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Can Overall Growth Drive Henry Schein's (HSIC) Q1 Earnings?

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Henry Schein, Inc. (HSIC - Free Report) is expected to report first-quarter 2018 results on May 8. Last quarter, the company’s earnings met estimates. Earnings surpassed the Zacks Consensus Estimate in two of the last four quarters, the average positive surprise being 1%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Over the last few quarters, Henry Schein demonstrated solid growth across all four segments — Dental, Animal Health, Medical and Technology and Value-Added Services. Geographically, the company gained traction in North America and overseas. We expect the trend to continue in the first quarter.

Favorable Dental Business Trend: The company’s strategy to expand digital dentistry globally is encouraging. In this regard, management believes the company is well-positioned to gain from the ongoing trend of digitalization in the global dental market. The Zacks Consensus Estimate for first-quarter total revenues of $3.17 billion reflects an increase of 8.6% from the year-ago quarter.

Furthermore, we are also upbeat about management’s expectations about the sustained dental equipment business growth in Europe and other regions.

Henry Schein is busy promoting digital workflows for general dentistry as well as dental specialties. Starting Sep 1, 2017, the company started selling the full range of DENTSPLY SIRONA’s (XRAY - Free Report) dental equipment across North America, including the leading CEREC CAD/CAM restoration system. This is expected to boost the top line to a considerable extent. Also, per management, this agreement is expected to prove accretive to earnings per share from this year onward. Thus, we are looking forward to the deal’s contribution to Henry Schein’s bottom line in the to-be-reported quarter.

Henry Schein, Inc. Price and EPS Surprise


 In addition, Henry Schein continues to distribute products from Planmeca, 3Shape and 3M as well as the dental equipment and consumer product lines of its longstanding partner Danaher under the KaVo Kerr brands.

Solid Animal Health Portfolio: We are optimistic about the well-diversified Animal Health product portfolio featuring software, diagnostic equipment and surgical instruments. The product offerings have been driving growth domestically as well as globally.

Notably, during the fourth quarter of 2017, Henry Schein acquired Merritt Veterinary Supplies and integrated it into its Animal Health business. Merritt has 4,500 veterinary clinics in Eastern United States, with a strong presence in the Southeastern part of the nation. The company offers a comprehensive line of products, including pharmaceuticals, diagnostics and equipment. However, according to Henry Schein, this acquisition will drive earnings this year onward. Thus, we are looking forward to the deal’s contribution to Henry Schein’s financials in the to-be-reported quarter.

Growing Medical Business: Henry Schein is consistently working on boosting its Medical segment. Notably, worldwide Medical revenues rose 2.6% year over year in the fourth quarter. Last October, the company inked an agreement with Cerebral Assessment Systems to distribute Cognivue. This is the first computerized cognitive assessment screening device cleared by the FDA for the detection of early signs of dementia. We believe this development will bolster the company’s presence in the field of mental cognitive diseases.

Broad Distribution Network: We are also upbeat about the company’s widespread distribution network. Apart from North America and Europe, the company has presence in Australia and New Zealand as well as in the emerging nations of China, Brazil, Israel, Czech Republic and Poland. We believe Henry Schein will continue to ride on the strength of its broad distribution network in the to-be-reported quarter.

Further, at the beginning of March, Henry Schein signed a distribution agreement with Grifols, enabling the former to market and distribute the latter's 500mL Normal Saline solution (0.9% Sodium Chloride Injection, USP) in the United States. With growing demand for saline products in the U.S. market, we believe this partnership will prove beneficial for Henry Schein.

On the flip side, Henry Schein’s disappointing gross and operating margin performance over the past few quarters due to higher cost of sales and expenses is a matter of concern.

Earnings Whispers

Our proven model does not conclusively show a beat for Henry Schein is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Henry Schein has an Earnings ESP of -0.36%.

Zacks Rank: Henry Schein carries a Zacks Rank #2, which increases the predictive power of ESP. However, a negative ESP makes surprise prediction difficult.

Nonetheless, the Zacks Consensus Estimate for first-quarter 2018 adjusted earnings of 92 cents reflects a rise of 4.5% year over year.

Stocks Worth a Look

Here are a few stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Brady Corporation (BRC - Free Report) has an Earnings ESP of +1.03% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank Stocks Here.

Michael Kors Holdings Limited has an Earnings ESP of +6.82% and a Zacks Rank #2.

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