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Henry Schein (HSIC) Tops Q4 Earnings, Reaffirms '17 View
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Henry Schein, Inc. (HSIC - Free Report) reported adjusted earnings per share (EPS) of $1.88 in the fourth quarter of 2016, up 12.6% year over year. Adjusted EPS also surpassed the Zacks Consensus Estimate by 2.2%. The year-over-year earnings improvement was driven by strong revenue growth in the quarter.
Henry Schein’s reported net income in the fourth quarter came in at $153.4 million or $1.73 per share, reflecting year-over-year growth of 8.9% and 10.9%, respectively.
Full-year 2016 adjusted earnings came in at $6.61 per share, up 10.9% from the previous year which also surpassed the Zacks Consensus Estimate of $6.58 by 0.4%.
Henry Schein, Inc. Price, Consensus and EPS Surprise
Henry Schein reported revenues of $3.12 billion in the fourth quarter, up 9.5% year over year and also edged past the Zacks Consensus Estimate for revenues of $3.09 billion. The year-over-year improvement came on the back of 4.2% internal sales growth in local currencies with a 1.3% rise in acquisitions and growth due to the extra week of 5.5%. However, unfavorable foreign currency exchange accounted for a decline of 1.5% in the overall revenue growth.
The company recorded year-over-year sales growth of 11.7% or $2.12 billion in the North American market and 5.0% or $996.4 million in the international market.
Full-year 2016 revenues were $11.57 billion, up 8.9% year over year which also exceeded the Zacks Consensus Estimate figure of $11.53 billion.
Segment Analysis
Henry Schein derives revenues from four operating segments: Dental, Medical, Animal Health, and Technology and Value-added services.
In the fourth quarter, the company derived $1.54 billion revenues from global Dental sales, up 7.7% year over year (including internal sales improvement in local currencies of 1.6%, acquisition growth of 1.7%, a decline related to foreign currency exchange of 1.0% and growth due to the extra week of 5.4%). According to the company, North America dental consumable merchandise market is improving as management saw particularly strong growth in December and January. The company also continued to witness increased capital equipment investment in dental practices which drove strong domestic equipment sales in December.
The company's global Animal Health segment witnessed a 10.8% improvement in revenues to $837.8 million (internal sales improvement in local currencies of 8.2%, acquisition growth of 0.4%, a decline related to foreign currency exchange of 3.4% and growth due to the extra week of 5.6%). Internal sales improvement in local currencies of 8.2% includes 10.3% growth in North America and 6.3% gain internationally.
Management believes that its Animal Health business continued to gain market share in the fourth quarter both domestically and in international markets. Overall the global Animal Health market is growing, particularly in the companion animal segment where Henry Schein has expanded opportunities to deliver value-added solutions to drive efficiency.
Worldwide Medical sales scaled up 10.6% year over year to $621.1 million based on internal sales growth in local currencies of 4.4%, a 0.1% dip due to foreign currency exchange and growth attributed to the extra week of 6.3% in the fourth quarter.
Revenues from global Technology and Value-added Services grew 19.6% to $112.2 million. This included an internal sales growth in local currencies of 8.5%, acquisition growth of 9.8%, a decline related to foreign currency exchange of 1.9%, and growth due to the extra week of 3.2%.
Margin Trends
Gross profit increased 7.8% to $861.8 million in the reported quarter. However, gross margin declined 42 bps from the year-ago quarter to 27.6%, due to a 10.1% rise in cost of sales, higher than the revenue growth rate.
On the back of a 7.7% rise in selling, general & administrative expenses of $631.7 million, adjusted operating income improved 7.9% year over year to $230 million. However, adjusted operating margin declined 10 bps to 7.4% in the reported quarter.
Financial Position
Henry Schein exited fiscal 2016 with cash and cash equivalents of $62.3 million, 13.4% down from $72 million in the prior year. As of Dec 31, 2016, the company used cash of $615.4 million in operating activities, compared with $586.8 million in the prior year.
During the quarter under review, the company bought back approximately 1.3 million shares for almost $200 million. At the close of the fourth quarter, the company had $250 million authorized for future repurchases of its common stock.
2017 EPS Guidance
Henry Schein reaffirmed its 2017 reported EPS guidance. The company still expects to deliver EPS in the range of $7.17–$7.30, reflecting 16–18% growth compared with 2016 EPS figure of $6.19.
The Zacks Consensus Estimate of adjusted EPS 2017 figure is $7.25.
Our Take
Henry Schein exited the fiscal 2016 on a solid note with both earnings and sales beating the Zacks Consensus Estimate. All four of its operating segments delivered strong year over year growth. The company’s strong share gains in both the North American and overseas markets along with the strong revenues raise optimism. Management was particularly upbeat with strategic acquisitions that the company made in its technology and Value–Added Services segment.
However, despite the better-than-expected earnings performance, we are disappointed with the company’s unchanged EPS guidance for 2017. The year-over-year fall in Henry Schein’s gross and operating margin stemming from higher cost of sales and expenses is also a concern. Meanwhile, foreign currency fluctuations continued to hamper the company’s business.
Zacks Rank & Key Picks
Henry Schein currently has a Zacks Rank #4 (Sell).
Glaukos gained over 100% in the last one year in comparison to the S&P 500’s gain of 22.6%. The company has a stellar four-quarter average earnings surprise of over 100%.
Cardiovascular Systems surged over 100% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 67.8%.
Neogen gained 33.1% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth rate of 16.7% for the next five years compared to the industry average of 15.2%.
