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Why Is Henry Schein (HSIC) Down 1.6% 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 1.6% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Henry Schein Rides on Strength in Medical Arm in Q1

Henry Schein reported adjusted earnings per share (EPS) from continuing operations of 80 cents in the first quarter of 2019, up 8.1% year over year. Adjusted EPS beat the Zacks Consensus Estimate by 5.3% on revenue growth across global Medical and Technology and Value-added Services businesses.

On a reported basis, EPS from continuing operations came in at 78 cents, an 8.3% improvement on a year-over-year basis.

Revenues in Detail

Henry Schein reported net sales of $2.36 billion in the first quarter, up 3.8% year over year. The metric exceeded the Zacks Consensus Estimate by 0.9%. The year-over-year improvement came on the back of 4.3% internal sales growth in local currencies along with acquisition growth of 2.3%. The top line was adversely impacted by 2.8% from unfavorable foreign currency exchange.

Excluding $15 million in corporate revenues from product sales to Covetrus under the transition services agreement related to Henry Schein’s Animal Health spin-off, normalized internal sales growth in local currencies was 3.7%.

In the quarter under review, the company recorded sales of $1.68 billion in the North American market, up 5.9% year over year. Sales totaled $674.2 million in the international market, down 1% 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 of global Dental sales, down 0.1% year over year. This includes 3.8% growth in local currencies and 3.9% adverse impact from foreign currency exchange. At local currencies, internally-generated sales increased 3.2% and acquisition growth was 0.6%.

Worldwide Medical revenues climbed 7.5% year over year to $683.7 million. Growth in local currencies was 7% while there was a 0.2% decline related to foreign exchange headwind.

Revenues from global Technology and Value-added Services grew 35.1% to $115.5 million. This included 36.8% growth in local currencies and 1.7% decrease owing to adverse currency movements.

Margin Trend      
   
Gross profit increased 4.5% to $751.7 million in the reported quarter. Gross margin expanded 22 basis points (bps) from the year-ago quarter to 31.8%.  

The company reported a 3.7% rise in selling, general & administrative expenses to $574.6 million in the first quarter. However, adjusted operating income improved 7.4% year over year to $177.1 million. Adjusted operating margin expanded 25 bps year over year to 7.5% in the reported quarter.

Financial Position

The company exited first-quarter 2019 with cash and cash equivalents of $88.1 million, compared with $56.9 million at the end of 2018. Net cash provided by operating activities from continuing operations at the end of the first quarter was $133.3 million compared with net cash used in operating activitiesfrom continuing operationsof $64.6 million a year ago.

During the quarter under review, Henry Schein repurchased 2.5 million shares of its common stock for approximately $150 million. At the end of the first quarter, the company had $250 million authorized for repurchase of common stock.

2019 Guidance

The company has increased the upper end of its earlier-provided EPS guidance for 2019. It expects adjusted EPS in the range of $3.38-$3.50, reflecting 7-10% growth from the 2018 (earlier EPS expectation band was $3.38-$3.46). The Zacks Consensus Estimate for 2019 adjusted EPS of $4.43 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

Currently, Henry Schein has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, 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 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 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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