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Why Is Henry Schein (HSIC) Down 0.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Henry Schein (HSIC - Free Report) . Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Henry Schein due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Henry Schein Q2 Earnings Top Estimates, 2021 EPS View Up

Henry Schein reported adjusted earnings per share of $1.11 from continuing operations in the second quarter of 2021 compared with the year-ago break-even earnings per share. Moreover, adjusted earnings per share surpassed the Zacks Consensus Estimate by 16.8%. The quarter’s adjustments exclude the impact of certain restructuring charges, and settlement and litigation costs, among others.

GAAP earnings per share in the second quarter was $1.10 against the year-ago loss per share of 8 cents.

Revenues in Detail

Henry Schein reported net sales of $2.97 billion in the second quarter, up 76.2% year over year. The metric beat the Zacks Consensus Estimate by 2.7%.

The year-over-year uptick resulted from overall market recovery and included 65.5% internal growth in local currencies, 5.5% growth from acquisitions and 5.2% growth related to foreign currency exchange.

In the quarter under review, the company recorded sales of $2.14 billion in the North American market, up 77.1% year over year. Sales totaled $831.9 million in the international market, up 73.7% year over year.

The year-over-year revenue growth was primarily driven by strengthening demand in the global dental and medical markets.

Segment Analysis

Henry Schein derives revenues from three operating segments — Dental, Medical, and Technology and Value-added Services.

In the second quarter, the company recorded $1.91 billion of global Dental sales, up 102.9% year over year. In local currencies, the segment’s revenues include internally-generated sales growth of 87%, 7.3% growth from acquisitions and 8.6% growth related to foreign currency exchange. Further, the internal growth in local currencies of 87% included an increase of 105.3% in North America and an increase of 64.9% internationally.

Henry Schein’s uptick in overall dental sales performance reflects continued recovery in patient traffic compared to pre-pandemic levels.

North America’s dental consumable merchandise’s internal sales in local currencies rose 112.5% whereas dental equipment internal sales in local currencies surged 82%. Internationally, dental consumable merchandise internal sales and dental equipment internal sales, both in local currencies, improved 64.4% and 66.6%, respectively.

Global Medical revenues surged 46.5% year over year to $904.8 million. The segment’s revenues include 45.3% internal growth in local currencies, 2.6% growth from acquisitions and 0.4% growth related to foreign currency exchange.

Revenues from global Technology and Value-added Services rose 44.5% to $152.1 million. This included a rise of 33% in internal local currency sales, 8.9% growth from acquisitions and 2.6% growth related to foreign currency exchange.

Margin Trend

In the reported quarter, gross profit totaled $889.8 million, reflecting a 95.9% uptick year over year. Gross margin expanded 302 basis points (bps) to 29.9%.

Selling, general and administrative expenses rose 52.3% to $678.8 million in the quarter under review.

Overall adjusted operating profit was $210.9 million, reflecting a stupendous surge of 2381.5% year over year. Adjusted operating margin expanded 660 bps year over year to 7.1%.

Financial Position

The company exited the second quarter of 2021 with cash and cash equivalents of $167.2 million compared with $144.5 million at the end of first-quarter 2021. Long-term debt for the company at the end of the second quarter of 2021 was $706.5 million compared with $515.7 million at the end of first-quarter 2021.

During the second quarter of 2021, the company repurchased shares of its common stock for a total of approximately $113 million.

Net cash provided by operating activities from continuing operations at the end of the second quarter of 2021 was $158.4 million compared with net cash used by operating activities from continuing operations of $90.7 million in the year-ago period.

2021 Guidance

Henry Schein has raised the guidance for 2021 adjusted earnings per share from continuing operations, which is now expected to be at or above $3.85 (earlier-provided expectation being at or above $3.70). The Zacks Consensus Estimate for the same is currently pegged at $4.07.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Henry Schein has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Henry Schein has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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