Henry Schein Reports Record Third Quarter 2018 Financial Results

MELVILLE, N.Y., Nov. 6, 2018 /PRNewswire/ -- Henry Schein, Inc. HSIC, the world's largest provider of health care products and services to office-based dental, animal health, and medical practitioners, today reported record third quarter financial results.

Net sales for the quarter ended September 29, 2018 were $3.3 billion, an increase of 3.8% compared with the third quarter of 2017. This consisted of 5.1% growth in local currencies and a 1.3% decline related to foreign currency exchange. In local currencies, internally generated sales increased 3.2% and acquisition growth was 1.9% (see Exhibit A for details of sales growth).

Net income attributable to Henry Schein, Inc. for the third quarter of 2018 was $121.5 million, or $0.79 per diluted share, representing declines of 12.0% and 9.2%, respectively, compared with GAAP results for the third quarter of 2017. Non-GAAP net income for the third quarter of 2018 was $158.0 million, or $1.03 per diluted share, representing growth of 14.5% and 18.4%, respectively, compared with third quarter 2017 GAAP results. Non-GAAP results for the third 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.

"We are pleased with our third quarter financial results, which demonstrate solid growth in each of our business groups. We believe that the end markets we serve are stable-to-improving and that we have continued to gain market share with our value-added solutions approach to servicing customers," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. "We believe there are exciting opportunities ahead for Henry Schein's businesses as we execute on our strategic goals."

Dental sales of $1.5 billion increased 2.4%, consisting of 4.4% growth in local currencies and a 2.0% decline related to foreign currency exchange. In local currencies, internally generated sales increased 3.5% and acquisition growth was 0.9%. The 3.5% internal growth in local currencies included 4.7% growth in North America and 1.6% growth internationally.

"Internal sales growth in local currencies in our North America dental consumable merchandise business was healthy at 4.3%, primarily driven by market share gains. North America dental equipment internal sales in local currencies increased by 5.9%," commented Mr. Bergman. "Internationally, internal sales growth in local currencies increased 3.5% for dental consumables and declined 4.2% for dental equipment due to softer end markets, primarily in Germany."

Animal Health sales of $899.3 million increased 1.9%, consisting of 3.4% growth in local currencies and a 1.5% decline related to foreign currency exchange. In local currencies, internally generated sales increased 1.1% and acquisition growth was 2.3%. The 1.1% internal growth in local currencies included 0.4% growth in North America and 1.8% growth internationally.

"In North America, Animal Health internal sales in local currencies continued to experience solid growth of 6.7%, after normalizing for certain products switching from direct sales to agency sales. Internationally, internal, local currency sales growth was impacted by lower sales primarily associated with a decline in parasiticide sales as well as clinic visits due to weather," commented Mr. Bergman.

Medical sales of $721.9 million increased 4.5% with internally generated sales growth in local currencies of 4.4%. The impact from foreign exchange was immaterial.

"Our North America Medical business reported solid internal local currency growth as we benefit from our strategy focused on understanding and meeting the needs of a diverse set of customers ranging from large integrated delivery networks and ambulatory care centers, to general practitioners," remarked Mr. Bergman.

Technology and Value-Added Services sales of $143.9 million increased 32.0%, consisting of 32.6% growth in local currencies and a 0.6% decline related to foreign currency exchange. In local currencies, internally generated sales increased 7.8% and acquisition growth was 24.8%.

"We are pleased with strong overall growth in Technology and Value-Added Services, driven by Henry Schein One along with solid organic growth both in North America and internationally. In North America, Technology and Value-Added Services internal sales growth in local currencies was 7.8%, bolstered by a sale to the U.S. Department of Defense of approximately $6.2 million, along with strong growth in our financial services business. International Technology and Value-Added Services internal sales grew 7.6% in local currencies, driven primarily by dental software sales," said Mr. Bergman.

Stock Repurchase Plan
The Company repurchased approximately 777,000 shares of its common stock during the third quarter at an average price of $78.19 per share, or approximately $61 million. The impact of the repurchase of shares on third quarter 2018 diluted EPS was immaterial. At the close of the third quarter, Henry Schein had approximately $86 million authorized for future repurchases of its common stock.

Year-to-Date Results
Net sales for the first nine months of 2018 were $9.8 billion, an increase of 7.5% compared with the first nine months of 2017. This consisted of 5.9% growth in local currencies and an increase of 1.6% related to foreign currency exchange. In local currencies, internally generated sales increased 3.9% and acquisition growth was 2.0%.

Net income attributable to Henry Schein, Inc. for the first nine months of 2018 was $402.9 million, or $2.62 per diluted share, a decline of 2.9% and an increase of 0.4%, respectively, compared with the first nine months of 2017. Non-GAAP net income for the first nine months of 2018 was $463.7 million, or $3.01 per diluted share, an increase of 10.9% and 14.4%, respectively, compared with non-GAAP net income for the first nine months of 2017. Non-GAAP results for the first nine months 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.

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

The Company expects to record a one-time restructuring charge in 2018 of between $45 million and $55 million in total on a pretax basis, or $0.22 to $0.27 per diluted share. This restructuring charge primarily includes severance pay, facility closing costs, and outside professional and consulting fees directly related to the restructuring plan. Henry Schein plans to provide details on expected cost savings from this restructuring when the Company provides 2019 financial guidance at a later date.

2018 EPS Guidance
Henry Schein, Inc. today is affirming its 2018 non-GAAP diluted EPS guidance. At this time the Company is not providing GAAP guidance as it is unable to provide an accurate estimate of costs related to the Animal Health spin-off on full-year 2018 financial results. Guidance is as follows:

• 2018 non-GAAP diluted EPS attributable to Henry Schein, Inc. is expected to be $4.06 to $4.14, reflecting growth of 13% to 15% compared with 2017 non-GAAP diluted EPS of $3.60. Guidance excludes certain items in 2018 for the year-to-date detailed in Exhibit B of today's press release. Non-GAAP results for 2017 excluded costs related to taxes associated with U.S. tax reform legislation, a loss associated with Henry Schein's divestiture of its equity ownership in E4D Technologies and litigation settlement expenses in 2017.

• Guidance for 2018 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 2018 diluted EPS on a non-GAAP basis as noted above. 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 for an estimate of 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 2018 diluted EPS prepared on a GAAP basis will include the impact of such items as restructuring charges, spin-off expenses and litigation settlement 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.

Due to the complexities and timing of the planned Animal Health spin-off, the Company plans to provide 2019 financial guidance at a later date.

Third Quarter 2018 Conference Call Webcast
The Company will hold a conference call to discuss third quarter 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. HSIC is a solutions company for health care professionals powered by a network of people and technology. With more than 22,000 Team Schein Members serving more than 1 million customers globally, the Company is the world's largest provider of Business, Clinical, Technology, and Supply Chain solutions to enhance the efficiency of 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's network of trusted advisors provides health care professionals with the valued solutions they need to improve operational success and clinical outcomes. The Company offers customers exclusive, innovative products and solutions, including practice management software, e-commerce solutions, specialty and surgical products, as well as a broad range of financial services. 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.

Headquartered in Melville, N.Y., Henry Schein has operations or affiliates in 34 countries. The Company's sales reached a record $12.5 billion in 2017, and have grown at a compound annual rate of approximately 15% 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 and joint ventures, including the failure to achieve anticipated synergies; financial risks associated with acquisitions 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; changes in tax legislation; and risks associated with the ability to consummate the spin-off and merger of our Animal Health business with Vets First Choice and the timing of the closing of the transaction, as well as the ability to realize anticipated benefits and synergies of the transaction. 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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