Q4 2016 Real-Time Call Brief

Brief Report
Ticker : HSIC
Company : Henry Schein, Inc
Event Name : Q4 2016 Earnings Call
Event Date : Feb 21,2017
Event Time : 10:00 AM

Highlights



Sales increased by 9.5%, with internal sales and local currencies excluding the estimated impact of the extra week, that's the extra selling week of what we estimate to be 4.2%, and on the bottom line we delivered strong year-over-year diluted EPS growth for the quarter of 10.9% on a GAAP basis and on a non-GAAP basis 12.6%.


For the year, net sales of $11.6 billion were up 8.9% compared to 2015, with 6.7% internal growth in local currencies excluding the estimated impact of the extra week, while diluted EPS growth was 8.8% on a GAAP basis, or 10.9% on a non-GAAP basis.


Diluted EPS that represents growth of 16% to 18% compared to 2016 GAAP diluted EPS a growth of 8% to 10% compared to 2016 non-GAAP diluted EPS.


Our 2016 fourth quarter results include restructuring cost of $16.1 million pre-tax or $0.15 per diluted share, and our 2015 fourth quarter results include restructuring cost of $12.4 million pre-tax or $0.11 per diluted share.


For the full year, our full year 2016 results also include restructuring cost, those restructuring cost of $45.9 million pre-tax or $0.42 per diluted share and full year 2015 results include restructuring cost of $34.9 million pre-tax or $0.32 per diluted share as well as a one-time income tax benefit net of non-controlling interest of $3.8 million or $0.05 per diluted shares.


Net sales for the quarter ended December 31, 2016 were $3.1 billion, reflecting a 9.5% increase compared with the fourth quarter of 2015.


Our internally generated sales in local currencies were up 4.2%.


Acquisitions contributed 1.3%, there was a 1.5% decrease due to foreign exchange and the growth attributed to this extra week was estimated at 5.5%.


Operating margin on a GAAP basis for the fourth quarter of 2016, was 6.9% and contracted by 18 basis points compared to the fourth quarter of 2015.


These three elements negatively impacted operating margin by about 30 basis points in total.


The first item relates to acquisitions completed during the first 12 months and related expenses as well as switches between agency sales and direct sales and our animal health business, which combine to negatively impact the contraction by 7 basis points for the quarter.


Secondly, influenza vaccines sales this year had a lower margin compare to the prior year, which negatively impacted our operating margin by 15 basis points.


And the third item relates to an increase in restructuring cost in the fourth quarter of 2016 versus the same period year last year and that negatively impacted the contraction by 8 basis points.


If you were to exclude the net impact of these three items, our operating margin expanded by 12 basis points.


Our reported GAAP effective tax rates for the quarter was 28.4% that compares to the 30.1% in the fourth quarter of 2015.


The tax effect of restructuring cost recorded in the fourth quarter increased our effective tax rate by about 20 basis points in 2016, and about 30 basis points in 2015.


Our full year 2016 effective tax rate was 28.8% on a GAAP basis and again the effective restructuring cost recorded for the full year increased the effective tax rate by another 20 basis points in ‘16 and 30 basis points in ‘15.


For 2017, we expect our effective tax rate to be in the 28% range.


We expect our Q1 effective tax rate to be in the range of 23% to 24% this is for Q1 only, and we still expect that this Q1 impact is included in our estimated effective tax rate for the full year, which on the full year basis will remained in that 28% range.


Our net income attributable to Henry Schein Inc.


On a GAAP basis was $139.2 million for $1.73 per diluted share that represents increases of 7.1% and 10.9% respectively compared with the fourth quarter of 2015.


Excluding restructuring costs, non-GAAP net income attributable to Henry Schein for the fourth quarter was $151.3 million or $1.88 per diluted share and that represents increases of 8.6% and 12.6% respectively compared with the fourth quarter of 2015 also on a non-GAAP basis.


I'd like to point that foreign exchange negatively impacted our diluted EPS for the quarter by approximately $0.02 and this was partially offset by share repurchase benefit of approximately $0.01 for the quarter.


Our dental sales for the fourth quarter of 2016 increased 7.7% to $1.5 billion.


Internally generated related sales in local currencies were up 1.6%, acquisitions contributed in additional 1.7% there was 1% decrease due to foreign exchange and growth attributed to the extra week was estimated at 5.4%.


Our North American internal growth in local currency was 2.2% and included 1.9% growth in sales dental consumable merchandise and 2.7% growth in dental equipment sales and services revenues.


