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Henry Schein (HSIC) Down 2.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Henry Schein (HSIC - Free Report) . Shares have lost about 2.4% 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.

Recent Earnings

Henry Schein reported adjusted earnings per share (EPS) of $1.04 in the second quarter of 2018, up 18.2% year over year. Adjusted EPS beat the Zacks Consensus Estimate of $1.02 driven by strong revenue growth across all business segments.

On a reported basis, EPS was 92 cents in the second quarter, reflecting a 7% improvement year over year.

Revenues in Detail

Henry Schein reported net sales of $3.33 billion in the second quarter, up 8.7% year over year and surpassing the Zacks Consensus Estimate by 0.7%. . The year-over-year improvement came on the back of 4.8% internal sales growth in local currencies and 2.2% increase owing to foreign currency exchange. Acquisition growth was 1.7% in the quarter.

In the second quarter, the company recorded sales of $2.17 billion in the North American market, up 6.8% year over year. Sales totaled $1.16 billion in the international market, up 12.5% 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 second quarter, the company derived $1.61 billion in revenues from global Dental sales, up 8.4% year over year. This includes 5.9% growth in local currencies and 2.5% contribution from foreign currency exchange. At local currencies, internally-generated sales increased 4.4% and acquisition growth was 1.5%. Internal growth at local currencies included 5.1% improvement in North America and 3.4% rise internationally.

The company's global Animal Health segment witnessed a 10.6% rise in revenues to $985.9 million. This includes 7.4% growth in local currencies and 3.2% increase from foreign currency exchange. At local currencies, internally-generated sales increased 4.4% and acquisition growth was 3%. The internal growth in local currencies included 3.2% rise in North America and 5.8% improvement internationally.

Worldwide Medical revenues rose 7.5% year over year to $614 million. Growth in local currencies was 7.2%, with 0.3% coming from favorable foreign exchange.

Revenues from global Technology and Value-added Services grew 4.9% to $113.8 million. This included 3.7% growth in local currencies and 1.2% rise related to foreign currency exchange. Acquisitions contributed 0.7% in the quarter under review.

Margin Trend         

Gross profit increased 7.4% to $901.1 million in the reported quarter. However, gross margin contracted 30 basis points (bps) from the year-ago quarter to 27.1% due to a 9.5% rise in cost of sales.  

Despite a 7.7% rise in selling, general & administrative expenses of $677.2 million, adjusted operating income improved 6.3% year over year to $223.9 million. However, adjusted operating margin declined 20 bps year over year to 6.7% in the reported quarter.

Financial Position

Henry Schein exited the second quarter of 2018 with cash and cash equivalents of $111.3 million, compared with $99.2 million at the end of first-quarter 2018. For the first six months of 2018, net operating cash flow was $216.9 million, compared with $176.1 million in the year-ago period.

During the quarter under review, Henry Schein repurchased 744,000 shares of its common stock for approximately $53 million. At the close of the second quarter, the company had $147 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 revised its 2018 EPS guidance. The company now expects EPS in the range of $4.06-$4.14, in comparison to the previously announced range of $4.03-$4.14, reflecting 13-15% growth from the 2017 adjusted EPS figure of $3.60. The Zacks Consensus Estimate for 2018 adjusted EPS of $4.10 is within the guided range.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Henry Schein has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Henry Schein has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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