Henry Schein Reports Record First Quarter Financial Results

MELVILLE, N.Y., May 9, 2017 /PRNewswire/ -- Henry Schein, Inc. (Nasdaq: HSIC), the world's largest provider of health care products and services to office-based dental, animal health, and medical practitioners, today reported record first quarter financial results.

Net sales for the quarter ended April 1, 2017 were $2.9 billion, an increase of 7.7% compared with the first quarter of 2016. This consisted of 8.7% growth in local currencies and a 1.0% decline related to foreign currency exchange. In local currencies, internally generated sales increased 5.9% and acquisition growth was 2.8% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc. for the first quarter of 2017 was $140.7 million, or $1.76 per diluted share. This represents growth of 23.7% and 28.5%, respectively, when compared with GAAP results for the first quarter of 2016, or growth of 20.5% and 24.8%, respectively, compared with non-GAAP results for the first quarter of 2016.  Note that the first quarter of 2016 included restructuring costs of $4.1 million pretax, or $0.04 per diluted share (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP net income and EPS).

"We believe that the markets we serve are generally healthy and are growing, and that our global Dental, Animal Health, and Medical groups all continued to gain market share during the quarter," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. "We are affirming guidance for 2017 diluted EPS that represents growth of 16% to 18% compared to 2016 GAAP diluted EPS, or growth of 8% to 10% compared to 2016 non-GAAP diluted EPS."

Dental sales of $1.4 billion increased 7.9%, consisting of 8.2% growth in local currencies and a 0.3% decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.9% and acquisition growth was 5.3%. The 2.9% internal growth in local currencies included 0.8% growth in North America and 6.8% growth internationally.

"In North America, dental consumable merchandise internal sales in local currencies increased 2.5%, which was the highest quarterly growth rate in the past several quarters. We estimate the 2.5% growth rate to be approximately 3.0% when adjusting for the impact of precious metals in the quarter. Dental equipment internal sales in local currencies declined 5.5%, primarily due to a difficult prior-year comparison and an acceleration of sales into the previous quarter related to the Section 179 tax incentive. Our equipment backlog for the second quarter of 2017 is strong, which we believe indicates a resumption in year-over-year growth," commented Mr. Bergman. "International internal dental consumable merchandise sales had strong growth of 8.0% in local currencies and internal dental equipment sales growth was 3.1% in local currencies."

"As part of our ongoing efforts to advance our leadership position in dental equipment, and specifically digital dentistry, we are pleased to announce that we entered into a three-year agreement with Dentsply Sirona, effective September 1, 2017, to distribute Dentsply Sirona's full line of dental equipment in the U.S.," continued Mr. Bergman. "Our commitment to our dental customers has always been to offer a broad selection of products, equipment, and value-added services that enable our customers to provide high-quality care to patients, while realizing greater practice efficiency. With this agreement, Henry Schein will offer dentists and dental laboratories access to a greater selection of digital dental equipment solutions in the U.S., with the full range of Dentsply Sirona equipment, including the leading CEREC brand of CAD/CAM products."

Due to timing of the agreement with Dentsply Sirona and initial training and start-up expenses, Henry Schein expects that earnings related to this agreement will be neutral to its 2017 financial results and accretive to earnings thereafter.

Animal Health sales of $812.9 million increased 5.4%, consisting of 8.1% growth in local currencies and a 2.7% decline related to foreign currency exchange. In local currencies, internally generated sales increased 7.1% and acquisition growth was 1.0%. The 7.1% internal growth in local currencies included 5.5% growth in North America and 8.9% growth internationally.

"While the Animal Health growth rate in North America moderated during the quarter, internal international growth in local currencies was at a multi-year high," commented Mr. Bergman. "Our animal health strategy is to deliver excellent solutions and support at prices that reflect the value we provide. Our customers rely on the products and services we offer, including our robust and differentiated software platforms, all of which facilitate the delivery of quality care."

Medical sales of $598.9 million increased 11.3%. Sales growth in local currencies was 11.5%, all internally generated, with a 0.2% decrease due to foreign exchange.

"Our Medical business delivered double-digit sales growth, reflecting particularly strong patient traffic to physician offices during the first quarter as well as our continued execution in serving a market that is consolidating among large group practices, including Integrated Delivery Networks," remarked Mr. Bergman. "We are well positioned to help primary care practices and ambulatory surgery centers operate efficiently so our customers can focus on patient outcomes. We believe that promoting wellness and prevention is key to the future of an improving health care landscape."

Technology and Value-Added Services sales of $106.0 million increased 4.2%, including 5.5% growth in local currencies and a 1.3% decline related to foreign currency exchange. There was no contribution from acquisitions during the quarter.

