04.08.2016, 15:16

Henry Schein, Inc. reported financial results for the second quarter of 2016

OREANDA-NEWS. Henry Schein, Inc. (NASDAQ: HSIC), the world's largest provider of health care products and services to office-based dental, animal health and medical practitioners, today reported financial results for the second quarter of 2016.

Net sales for the quarter ended June 25, 2016, were $2.9 billion, an increase of 9.3% compared with the second quarter of 2015. This consisted of 9.7% growth in local currencies and a 0.4% decline related to foreign currency exchange. In local currencies, internally generated sales increased 7.6% and acquisition growth was 2.1% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc. for the second quarter of 2016 was $120.1 million, or $1.46 per diluted share. This represents growth of 1.8% and 4.3%, respectively, compared with the second quarter of 2015. Our second quarter results include the favorable effect of a proposed tax audit settlement resulting in a reduction in income tax expense of $4.5 million, or approximately $0.05 per diluted share. Excluding restructuring costs of $20.4 million pretax, or $0.18 per diluted share, adjusted net income attributable to Henry Schein, Inc. for the second quarter of 2016 was $135.4 million, or $1.64 per diluted share. This represents growth of 9.9% and 12.3%, respectively, compared with the second quarter of 2015, excluding restructuring costs (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

"North America dental sales were below our expectations in the second quarter, however, sales in our Medical, Animal Health and Technology and Value-Added Services businesses were strong," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. "Our business model has served us well during periods of sustained economic expansion as well as in times of uncertainty in our markets. We believe our business model and strategic plan, including our continued investments, will drive our growth over the long term, and we remain extremely well-positioned in each of the vertical markets we serve."

Dental sales of $1.4 billion increased 4.0%, consisting of 4.1% growth in local currencies and a 0.1% decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.8% and acquisition growth was 1.3%. The 2.8% internal growth in local currencies included 2.0% growth in North America and 4.2% growth internationally.

"North America dental sales reflect softness in the U.S. that began in early June. North America dental consumable merchandise internal sales growth in local currencies was 1.8%, and equipment sales and service internal sales growth in local currencies was 2.7%. Although this sales growth was lower than expected, we believe we have a successful and proven model of delivering value-added solutions to our customers and we have increased our focus on delivering better sales results," commented Mr. Bergman. "International consumable merchandise internal sales growth in local currencies of 4.5% was solid. International equipment sales and service internal sales in local currencies increased 3.1% over the prior year. Our international dental sales growth was driven by strength in Italy, France and Spain."

"During the second quarter we announced an investment in Custom Automated Prosthetics (CAP), a U.S. digital laboratory supply company offering CAD/CAM equipment and zirconia materials. The integration of CAP with Zahn Dental and our Custom Milling Center furthers our commitment to providing our dental laboratory customers with a greater selection of digital equipment, materials and services," he added.

Animal Health sales of $853.6 million increased 14.0%, consisting of 15.2% growth in local currencies and a 1.2% decline related to foreign currency exchange. In local currencies, internally generated sales increased 11.8% and acquisition growth was 3.4%. The 11.8% internal growth in local currencies included 18.8% growth in North America and 4.9% growth internationally.

"Normalizing Animal Health results to account for the impact of certain products switching between agency sales and direct sales, internal sales growth in local currencies was 8.2% in the second quarter, including 11.4% growth in North America," commented Mr. Bergman. "International local currency sales during the second quarter were up nearly 12% with organic growth complemented by acquisition growth."

Medical sales of $538.8 million increased 14.5%, all internally generated and with no material impact from foreign currency exchange.

"Normalizing results for the impact of agency sales in the prior year, North America Medical internal sales growth was approximately 10.4%. This represents the sixth consecutive quarter of double-digit sales gains and reflects our continued success with large group practices, including Integrated Delivery Networks," remarked Mr. Bergman.

Technology and Value-Added Services sales of $107.0 million increased 19.6%, including 20.4% growth in local currencies and a 0.8% decline related to foreign currency exchange. In local currencies, internally generated sales increased 8.1% and acquisition growth was 12.3%.

"North America Technology and Value-Added Services internal sales growth was 8.5% in local currencies and matched the highest quarterly growth rate in more than three years. International internal sales growth in local currencies was 6.4%," commented Mr. Bergman. "Strategic acquisitions have bolstered our market share in this business, as sales in local currencies increased by more than 21% in North America during the second quarter and by nearly 15% internationally."

