Henry Schein, Inc, provider of health care products and services to office-based dental, animal health, and medical practitioners, today reported record first quarter results for the quarter ended March 31, 2018.
Net sales for the quarter were $3.2 billion, an increase of 10.2% compared with the first quarter of 2017. This consisted of 5.9% growth in local currencies and a 4.3% increase related to foreign currency exchange. In local currencies, internally generated sales increased 3.8% and acquisition growth was 2.1%.
Net income attributable to Henry Schein, Inc. for the first quarter of 2018 was $140.2 million, or $0.91 per diluted share, representing a decline of 0.4% and an increase of 3.4%, respectively, compared with GAAP results for the first quarter of 2017. Non-GAAP net income for the first quarter of 2018 was $145.9 million, or $0.95 per diluted share, representing growth of 3.6% and 8.0%, respectively, compared with non-GAAP results for the first quarter of 2017. Note that the first quarter of 2018 included restructuring costs of $3.8 million pretax, or $0.02 per diluted share, as well as costs related to the spin-off and merger of Henry Schein's Animal Health business, also in the amount of $3.8 million pretax, or $0.02 per diluted share.
"We are pleased with our financial results for the first quarter of 2018, which we believe reflect generally healthy end-market growth. It is an exciting time at Henry Schein as we continue to evolve our business strategy to ensure we are well-positioned to pursue the significant growth opportunities ahead of us while seeking to maximize shareholder value," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.
"In line with our strategy, in early April we announced the majority ownership of a new dental technology joint venture, named Henry Schein One, created to deliver integrated dental technology to help the profession improve practice management and marketing as well as patient communications. More recently, we announced the planned spin-off and merger of our global Animal Health business with Vets First Choice to create a new publicly traded company, to be named Vets First Corp., which will be owned by the shareholders of Henry Schein and Vets First Choice. With a sharper focus on our market-leading dental and medical businesses, as well as newly available resources to invest in our business, we believe Henry Schein will be poised for continued growth and leadership over the long term," said Mr. Bergman.
Dental sales of $1.5 billion increased 10.2%, consisting of 5.2% growth in local currencies and a 5.0% increase related to foreign currency exchange. In local currencies, internally generated sales increased 2.9% and acquisition growth was 2.3%. The 2.9% internal growth in local currencies included 3.1% growth in North America and 2.6% growth internationally.
"In North America, dental consumable merchandise internal sales in local currencies continued solid year-over-year growth, at 2.7%. We believe this reflects a stable end-market, as well as market share gains. Dental equipment internal sales in local currencies increased by 4.4%, following a strong result in the fourth quarter of 2017 when we reported sales growth of 18.1%. We see that dentists are continuing to invest in their practices, turning to Henry Schein for a wide range of solutions," commented Mr. Bergman. "Internationally, dental consumable merchandise internal sales growth in local currencies was 2.4% as we continue to leverage a competitive platform of solutions, service, and support. Internal growth in local currencies for international dental equipment was 3.1%."
Animal Health sales of $919.8 million increased 13.1%, consisting of 7.1% growth in local currencies and a 6.0% increase related to foreign currency exchange. In local currencies, internally generated sales increased 3.6% and acquisition growth was 3.5%. The 3.6% internal growth in local currencies included 3.7% growth in North America and 3.4% growth internationally.
"Animal Health internal growth in local currencies in North America was a robust 11.6% after normalizing for a manufacturer switch from direct sales to agency sales," commented Mr. Bergman. "With the pending spin-off and merger of our Henry Schein Animal Health business with Vets First Choice, we expect that Vets First Corp. will provide veterinarians with a powerful new platform to grow their practices, improve client engagement, and drive better health outcomes for pets. We believe this spin-off and merger will result in greater focus and therefore growth opportunities for the Henry Schein Animal Health business rather than continuing as part of Henry Schein, and we are excited about the possibilities from combining these highly complementary businesses."