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Henry Schein (HSIC) Tops Q4 Earnings, Reaffirms '17 View
Henry Schein, Inc. (HSIC - Free Report) reported adjusted earnings per share (EPS) of $1.88 in the fourth quarter of 2016, up 12.6% year over year. Adjusted EPS also surpassed the Zacks Consensus Estimate by 2.2%. The year-over-year earnings improvement was driven by strong revenue growth in the quarter.
Henry Schein’s reported net income in the fourth quarter came in at $153.4 million or $1.73 per share, reflecting year-over-year growth of 8.9% and 10.9%, respectively.
Full-year 2016 adjusted earnings came in at $6.61 per share, up 10.9% from the previous year which also surpassed the Zacks Consensus Estimate of $6.58 by 0.4%.
Henry Schein, Inc. Price, Consensus and EPS Surprise
Henry Schein, Inc. Price, Consensus and EPS Surprise | Henry Schein, Inc. Quote
Revenues in Detail
Henry Schein reported revenues of $3.12 billion in the fourth quarter, up 9.5% year over year and also edged past the Zacks Consensus Estimate for revenues of $3.09 billion. The year-over-year improvement came on the back of 4.2% internal sales growth in local currencies with a 1.3% rise in acquisitions and growth due to the extra week of 5.5%. However, unfavorable foreign currency exchange accounted for a decline of 1.5% in the overall revenue growth.
The company recorded year-over-year sales growth of 11.7% or $2.12 billion in the North American market and 5.0% or $996.4 million in the international market.
Full-year 2016 revenues were $11.57 billion, up 8.9% year over year which also exceeded the Zacks Consensus Estimate figure of $11.53 billion.
Segment Analysis
Henry Schein derives revenues from four operating segments: Dental, Medical, Animal Health, and Technology and Value-added services.
In the fourth quarter, the company derived $1.54 billion revenues from global Dental sales, up 7.7% year over year (including internal sales improvement in local currencies of 1.6%, acquisition growth of 1.7%, a decline related to foreign currency exchange of 1.0% and growth due to the extra week of 5.4%). According to the company, North America dental consumable merchandise market is improving as management saw particularly strong growth in December and January. The company also continued to witness increased capital equipment investment in dental practices which drove strong domestic equipment sales in December.
The company's global Animal Health segment witnessed a 10.8% improvement in revenues to $837.8 million (internal sales improvement in local currencies of 8.2%, acquisition growth of 0.4%, a decline related to foreign currency exchange of 3.4% and growth due to the extra week of 5.6%). Internal sales improvement in local currencies of 8.2% includes 10.3% growth in North America and 6.3% gain internationally.
Management believes that its Animal Health business continued to gain market share in the fourth quarter both domestically and in international markets. Overall the global Animal Health market is growing, particularly in the companion animal segment where Henry Schein has expanded opportunities to deliver value-added solutions to drive efficiency.
Worldwide Medical sales scaled up 10.6% year over year to $621.1 million based on internal sales growth in local currencies of 4.4%, a 0.1% dip due to foreign currency exchange and growth attributed to the extra week of 6.3% in the fourth quarter.
Revenues from global Technology and Value-added Services grew 19.6% to $112.2 million. This included an internal sales growth in local currencies of 8.5%, acquisition growth of 9.8%, a decline related to foreign currency exchange of 1.9%, and growth due to the extra week of 3.2%.
Margin Trends
Gross profit increased 7.8% to $861.8 million in the reported quarter. However, gross margin declined 42 bps from the year-ago quarter to 27.6%, due to a 10.1% rise in cost of sales, higher than the revenue growth rate.
On the back of a 7.7% rise in selling, general & administrative expenses of $631.7 million, adjusted operating income improved 7.9% year over year to $230 million. However, adjusted operating margin declined 10 bps to 7.4% in the reported quarter.
Financial Position
Henry Schein exited fiscal 2016 with cash and cash equivalents of $62.3 million, 13.4% down from $72 million in the prior year. As of Dec 31, 2016, the company used cash of $615.4 million in operating activities, compared with $586.8 million in the prior year.
During the quarter under review, the company bought back approximately 1.3 million shares for almost $200 million. At the close of the fourth quarter, the company had $250 million authorized for future repurchases of its common stock.
2017 EPS Guidance
Henry Schein reaffirmed its 2017 reported EPS guidance. The company still expects to deliver EPS in the range of $7.17–$7.30, reflecting 16–18% growth compared with 2016 EPS figure of $6.19.
The Zacks Consensus Estimate of adjusted EPS 2017 figure is $7.25.
Our Take
Henry Schein exited the fiscal 2016 on a solid note with both earnings and sales beating the Zacks Consensus Estimate. All four of its operating segments delivered strong year over year growth. The company’s strong share gains in both the North American and overseas markets along with the strong revenues raise optimism. Management was particularly upbeat with strategic acquisitions that the company made in its technology and Value–Added Services segment.
However, despite the better-than-expected earnings performance, we are disappointed with the company’s unchanged EPS guidance for 2017. The year-over-year fall in Henry Schein’s gross and operating margin stemming from higher cost of sales and expenses is also a concern. Meanwhile, foreign currency fluctuations continued to hamper the company’s business.
Zacks Rank & Key Picks
Henry Schein currently has a Zacks Rank #4 (Sell).
Better-ranked medical stocks are Glaukos Corp. (GKOS - Free Report) , Cardiovascular Systems and Neogen Corp. (NEOG - Free Report) . Glaukos sports a Zacks Rank #1 (Strong Buy) while Cardiovascular Systems and Neogen carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Glaukos gained over 100% in the last one year in comparison to the S&P 500’s gain of 22.6%. The company has a stellar four-quarter average earnings surprise of over 100%.
Cardiovascular Systems surged over 100% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 67.8%.
Neogen gained 33.1% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth rate of 16.7% for the next five years compared to the industry average of 15.2%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>