Stock Repurchase Plan

The Company announced that it repurchased approximately 337,000 shares of its common stock during the second quarter at an average price of $169.41 per share, or approximately $57 million. The impact of the repurchase of shares on second quarter diluted EPS was immaterial. At the close of the second quarter, Henry Schein had approximately $243 million authorized for future repurchases of its common stock.

Year-to-Date Results

Net sales for the first half of 2016 were $5.6 billion, an increase of 9.7% compared with the first half of 2015. This consisted of 10.8% growth in local currencies and a decline of 1.1% related to foreign currency exchange. In local currencies, internally generated sales increased 8.4% and acquisition growth was 2.4%.

Net income attributable to Henry Schein, Inc. for the first half of 2016 was $233.8 million, or $2.83 per diluted share, an increase of 5.6% and 8.0%, respectively, compared with the first half of 2015. Excluding restructuring costs of $24.4 million pretax or $0.22 per diluted share, net income attributable to Henry Schein, Inc. for the first half of 2016 was $252.2 million or $3.05 per diluted share, an increase of 8.9% and 11.3%, respectively, compared with the first half of 2015, excluding restructuring costs (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP adjusted net income and EPS).

2016 EPS Guidance

Henry Schein today adjusted 2016 financial guidance, as follows:

Adjusted diluted EPS attributable to Henry Schein, Inc. is expected to be $6.55 to $6.60 for 2016, which represents growth of 10% to 11% compared with 2015 adjusted diluted EPS of $5.96. Adjusted diluted EPS excludes restructuring costs. This compares with previous guidance for 2016 adjusted diluted EPS of $6.55 to $6.65. This revised guidance reflects ongoing uncertainty related to the recent Brexit vote, the strength of the U.S. dollar and a cautious view of the North America dental market.
Guidance is presented on a non-GAAP basis only, given that the Company cannot reasonably project restructuring costs for the second half of 2016. For the same reasons, the Company is unable to address the probable significance of the unavailable information.
Guidance for 2016 adjusted diluted EPS attributable to Henry Schein, Inc. is for current continuing operations as well as completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any, or restructuring costs. Guidance also assumes foreign exchange rates that are generally consistent with current levels.
The Company now expects that restructuring initiatives will continue into the second half of the year as it continues to lower costs in light of market uncertainties. At this time we are not able to provide estimates for the impact of the restructuring on 2016 financial results.

About Henry Schein, Inc.

Henry Schein, Inc. (NASDAQ:HSIC) is the world's largest provider of health care products and services to office-based dental, animal health and medical practitioners. The Company also serves dental laboratories, government and institutional health care clinics, and other alternate care sites. A Fortune 500® Company and a member of the S&P 500® and the NASDAQ 100® indexes, Henry Schein employs more than 19,000 Team Schein Members and serves more than 1 million customers.

The Company offers a comprehensive selection of products and services, including value-added solutions for operating efficient practices and delivering high-quality care. Henry Schein operates through a centralized and automated distribution network, with a selection of more than 110,000 branded products and Henry Schein private-brand products in stock, as well as more than 150,000 additional products available as special-order items. The Company also offers its customers exclusive, innovative technology solutions, including practice management software and e-commerce solutions, as well as a broad range of financial services.

(TABLES TO FOLLOW)



HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)

				Three Months Ended				Six Months Ended
			June 25,		June 27,		June 25,		June 27,
			2016		2015		2016		2015

Net sales			$	2,872,630	$	2,629,320	$	5,585,586	$	5,092,966
Cost of sales				2,069,314		1,878,642		4,002,965		3,628,893
		Gross profit		803,316		750,678		1,582,621		1,464,073
Operating expenses:
	Selling, general and administrative			602,256		560,426		1,201,309		1,105,592
	Restructuring costs			20,383		7,222		24,441		14,084
		Operating income		180,677		183,030		356,871		344,397
Other income (expense):
	Interest income			3,556		3,257		6,904		6,712
	Interest expense			(7,367)		(6,290)		(14,494)		(12,553)
	Other, net			268		(177)		3,405		(57)
		Income before taxes and equity in earnings
		of affiliates		177,134		179,820		352,686		338,499
Income taxes				(48,965)		(53,784)		(102,498)		(102,911)
Equity in earnings of affiliates				4,929		3,572		7,443		5,600
Net income				133,098		129,608		257,631		241,188
	Less: Net income attributable to noncontrolling interests			(13,001)		(11,680)		(23,782)		(19,813)
Net income attributable to Henry Schein, Inc.			$	120,097	$	117,928	$	233,849	$	221,375

