Henry Schein Inc. (HSIC) reported EPS of 89 cents in the first quarter of 2012. However, after adjusting for restructuring costs of $11.8 million or 9 cents per share, adjusted EPS came in at 98 cents, up 19.5% year over year and above the Zacks Consensus Estimate of 91 cents.
Henry Schein reported a 7.8% year-over-year increase in revenues to $2.1 billion, which marginally exceeded the Zacks Consensus Estimate of $2.0 billion. The revenue growth included 8.4% growth in local currencies with internal growth of 7.8%, acquisition growth of 0.6% but a decline related to foreign currency exchange of 0.06%.
Henry Schein primarily derives revenues from dental, medical, animal health and technology and value-added services. In the reported quarter, the company derived $1.2 billion in revenues from global dental sales, up 5.5% year over year including a 6.6% increase in local currencies but a 1.1% decline related to foreign exchange. The growth in this segment was primarily attributed to improved patient traffic to dental offices in the major international markets of Henry Schein.
Worldwide medical sales increased 4% year over year to $354.8 million (4.2% growth in local currencies but 0.2% dip related to foreign exchange) on the back of increased penetration of larger group practices and improved sales of pharmaceutical products in North America (consisting of 90% of global medical sales). However, this was slightly counterweighed by lower sales of diagnostic consumable products owing to a generally mild winter.
The company’s global animal health segment witnessed a 15.3% surge in revenues to $525.6 million, including 15.4% growth in local currencies and a 0.1% decline related to foreign currency exchange. This resulted from the company’s increased product offerings to its customers. With the objective of expansion in international market, in April Henry Schein decided to acquire AUV Veterinary Services B.V, the veterinary products distribution arm of Netherlands-based AUV Group. The proposed deal will enable the company to expand in the Dutch and Belgian animal health markets.
Revenues from technology and value-added services climbed 13.1% year over year to $62.9 million, including 13.2% growth in local currencies and a 0.1% decline related to foreign currency exchange.
Gross and operating margins during the quarter were 29.1% and 6.4%, respectively, unchanged year over year.
Henry Schein exited the quarter with cash and cash equivalents of $101.8 million compared with $147.3 million at the end of fiscal 2011. During the reported quarter, the company repurchased 540,000 shares for $39 million and was left with $61.4 million of authorization for future repurchases. Moreover, the board of directors of Henry Schein authorized buyback of an additional $200 million worth of shares.
Outlook
Based on balanced segmental growth and overall strong first quarter, Henry Schein increased its fiscal 2012 EPS guidance to $4.30−$4.40, representinggrowth of 8%−11% (earlier guidance was $4.25−$4.34, representing growth of nearly 7%−9%). The current Zacks Consensus Estimate of $4.31 remains at the lower end of the guided range.The company also estimates restructuring costs of $2-$4 million or 2 cents to 3 cents per share in the second quarter of 2012.
We are encouraged with thecompany’s balanced revenue growth across all the four segments leading to long-termgrowth sustainability even amid a slowly improving economy. The company continues to drive strong top-line growth and establish broad domestic and international footprint in dental, animal health and medical supply distribution. Despite the global macroeconomic headwinds; aging population, growing demand in dental and animal health market and improved health insurance coverage are working in favor of the company.
However, competition in the Dental market from the likes of Patterson Companies Inc. (PDCO) and McKesson Corporation (MCK) remains tough. Currently, Henry Schein retains a short-term Zacks #2 Rank (Buy). However, over the long term we have a ‘Neutral’ recommendation on the stock.
HENRY SCHEIN IN (HSIC): Free Stock Analysis Report
MCKESSON CORP (MCK): Free Stock Analysis Report
PATTERSON COS (PDCO): Free Stock Analysis Report
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