Henry Schein Reports Record Second Quarter Results; Net Sales Increase 10.5% to $1.22 Billion, Diluted EPS from Continuing Operations up 16% to $0.50
MELVILLE, N.Y.--(BUSINESS WIRE)--July 27, 2006--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 July 1, 2006.
Net sales for the second quarter of 2006 were $1.22 billion, an increase of 10.5% from the second quarter of 2005 (See Exhibit A for details of sales growth). This increase includes 10.3% local currency growth (5.9% internally generated and 4.4% from acquisitions net of divestiture) and 0.2% related to foreign currency exchange.
Net income and income from continuing operations for the second quarter of 2006 were both $45.2 million or $0.50 per diluted share. There was no impact of discontinued operations for the quarter. Second quarter 2006 income and diluted earnings per share from continuing operations were up 19.7% and 16.3% respectively, compared to the prior year quarter. Effective January 1, 2006, the Company adopted the new accounting rules on expensing stock-based compensation per Financial Accounting Standards No. 123(R) on a retrospective basis. All periods presented have been adjusted to give effect to FAS No. 123(R), which amounted to approximately $0.04 per share in the second quarter of 2006, and $0.03 per share in the second quarter of 2005.
"Our second quarter financial results from continuing operations were strong, with solid top-line internal growth bolstered by the contribution of several strategic acquisitions," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein. "Internal sales growth in local currencies exceeded our estimate for market growth, and reflects particular strength in our Dental Group."
For the quarter, Dental sales increased 10.8%, including 9.4% growth in local currencies (essentially all internally generated) and 1.4% related to foreign currency exchange. Of the 9.4% local currency growth, Dental consumable merchandise sales increased 6.9% and Dental equipment sales and service revenues were up 18.1%.
"Our Dental Group has posted double-digit sales growth each quarter for the past three years. Dental sales growth reflects an ongoing commitment to expanding the products and services we bring to our customers, as well as effective and innovative marketing initiatives and a highly trained field sales force," explained Mr. Bergman. "As an example of our commitment to an expanding product offering, we were delighted to announce earlier this month that Henry Schein was named the exclusive distributor for Imaging Sciences International's line of 3-D diagnostic imaging technology, which previously was sold directly to dentists." Mr. Bergman continued, "We look forward to closing our acquisition of certain businesses of Darby Group Companies during the third quarter, which will afford deeper penetration by our Dental and Medical divisions."
Medical sales increased 14.3% during the second quarter (3.3% internal growth and 11.0% acquisition growth net of divestiture). "Medical Group growth was highlighted by our acquisition of NLS Animal Health, which is performing well in its first quarter as a Henry Schein company," said Mr. Bergman. "Our Medical group is in the process of planning and executing our influenza vaccine strategy for the upcoming season, and at this time pre-bookings for influenza vaccine are strong. We continue to estimate that we will distribute approximately 15 to 17 million doses of flu vaccine this year."
For the quarter, International sales increased 6.9%, including 8.1% growth in local currencies (3.6% internally generated and 4.5% from acquisitions) offset by a 1.2% decline related to foreign currency exchange.
Mr. Bergman noted that after the close of the second quarter the company announced its acquisition of Provet AG, the leading veterinary distribution company in Switzerland. Together with the purchase of NLS Animal Health, Henry Schein has essentially doubled the size of its worldwide veterinary business.
Technology and Value-Added Services sales during the second quarter of 2006 were 3.7% ahead of prior year, including 3.1% growth in local currencies (all internal) and 0.6% related to foreign currency exchange. Electronic claims services revenues continued a strong double-digit growth trend.
Year-to-Date Results
For the year-to-date, net sales of $2.4 billion represents an increase of 9.9% compared to the prior year-to-date. This increase includes 10.9% local currency growth (7.1% internally generated and 3.8% from acquisitions net of divestiture) offset by a 1.0% decline related to foreign currency exchange. Income from continuing operations for the first half of 2006 was $80.8 million reflecting 18.4% growth compared to the prior year. Earnings per diluted share from continuing operations of $0.90 for the first half of 2006 represents 16.9% growth over the same period in the prior year.
Stock Repurchase Plan
The Company announced that 512,034 shares were repurchased during the second quarter at an average price of $45.78 per share. Approximately $88 million remains authorized for future stock repurchases. The impact of the repurchase of shares under this program on second quarter diluted EPS was immaterial.
2006 EPS Guidance
Henry Schein provides 2006 financial guidance, as follows:
-- 2006 diluted EPS is expected to be $2.10 to $2.16 including
the impact of expensing stock-based compensation per Financial
Accounting Standards No. 123(R).
-- This represents an increase to previous guidance of $2.08 to
$2.14. The increase in guidance is related to a number of
factors including the strength of first half results,
contributions from recent acquisitions, and expansion of
product portfolio.
