Classified in: Health, Business
Subjects: ERN, CCA, ERP, PET, ANW

Henry Schein Reports Record Fourth Quarter And Full Year 2018 Financial Results

MELVILLE, N.Y., Feb. 20, 2019 /PRNewswire/ -- Henry Schein, Inc. (Nasdaq: HSIC), the world's largest provider of health care solutions to office-based dental and medical practitioners, today reported record fourth quarter financial results.

Net sales for the quarter ended December 29, 2018 were $3.4 billion, an increase of 1.7% compared with the fourth quarter of 2017. This consisted of 3.3% growth in local currencies and a 1.6% decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.1% and acquisition growth was 1.2% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc. for the fourth quarter of 2018 was $133.0 million, or $0.87 per diluted share, compared with a prior-year net loss of $8.5 million, or $0.06 per share. Non-GAAP net income for the fourth quarter of 2018 was $171.6 million, or $1.12 per diluted share, compared with non-GAAP net income of $152.1 million, or $0.97 per diluted share, for the fourth quarter of 2017. Non-GAAP results for the fourth quarter of 2018 and 2017 exclude certain items noted in Exhibit B, which provides a reconciliation of GAAP net income and diluted EPS to non-GAAP net income and diluted EPS.

"This has been a historic year at Henry Schein as we further positioned the company to advance our 2018 to 2020 strategic plan. This included the creation of our Henry Schein One dental technology business, the spin-off of our animal health business into Covetrus (Nasdaq: CVET) and restructuring efforts, which together are strategically positioning Henry Schein for continued success," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. "We thank our Team Schein Members across the globe for their significant contributions to these important efforts."

Mr. Bergman continued, "As we begin 2019, we are most excited about the future of Henry Schein. We believe the long-term business opportunities remain attractive in the global markets for Dental and Medical offices as well as alternate sites of care. We offer the broadest range of solutions in the markets we serve, including medical and dental supply chain and specialty solutions, as well as dental technology through Henry Schein One. Looking ahead, we are confident that we are well-positioned to deliver continued revenue and profitability growth for Henry Schein's Dental and Medical businesses with long-term organic sales growth goals of one to two percentage points above underlying market growth rates, supplemented by strategic acquisitions."

Dental sales of $1.7 billion decreased 0.2%, consisting of 1.8% growth in local currencies and a 2.0% decline related to foreign currency exchange. In local currencies, internally generated sales increased 1.5% and acquisition growth was 0.3%. The 1.5% internal growth in local currencies included 0.6% growth in North America and 2.8% growth internationally.

"Fourth quarter dental consumables internal sales growth in North America of 2.5% in local currencies was impacted by a soft end market, most notably in November and December. We believe we continue to gain market share in the North America dental consumable merchandise market. Dental equipment sales declined by 3.5% in local currencies as we faced a tough prior-year comparison when adjusted internal growth in local currencies exceeded 19%," commented Mr. Bergman. "Internationally, internal sales growth in local currencies increased 3.4% for dental consumables and increased 1.3% for dental equipment."

Animal Health sales of $877.6 million decreased 1.4%, consisting of 0.7% growth in local currencies and a 2.1% decline related to foreign currency exchange. In local currencies, internally generated sales decreased 0.6% and acquisition growth was 1.3%. The decline of 0.6% internal sales in local currencies included a decline of 1.9% in North America and 0.8% growth internationally. On a normalized basis, adjusting for manufacturer switches between direct and agency sales, internal sales growth in local currencies in North America was 2.1%.

"The completed spin-off of our Animal Health business into a new publicly traded company, Covetrus, has created a significant global technology-enabled provider of products and services for the companion animal health market. Going forward, we believe these customers will benefit from a unique platform of enhanced insight, multi-channel client engagement and integrated services," commented Mr. Bergman.

Medical sales of $684.8 million increased 7.5% on an as-reported basis and also for internally generated sales in local currencies. Acquisition growth of 0.1% was offset by a decline of 0.1% in foreign currency exchange.