"In North America, Technology and Value-Added Services sales growth in local currencies of 3.4% reflects some softness in financial services revenues, primarily related to lower North America dental equipment sales," commented Mr. Bergman.  "International Technology and Value-Added Services sales grew 17.2% in local currencies, highlighted by strong software revenue in the U.K. and Australia/New Zealand."

Income Taxes

During the first quarter of 2017, the Company implemented ASU 2016-09 related to tax deductions associated with stock-based compensation. This resulted in a reduction in the effective tax rate for the quarter to 20.7%. The Company previously disclosed that this expense reduction would primarily impact the first quarter since the majority of its stock-based compensation vests in that period.

Stock Repurchase Plan

The Company announced that it repurchased approximately 308,000 shares of its common stock during the first quarter at an average price of $162.34 per share, or approximately $50 million. The impact of the repurchase of shares on first quarter 2017 diluted EPS was immaterial. At the close of the first quarter, Henry Schein had approximately $200 million authorized for future repurchases of its common stock.

2017 EPS Guidance

Henry Schein, Inc. today affirmed 2017 financial guidance, as follows:

• 2017 diluted EPS attributable to Henry Schein, Inc. is expected to be $7.17 to $7.30. This guidance reflects growth of 16% to 18% compared with 2016 GAAP diluted EPS of $6.19, and growth of 8% to 10% compared with 2016 non-GAAP diluted EPS of $6.61. The Company notes that fiscal year 2017 includes one less week than fiscal year 2016.

• Guidance for 2017 diluted EPS attributable to Henry Schein, Inc. is for current continuing operations as well as completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any. Guidance also assumes foreign exchange rates that are generally consistent with current levels.

First Quarter 2017 Conference Call Webcast

The Company will hold a conference call to discuss first quarter 2017 financial results today, beginning at 10:00 a.m. Eastern time.  Individual investors are invited to listen to the conference call through Henry Schein's website at www.henryschein.com.  In addition, a replay will be available beginning shortly after the call has ended.

About Henry Schein, Inc.

Henry Schein, Inc. (Nasdaq: HSIC) is the world's largest provider of health care products and services to office-based dental, animal health, and medical practitioners. The Company also serves dental laboratories, government and institutional health care clinics, and other alternate care sites. A Fortune 500® Company and a member of the S&P 500® and the NASDAQ 100® indexes, Henry Schein employs more than 21,000 Team Schein Members and serves more than 1 million customers.

The Company offers a comprehensive selection of products and services, including value-added solutions for operating efficient practices and delivering high-quality care. Henry Schein operates through a centralized and automated distribution network, with a selection of more than 120,000 branded products and Henry Schein private-brand products in stock, as well as more than 180,000 additional products available as special-order items. The Company also offers its customers exclusive, innovative technology solutions, including practice management software and e-commerce solutions, as well as a broad range of financial services.                                         

Headquartered in Melville, N.Y., Henry Schein has operations or affiliates in 32 countries. The Company's sales reached a record $11.6 billion in 2016, and have grown at a compound annual rate of approximately 15% since Henry Schein became a public company in 1995. For more information, visit Henry Schein at www.henryschein.com, Facebook.com/HenrySchein and @HenrySchein on Twitter.

Cautionary Note Regarding Forward-Looking Statements and Use of Non-GAAP Financial Information

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 that, 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 United States Securities and Exchange Commission, or 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: effects of a highly competitive and consolidating market; our dependence on third parties for the manufacture and supply of our products; our dependence upon sales personnel, customers, suppliers and manufacturers; our dependence on our senior management; fluctuations in quarterly earnings; risks from expansion of customer purchasing power and multi-tiered costing structures; increases in shipping costs for our products or other service issues with our third-party shippers; general global macro-economic conditions; risks associated with currency fluctuations; risks associated with political and economic uncertainty; disruptions in financial markets; volatility of the market price of our common stock; changes in the health care industry; implementation of health care laws; failure to comply with regulatory requirements and data privacy laws; risks associated with our global operations; transitional challenges associated with acquisitions and joint ventures, including the failure to achieve anticipated synergies; financial risks associated with acquisitions and joint ventures; litigation risks; the dependence on our continued product development, technical support and successful marketing in the technology segment; increased competition by third party online commerce sites; risks from disruption to our information systems; cyberattacks or other privacy or data security breaches; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation. 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, any forward-looking statements contained herein should not be relied upon as a prediction of actual results.  We undertake no duty and have no obligation to update forward-looking statements.

Included within the press release are non-GAAP financial measures that supplement the Company's Consolidated Statements of Income prepared under generally accepted accounting principles (GAAP). 

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