-- This 2006 diluted EPS guidance includes Henry Schein's
expectations that it will distribute approximately 15 million
to 17 million doses of influenza vaccine during 2006,
including product manufactured by GlaxoSmithKline Biologicals
(which includes the former ID Biomedical), Chiron Corporation
and sanofi pasteur.
-- All guidance is for current continuing operations including
completed or previously announced acquisitions, and does not
include the impact of potential future acquisitions.
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 practices and laboratories, physician practices and veterinary 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 over 100,000 additional products available to our customers 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, and AVImark(R) for veterinary clinics.
Headquartered in Melville, N.Y., Henry Schein employs nearly 11,000 people and has operations in 19 countries. The Company's sales reached a record $4.6 billion in 2005. 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; 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; financial risks associated with acquisitions; 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
----------------------- -----------------------
July 1, June 25, July 1, June 25,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales $1,220,360 $1,104,428 $2,382,141 $2,167,425
Cost of sales 860,900 783,092 1,685,079 1,544,695
----------- ----------- ----------- -----------
Gross profit 359,460 321,336 697,062 622,730
Operating expenses:
Selling, general and
administrative 282,712 254,278 559,396 502,410
----------- ----------- ----------- -----------
Operating income 76,748 67,058 137,666 120,320
Other income
(expense):
Interest income 3,969 1,228 8,525 2,527
Interest expense (7,302) (5,084) (14,696) (11,310)
Other, net (339) - (118) (113)
----------- ----------- ----------- -----------
Income from
continuing
operations before
taxes, minority
interest and
equity in
earnings of
affiliates 73,076 63,202 131,377 111,424
Income taxes (26,379) (23,211) (47,601) (41,072)
Minority interest in
net income of
subsidiaries (1,706) (2,469) (3,266) (2,514)
Equity in earnings of
affiliates 227 248 335 435
----------- ----------- ----------- -----------
Income from continuing
operations 45,218 37,770 80,845 68,273
Discontinued operations:
Loss from operations
of discontinued
components - (1,008) (32,279) (448)
Income tax benefit - 195 12,911 5
----------- ----------- ----------- -----------
Loss from discontinued
operations - (813) (19,368) (443)
----------- ----------- ----------- -----------
Net income $ 45,218 $ 36,957 $ 61,477 $ 67,830
=========== =========== =========== ===========
Earnings from continuing
operations per share:
Basic $ 0.51 $ 0.43 $ 0.92 $ 0.79
=========== =========== =========== ===========
Diluted $ 0.50 $ 0.43 $ 0.90 $ 0.77
=========== =========== =========== ===========
Loss from discontinued
operations per share:
Basic $ - $ 0.00 $ (0.22) $ (0.01)
=========== =========== =========== ===========
Diluted $ - $ (0.01) $ (0.21) $ 0.00
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.51 $ 0.43 $ 0.70 $ 0.78
=========== =========== =========== ===========
Diluted $ 0.50 $ 0.42 $ 0.69 $ 0.77
=========== =========== =========== ===========
Weighted-average common
shares outstanding:
Basic 88,381 86,927 87,713 86,818
=========== =========== =========== ===========
Diluted 89,823 88,154 89,344 88,196
=========== =========== =========== ===========
Note: The above prior period amounts have been restated to reflect the
effects of our discontinued operations and the expensing of
stock-based compensation pursuant to our adoption of FAS 123(R) using
the modified retrospective application.
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
July 1, December 31,
2006 2005
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 138,334 $ 210,683
Available-for-sale securities 101,107 124,010
Accounts receivable, net of reserves of
$41,648 and $52,308 579,766 582,617
Inventories 551,552 505,542
Deferred income taxes 27,868 35,505
Prepaid expenses and other 124,113 126,052
----------- ------------
Total current assets 1,522,740 1,584,409
Property and equipment, net 209,876 190,746
Goodwill 717,734 626,869
Other intangibles, net 140,270 123,204
Investments and other 59,433 57,892
----------- ------------
Total assets $2,650,053 $ 2,583,120
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 351,566 $ 371,392
Bank credit lines 2,262 2,093
Current maturities of long-term debt 31,182 33,013
Accrued expenses:
Payroll and related 87,538 96,113
Taxes 41,414 65,070
Other 158,122 156,433
----------- ------------
Total current liabilities 672,084 724,114
Long-term debt 486,014 489,520
Deferred income taxes 60,282 54,432
Other liabilities 59,572 53,547
Minority interest 17,253 12,353
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, 88,160,672 outstanding
on July 1, 2006 and 87,092,238 outstanding
on December 31, 2005 882 871
Additional paid-in capital 593,120 559,266
Retained earnings 716,100 667,958
Accumulated other comprehensive income 44,746 21,059
----------- ------------
Total stockholders' equity 1,354,848 1,249,154
----------- ------------
Total liabilities and stockholders'
equity $2,650,053 $ 2,583,120
=========== ============
Note: Certain prior period amounts have been restated to reflect the
effects of our adoption of FAS 123(R) using the modified retrospective
application and our reclassification of variable rate demand notes
from 'cash and cash equivalents' to 'available-for-sale securities'.