"We were pleased with robust growth in our Medical sales for the quarter. The North America Medical market continues to experience a rapid evolution as health care providers pursue the best ways to deliver services at lower costs and with better outcomes," remarked Mr. Bergman. "Henry Schein is benefiting from the shift in care from high-cost acute settings to lower-cost sub-acute care sites, such as the physician offices, urgent care sites and ambulatory care centers that we serve. Our track record in serving large group networks with supply chain, education, technology and support services continues to be a solid competitive advantage."

Technology and Value-Added Services sales of $139.1 million increased 21.4%, consisting of 22.1% growth in local currencies and a 0.7% decline related to foreign currency exchange. In local currencies, internally generated sales increased 0.5% and acquisition growth was 21.6%.

"Growth in Technology and Value-Added Services was primarily driven by the formation of Henry Schein One. North America internal sales growth in local currencies was flat, reflecting lower sales from technology support and financing services revenue associated with the decline in dental equipment sales. As we look ahead to 2019, we believe our Henry Schein One dental software solutions will drive growth for this business group as practices leverage tools to enhance practice efficiency and patient communication. International Technology and Value-Added Services internal sales increased 2.8% in local currencies," said Mr. Bergman.

Stock Repurchase Plan
The Company repurchased approximately 997,000 shares of its common stock during the fourth quarter at an average price of $86.14 per share, or approximately $86 million. The impact of the repurchase of shares on fourth quarter 2018 diluted EPS was immaterial. On December 13, 2018, Henry Schein announced that its Board of Directors authorized the repurchase of up to $400 million of shares of the Company's common stock. At fiscal year-end, Henry Schein had approximately $400 million authorized and available for future stock repurchases.

Full Year 2018 Results
Net sales for the full year ended December 29, 2018 were $13.2 billion, an increase of 5.9% compared with 2017. This consisted of 5.2% growth in local currencies and an increase of 0.7% related to foreign currency exchange. In local currencies, internally generated sales increased 3.4% and acquisition growth was 1.8% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc. for 2018 was $535.9 million, or $3.49 per diluted share, an increase of 31.9% and 35.8%, respectively, compared with 2017. On a non-GAAP basis, net income attributable to Henry Schein, Inc. for 2018 was $635.3 million, or $4.13 per diluted share, an increase of 11.4% and 14.7%, respectively, compared with 2017 on a non-GAAP basis. Non-GAAP results for 2018 and 2017 exclude certain items noted in Exhibit B, which provides a reconciliation of GAAP net income and diluted EPS to non-GAAP net income and diluted EPS.

Restructuring Program
Henry Schein previously disclosed a comprehensive restructuring initiative designed to increase profitability by improving business efficiencies, reducing redundancies and maximizing the Company's infrastructure.

The Company recorded a pretax restructuring charge in the fourth quarter of 2018 of $35.4 million, or $0.17 per diluted share. The charge for the full year was $62.9 million on a pretax basis, or $0.31 per diluted share. These charges primarily include severance pay, facility closing costs, and outside professional and consulting fees directly related to the restructuring. Henry Schein is extending the restructuring initiative into the first half of 2019 as it identifies further cost saving opportunities.

2019 EPS Guidance
Henry Schein today introduced 2019 financial guidance. At this time the Company is not providing GAAP guidance as it is unable to provide an accurate estimate of costs related to restructuring and the Animal Health spin-off on full-year 2019 financial results. Guidance is as follows:

• 2019 non-GAAP diluted EPS from continuing operations attributable to Henry Schein, Inc. is expected to be $3.38 to $3.46, reflecting growth of 7% to 9% compared with 2018 non-GAAP diluted EPS from continuing operations of $3.17. The Company's Animal Health business was spun off to shareholders as of February 7, 2019, and that business will be classified as a discontinued operation for all current and prior periods presented.

• Guidance for 2019 non-GAAP 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. Guidance also assumes foreign exchange rates that are generally consistent with current levels.

The Company has provided guidance for 2019 diluted EPS on a non-GAAP basis as noted above. A reconciliation to the Company's projected 2019 diluted EPS prepared on a GAAP basis is not provided because the Company is unable to provide such reconciliation for an estimate of restructuring and Animal Health spin-off related costs 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 2019 diluted EPS prepared on a GAAP basis will include the impact of such items as restructuring charges, spin-off expenses, any litigation settlement expenses, and the tax effect of all such items. Management does not believe 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.

