Henry Schein, Inc. (HSIC - Free Report) reported adjusted earnings per share (EPS) of 95 cents in the first quarter of 2018, up 7.9% year over year. Adjusted EPS remained 3.3% ahead of the Zacks Consensus Estimate. The year-over-year upside in earnings was driven by strong revenue growth across all the business segments.
On a reported basis, EPS came in at 91 cents in the first quarter, a 3.4% improvement year over year.
Revenues in Detail
Henry Schein reported net sales of $3.22 billion in the first quarter, up 10.2% year over year and 1.6% ahead of the Zacks Consensus Estimate. The year-over-year improvement came on the back of 3.8% internal sales growth in local currencies and 4.3% increase owing to foreign currency exchange. Acquisition growth was 2.1% in the quarter.
In the first quarter, the company recorded sales of $2.07 billion in the North American market, up 6.7% year over year. Sales totaled $1.15 billion in the international market, up 17% year over year.
Segment Analysis
Henry Schein derives revenues from four operating segments: Dental, Medical, Animal Health and Technology and Value-added services.
In the first quarter, the company derived $1.55 billion in revenues from global Dental sales, up 10.2% year over year. This includes 5.2% growth in local currencies and 5% contribution from foreign currency exchange. At local currencies, internally generated sales increased 2.9% and acquisition growth was 2.3%.Internal growth at local currencies included 3.1% growth in North America and 2.6% rise internationally.
The company's global Animal Health segment witnessed 13.1% rise in revenues to $919.8 million. This includes 7.1% growth in local currencies and 6% increase from foreign currency exchange. At local currencies, internally generated sales increased 3.6% and acquisition growth was 3.5%. The internal growth in local currencies included 3.7% rise in North America and 3.4% improvement internationally.
Worldwide Medical revenues rose 6.9% year over year to $640.4 million. Growth in local currencies was 6.5%, with a 0.4% increase owing to favorable foreign exchange.
Revenues from global Technology and Value-added Services grew 6.1% to $112.4 million. This included 4% growth in local currencies and a 2.1% rise related to foreign currency exchange. Acquisitions contributed 1.1% in the quarter under review.
Margin Trend
Gross profit increased 8.8% to $895.6 million in the reported quarter. However, gross margin contracted 34 basis points (bps) from the year-ago quarter to 27.8% due to a 10.7% rise in cost of sales.
Despite a 9% rise in selling, general & administrative expenses of $685.7 million, adjusted operating income improved 8.2% year over year to $209.9 million. However, adjusted operating margin declined 12 bps year over year to 6.5% in the reported quarter.
Financial Position
Henry Schein exited the first quarter 2018 with cash and cash equivalents of $99.2 million, compared with $174.7 million at the end of 2017. For the first three months of 2018, net operating cash outflow was $70.9 million, compared with $52.6 million of cash outflow in the year-ago period.
As a result of a blackout period related to the spin-off and merger of the company's Animal Health business, during the quarter under review, the company did not repurchase any shares of common stock. At the close of the first quarter, the company had $200 million authorized for repurchase of common stock.
2018 Guidance
Excluding costs related to restructuring and the spin-off and merger of Henry Schein’s global Animal Health business, the company has reiterated its 2018 EPS guidance. The company still expects EPS in the range of $4.03-$4.14, reflecting 12-15% growth from the 2017 adjusted EPS figure of $3.60. The Zacks Consensus Estimate for 2018 adjusted EPS is $4.09 remains within the guided range.
Our Take
Henry Schein exited the first quarter of 2018 on a strong note with earnings and revenues steering past the respective Zacks Consensus Estimate. All four of the company's operating segments recorded strong year-over-year growth. Henry Schein's strong share gains in the North American and overseas markets along with solid revenues raise optimism.
Despite the better-than-expected revenue performance, we are disappointed with the year-over-year deterioration in Henry Schein's gross and operating margin due to higher cost of sales and expenses.
We currently await the completion of the company’s global Animal Health business' planned spin-off. This business contributes nearly 30% to the company’s topline. The spin off, accordingly, is expected to bring in major changes to Henry Schein’s overall operating results.
According to the company, following the spinoff, the Animal Health business will merge with privately-held Vets First Choice to form a new public company called Vets First Corp. We believe, this initiative remains a part of Henry Schein's 2018-2020 Strategic Plan to focus more on dental and medical businesses.
Zacks Rank & Key Picks
Henry Schein has a Zacks Rank #2 (Buy).
A few other top-ranked stocks in the broader medical space which have reported solid results this season are Intuitive Surgical (ISRG - Free Report) , Chemed Corp. (CHE - Free Report) and Baxter International Inc. (BAX - Free Report) . While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Baxter carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical reported first-quarter 2018 adjusted EPS of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus estimate by 10.6%.
Chemed posted first-quarter 2018 adjusted EPS of $2.72, surpassing the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, beating the Zacks Consensus Estimate of $420 million.
Baxter posted first-quarter 2018 adjusted EPS of 70 cents, which beat the Zacks Consensus Estimate by 12.9%. Revenues of $2.68 billion also edged past the Zacks Consensus Estimate of $2.62 billion.
