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Why is Henry Schein (HSIC) Down 1.1% Since its Last Earnings Report?

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It has been about a month since the last earnings report for Henry Schein, Inc. (HSIC - Free Report) . Shares have lost about 1.1% in that time frame.

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

Recent Earnings

Henry Schein 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to four lower.

Henry Schein, Inc. Price and Consensus

 

Henry Schein, Inc. Price and Consensus | Henry Schein, Inc. Quote

VGM Scores

At this time, HSIC has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been trending downward for the stock and the magnitude of these revisions looks promising. Interestingly, HSIC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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