Henry Schein Reports Record Second Quarter Results
Diluted EPS from continuing operations increases 20% to $0.60 Announces decision to divest oncology pharmaceutical and specialty pharmacy businesses
MELVILLE, N.Y.--(BUSINESS WIRE)--Aug. 7, 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 June 30, 2007. The Company announced that during the second quarter a decision was reached to divest its oncology pharmaceutical and specialty pharmacy businesses. Financial results for all periods reflect those businesses as discontinued operations (see Exhibit A for details).
Net sales for the second quarter of 2007 were $1.4 billion, an increase of 16.3% from the second quarter of 2006. This increase includes 13.9% local currency growth (8.3% internally generated and 5.6% from acquisitions) and 2.4% related to foreign currency exchange. (See Exhibit B for details of sales growth.)
Net income for the second quarter of 2007 was $33.8 million or $0.37 per diluted share. Results include a loss from discontinued operations of $20.6 million or $0.23 per diluted share related to the anticipated sale of the lower-margin oncology pharmaceutical and specialty pharmacy businesses.
Income from continuing operations for the second quarter of 2007 was $54.4 million or $0.60 per diluted share. Second quarter 2007 income and diluted earnings per share from continuing operations were up 21.0% and 20.0%, respectively, compared with the prior-year second quarter.
"Our second quarter financial results were very strong, once again highlighted by double-digit sales growth and market-share gains in each of our four business groups," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein.
For the second quarter, Dental sales increased 17.5%, including 17.2% growth in local currencies (10.5% internally generated and 6.7% from acquisitions) and 0.3% growth related to foreign currency exchange. Of the 17.2% local currency growth, Dental consumable merchandise sales increased 14.7% (6.8% internal growth and 7.9% acquisition growth) and Dental equipment sales and service revenues were up 25.1% (22.3% internal growth and 2.8% acquisition growth).
"We are very pleased with our Dental Group's financial performance, highlighted by mid-teens consumable merchandise sales growth and excellent equipment sales and service growth, reflecting market share gains in basic equipment and high-tech products," commented Mr. Bergman. "Subsequent to the close of the quarter we solidified our North American Dental industry leadership by acquiring the full-service and special-markets business of Becker-Parkin Dental Supply, increasing penetration for our U.S. Dental Business in key geographies, including New York, Florida and Arizona."
Medical Group sales increased 11.7% during the second quarter (7.7% internal growth and 4.0% acquisition growth). "During the quarter we made the decision to divest our lower-margin oncology pharmaceutical and specialty pharmacy distribution businesses. Combined, these two businesses represented a significant portion of our lower-margin pharmaceutical revenue. Disposing of these non-core businesses will enhance our Medical Group's ability to drive profitable revenue growth," said Mr. Bergman. "Separately, we are making excellent progress with the Medical One World initiative we launched in April, and are pleased with the initial results we have experienced thus far from combining our major physician brands under the Henry Schein Medical brand."
For the quarter, International sales increased 17.4%, including 9.4% growth in local currencies (4.4% internally generated and 5.0% from acquisitions), and 8.0% related to foreign currency exchange. "We are pleased with the accelerated internal sales growth in local currencies exhibited by our International business," commented Mr. Bergman.
Technology and Value-Added Services sales increased 36.5% during the second quarter of 2007, including 36.4% growth in local currencies (25.5% internally generated and 10.9% acquisition growth) and 0.1% growth related to foreign currency exchange. "Technology and Value-Added Services sales growth reflects particular strength in electronic services, software and financial services revenues," stated Mr. Bergman.
Year-to-Date Results
For the first six months of 2007, net sales of $2.7 billion represents an increase of 15.9% compared with the first six months of 2006. This increase includes 13.5% local currency growth (6.6% internally generated and 6.9% from acquisitions net of divestiture) and 2.4% related to foreign currency exchange. Income from continuing operations for the first six months of 2007 was $97.9 million reflecting 21.6% growth compared with the prior year. Earnings per diluted share from continuing operations of $1.08 for the first six months of 2007 represents 20.0% growth over the comparable period in 2006.
Stock Repurchase Plan
Henry Schein reported that no shares were purchased during the second quarter. Approximately $140 million remains authorized for future common stock repurchases.
