Henry Schein Reports Strong Third Quarter Results
EPS from continuing operations increase 50% to $0.66
Company introduces 2008 EPS guidance
MELVILLE, N.Y.--(BUSINESS WIRE)--Nov. 1, 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 September 29, 2007.
Net sales for the third quarter of 2007 were $1.5 billion, an increase of 20.8% compared with the third quarter of 2006. This increase includes 18.3% local currency growth (13.0% internally generated and 5.3% from acquisitions) and 2.5% related to foreign currency exchange. (See Exhibit A for details of sales growth.)
Income from continuing operations for the third quarter of 2007 was $60.7 million or $0.66 per diluted share, up 54.6% and 50.0%, respectively, compared with the prior year third quarter. Income from continuing operations includes a pretax gain related to the disposition of certain assets of $2.4 million or $0.02 per diluted share.
Net income for the third quarter of 2007 was $59.6 million or $0.65 per diluted share. Results include a loss from discontinued operations of $1.1 million or $0.01 per diluted share primarily related to the sale of the company's oncology pharmaceutical business.
"We are very pleased with our third quarter financial results, which once again reflect strong 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. "Our Dental Group continued its trend of mid-teens growth while our Medical, International and Technology Groups each posted sales gains well in excess of 20% for the quarter."
Dental Group sales increased 14.6% during the third quarter, including 13.8% growth in local currencies (10.4% internally generated and 3.4% from acquisitions) and 0.8% growth related to foreign currency exchange. Of the 13.8% local currency growth, Dental consumable merchandise sales increased 9.9% (6.0% internal growth and 3.9% acquisition growth) and Dental equipment sales and service revenues were up 25.9% (24.1% internal growth and 1.8% acquisition growth).
"Our Dental Group reported impressive internal growth in consumable merchandise and equipment sales and service revenues, with strong gains in both basic equipment and high-tech products," commented Mr. Bergman. "Of note, we have completed the integration of the full-service and special markets businesses of Becker-Parkin Dental Supply acquired in July, which strengthens our presence in key geographies."
Medical Group sales increased 25.0% during the third quarter (22.5% internal growth and 2.5% acquisition growth). Excluding sales of influenza vaccine, Medical Group sales increased 9.0%, with 6.9% internal growth.
"We are pleased with the strong performance of our Medical Group, which reflects the positive impact of our Medical One World program as well as the sale of approximately 7.3 million doses of flu vaccine, among other factors," said Mr. Bergman.
For the quarter, International Group sales increased 25.7%, including 17.4% growth in local currencies (6.9% internally generated and 10.5% from acquisitions) and 8.3% related to foreign currency exchange.
"Our International Group posted across-the-board gains with particular strength in the U.K., Italy, Spain and the Benelux countries," commented Mr. Bergman. "During the third quarter we acquired W. & J. Dunlop, a leading U.K. animal health products supplier. With the addition of Dunlops, our worldwide veterinary business is at a run-rate of more than $700 million in annual sales."
Technology and Value-Added Services Group sales increased 29.5% during the third quarter of 2007, including 29.0% growth in local currencies (15.5% internally generated and 13.5% acquisition growth) and 0.5% growth related to foreign currency exchange.
"Technology and Value-Added Services results reflect continued strong electronic services, software and financial services revenue growth," stated Mr. Bergman. "We recently closed on our acquisition of Software of Excellence, which provides us with leading positions in the U.K., Australia and New Zealand dental practice software markets. Sales of these products will be included in our Technology and Value-Added Services Group beginning with the fourth quarter of 2007."
Year-to-Date Results
For the first nine months of 2007, net sales of $4.2 billion represent an increase of 17.6% compared with the first nine months of 2006. This increase includes 15.2% local currency growth (8.8% internally generated and 6.4% from acquisitions net of divestiture) and 2.4% related to foreign currency exchange. Income from continuing operations for the first nine months of 2007 was $158.5 million or $1.75 per diluted share, up 32.4% and 30.6%, respectively, compared with the first nine months of 2006.
2007 EPS Guidance
Henry Schein affirms 2007 financial guidance from continuing operations, as follows:
-- 2007 diluted EPS is expected to be $2.53 to $2.57.
-- This 2007 diluted EPS guidance includes Henry Schein's new
expectation that it will distribute approximately 15.5 million
doses of influenza vaccine during the year, compared with
prior expectations it would distribute approximately 20
million doses.
-- 2007 diluted EPS guidance includes completed or previously
announced acquisitions and does not include the impact of
potential future acquisitions, if any.
2008 EPS Guidance
Henry Schein introduces 2008 financial guidance, as follows:
-- 2008 diluted EPS is expected to be $2.93 to $3.00. This
represents an increase of 15% to 18% compared with the
mid-point of the Company's 2007 diluted EPS guidance.