Our growth rate was impacted by the decision to stop selling precious metals earlier this year, this decision negatively impacted our North American dental consumable merchandise sales growth in the quarter, by about 50 basis points.


International dental internal growth in local currencies with 0.7% included 2.5% growth in sales of dental consumable merchandise and 3.9% decline in dental equipment sales and service revenues.


Turning to Animal Health sales, they were up $837.8 million in the fourth quarter and increase of 10.8% internally generated sales in local currencies was up 8.2% acquisitions contributed 0.4%.


There was a 3.4% decrease due to foreign exchange and growth attributed to the extra was estimated at 5.6%.


The 8.2% internal growth of local currency is included 10.3% growth in North America and 6.3% growth internationally.


When normalizing for animal health results, we accounted the impact of certain products switching between agency sales and direct sales that 8.2% internal local currencies was 7.8% growth and included 9.3% growth in North America.


Our Medical sales for the quarter was $621.1 million for the fourth quarter and that was an increase of 10.6%.


Sales growth in local currencies was 4.4%, while internally generated with 0.1% of small decrease due to foreign exchange and growth attributed to the extra week estimated at 6.3%.


It's important to note that timing of influenza vaccine sales negatively impacted the Medical sales growth by 1.2% and you exclude this impact our sales growth in local currencies was 5.6%, and of this 4.4% growth, 4.5% was in North America and growth of 0.9% in local currencies internationally.


Technology and value added services sales were $112.2 million in the quarter, an increase of 19.6%.


That consisted of internally generated sales on local currencies up 8.5%, acquisitions contributing an additional 9.8% and a decrease due to foreign exchange of 1.9%.


Growth attributed to the extra week is estimated at 3.2%.


Of that 8.5% internal growth of local currencies 7.4% was in North America and 13.9% growth internationally.


We continue to repurchase common stock in the open market during the fourth quarter.


More specifically we repurchased approximately 1.3 million shares during the quarter at an average price of $156.10 per share and that equated to approximately $200 million.


The impact of this repurchase on shares for the fourth quarter was positive by about $0.01 per share.


For the full year 2016, we repurchased $550 million of our stock, representing 3.5 million shares at an average of $158.88 per share.


At the close of the quarter Henry Schein had about $250 million authorized for future repurchases of our common stock.


Operating cash flow for the quarter was $264.5 million that compares to $298.3 million last year.


For the year the year, operating cash flow was over $600 million $615.5 million to be exact.


Our CapEx for the year was $70.2 million and that results in free cash flow of $545.3 million for the year.


Accounts receivable days outstanding was about 41.3 days that compares to 39.3 days last year.


Our inventory return was 5.5 turns for the quarter that compares to 5.6 turns last year.


Our diluted EPS attributable to Henry Schein is expected to $7.17 to $7.30 for 2017.


As a result, there is no separate guidance on a non-GAAP basis, since we will not have any non-GAAP EPS for the year.


That guidance reflects growth of 16% to 18% compared to 2016 GAAP diluted EPS and 8% to 10% compared to 2016 non-GAAP diluted EPS.


We achieved net sales of $11.6 billion in 2016, up 8.9% from the prior year.


Internal sales in local currencies grew by 6.7% when you exclude estimated impact of the extra week Diluted EPS growth was 8.8% on a GAAP basis or 10.9% growth on a non-GAAP basis.


Operating cash flow for the year was $615 million, $500,000 and exceeded GAAP net income of more than $108 million.


We announced seven strategic acquisitions in 2016 with a total investment of approximately $229 million.


These acquisitions had combined trailing-12 month revenue of approximately $270 million.


SAS is highly regarded provider of surgical suppliers and pharmaceuticals to approximately 11,500 oral surgeons, dental, anesthesiologists and periodontists across the U.S.


as well as those GPs undertaking specialists procedures.


They had a less for the year 2016 about $72 million in sales.


Dental Cremer had last year the 2016 net sales of approximately $145 million in U.S.


dollars and serves nearly 90,000 dental practitioners in Brazil.


Before we move on to medical I'd like to highlight our recent announcement of the 51% investment in Tech News, a leading distribute of animal health products in the state of the Rio de Janeiro in Brazil.


Tech News service nearly 5,000 animal health customers and had 2016 sales of approximately $24 million.


Medicals sales growth was 5.6% in the fourth quarter excluding influenza vaccine sales as well as the estimated impact of the extra week.
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