2007 EPS Guidance
Henry Schein updates 2007 financial guidance from continuing operations, as follows:
- 2007 diluted EPS is expected to be $2.53 to $2.57. This represents an increase of 25% to 27% compared with 2006 diluted EPS, and compares with prior guidance for 2007 diluted EPS of $2.51 to $2.57.
- This 2007 diluted EPS guidance includes Henry Schein's expectations that it will distribute approximately 20 million doses of influenza vaccine during the year.
- 2007 diluted EPS guidance includes 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, 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 85,000 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 nearly 12,000 people and has operations in 19 countries. The Company's net sales reached a record $5.05 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 Six Months Ended
----------------------- -----------------------
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
----------- ----------- ----------- -----------
Net sales $1,387,017 $1,192,989 $2,697,145 $2,326,574
Cost of sales 973,240 835,744 1,892,322 1,633,808
----------- ----------- ----------- -----------
Gross profit 413,777 357,245 804,823 692,766
Operating expenses:
Selling, general
and administrative 322,925 280,887 640,250 555,771
----------- ----------- ----------- -----------
Operating income 90,852 76,358 164,573 136,995
Other income (expense):
Interest income 4,269 3,954 8,388 8,495
Interest expense (6,223) (7,238) (12,165) (14,603)
Other, net 547 (344) 425 (129)
----------- ----------- ----------- -----------
Income from
continuing
operations
before taxes,
minority
interest and
equity in
earnings
(losses) of
affiliates 89,445 72,730 161,221 130,758
Income taxes (30,636) (26,250) (56,106) (47,367)
Minority interest in
net income of
subsidiaries (3,842) (1,706) (6,757) (3,266)
Equity in earnings
(losses) of affiliates (528) 227 (505) 335
----------- ----------- ----------- -----------
Income from continuing
operations 54,439 45,001 97,853 80,460
Discontinued
operations:
Income (loss) from
operations of
discontinued
components
(including write-
down of long-lived
assets of $32.7
million in 2007
and a loss on sale
of discontinued
operation of $32.3
million in 2006) (32,700) 346 (32,560) (31,660)
Income tax benefit
(expense) 12,098 (129) 12,038 12,677
----------- ----------- ----------- -----------
Income (loss) from
discontinued
operations (20,602) 217 (20,522) (18,983)
----------- ----------- ----------- -----------
Net income $ 33,837 $ 45,218 $ 77,331 $ 61,477
=========== =========== =========== ===========
Earnings from
continuing operations
per share:
Basic $ 0.62 $ 0.51 $ 1.11 $ 0.92
=========== =========== =========== ===========
Diluted $ 0.60 $ 0.50 $ 1.08 $ 0.90
=========== =========== =========== ===========
Loss from discontinued
operations per share:
Basic $ (0.24) $ 0.00 $ (0.23) $ (0.22)
=========== =========== =========== ===========
Diluted $ (0.23) $ 0.00 $ (0.22) $ (0.21)
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.38 $ 0.51 $ 0.88 $ 0.70
=========== =========== =========== ===========
Diluted $ 0.37 $ 0.50 $ 0.86 $ 0.69
=========== =========== =========== ===========
Weighted-average common
shares outstanding:
Basic 88,390 88,381 88,154 87,713
=========== =========== =========== ===========
Diluted 90,591 89,823 90,344 89,344
=========== =========== =========== ===========
Note: The above prior period amounts have been restated to reflect the
effects of our discontinued operations.