To facilitate comparisons against past results, Henry Schein is providing unaudited financial information in Exhibit C for the years 2016, 2017 and 2018, and in Exhibit D for each quarter of 2018 that provide unaudited preliminary estimates of our results of operations (GAAP and non-GAAP) on a continuing operations basis for the periods presented.

Fourth Quarter and Full Year 2018 Conference Call Webcast
The Company will hold a conference call to discuss fourth quarter and full year 2018 financial results today, beginning at 10:00 a.m. 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.

About Henry Schein, Inc.
Henry Schein, Inc. (Nasdaq: HSIC) is a solutions company for health care professionals powered by a network of people and technology. With more than 18,000 Team Schein Members worldwide, the Company's network of trusted advisors provides more than 1 million customers globally with more than 300 valued solutions that improve operational success and clinical outcomes. Our Business, Clinical, Technology, and Supply Chain solutions help office-based dental and medical practitioners work more efficiently so they can provide quality care more effectively. These solutions also support dental laboratories, government and institutional health care clinics, as well as other alternate care sites. 

Henry Schein operates through a centralized and automated distribution network, with a selection of more than 120,000 branded products and Henry Schein private-brand products in stock, as well as more than 180,000 additional products available as special-order items.

A Fortune 500® Company and a member of the S&P 500® and the Nasdaq 100® indexes, Henry Schein is headquartered in Melville, N.Y., and has operations or affiliates in 31 countries. The Company's sales from continuing operations reached $9.4 billion in 2018, and have grown at a compound annual rate of approximately 13% since Henry Schein became a public company in 1995.

For more information, visit Henry Schein at www.henryschein.com, Facebook.com/HenrySchein and @HenrySchein on Twitter.

Cautionary Note Regarding Forward-Looking Statements and Use of Non-GAAP Financial Information

In accordance with the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein.  All forward-looking statements made by us are subject to risks and uncertainties and are not guarantees of future performance.  These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  These statements are identified by the use of such terms as "may," "could," "expect," "intend," "believe," "plan," "estimate," "forecast," "project," "anticipate" or other comparable terms.  A full discussion of our operations and financial condition, including factors that may affect our business and future prospects, is contained in documents we have filed with the United States Securities and Exchange Commission, or SEC, and will be contained in all subsequent periodic filings we make with the SEC. These documents identify in detail important risk factors that could cause our actual performance to differ materially from current expectations.

Risk factors and uncertainties that could cause actual results to differ materially from current and historical results include, but are not limited to: effects of a highly competitive and consolidating market; our dependence on third parties for the manufacture and supply of our products; our dependence upon sales personnel, customers, suppliers and manufacturers; our dependence on our senior management; fluctuations in quarterly earnings; risks from expansion of customer purchasing power and multi-tiered costing structures; increases in shipping costs for our products or other service issues with our third-party shippers; general global macro-economic conditions; risks associated with currency fluctuations; risks associated with political and economic uncertainty; disruptions in financial markets; volatility of the market price of our common stock; changes in the health care industry; implementation of health care laws; failure to comply with regulatory requirements and data privacy laws; risks associated with our global operations; transitional challenges associated with acquisitions, dispositions and joint ventures, including the failure to achieve anticipated synergies/benefits; financial and tax risks associated with acquisitions, dispositions and joint ventures; litigation risks; new or unanticipated litigation developments; the dependence on our continued product development, technical support and successful marketing in the technology segment; our dependence on third parties for certain technologically advanced components; increased competition by third party online commerce sites; risks from disruption to our information systems; cyberattacks or other privacy or data security breaches; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation. The order in which these factors appear should not be construed to indicate their relative importance or priority. 

We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control or predict. Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction of actual results. We undertake no duty and have no obligation to update forward-looking statements.

Included within the press release are non-GAAP financial measures that supplement the Company's Consolidated Statements of Income prepared under generally accepted accounting principles (GAAP).  These non-GAAP financial measures adjust the Company's actual results prepared under GAAP to exclude certain items.  In the schedules attached to this press release, the non-GAAP measures have been reconciled to and should be considered together with the Consolidated Statements of Income. 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.

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SOURCE Henry Schein, Inc.

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