Henry Schein third quarter net sales increase 11.5% to $2.1 billion

Henry Schein, Inc.Nov 1 2011

Henry Schein, Inc. (NASDAQ: HSIC), the largest provider of healthcare products and services to office-based practitioners, today reported record financial results for the quarter ended September 24, 2011.  The Company noted that influenza vaccine sales and related profits were lower this quarter than in the prior year quarter. In order to provide more meaningful commentary the Company will be discussing results including and excluding this impact.

Net sales for the third quarter of 2011 were $2.1 billion, an increase of 11.5% compared with the third quarter of 2010.  This consists of 7.4% growth in local currencies and 4.1% growth related to foreign currency exchange.  Internal sales growth in local currencies was 3.3% (see Exhibit A for details of sales growth).  Excluding sales of seasonal influenza vaccines from both periods, net sales increased 12.9%, with 8.6% growth in local currencies including 4.3% internal sales growth.

Net income attributable to Henry Schein, Inc. for the third quarter of 2011 was $92.0 million or $0.99 per diluted share, an increase of 4.6% and 5.3%, respectively, compared with the third quarter of 2010.  Excluding sales of seasonal influenza vaccines from both periods, net income and diluted EPS increased by approximately 11%.

"We are pleased to be reporting sales growth in local currencies in each of our five business groups during the third quarter.  Third quarter results were impacted by lower sales and profits from seasonal influenza vaccine.  More importantly, double-digit growth in net income excluding seasonal flu vaccine sales reflects continued strength in our core businesses," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein.

"Our financial results were also impacted by various macroeconomic factors both in the U.S. and overseas.  However, we believe that Henry Schein is affected by these factors to a lesser extent compared with other areas of healthcare and with other industries," he added.  "Against this backdrop as well as a strengthening U.S. dollar versus various foreign currencies, we are introducing 2012 guidance for diluted EPS to be from $4.25 to $4.34, which represents growth of 8% to 10% compared to the midpoint of our 2011 EPS guidance." The Company noted that the 2012 fiscal year includes one less week than 2011.

North American Dental sales of $682.4 million increased 2.5%, consisting of 1.8% growth in local currencies and 0.7% growth related to foreign currency exchange.  The 1.8% growth in local currencies included 2.9% growth in Dental consumable merchandise sales and a 2.1% decline in Dental equipment sales and service revenues.  

"Growth in sales of Dental consumable merchandise is slightly ahead of our estimate for market growth and we believe reflects consistent patient traffic to dental offices," commented Mr. Bergman.  "Dental equipment sales were impacted by a cautious environment for capital equipment purchases.  However, as we entered the fourth quarter, our Dental equipment order book was significantly stronger than it had been entering the third quarter."

North American Medical sales of $402.2 million increased 2.6%.  "During the third quarter we distributed 9.9 million doses of seasonal influenza vaccines versus 11.2 million doses in last year's third quarter.  We have sold substantially all of our 11.6 million dose commitment for 2011 as of today.  As we previously announced, we reduced our commitment for influenza vaccine doses by approximately two million earlier this year.  Excluding sales of seasonal influenza vaccines from both quarters, our North American Medical sales increased 8.1% as we continued to gain market share," remarked Mr. Bergman.

North American Animal Health sales of $246.5 million increased 9.4%.  "We continue to be very pleased with the results from our North American Animal Health business, and believe our performance remains well in excess of market growth.  Our sales growth is due primarily to expanding the breadth and depth of our product offerings, and strengthening customer relationships.  We look forward to continued growth in our Animal Health business now that the successful integration is behind us," commented Mr. Bergman.

International sales of $718.5 million increased 28.0%, consisting of 15.2% growth in local currencies and 12.8% growth related to foreign currency exchange.

"International sales growth in local currencies includes solid internal sales growth complemented by the acquisition of Provet Holdings.  As in the U.S., we believe dentists in Europe are experiencing consistent patient traffic but there is a cautionary environment for capital equipment purchases," added Mr. Bergman.

Technology and Value-Added Services sales of $62.2 million increased 26.5% during the quarter, consisting of 25.2% growth in local currencies and 1.3% growth related to foreign currency exchange.

"We are very pleased with the growth in our Technology and Value-Added Services group, which has exceeded 20% for four consecutive quarters," explained Mr. Bergman.  "Third quarter results include particular strength in our electronic services and financial services businesses."

Stock Repurchase Plan

The Company announced that it repurchased 1.6 million shares of its common stock during the third quarter at an average price of $62.40 per share.  The impact of the repurchase of shares on third quarter diluted EPS was not material.  At the close of the third quarter, the Company had $167.5 million authorized for future repurchases of its common stock.

"Whereas previously we stated that the goal of our share buyback program was to keep the number of shares outstanding approximately equal to 2010 levels, our strategy is now to reduce the number of shares outstanding versus the prior year," noted Mr. Bergman.

Year-to-Date Results

For the first nine months of 2011, net sales of $6.2 billion increased 12.5% compared with the first nine months of 2010.  This increase includes 9.1% growth in local currencies and 3.4% growth related to foreign currency exchange.

Net income attributable to Henry Schein, Inc. for the first nine months of 2011 was $262.9 million or $2.82 per diluted share, an increase of 9.1% and 8.9%, respectively, compared with adjusted net income for the first nine months of 2010, which excludes restructuring costs of $12.3 million or $0.09 per diluted share.  Growth in diluted EPS was 12.8% on an as-reported basis (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

2011 EPS Guidance

Henry Schein today affirmed 2011 financial guidance, as follows:

• 2011 diluted EPS attributable to Henry Schein, Inc. is expected to be in the range of $3.92 to $3.98.  
• Guidance for 2011 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.

2012 EPS Guidance

Henry Schein today introduced 2012 financial guidance, as follows:

• For 2012 the Company expects growth in diluted EPS attributable to Henry Schein, Inc. to be $4.25 to $4.34, which represents growth of approximately 8% to 10% compared with the midpoint of 2011 guidance.
• The Company notes that the 2012 fiscal year includes one less week than 2011.
• Guidance for 2012 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.