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Henry Schein, Inc. (HSIC - Free Report) reported adjusted earnings per share (EPS) of 95 cents in the first quarter of 2018, up 7.9% year over year. Adjusted EPS remained 3.3% ahead of the Zacks Consensus Estimate. The year-over-year upside in earnings was driven by strong revenue growth across all the business segments.
On a reported basis, EPS came in at 91 cents in the first quarter, a 3.4% improvement year over year.
Revenues in Detail
Henry Schein reported net sales of $3.22 billion in the first quarter, up 10.2% year over year and 1.6% ahead of the Zacks Consensus Estimate. The year-over-year improvement came on the back of 3.8% internal sales growth in local currencies and 4.3% increase owing to foreign currency exchange. Acquisition growth was 2.1% in the quarter.
In the first quarter, the company recorded sales of $2.07 billion in the North American market, up 6.7% year over year. Sales totaled $1.15 billion in the international market, up 17% year over year.
Segment Analysis
Henry Schein derives revenues from four operating segments: Dental, Medical, Animal Health and Technology and Value-added services.
In the first quarter, the company derived $1.55 billion in revenues from global Dental sales, up 10.2% year over year. This includes 5.2% growth in local currencies and 5% contribution from foreign currency exchange. At local currencies, internally generated sales increased 2.9% and acquisition growth was 2.3%.Internal growth at local currencies included 3.1% growth in North America and 2.6% rise internationally.
The company's global Animal Health segment witnessed 13.1% rise in revenues to $919.8 million. This includes 7.1% growth in local currencies and 6% increase from foreign currency exchange. At local currencies, internally generated sales increased 3.6% and acquisition growth was 3.5%. The internal growth in local currencies included 3.7% rise in North America and 3.4% improvement internationally.
Worldwide Medical revenues rose 6.9% year over year to $640.4 million. Growth in local currencies was 6.5%, with a 0.4% increase owing to favorable foreign exchange.
Revenues from global Technology and Value-added Services grew 6.1% to $112.4 million. This included 4% growth in local currencies and a 2.1% rise related to foreign currency exchange. Acquisitions contributed 1.1% in the quarter under review.
Margin Trend
Gross profit increased 8.8% to $895.6 million in the reported quarter. However, gross margin contracted 34 basis points (bps) from the year-ago quarter to 27.8% due to a 10.7% rise in cost of sales.
Despite a 9% rise in selling, general & administrative expenses of $685.7 million, adjusted operating income improved 8.2% year over year to $209.9 million. However, adjusted operating margin declined 12 bps year over year to 6.5% in the reported quarter.
Financial Position
Henry Schein exited the first quarter 2018 with cash and cash equivalents of $99.2 million, compared with $174.7 million at the end of 2017. For the first three months of 2018, net operating cash outflow was $70.9 million, compared with $52.6 million of cash outflow in the year-ago period.
As a result of a blackout period related to the spin-off and merger of the company's Animal Health business, during the quarter under review, the company did not repurchase any shares of common stock. At the close of the first quarter, the company had $200 million authorized for repurchase of common stock.
2018 Guidance
Excluding costs related to restructuring and the spin-off and merger of Henry Schein’s global Animal Health business, the company has reiterated its 2018 EPS guidance. The company still expects EPS in the range of $4.03-$4.14, reflecting 12-15% growth from the 2017 adjusted EPS figure of $3.60. The Zacks Consensus Estimate for 2018 adjusted EPS is $4.09 remains within the guided range.
Our Take
Henry Schein exited the first quarter of 2018 on a strong note with earnings and revenues steering past the respective Zacks Consensus Estimate. All four of the company's operating segments recorded strong year-over-year growth. Henry Schein's strong share gains in the North American and overseas markets along with solid revenues raise optimism.
Despite the better-than-expected revenue performance, we are disappointed with the year-over-year deterioration in Henry Schein's gross and operating margin due to higher cost of sales and expenses.
We currently await the completion of the company’s global Animal Health business' planned spin-off. This business contributes nearly 30% to the company’s topline. The spin off, accordingly, is expected to bring in major changes to Henry Schein’s overall operating results.
According to the company, following the spinoff, the Animal Health business will merge with privately-held Vets First Choice to form a new public company called Vets First Corp. We believe, this initiative remains a part of Henry Schein's 2018-2020 Strategic Plan to focus more on dental and medical businesses.
Zacks Rank & Key Picks
Henry Schein has a Zacks Rank #2 (Buy).
A few other top-ranked stocks in the broader medical space which have reported solid results this season are Intuitive Surgical (ISRG - Free Report) , Chemed Corp. (CHE - Free Report) and Baxter International Inc. (BAX - Free Report) . While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Baxter carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical reported first-quarter 2018 adjusted EPS of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus estimate by 10.6%.
Chemed posted first-quarter 2018 adjusted EPS of $2.72, surpassing the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, beating the Zacks Consensus Estimate of $420 million.
Baxter posted first-quarter 2018 adjusted EPS of 70 cents, which beat the Zacks Consensus Estimate by 12.9%. Revenues of $2.68 billion also edged past the Zacks Consensus Estimate of $2.62 billion.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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