Earnings per share attributable to Henry Schein, Inc.:

	Basic		$	1.47	$	1.42	$	2.87	$	2.66
	Diluted		$	1.46	$	1.40	$	2.83	$	2.62

Weighted-average common shares outstanding:
	Basic			81,458		83,053		81,516		83,139
	Diluted			82,394		84,249		82,565		84,433




HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

				June 25,		December 26,
				2016		2015
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	63,560	$	72,086
	Accounts receivable, net of reserves of $76,101 and $77,008				1,296,225		1,229,816
	Inventories, net				1,482,507		1,509,957
	Deferred income taxes				57,642		58,159
	Prepaid expenses and other				377,657		361,082
			Total current assets		3,277,591		3,231,100
Property and equipment, net					320,098		318,476
Goodwill					1,954,584		1,907,593
Other intangibles, net					593,919		592,971
Investments and other					487,404		454,600
			Total assets	$	6,633,596	$	6,504,740

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	881,667	$	1,005,798
	Bank credit lines				237,809		328,631
	Current maturities of long-term debt				17,189		17,331
	Accrued expenses:
		Payroll and related			259,710		258,416
		Taxes			148,865		161,760
		Other			365,672		375,061
			Total current liabilities		1,910,912		2,146,997
Long-term debt					700,052		463,752
Deferred income taxes					248,308		252,862
Other liabilities					250,018		212,121
			Total liabilities		3,109,290		3,075,732

Redeemable noncontrolling interests					568,693		542,194
Commitments and contingencies

Stockholders' equity:
	Preferred stock, $.01 par value, 1,000,000 shares authorized,
		none outstanding			-		-
	Common stock, $.01 par value, 240,000,000 shares authorized,
		81,815,567 outstanding on June 25, 2016 and
		82,415,320 outstanding on December 26, 2015			818		824
	Additional paid-in capital				151,056		207,374
	Retained earnings				3,010,456		2,895,997
	Accumulated other comprehensive loss				(214,607)		(219,939)
		Total Henry Schein, Inc. stockholders' equity			2,947,723		2,884,256
	Noncontrolling interests				7,890		2,558
			Total stockholders' equity		2,955,613		2,886,814
		Total liabilities, redeemable noncontrolling interests and stockholders' equity		$	6,633,596	$	6,504,740

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 25,

June 27,

June 25,

June 27,

2016

2015

2016

2015

Cash flows from operating activities:

Net income

133,098

129,608

257,631

241,188

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization

42,431

39,026

83,398

76,175

Stock-based compensation expense

13,312

13,502

27,456

22,001

Provision for losses on trade and other

accounts receivable

210

1,039

790

2,290

Benefit from deferred income taxes

(11,621)

(4,891)

(4,658)

(121)

Equity in earnings of affiliates

(4,929)

(3,572)

(7,443)

(5,600)

Distributions from equity affiliates

4,156

3,778

6,337

6,113

Changes in unrecognized tax benefits

1,484

3,029

2,853

4,297

Other

997

1,182

1,959

4,862

Changes in operating assets and liabilities,

net of acquisitions:

Accounts receivable

(16,935)

(45,591)

(56,702)

(55,452)

Inventories

20,465

8,882

34,395

(3,024)

Other current assets

(13,958)

(22,690)

(38,876)

(26,349)

Accounts payable and accrued expenses

105,674

84,454

(134,268)

(85,278)

Net cash provided by operating activities

274,384

207,756

172,872

181,102

Cash flows from investing activities:

Purchases of fixed assets

(13,575)

(17,937)

(26,180)

(33,430)

Payments for equity investments and business

acquisitions, net of cash acquired

(39,879)

(47,679)

(92,441)

(61,316)

Proceeds from sales of available-for-sale securities

Other

4,064

(1,994)

(1,765)

(3,179)