-- This 2008 diluted EPS guidance includes Henry Schein's
expectation that it will distribute 12 to 15 million doses of
influenza vaccine during the year, representing $0.13 to $0.16
per diluted share.
-- 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.
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 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 or affiliates in 22 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 Nine Months Ended
----------------------- -----------------------
September September September September
29, 30, 29, 30,
2007 2006 2007 2006
----------- ----------- ----------- -----------
Net sales $1,505,575 $1,246,553 $4,202,720 $3,573,127
Cost of sales 1,076,245 887,495 2,968,567 2,521,303
----------- ----------- ----------- -----------
Gross profit 429,330 359,058 1,234,153 1,051,824
Operating expenses:
Selling, general and
administrative 332,630 296,457 972,880 852,228
----------- ----------- ----------- -----------
Operating income 96,700 62,601 261,273 199,596
Other income
(expense):
Interest income 4,378 3,485 12,766 11,980
Interest expense (6,216) (6,504) (18,381) (21,107)
Other, net (includes
$2.4 million gain
in 2007) 3,917 2,294 4,342 2,165
----------- ----------- ----------- -----------
Income from
continuing
operations before
taxes, minority
interest and
equity in earnings
(losses) of
affiliates 98,779 61,876 260,000 192,634
Income taxes (33,682) (21,695) (89,788) (69,062)
Minority interest in
net income of
subsidiaries (4,247) (1,181) (11,004) (4,447)
Equity in earnings
(losses) of
affiliates (182) 246 (687) 581
----------- ----------- ----------- -----------
Income from
continuing
operations 60,668 39,246 158,521 119,706
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 $1.5
million and $32.3
million in 2007 and
2006, respectively) (1,742) 59 (34,302) (31,601)
Income tax benefit
(expense) 647 (20) 12,685 12,657
----------- ----------- ----------- -----------
Income (loss) from
discontinued
operations (1,095) 39 (21,617) (18,944)
----------- ----------- ----------- -----------
Net income $ 59,573 $ 39,285 $ 136,904 $ 100,762
=========== =========== =========== ===========
Earnings from
continuing
operations per
share:
Basic $ 0.68 $ 0.44 $ 1.79 $ 1.36
=========== =========== =========== ===========
Diluted $ 0.66 $ 0.44 $ 1.75 $ 1.34
=========== =========== =========== ===========
Loss from
discontinued
operations per
share:
Basic $ (0.01) $ 0.00 $ (0.24) $ (0.21)
=========== =========== =========== ===========
Diluted $ (0.01) $ 0.00 $ (0.24) $ (0.21)
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.67 $ 0.44 $ 1.55 $ 1.15
=========== =========== =========== ===========
Diluted $ 0.65 $ 0.44 $ 1.51 $ 1.13
=========== =========== =========== ===========
Weighted-average
common shares
outstanding:
Basic 88,790 88,291 88,383 87,820
=========== =========== =========== ===========
Diluted 91,399 90,015 90,779 89,554
=========== =========== =========== ===========
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)
September 29, December 30,
2007 2006
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 207,458 $ 248,647
Available-for-sale securities 27,750 47,999
Accounts receivable, net of reserves of
$42,006 and $40,536 764,590 610,020
Inventories, net 676,557 584,103
Deferred income taxes 31,742 28,240
Prepaid expenses and other 145,372 125,839
------------- -------------
Total current assets 1,853,469 1,644,848
Property and equipment, net 236,309 225,038
Goodwill 887,285 773,801
Other intangibles, net 203,389 161,542
Investments and other 103,041 75,917
------------- -------------
Total assets $ 3,283,493 $ 2,881,146
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 514,830 $ 414,062
Bank credit lines 2,856 2,528
Current maturities of long-term debt 29,050 41,036
Accrued expenses:
Payroll and related 122,898 110,401
Taxes 77,882 59,007
Business acquisition 61,615 -
Other 204,760 183,054
------------ ------------
Total current liabilities 1,013,891 810,088
Long-term debt 432,279 455,806
Deferred income taxes 71,916 62,334
Other liabilities 62,206 60,209
Minority interest 29,646 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,
89,503,384 outstanding on September 29,
2007 and 88,499,321 outstanding on
December 30, 2006 895 885
Additional paid-in capital 665,013 614,551
Retained earnings 926,786 808,164
Accumulated other comprehensive income 80,861 47,363
------------- -------------
Total stockholders' equity 1,673,555 1,470,963
------------- -------------
Total liabilities and
stockholders' equity $ 3,283,493 $ 2,881,146
