4% 0.2%
------------ ------ ------- ------------- ----------
Total Sales
Growth 15.8% 17.7% -8.3% 80.5% 13.1%
============ ====== ======= ============= ==========
YTD Q3 2004 over YTD Q3 2003
----------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal 7.1% 12.7% 1.5% 6.5% 9.2%
Acquisitions 10.6% 3.2% 8.7% 34.2% 2.4%
Divestiture -0.8% - - -5.1% -
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 16.9% 15.9% 10.2% 35.6% 11.6%
Foreign Currency
Exchange 2.2% 0.4% - 11.8% 0.1%
------------ ------ ------- ------------- ----------
Total Sales
Growth 19.1% 16.3% 10.2% 47.4% 11.7%
============ ====== ======= ============= ==========
Exhibit B
Henry Schein, Inc.
2004 Third Quarter
Medical Sales Growth Comparison
Net Sales by Category
(in thousands)
(unaudited)
Third Quarter % Growth
2004 2003 Total Internal Acquisition
---- ---- ----- -------- -----------
Medical Net Sales $363,660 $396,464 -8.3% -15.2% 6.9%
Subtract: Fluvirin
Sales (1) - 94,454
Medical Net Sales
Excluding Fluvirin $363,660 $302,010 20.4% 11.3% 9.1%
(1) Third Quarter financial results were adversely impacted by the
absence of Fluvirin influenza vaccine in 2004, as previously
announced.
Use of Non-GAAP Measures
The above "Medical Sales Growth Comparison" medical net sales
excluding Fluvirin is a financial measure that is not calculated and
presented in accordance with accounting principles generally accepted
in the United States ("U.S. GAAP"). The above table reconciles medical
net sales, the Company's most directly comparable measure calculated
and presented in accordance with U.S. GAAP, to medical net sales
excluding Fluvirin, as adjusted to eliminate the effect of third
quarter 2003 Fluvirin sales.
Management eliminated the effect of third quarter 2003 Fluvirin sales
to assist in evaluating the underlying operational performance of the
Company's medical business, excluding Fluvirin, over the periods
presented. Management believes that this presentation is appropriate
and facilitates such an evaluation by management, investors and
analysts. This measure should be considered supplemental to, and not a
substitute for or superior to, financial measures calculated in
accordance with U.S. GAAP.
CONTACT: Henry Schein, Inc.
Steven Paladino, 631-843-5500
steven.paladino@henryschein.com
OR
Susan Vassallo, 631-843-5562
susan.vassallo@henryschein.com
SOURCE: Henry Schein, Inc.