Henry Schein Reports Record First Quarter Results
Diluted EPS from continuing operations increases 20% to $0.48
MELVILLE, N.Y.--(BUSINESS WIRE)--May 8, 2007--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 March 31, 2007.
Net sales for the first quarter of 2007 were $1.3 billion, an increase of 14.8% from the first quarter of 2006. This increase includes 12.4% local currency growth (4.2% internally generated and 8.2% from acquisitions net of divestiture) and 2.4% related to foreign currency exchange. (See Exhibit A for details of sales growth.)
Net income and income from continuing operations for the first quarter of 2007 were $43.5 million or $0.48 per diluted share. First quarter 2007 income and diluted earnings per share from continuing operations were up 22.1% and 20.0%, respectively, compared with the prior-year first quarter. There was no impact of discontinued operations in the current quarter.
"Once again our quarterly results featured double-digit sales growth in each of our business groups as we continued to gain market share across the board," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein. "Also, operating margin expanded as we continue to leverage a growing top line across our established infrastructure and focus on selling higher-margin products."
For the first quarter, Dental sales increased 16.7%, including 16.9% growth in local currencies (9.9% internally generated and 7.0% from acquisitions) offset by a 0.2% decline related to foreign currency exchange. Of the 16.9% local currency growth, Dental consumable merchandise sales increased 14.6% (6.2% internal growth and 8.4% acquisition growth) and Dental equipment sales and service revenues were up 25.6% (23.5% internal growth and 2.1% acquisition growth).
"Strong market-share gains in our Dental Group were led by equipment sales and service growth, which reflects continued strength in basic equipment sales and strong demand for high-tech products as dentists strive for greater practice efficiencies and patient satisfaction," commented Mr. Bergman. "The dental markets we serve remain strong, based on our positive experience with customers and manufacturers at two large dental trade shows during the quarter."
Medical sales increased 11.3% during the first quarter (1.9% decline in internal sales growth offset by 13.2% acquisition growth net of divestiture). The Company estimates that its Medical Group internal sales growth, excluding sales of all pharmaceutical products, represents a market share gain for the quarter.
"In April we combined our major physician brands under the Henry Schein Medical brand, with the goal of leveraging our unique strengths in field sales, telesales, telemarketing and direct marketing," added Mr. Bergman. "While we are confident in the long-term benefit of this initiative to our customers and to our Company, Medical Group results over the next several quarters will reflect the elimination of duplicate costs and may reflect some sales erosion as well."
For the quarter, International sales increased 15.1%, including 6.1% growth in local currencies (1.1% internally generated and 5.0% from acquisitions), and 9.0% related to foreign currency exchange. "International sales growth was negatively impacted by the timing of the International Dental Show (IDS) in Germany, the world's largest dental trade show which was held near the end of the first quarter, among other factors," commented Mr. Bergman.
Technology and Value-Added Services sales increased 24.6% during the first quarter of 2007, including 24.7% growth in local currencies (17.7% internally generated and 7.0% acquisition growth) offset by a 0.1% decline related to foreign currency exchange. "Our Technology and Value-Added Services sales growth for the quarter was fueled by strong growth in electronic services, software and financial services revenues," stated Mr. Bergman.
Stock Repurchase Plan
Henry Schein announced that it repurchased 639,100 shares of common stock during the first quarter of 2007 at an average price of $48.02 per share. Approximately $140 million remains authorized for future common stock repurchases. The impact of the repurchase of shares under this program on first quarter diluted EPS was immaterial.
2007 EPS Guidance
Henry Schein affirms 2007 financial guidance, as follows:
- 2007 diluted EPS is expected to be $2.51 to $2.57. This represents an increase of 23% to 26% compared with 2006 diluted EPS from continuing operations.
- This 2007 diluted EPS guidance includes Henry Schein's expectations that it will distribute approximately 20 million doses of influenza vaccine during the year.
- We expect mid-teens diluted EPS growth in the second quarter of 2007.
- 2007 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.
First Quarter Conference Call Webcast
The Company will hold a conference call to discuss first 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, 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 500,000 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 70,000 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 been installed in more than 50,000 practices, including DENTRIX(R) and Easy Dental(R) for dental practices, MicroMd(R) for physician practices, and AVImark(R) for animal health clinics.