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June December
30, 30,
2007 2006
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 190,971 $ 248,647
Available-for-sale securities 88,000 47,999
Accounts receivable, net of reserves of
$40,287 and $40,536 637,229 610,020
Inventories, net 579,474 584,103
Deferred income taxes 29,338 28,240
Prepaid expenses and other 123,846 125,839
------------- ------------
Total current assets 1,648,858 1,644,848
Property and equipment, net 223,227 225,038
Goodwill 771,834 773,801
Other intangibles, net 155,623 161,542
Investments and other 97,110 75,917
------------- ------------
Total assets $ 2,896,652 $ 2,881,146
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 361,031 $ 414,062
Bank credit lines 2,367 2,528
Current maturities of long-term debt 27,830 41,036
Accrued expenses:
Payroll and related 104,099 110,401
Taxes 56,303 59,007
Other 181,875 183,054
------------- ------------
Total current liabilities 733,505 810,088
Long-term debt 450,260 455,806
Deferred income taxes 57,957 62,334
Other liabilities 62,962 60,209
Minority interest 24,687 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,
89,062,402 outstanding on June 30, 2007
and 88,499,321 outstanding on December
30, 2006 891 885
Additional paid-in capital 643,033 614,551
Retained earnings 867,213 808,164
Accumulated other comprehensive income 56,144 47,363
------------- ------------
Total stockholders' equity 1,567,281 1,470,963
------------- ------------
Total liabilities and
stockholders' equity $ 2,896,652 $ 2,881,146
============= ============
Note: The above includes $10.4 million of accounts receivable, net of
reserves, and $3.9 million of inventories, net of reserves, related
to discontinued components that are held-for-sale as of June 30,
2007.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
------------------- ---------------------
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
--------- --------- ---------- ----------
Cash flows from operating
activities:
Net income $ 33,837 $ 45,218 $ 77,331 $ 61,477
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Loss on sale of
discontinued
operation, net of
tax - - - 19,363
Depreciation and
amortization 17,670 15,806 35,227 30,158
Stock-based
compensation
expense 6,608 5,517 10,725 9,374
Impairment from
write down of long-
lived assets of
discontinued
operations 32,667 - 32,667 -
Provision for losses
on trade and other
accounts receivable 1 561 232 679
Provision for
(benefit from)
deferred income
taxes (11,833) 959 (18,688) 5,937
Undistributed
earnings (losses)
of affiliates 528 (227) 505 (335)
Minority interest in
net income of
subsidiaries 3,842 1,706 6,757 3,266
Other 151 701 (570) (412)
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts
receivable (12,809) (7,622) (16,756) (3,023)
Inventories 11,510 (19,274) 15,446 (31,755)
Other current
assets (7,413) 5,003 4,469 8,146
Accounts payable
and accrued
expenses 39,884 (9,731) (66,604) (102,258)
--------- --------- ---------- ----------
Net cash provided by
operating activities 114,643 38,617 80,741 617
--------- --------- ---------- ----------
Cash flows from investing
activities:
Purchases of fixed
assets (12,403) (21,486) (21,336) (32,654)
Payments for equity
investment and
business acquisitions,
net of cash acquired (14,391) (32,475) (41,823) (105,187)
Cash received from
business divestiture - 36,527 - 36,527
Purchases of available-
for-sale securities (70,501) (62,919) (88,001) (147,340)
Proceeds from sales of
available-for-sale
securities 30,000 61,930 48,000 168,961
Proceeds from
maturities of
available-for-sale
securities - 1,200 - 1,280
Net payments for
foreign exchange
forward contract
settlements (7,692) (13,644) (11,613) (14,805)
Other 653 (26) (4,609) 165
--------- --------- ---------- ----------
Net cash used in investing
activities (74,334) (30,893) (119,382) (93,053)
--------- --------- ---------- ----------
Cash flows from financing
activities:
Proceeds from issuance
of long-term debt 55 - 483 -
Repayments of bank
borrowings (26) (1,223) (281) -
Principal payments for
long-term debt (17,468) (3,830) (17,925) (6,475)
Proceeds from issuance
of stock upon exercise
of stock options 12,929 8,492 23,620 25,600
Payments for
repurchases of common
stock - (23,439) (30,689) (23,439)
Excess tax benefits
related to stock-based
compensation 2,169 2,863 8,022 9,788
Other (721) 2,235 (1,457) 2,049
--------- --------- ---------- ----------
Net cash provided by (used
in) financing activities (3,062) (14,902) (18,227) 7,523
--------- --------- ---------- ----------
Net change in cash and cash
equivalents 37,247 (7,178) (56,868) (84,913)
Effect of exchange rate
changes on cash and cash
equivalents (732) 6,767 (808) 12,564
Cash and cash equivalents,
beginning of period 154,456 138,745 248,647 210,683
--------- --------- ---------- ----------
Cash and cash equivalents,
end of period $190,971 $138,334 $ 190,971 $ 138,334
========= ========= ========== ==========
Exhibit A
Henry Schein, Inc.