Net cash used in investing activities

(49,390)

(67,590)

(120,386)

(97,905)

Cash flows from financing activities:

Repayments of bank borrowings

(192,590)

(30,103)

(97,479)

(49,989)

Proceeds from issuance of long-term debt

34,000

244,000

125,000

Debt issuance costs

(175)

(150)

(233)

(150)

Principal payments for long-term debt

(367)

(68,507)

(7,921)

(69,243)

Proceeds from issuance of stock upon exercise

of stock options

2,661

3,281

9,059

10,858

Payments for repurchases of common stock

(57,012)

(37,500)

(157,009)

(113,207)

Excess tax benefits related to stock-based

compensation

2,932

Distributions to noncontrolling shareholders

(18,064)

(11,568)

(20,160)

(14,681)

Acquisitions of noncontrolling interests in

subsidiaries

(2,921)

(8,052)

(35,632)

(8,257)

Net cash used in financing activities

(234,468)

(152,511)

(65,375)

(116,737)

Effect of exchange rate changes on cash and

cash equivalents

1,420

211

4,363

(8,866)

Net change in cash and cash equivalents

(8,054)

(12,134)

(8,526)

(42,406)

Cash and cash equivalents, beginning of period

71,614

59,202

72,086

89,474

Cash and cash equivalents, end of period

63,560

47,068

63,560

47,068

Note: Certain prior period amounts have been reclassified to conform to the current period presentation.


Exhibit A - QTD Sales

Henry Schein, Inc.
2016 Second Quarter
Sales Summary
(in thousands)
(unaudited)

Q2 2016 over Q2 2015

Global	Q2 2016		Q2 2015		Total Sales Growth	Foreign Exchange Growth	Local Currency Growth	Acquisition Growth	Local Internal Growth

Dental	$	1,373,188	$	1,320,743	4.0%	-0.1%	4.1%	1.3%	2.8%

Animal Health		853,598		748,558	14.0%	-1.2%	15.2%	3.4%	11.8%

Medical		538,825		470,519	14.5%	0.0%	14.5%	0.0%	14.5%

Total Health Care Distribution		2,765,611		2,539,820	8.9%	-0.4%	9.3%	1.7%	7.6%

Technology and value-added services		107,019		89,500	19.6%	-0.8%	20.4%	12.3%	8.1%

Total Global	$	2,872,630	$	2,629,320	9.3%	-0.4%	9.7%	2.1%	7.6%

North America	Q2 2016		Q2 2015		Total Sales Growth	Foreign Exchange Growth	Local Currency Growth	Acquisition Growth	Local Internal Growth

Dental	$	865,585	$	847,429	2.1%	-0.5%	2.6%	0.6%	2.0%

Animal Health		445,918		375,575	18.7%	-0.1%	18.8%	0.0%	18.8%

Medical		520,332		452,735	14.9%	0.0%	14.9%	0.0%	14.9%

Total Health Care Distribution		1,831,835		1,675,739	9.3%	-0.3%	9.6%	0.3%	9.3%

Technology and value-added services		90,090		74,154	21.5%	-0.1%	21.6%	13.1%	8.5%

Total North America	$	1,921,925	$	1,749,893	9.8%	-0.3%	10.1%	0.9%	9.2%

International	Q2 2016		Q2 2015		Total Sales Growth	Foreign Exchange Growth	Local Currency Growth	Acquisition Growth	Local Internal Growth

Dental	$	507,603	$	473,314	7.2%	0.3%	6.9%	2.7%	4.2%

Animal Health		407,680		372,983	9.3%	-2.3%	11.6%	6.7%	4.9%

Medical		18,493		17,784	4.0%	1.6%	2.4%	0.0%	2.4%

Total Health Care Distribution		933,776		864,081	8.1%	-0.7%	8.8%	4.4%	4.4%

Technology and value-added services		16,929		15,346	10.3%	-4.4%	14.7%	8.3%	6.4%

Total International	$	950,705	$	879,427	8.1%	-0.8%	8.9%	4.4%	4.5%


Exhibit A - YTD Sales

Henry Schein, Inc.
2016 Second Quarter Year to Date
Sales Summary
(in thousands)
(unaudited)

