Henry Schein Reports Second Quarter Financial Results

MELVILLE, N.Y., Aug. 4, 2016 /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 financial results for the second quarter of 2016.

Net sales for the quarter ended June 25, 2016, were $2.9 billion, an increase of 9.3% compared with the second quarter of 2015. This consisted of 9.7% growth in local currencies and a 0.4% decline related to foreign currency exchange. In local currencies, internally generated sales increased 7.6% and acquisition growth was 2.1% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc. for the second quarter of 2016 was $120.1 million, or $1.46 per diluted share. This represents growth of 1.8% and 4.3%, respectively, compared with the second quarter of 2015. Our second quarter results include the favorable effect of a proposed tax audit settlement resulting in a reduction in income tax expense of $4.5 million, or approximately $0.05 per diluted share. Excluding restructuring costs of $20.4 million pretax, or $0.18 per diluted share, adjusted net income attributable to Henry Schein, Inc. for the second quarter of 2016 was $135.4 million, or $1.64 per diluted share. This represents growth of 9.9% and 12.3%, respectively, compared with the second quarter of 2015, excluding restructuring costs (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

"North America dental sales were below our expectations in the second quarter, however, sales in our Medical, Animal Health and Technology and Value-Added Services businesses were strong," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. "Our business model has served us well during periods of sustained economic expansion as well as in times of uncertainty in our markets. We believe our business model and strategic plan, including our continued investments, will drive our growth over the long term, and we remain extremely well-positioned in each of the vertical markets we serve."

Dental sales of $1.4 billion increased 4.0%, consisting of 4.1% growth in local currencies and a 0.1% decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.8% and acquisition growth was 1.3%. The 2.8% internal growth in local currencies included 2.0% growth in North America and 4.2% growth internationally.

"North America dental sales reflect softness in the U.S. that began in early June. North America dental consumable merchandise internal sales growth in local currencies was 1.8%, and equipment sales and service internal sales growth in local currencies was 2.7%. Although this sales growth was lower than expected, we believe we have a successful and proven model of delivering value-added solutions to our customers and we have increased our focus on delivering better sales results," commented Mr. Bergman. "International consumable merchandise internal sales growth in local currencies of 4.5% was solid. International equipment sales and service internal sales in local currencies increased 3.1% over the prior year. Our international dental sales growth was driven by strength in Italy, France and Spain."

"During the second quarter we announced an investment in Custom Automated Prosthetics (CAP), a U.S. digital laboratory supply company offering CAD/CAM equipment and zirconia materials. The integration of CAP with Zahn Dental and our Custom Milling Center furthers our commitment to providing our dental laboratory customers with a greater selection of digital equipment, materials and services," he added.

Animal Health sales of $853.6 million increased 14.0%, consisting of 15.2% growth in local currencies and a 1.2% decline related to foreign currency exchange. In local currencies, internally generated sales increased 11.8% and acquisition growth was 3.4%. The 11.8% internal growth in local currencies included 18.8% growth in North America and 4.9% growth internationally.

"Normalizing Animal Health results to account for the impact of certain products switching between agency sales and direct sales, internal sales growth in local currencies was 8.2% in the second quarter, including 11.4% growth in North America," commented Mr. Bergman. "International local currency sales during the second quarter were up nearly 12% with organic growth complemented by acquisition growth."

Medical sales of $538.8 million increased 14.5%, all internally generated and with no material impact from foreign currency exchange.

"Normalizing results for the impact of agency sales in the prior year, North America Medical internal sales growth was approximately 10.4%. This represents the sixth consecutive quarter of double-digit sales gains and reflects our continued success with large group practices, including Integrated Delivery Networks," remarked Mr. Bergman.

Technology and Value-Added Services sales of $107.0 million increased 19.6%, including 20.4% growth in local currencies and a 0.8% decline related to foreign currency exchange. In local currencies, internally generated sales increased 8.1% and acquisition growth was 12.3%.

"North America Technology and Value-Added Services internal sales growth was 8.5% in local currencies and matched the highest quarterly growth rate in more than three years. International internal sales growth in local currencies was 6.4%," commented Mr. Bergman. "Strategic acquisitions have bolstered our market share in this business, as sales in local currencies increased by more than 21% in North America during the second quarter and by nearly 15% internationally."

Stock Repurchase Plan

The Company announced that it repurchased approximately 337,000 shares of its common stock during the second quarter at an average price of $169.41 per share, or approximately $57 million. The impact of the repurchase of shares on second quarter diluted EPS was immaterial. At the close of the second quarter, Henry Schein had approximately $243 million authorized for future repurchases of its common stock.

Year-to-Date Results

Net sales for the first half of 2016 were $5.6 billion, an increase of 9.7% compared with the first half of 2015. This consisted of 10.8% growth in local currencies and a decline of 1.1% related to foreign currency exchange. In local currencies, internally generated sales increased 8.4% and acquisition growth was 2.4%.

Net income attributable to Henry Schein, Inc. for the first half of 2016 was $233.8 million, or $2.83 per diluted share, an increase of 5.6% and 8.0%, respectively, compared with the first half of 2015. Excluding restructuring costs of $24.4 million pretax or $0.22 per diluted share, net income attributable to Henry Schein, Inc. for the first half of 2016 was $252.2 million or $3.05 per diluted share, an increase of 8.9% and 11.3%, respectively, compared with the first half of 2015, excluding restructuring costs (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

2016 EPS Guidance

Henry Schein today adjusted 2016 financial guidance, as follows:

• Adjusted diluted EPS attributable to Henry Schein, Inc. is expected to be $6.55 to $6.60 for 2016, which represents growth of 10% to 11% compared with 2015 adjusted diluted EPS of $5.96. Adjusted diluted EPS excludes restructuring costs. This compares with previous guidance for 2016 adjusted diluted EPS of $6.55 to $6.65. This revised guidance reflects ongoing uncertainty related to the recent Brexit vote, the strength of the U.S. dollar and a cautious view of the North America dental market.
  
• Guidance is presented on a non-GAAP basis only, given that the Company cannot reasonably project restructuring costs for the second half of 2016. For the same reasons, the Company is unable to address the probable significance of the unavailable information.
  
• Guidance for 2016 adjusted 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, or restructuring costs. Guidance also assumes foreign exchange rates that are generally consistent with current levels.
  


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