Also, included in the prior period amounts are approximately $44
million of accounts receivable, net of reserves, and approximately $16
million of inventories, net of reserves, related to discontinued
operations which were sold on April 1, 2006.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
------------------- --------------------
July 1, June 25, July 1, June 25,
2006 2005 2006 2005
--------- --------- ---------- ---------
Cash flows from operating
activities:
Net income $ 45,218 $ 36,957 $ 61,477 $ 67,830
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 15,806 15,111 30,158 28,348
Stock-based compensation
expense 5,517 4,796 9,374 8,536
Provision for (recovery
of) losses on trade and
other accounts
receivable 561 158 679 (50)
Provision (benefit) for
deferred income taxes 959 (153) 5,937 1,485
Undistributed earnings of
affiliates (227) (248) (335) (435)
Minority interest in net
income of subsidiaries 1,706 2,469 3,266 2,514
Other 701 (1,079) (412) 10
Changes in operating
assets and liabilities,
net of acquisitions:
Accounts receivable (7,622) (19,500) (3,023) (5,066)
Inventories (19,274) 12,653 (31,755) 21,263
Other current assets 5,003 (1,351) 8,146 28,557
Accounts payable and
accrued expenses (9,731) 35,521 (102,258) (85,835)
--------- --------- ---------- ---------
Net cash provided by
operating activities 38,617 85,334 617 67,157
--------- --------- ---------- ---------
Cash flows from investing
activities:
Purchases of fixed assets (21,486) (13,895) (32,654) (22,033)
Payments for business
acquisitions, net of cash
acquired (32,475) (15,706) (105,187) (54,752)
Cash received from business
divestiture 36,527 - 36,527 -
Purchases of available-for-
sale securities (62,919) - (147,340) -
Proceeds from sales of
available-for-sale
securities 61,930 - 168,961 -
Proceeds from maturities of
available-for-sale
securities 1,200 - 1,280 -
Net proceeds from (payments
for) foreign exchange
forward contract
settlements (13,644) 19,993 (14,805) 15,515
Other (26) 415 165 (1,887)
--------- --------- ---------- ---------
Net cash used in investing
activities (30,893) (9,193) (93,053) (63,157)
--------- --------- ---------- ---------
Cash flows from financing
activities:
Net payments on bank
borrowings (1,223) (1,599) - (1,416)
Principal payments for
long-term debt (3,830) (1,869) (6,475) (2,565)
Payments for establishing a
new credit facility - (650) - (650)
Proceeds from issuance of
stock upon exercise of
stock options 8,492 8,109 25,600 19,053
Payments for repurchases of
common stock (23,439) (4,699) (23,439) (21,009)
Proceeds from excess tax
benefits related to stock-
based compensation 2,863 2,576 9,788 5,458
Other 2,235 (158) 2,049 (559)
--------- --------- ---------- ---------
Net cash provided by (used
in) financing activities (14,902) 1,710 7,523 (1,688)
--------- --------- ---------- ---------
Net change in cash and cash
equivalents (7,178) 77,851 (84,913) 2,312
Effect of exchange rate
changes on cash and cash
equivalents 6,767 (5,484) 12,564 (1,825)
Cash and cash equivalents,
beginning of period 138,745 114,741 210,683 186,621
--------- --------- ---------- ---------
Cash and cash equivalents,
end of period $138,334 $187,108 $ 138,334 $187,108
========= ========= ========== =========
Note: The above prior period amounts have been restated to reflect the
effects of our adoption of FAS 123(R) using the modified retrospective
application. Additionally, for the three and six months ended July 1,
2006 we reflected 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.
2006 Second Quarter
Sales Growth Rate Summary
(unaudited)
Q2 2006 over Q2 2005
--------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal 5.9% 9.3% 3.3% 3.6% 3.1%
Acquisitions, net
of divestiture 4.4% 0.1% 11.0% 4.5% -
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 10.3% 9.4% 14.3% 8.1% 3.1%
Foreign Currency
Exchange 0.2% 1.4% - -1.2% 0.6%
------------ ------ ------- ------------- ----------
Total Sales
Growth 10.5% 10.8% 14.3% 6.9% 3.7%
============ ====== ======= ============= ==========
Q2 YTD 2006 over Q2 YTD 2005
----------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal 7.1% 9.2% 4.3% 7.0% 5.6%
Acquisitions, net
of divestiture 3.8% 0.4% 6.2% 6.8% -
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 10.9% 9.6% 10.5% 13.8% 5.6%
Foreign Currency
Exchange -1.0% 1.0% - -5.2% 0.4%
------------ ------ ------- ------------- ----------
Total Sales
Growth 9.9% 10.6% 10.5% 8.6% 6.0%
============ ====== ======= ============= ==========
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.