Medical sales of $640.4 million increased 6.9% and included internal growth in local currencies of 6.4%, acquisition growth of 0.1%, and an increase related to foreign currency exchange of 0.4%.
"Our North America Medical business delivered another solid quarter with internal growth in local currencies of 6.7%, reflecting increased patient traffic to physician offices and our continued execution in serving large group practices," remarked Mr. Bergman. "We are recognized and rewarded for meeting the needs of large group enterprises through our strong supply chain management capabilities while remaining committed to our end customer, the general practitioner, providing the products and support they need to deliver quality clinical care."
Technology and Value-Added Services sales of $112.4 million increased 6.1%, consisting of 4.0% growth in local currencies and a 2.1% increase related to foreign currency exchange. In local currencies, internally generated sales increased 2.9% and acquisition growth was 1.1%.
"In North America, Technology and Value-Added Services had internal sales growth of 1.7% in local currencies, or 2.2% when normalized for certain products switching between agency sales and direct sales. Growth was primarily impacted by lower unit sales. International Technology and Value-Added Services internal sales grew 9.3% in local currencies, highlighted by double-digit growth in both financial services and veterinary software revenue," said Mr. Bergman.
"Upon the expected closing of our Henry Schein One joint venture during the current quarter, we will significantly enhance our Value-Added Solutions portfolio of products as we build upon our technology integration capabilities to deliver a new platform of enhanced dental software and services that work seamlessly together to share data and streamline digital workflows. In helping dental teams work smarter and more efficiently, Henry Schein One will afford dentists more time for quality patient care," he added.
Stock Repurchase Plan
During the first quarter of 2018, Henry Schein did not repurchase any shares of common stock as a result of a blackout period related to the spin-off and merger of the Company's Animal Health business. Henry Schein is committed to a balanced capital allocation approach to building shareholder value, including stock repurchases, which we expect to resume during the year. At the close of the first quarter of 2018, Henry Schein had approximately $200 million authorized for future repurchases of its common stock.
2018 EPS Guidance
Excluding costs related to restructuring and the spin-off and merger of the Henry Schein Animal Health business, Henry Schein, Inc. today is affirming its prior 2018 diluted EPS guidance. At this time, the Company is not able to provide estimates for the impact of these costs on full year 2018 financial results. Guidance is as follows:
- 2018 diluted EPS attributable to Henry Schein, Inc. is expected to be $4.03 to $4.14, reflecting growth of 12% to 15% on a non-GAAP basis compared with 2017 non-GAAP diluted EPS of $3.60. This includes the impact of approximately $0.02 related to a previously announced one-time cash bonus for certain designated staff members that we disclosed last quarter, and excludes costs related to restructuring and the spin-off and merger of the Henry Schein Animal Health business.
- Guidance for 2018 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. Henry Schein expects to update full-year earnings guidance for the remaining business once the spin-off and merger of its Animal Health business closes. Guidance also assumes foreign exchange rates that are generally consistent with current levels.
The Company has provided guidance for 2018 diluted EPS on a non-GAAP basis, a forward-looking non-GAAP measure that excludes the costs related to restructuring and the spin-off and merger of the Henry Schein Animal Health business. A reconciliation to the Company's projected 2018 diluted EPS prepared on a GAAP basis is not provided because the Company is unable to provide such reconciliation without unreasonable effort. The inability to provide a reconciliation is due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact, and the periods in which the non-GAAP adjustments may be recognized. The Company's 2018 diluted EPS prepared on a GAAP basis will include the impact of such items as restructuring charges and spin-off and merger expenses and the tax effect of all such items. Management does not believe that these items are representative of the Company's underlying business performance. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.
First Quarter 2018 Conference Call Webcast
The Company will hold a conference call to discuss first quarter 2018 financial results today, beginning at 10:00 AM Eastern time. Individual investors are invited to listen to the conference call through Henry Schein's website at www.henryschein.com. In addition, a replay will be available beginning shortly after the call has ended.
