8-K: Henry Schein Reports Mixed Q3 Results, Raises Full-Year EPS Guidance

Henry Schein's third-quarter results show a slight sales increase but a decrease in earnings, while the company raises its full-year non-GAAP EPS guidance.

Summary

• Henry Schein reported a 0.4% increase in total net sales for the third quarter of 2024, reaching $3.2 billion.
• Internal sales decreased by 2.6%, which includes a 0.4% decrease from lower PPE sales.
• GAAP net income for the quarter was $99 million, or $0.78 per diluted share, down from $137 million, or $1.05 per diluted share, in the same period last year.
• Non-GAAP net income was $155 million, or $1.22 per diluted share, compared to $173 million, or $1.32 per diluted share, in the third quarter of 2023.
• Operating cash flow for the quarter was $151 million, down from $231 million in the third quarter of 2023.
• The company's year-to-date operating cash flow was $644 million, up $112 million compared to the same period last year.
• Henry Schein increased its full-year 2024 non-GAAP EPS guidance to $4.74 to $4.82, from a previous range of $4.70 to $4.82.
• The company repurchased approximately 2.0 million shares of its common stock at an average price of $69.09 per share, for a total of $135 million during the third quarter.
• The company expects 2024 total sales growth to be 4% to 5% over 2023.
• Adjusted EBITDA for the first nine months of 2024 was $791 million, compared to $813 million for the same period in 2023.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the increased EPS guidance and ongoing share repurchases, but tempered by the decrease in third-quarter earnings and internal sales. The company is showing progress in some areas but still faces challenges.

Positives

• The company increased its full-year 2024 non-GAAP EPS guidance to $4.74 to $4.82.
• Year-to-date operating cash flow increased by $112 million compared to the same period last year, reaching $644 million.
• The company's share repurchase program continues, with 2.0 million shares repurchased in the third quarter.
• Acquisitions made during the 2022 to 2024 strategic planning cycle are delivering strong financial results.
• The restructuring plan is on target, with actions approved in the third quarter estimated to provide over $50 million in annual run-rate savings.
• The company believes it continued to steadily gain market share in its dental and medical distribution businesses following last year's cyber incident.

Negatives

• GAAP net income for the third quarter decreased to $99 million, or $0.78 per diluted share, from $137 million, or $1.05 per diluted share, in the same period last year.
• Non-GAAP net income for the third quarter decreased to $155 million, or $1.22 per diluted share, from $173 million, or $1.32 per diluted share, in the third quarter of 2023.
• Operating cash flow for the third quarter decreased to $151 million from $231 million in the third quarter of 2023.
• Internal sales for the quarter decreased by 2.6%.
• Adjusted EBITDA for the first nine months of 2024 was $791 million, compared to $813 million for the same period in 2023.
• The company recorded $48 million in restructuring costs during the third quarter of 2024.

Risks

• The company's performance is still being impacted by the pace of recovery from the cyber incident late last year.
• The company is facing a decrease in sales of personal protective equipment (PPE), primarily due to lower glove pricing.
• The company is exposed to risks related to foreign currency exchange rates.
• The company is exposed to risks related to restructuring costs.
• The company is exposed to risks related to the highly competitive market.
• The company is exposed to risks related to general global and domestic macro-economic and political conditions.

Future Outlook

Henry Schein expects 2024 total sales growth to be 4% to 5% over 2023 and non-GAAP diluted EPS to be $4.74 to $4.82. Adjusted EBITDA is expected to grow in the low-double-digit percentages versus 2023.

Management Comments

• Our businesses performed well during the third quarter, driven by the continued successful implementation of our BOLD+1 Strategic Plan that is resulting in growth and efficiency throughout the business, and a strong contribution from high-growth, high-margin products and services, said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein.
• We believe we continued to steadily gain market share in our dental and medical distribution businesses following last year's cyber incident.
• Acquisitions made during our 2022 to 2024 strategic planning cycle, along with new product launches, are delivering strong financial results, and our restructuring plan is on target.
• As a result, we exceeded our financial expectations for the quarter, and so today we are increasing our non-GAAP EPS guidance to $4.74 to $4.82, Mr. Bergman concluded.

Industry Context

The results reflect a mixed performance in the healthcare distribution industry, with some segments showing growth while others face challenges such as lower PPE sales and the lingering effects of a cyber incident. The company's focus on strategic acquisitions and restructuring aligns with industry trends towards consolidation and efficiency improvements.

Comparison to Industry Standards

• Henry Schein's 0.4% sales growth is below the average growth rate for some of its peers in the healthcare distribution industry, such as McKesson and Cardinal Health, which have seen higher growth rates in recent quarters.
• The company's internal sales decrease of 2.6% indicates a potential weakness in organic growth compared to industry leaders.
• The increase in full-year non-GAAP EPS guidance suggests a positive outlook, but the decrease in third-quarter earnings is a concern compared to industry benchmarks.
• The company's restructuring efforts and share repurchase program are common strategies in the industry to enhance shareholder value and improve operational efficiency, similar to actions taken by other large distributors.
• The impact of the cyber incident on sales and earnings highlights the vulnerability of healthcare companies to such events, a risk that is shared across the industry.

Stakeholder Impact

• Shareholders will be impacted by the increased EPS guidance and share repurchase program, but also by the decrease in third-quarter earnings.
• Employees may be affected by the ongoing restructuring plan.
• Customers may benefit from the company's focus on new product launches and improved operational efficiency.
• Suppliers may be impacted by changes in the company's purchasing strategies.

Next Steps

• The company expects to continue to repurchase shares in the fourth quarter.
• The company will hold a conference call to discuss third-quarter 2024 financial results.

Key Dates

Keywords

financial results, earnings, EPS, sales, restructuring, share repurchase, dental, medical, healthcare, EBITDA, guidance, acquisitions, cyber incident