Headquartered in Melville, N.Y., Henry Schein employs more than 11,000 people and has operations in 19 countries. The Company's net sales reached a record $5.15 billion in 2006. 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 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 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 government regulations that affect us; financial 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; 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, forward-looking statements 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
------------------------
March 31, April 1,
2007 2006
------------ -----------
Net sales $ 1,334,143 $1,161,781
Cost of sales 941,170 824,179
------------ -----------
Gross profit 392,973 337,602
Operating expenses:
Selling, general and administrative 319,074 276,684
------------ -----------
Operating income 73,899 60,918
Other income (expense):
Interest income 4,138 4,556
Interest expense (6,004) (7,394)
Other, net (117) 221
------------ -----------
Income from continuing operations before
taxes, minority interest and equity in
earnings of affiliates 71,916 58,301
Income taxes (25,530) (21,222)
Minority interest in net income of
subsidiaries (2,915) (1,560)
Equity in earnings of affiliates 23 108
------------ -----------
Income from continuing operations 43,494 35,627
Discontinued operations:
Loss from operations of discontinued
components - (32,279)
Income tax benefit - 12,911
------------ -----------
Loss from discontinued operations - (19,368)
------------ -----------
Net income $ 43,494 $ 16,259
============ ===========
Earnings from continuing operations per share:
Basic $ 0.49 $ 0.41
============ ===========
Diluted $ 0.48 $ 0.40
============ ===========
Loss from discontinued operations per share:
Basic $ - $ (0.22)
============ ===========
Diluted $ - $ (0.22)
============ ===========
Earnings per share:
Basic $ 0.49 $ 0.19
============ ===========
Diluted $ 0.48 $ 0.18
============ ===========
Weighted-average common shares outstanding:
Basic 87,911 87,310
============ ===========
Diluted 89,984 89,242
============ ===========
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, December 30,
2007 2006
-------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 154,456 $ 248,647
Available-for-sale securities 47,499 47,999
Accounts receivable, net of reserves of
$40,379 and $40,536 617,427 610,020
Inventories, net 583,236 584,103
Deferred income taxes 29,992 28,240
Prepaid expenses and other 119,169 125,839
-------------- ------------
Total current assets 1,551,779 1,644,848
Property and equipment, net 221,234 225,038
Goodwill 787,018 773,801
Other intangibles, net 157,874 161,542
Investments and other 97,487 75,917
-------------- ------------
Total assets $ 2,815,392 $ 2,881,146
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 343,491 $ 414,062
Bank credit lines 2,359 2,528
Current maturities of long-term debt 37,495 41,036
Accrued expenses:
Payroll and related 96,994 110,401
Taxes 52,720 59,007
Other 165,113 183,054
-------------- ------------
Total current liabilities 698,172 810,088
Long-term debt 457,318 455,806
Deferred income taxes 67,551 62,334
Other liabilities 61,291 60,209
Minority interest 21,926 21,746
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, 88,806,126
outstanding on March 31, 2007 and
88,499,321 outstanding on December 30,
2006 888 885
Additional paid-in capital 629,051 614,551
Retained earnings 833,376 808,164
Accumulated other comprehensive income 45,819 47,363
-------------- ------------
Total stockholders' equity 1,509,134 1,470,963
-------------- ------------
Total liabilities and stockholders'
equity $ 2,815,392 $ 2,881,146
============== ============
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
--------------------
March 31, April 1,
2007 2006
---------- ---------
Cash flows from operating activities:
Net income $ 43,494 $ 16,259
Adjustments to reconcile net income to net
cash used in operating activities:
Loss on sale of discontinued operation,
net of tax - 19,363
Depreciation and amortization 17,557 14,352
Stock-based compensation expense 4,117 3,857
Provision for losses on trade and other
accounts receivable 231 118
Deferred income taxes (6,855) 4,978
Undistributed earnings of affiliates (23) (108)
Minority interest in net income of
subsidiaries 2,915 1,560
Other (721) (1,113)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable (3,947) 4,599
Inventories 3,936 (12,481)
Other current assets 11,882 3,143
Accounts payable and accrued expenses (106,488) (92,527)
---------- ---------
Net cash used in operating activities (33,902) (38,000)
---------- ---------
Cash flows from investing activities:
Purchases of fixed assets (8,933) (11,168)
Payments for equity investment and business
acquisitions, net of cash acquired (27,432) (72,712)
Purchases of available-for-sale securities (17,500) (84,421)
Proceeds from sales of available-for-sale
securities 18,000 107,031
Proceeds from maturities of available-for-sale
securities - 80
Net payments for foreign exchange forward
contract settlements (3,921) (1,161)
Other (5,262) 191
---------- ---------
Net cash used in investing activities (45,048) (62,160)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 428 -
Proceeds from (repayments of) bank borrowings (255) 1,223
Principal payments for long-term debt (457) (2,645)
Proceeds from issuance of stock upon exercise
of stock options 10,691 17,108
Payments for repurchases of common stock (30,689) -
Excess tax benefits related to stock-based
compensation 5,853 6,925
Other (736) (186)
---------- ---------
Net cash provided by (used in) financing
activities (15,165) 22,425
---------- ---------
Net change in cash and cash equivalents (94,115) (77,735)
Effect of exchange rate changes on cash and cash
equivalents (76) 5,797
Cash and cash equivalents, beginning of period 248,647 210,683
---------- ---------
Cash and cash equivalents, end of period $ 154,456 $138,745
========== =========
Note: The prior period amounts have been restated to reflect the effects of a reclassification of variable-rate demand notes from 'cash and cash equivalents' to 'available-for-sale securities' retrospective to December 31, 2005.
Exhibit A
Henry Schein, Inc.
2007 First Quarter
Sales Growth Rate Summary
(unaudited)
Q1 2007 over Q1 2006
--------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 4.2% 9.9% -1.9% 1.1% 17.7%
Acquisitions, net
of divestiture 8.2% 7.0% 13.2% 5.0% 7.0%
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 12.4% 16.9% 11.3% 6.1% 24.7%
Foreign Currency
Exchange 2.4% -0.2% - 9.0% -0.1%
------------ ------ ------- ------------- ----------
Total Sales
Growth 14.8% 16.7% 11.3% 15.1% 24.6%
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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.