============= =============
Note: The above includes $4.0 million of accounts receivable, net of
reserves, and $1.8 million of inventories, net of reserves, related
to discontinued components that are held-for-sale as of September 29,
2007.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
-------------------- ---------------------
September September September September
29, 30, 29, 30,
2007 2006 2007 2006
--------- --------- ---------- ----------
Cash flows from operating
activities:
Net income $ 59,573 $ 39,285 $ 136,904 $ 100,762
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Loss on sale of
discontinued
operation, net of
tax 929 - 929 19,363
Depreciation and
amortization 17,794 16,733 53,021 46,891
Stock-based
compensation
expense 5,995 4,559 16,720 13,933
Impairment from
write down of long-
lived assets of
discontinued
operations - - 32,667 -
Provision for losses
on trade and other
accounts receivable 830 1,664 1,062 2,343
Provision for
(benefit from)
deferred income
taxes 1,958 (8,599) (16,730) (2,662)
Stock issued to
401(k) plan 4,104 3,565 4,104 3,565
Undistributed
earnings (losses)
of affiliates 182 (246) 687 (581)
Minority interest in
net income of
subsidiaries 4,247 1,181 11,004 4,447
Other (2,300) (2,137) (2,870) (2,549)
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts
receivable (65,765) (6,395) (82,521) (9,418)
Inventories (47,387) (4,212) (31,941) (35,967)
Other current
assets (14,310) (770) (9,841) 7,376
Accounts payable
and accrued
expenses 103,334 19,381 36,730 (82,877)
--------- --------- ---------- ----------
Net cash provided by
operating activities 69,184 64,009 149,925 64,626
--------- --------- ---------- ----------
Cash flows from investing
activities:
Purchases of fixed
assets (11,687) (17,273) (33,023) (49,927)
Payments for equity
investment and business
acquisitions, net of
cash acquired (82,475) (80,945) (124,298) (186,132)
Cash received from
business divestitures 5,061 - 5,061 36,527
Purchases of available-
for-sale securities (27,065) (16,697) (115,066) (164,037)
Proceeds from sales of
available-for-sale
securities 87,315 117,806 135,315 286,767
Proceeds from maturities
of available-for-sale
securities - - - 1,280
Net payments for foreign
exchange forward
contract settlements (5,367) (2,090) (16,980) (16,895)
Other (6,428) (6,769) (11,037) (6,604)
--------- --------- ---------- ----------
Net cash used in investing
activities (40,646) (5,968) (160,028) (99,021)
--------- --------- ---------- ----------
Cash flows from financing
activities:
Proceeds from issuance
of long-term debt - - 483 -
Proceeds from
(repayments of) bank
borrowings (4,273) 297 (4,554) 297
Principal payments for
long-term debt (24,604) (24,202) (42,529) (30,677)
Proceeds from issuance
of stock upon exercise
of stock options 9,099 7,300 32,719 32,900
Payments for
repurchases of common
stock - (2,261) (30,689) (25,700)
Excess tax benefits
related to stock-based
compensation 3,575 3,362 11,597 13,150
Other (422) (384) (1,879) 1,665
--------- --------- ---------- ----------
Net cash used in financing
activities (16,625) (15,888) (34,852) (8,365)
--------- --------- ---------- ----------
Net change in cash and cash
equivalents 11,913 42,153 (44,955) (42,760)
Effect of exchange rate
changes on cash and cash
equivalents 4,574 (4,417) 3,766 8,147
Cash and cash equivalents,
beginning of period 190,971 138,334 248,647 210,683
--------- --------- ---------- ----------
Cash and cash equivalents,
end of period $207,458 $176,070 $ 207,458 $ 176,070
========= ========= ========== ==========
Exhibit A
Henry Schein, Inc.
2007 Third Quarter
Sales Growth Rate Summary
(unaudited)
Q3 2007 over Q3 2006
----------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 13.0% 10.4% 22.5% 6.9% 15.5%
Acquisitions 5.3% 3.4% 2.5% 10.5% 13.5%
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 18.3% 13.8% 25.0% 17.4% 29.0%
Foreign Currency
Exchange 2.5% 0.8% - 8.3% 0.5%
------------ ------ ------- ------------- ----------
Total Sales
Growth 20.8% 14.6% 25.0% 25.7% 29.5%
============ ====== ======= ============= ==========
Q3 YTD 2007 over Q3 YTD 2006
----------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 8.8% 10.3% 10.5% 4.1% 19.5%
Acquisitions, net
of divestiture 6.4% 5.6% 6.6% 6.8% 10.5%
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 15.2% 15.9% 17.1% 10.9% 30.0%
Foreign Currency
Exchange 2.4% 0.3% - 8.5% 0.2%
------------ ------ ------- ------------- ----------
Total Sales
Growth 17.6% 16.2% 17.1% 19.4% 30.2%
============ ====== ======= ============= ==========
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.