Q2 2016 YTD over Q2 2015 YTD

Global	Q2 2016 YTD		Q2 2015 YTD		Total Sales Growth	Foreign Exchange Growth	Local Currency Growth	Acquisition Growth	Local Internal Growth

Dental	$	2,674,943	$	2,570,816	4.1%	-1.0%	5.1%	1.3%	3.8%

Animal Health		1,625,011		1,432,882	13.4%	-2.0%	15.4%	4.5%	10.9%

Medical		1,076,942		914,052	17.8%	-0.1%	17.9%	0.0%	17.9%

Total Health Care Distribution		5,376,896		4,917,750	9.3%	-1.2%	10.5%	2.0%	8.5%

Technology and value-added services		208,690		175,216	19.1%	-1.1%	20.2%	12.4%	7.8%

Total Global	$	5,585,586	$	5,092,966	9.7%	-1.1%	10.8%	2.4%	8.4%

North America	Q2 2016 YTD		Q2 2015 YTD		Total Sales Growth	Foreign Exchange Growth	Local Currency Growth	Acquisition Growth	Local Internal Growth

Dental	$	1,700,422	$	1,636,612	3.9%	-0.7%	4.6%	0.5%	4.1%

Animal Health		845,245		713,924	18.4%	-0.1%	18.5%	0.7%	17.8%

Medical		1,039,773		877,379	18.5%	0.0%	18.5%	0.0%	18.5%

Total Health Care Distribution		3,585,440		3,227,915	11.1%	-0.4%	11.5%	0.4%	11.1%

Technology and value-added services		176,125		144,819	21.6%	-0.2%	21.8%	13.6%	8.2%

Total North America	$	3,761,565	$	3,372,734	11.5%	-0.4%	11.9%	1.0%	10.9%

International	Q2 2016 YTD		Q2 2015 YTD		Total Sales Growth	Foreign Exchange Growth	Local Currency Growth	Acquisition Growth	Local Internal Growth

Dental	$	974,521	$	934,204	4.3%	-1.7%	6.0%	2.8%	3.2%

Animal Health		779,766		718,958	8.5%	-3.8%	12.3%	8.3%	4.0%

Medical		37,169		36,673	1.4%	-0.8%	2.2%	0.0%	2.2%

Total Health Care Distribution		1,791,456		1,689,835	6.0%	-2.6%	8.6%	5.1%	3.5%

Technology and value-added services		32,565		30,397	7.1%	-5.1%	12.2%	6.5%	5.7%

Total International	$	1,824,021	$	1,720,232	6.0%	-2.7%	8.7%	5.1%	3.6%

Note: Certain prior quarter amounts have been reclassified to conform to the current period presentation.

Exhibit B

Henry Schein, Inc.
2016 Second Quarter and Year-to-Date
Reconciliation of reported GAAP net income and diluted EPS attributable to Henry Schein, Inc. to
non-GAAP net income and diluted EPS attributable to Henry Schein, Inc.
(in thousands, except per share data)
(unaudited)


		Second Quarter						Year-to-Date
					%						%
		2016		2015	Growth			2016		2015	Growth
Net Income attributable to Henry Schein, Inc.	$	120,097	$	117,928	1.8	%	$	233,849	$	221,375	5.6	%
Diluted EPS attributable to Henry Schein, Inc.	$	1.46	$	1.40	4.3	%	$	2.83	$	2.62	8.0	%

Non-GAAP Adjustments
Restructuring costs - Pre-tax	$	20,383	$	7,222			$	24,441	$	14,084
Income tax benefit for restructuring costs	$	(5,096)	$	(1,953)			$	(6,110)	$	(3,813)

Total non-GAAP adjustments to Net Income
attributable to Henry Schein, Inc.	$	15,287	$	5,269			$	18,331	$	10,271

Total non-GAAP adjustments to diluted EPS
attributable to Henry Schein, Inc.	$	0.18	$	0.06			$	0.22	$	0.12


Non-GAAP Net Income attributable to Henry Schein, Inc.	$	135,384	$	123,197	9.9	%	$	252,180	$	231,646	8.9	%

Non-GAAP diluted EPS attributable to Henry Schein, Inc.	$	1.64	$	1.46	12.3	%	$	3.05	$	2.74	11.3	%

Management believes that non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance and allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures.

Henry Schein, Inc. reported financial results for the second quarter of 2016

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