Oncology Pharmaceutical and Specialty Pharmacy Discontinued Operations
2007 Quarterly and 2006 Quarterly and Full Year Results
(In thousands, except per share data)
(unaudited)
YTD
1Q07 2Q07 2Q07
------- -------- ---------
Net sales $24,014 $ 26,204 $ 50,218
Cost of sales 22,086 24,338 46,424
-------- --------- ---------
Gross profit 1,928 1,866 3,794
Operating expenses:
Selling, general and administrative 1,748 1,875 3,623
-------- --------- ---------
Operating income (loss) 180 (9) 171
Other income (expense):
Interest income 19 25 44
Interest expense (62) (54) (116)
Other, net 3 (32,662) * (32,659) *
-------- --------- ---------
Income (loss) before taxes 140 (32,700) (32,560)
Income tax benefit (expense) (60) 12,098 12,038
-------- --------- ---------
Net income (loss) from discontinued
operations $ 80 $(20,602) $(20,522)
======== ========= =========
Earnings (loss) from discontinued
operations per share:
Basic $ 0.00 $ (0.24) $ (0.23)
Diluted $ 0.00 $ (0.23) $ (0.22)
Weighted-average common shares
outstanding:
Basic 87,911 88,390 88,154
Diluted 89,984 90,591 90,344
YTD
1Q06 2Q06 3Q06 4Q06 4Q06
-------- -------- -------- -------- ---------
Net sales $28,196 $27,371 $25,467 $23,872 $104,906
Cost of sales 26,115 25,156 23,519 22,018 96,808
-------- -------- -------- -------- ---------
Gross profit 2,081 2,215 1,948 1,854 8,098
Operating expenses:
Selling, general and
administrative 1,800 1,825 1,874 1,837 7,336
-------- -------- -------- -------- ---------
Operating income
(loss) 281 390 74 17 762
Other income (expense):
Interest income 15 15 18 14 62
Interest expense (29) (64) (37) (43) (173)
Other, net 6 5 4 5 20
-------- -------- -------- -------- ---------
Income (loss)
before taxes 273 346 59 (7) 671
Income tax benefit
(expense) (105) (129) (20) (34) (288)
-------- -------- -------- -------- ---------
Net income (loss) from
discontinued operations $ 168 $ 217 $ 39 $ (41) $ 383
======== ======== ======== ======== =========
Earnings (loss) from
discontinued operations
per share:
Basic $ 0.00 $ 0.00 $ 0.00 $ (0.00) $ 0.00
Diluted $ 0.00 $ 0.00 $ 0.00 $ (0.00) $ 0.01
Weighted-average common
shares outstanding:
Basic 87,310 88,381 88,291 88,580 87,952
Diluted 89,242 89,823 90,015 90,488 89,820
Note: This schedule is intended to provide historical financial
results for the discontinued oncology pharmaceutical and specialty
pharmacy businesses for the 2006 and 2007 year-to-date periods.
* Amount primarily represents write-off of long-lived assets of the
discontinued oncology pharmaceutical and specialty pharmacy
businesses.
Exhibit B
Henry Schein, Inc.
2007 Second Quarter
Sales Growth Rate Summary
(unaudited)
Q2 2007 over Q2 2006
----------------------------------------------------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 8.3% 10.5% 7.7% 4.4% 25.5%
Acquisitions 5.6% 6.7% 4.0% 5.0% 10.9%
------------ ------ ------- ------------- ----------
Local
Currency
Sales
Growth 13.9% 17.2% 11.7% 9.4% 36.4%
Foreign Currency
Exchange 2.4% 0.3% - 8.0% 0.1%
------------ ------ ------- ------------- ----------
Total Sales
Growth 16.3% 17.5% 11.7% 17.4% 36.5%
============ ====== ======= ============= ==========
Q2 YTD 2007 over Q2 YTD 2006
----------------------------------------------------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 6.6% 10.2% 3.7% 2.8% 21.6%
Acquisitions, net
of divestiture 6.9% 6.9% 9.0% 5.0% 9.0%
------------ ------ ------- ------------- ----------
Local
Currency
Sales
Growth 13.5% 17.1% 12.7% 7.8% 30.6%
Foreign Currency
Exchange 2.4% - - 8.5% -
------------ ------ ------- ------------- ----------
Total Sales
Growth 15.9% 17.1% 12.7% 16.3% 30.6%
============ ====== ======= ============= ==========
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.