Henry Schein Reports Record Fourth Quarter and Full Year 2017 Financial Results
Raises 2018 diluted EPS guidance range to reflect the impact of U.S. tax reform legislation
MELVILLE, N.Y., Feb. 20, 2018 /PRNewswire/ -- Henry Schein, Inc. (Nasdaq: HSIC), the worlds largest provider of health care products and services to office-based dental, animal health and medical practitioners, today reported record fourth quarter and full year 2017 financial results. All per-share figures in this news release reflect the 2-for-1 common stock split Henry Schein completed during the third quarter of 2017.
The Company is on a 52/53 week fiscal year ending on the last Saturday in December, and 2016 had an extra selling week compared with 2017. That extra selling week occurred in the fourth quarter of 2016. In order to facilitate a more meaningful analysis, the Company has estimated the impact of the extra week on sales growth and is providing internal sales growth in local currencies excluding that extra week.
Net sales for the quarter ended December 30, 2017 were $3.3 billion, an increase of 6.3% compared with the fourth quarter of 2016. This consisted of internal sales growth in local currencies of 5.1%, acquisition growth of 4.0%, an increase related to foreign currency exchange of 2.4% and a negative impact from the extra week of 5.2% (see Exhibit A for details of sales growth).
Net loss attributable to per diluted share. Fourth quarter 2017 non-GAAP net income excludes a one-time charge of $143.0 million, or $0.92 per diluted share, for taxes associated with U.S. tax reform legislation, and a loss of $17.6 million pretax, or $0.11 per diluted share, associated with Henry Schein's divestiture of its equity ownership in E4D Technologies (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP net income and EPS).
"We closed out 2017 with a strong fourth quarter that demonstrates the advantages of our high-touch, value-added solutions business model," said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. "Our customers rely on our team of trusted advisors for the clinical, supply chain, technology and business solutions that practitioners and their office personnel need to operate efficient practices. We satisfy practice needs through technology as well as our consultative approach so our customers can focus on patient care. Our competitive position is built upon education, service and support, software and innovation, and strong, long-term customer relationships."
Taking into account changes to the federal statutory tax rate under the new U.S. tax legislation and its effects on state taxes and other permanent items, the Company expects its effective tax rate in 2018 to be in the 24% range. In recognition of our team members, following the recent U.S. Tax Cuts & Jobs Act, Henry Schein plans to distribute up to a $1,000 one-time cash bonus to certain designated staff members in the U.S. with one full year of service as of January 1, 2018. These distributions will total approximately $4 million and will be made in the first quarter of 2018. The anticipated impact to 2018 diluted EPS is approximately $0.02.
As a result, Henry Schein is raising its 2018 full year EPS guidance range to $4.03 to $4.14, reflecting growth of 57% to 61% versus 2017 GAAP results, or growth of 12% to 15% versus 2017 non-GAAP results, including the impact of the one-time cash bonus resulting from the U.S. Tax Cuts & Jobs Act.
Mr. Bergman added, "We believe the end markets we serve are healthy and that we are well positioned to continue to deliver on our long-term goal of organic sales growth in excess of market growth, complemented by strategic acquisitions. We have an ongoing commitment to efficiency across our businesses that we expect will drive long-term earnings growth, and we also expect the benefits from U.S. tax reform will be returned to shareholders via higher earnings."
Dental sales of $1.7 billion increased 8.2% and included internal growth in local currencies of 4.3%, acquisition growth of 6.0%, an increase related to foreign currency exchange of 3.0% and a negative impact from the extra week of 5.1%.
"In North America, we delivered dental consumable merchandise internal sales growth in local currencies of 1.9%, which was negatively impacted by approximately 130 basis points due to the loss of a previously disclosed large DSO contract in January 2017. Growth excluding that contract has accelerated the past three quarters reaching 3.2% in the fourth quarter, and we are optimistic that the health of the macro environment ultimately will drive improved end market unit growth," commented Mr. Bergman. "North America dental equipment internal sales growth in local currencies of 18.1% was at a multiyear high. We are pleased with this strong equipment sales growth, which benefitted from a solid contribution from sales of the full line of Dentsply Sirona dental equipment, as well as from other key dental equipment manufacturers."
Mr. Bergman continued, "In local currencies, international dental consumable merchandise internal sales declined by 2.6% due to lower sales in certain European countries. International dental equipment internal sales increased by 7.7% in local currencies, the highest quarterly growth in more than two years."
Animal Health sales of $889.8 million increased 6.2% and included internal growth in local currencies of 4.5%, acquisition growth of 3.7%, an increase related to foreign currency exchange of 3.2% and a negative impact from the extra week of 5.2%. Internal growth in local currencies of 4.5% included 6.0% growth in North America and 2.9% growth internationally.
"Global Animal Health internal sales growth in local currencies reflects our continued execution both domestically and abroad," commented Mr. Bergman. "We believe the global Animal Health market is healthy and that we are benefiting from the consistent delivery of innovative products and solutions, and strong customer relationships."
Medical sales of $636.9 million increased 2.6% and included internal growth in local currencies of 8.3%, acquisition growth of 0.1%, an increase related to foreign currency exchange of 0.3% and a negative impact from the extra week of 6.1%.
"We believe our Medical sales growth during the quarter continued to exceed the growth of the broader office-based practitioner market, reflecting our ability to penetrate large group practices, particularly through our strong supply chain management capabilities," remarked Mr. Bergman.
Technology and Value-Added Services sales of $114.6 million increased 2.1% and included internal growth in local currencies of 3.2%, acquisition growth of 0.6%, an increase related to foreign currency exchange of 1.1% and a negative impact from the extra week of 2.8%.
"In North America, Technology and Value-Added Services internal sales growth of 1.8% in local currencies was impacted by lower dental software sales and electronic services revenue, partially offset by approximately 12% growth in financial services revenue," said Mr. Bergman. "In international markets, we delivered double-digit internal sales growth in local currencies of 11.4%, highlighted by strong dental and animal health software revenue."
Stock Repurchase Plan
The Company announced that during the fourth quarter it spent approximately $225 million to repurchase approximately 3.2 million shares of its common stock, reflecting what the Company considered to be an attractive buying opportunity. The impact of the repurchase of shares on fourth quarter 2017 diluted EPS was approximately one half of one cent. At the close of the fourth quarter, Henry Schein had approximately $200 million authorized for future repurchases of its common stock.
For the full year 2017, Henry Schein spent approximately $450 million to repurchase approximately 5.9 million shares of its common stock.
Full Year 2017 Results
For the year, net sales of $12.5 billion increased 7.7% compared with 2016. This consisted of internal sales growth in local currencies of 5.1%, acquisition growth of 3.6%, an increase related to foreign currency exchange of 0.5% and a negative impact from the extra week of 1.5%.
Net income attributable to Henry Schein, Inc. for 2017 was $406.3 million, or $2.57 per diluted share on a GAAP basis, a decrease of 19.8% and 17.1%, respectively, compared with 2016. On a non-GAAP basis, net income attributable to Henry Schein, Inc. for 2017 was $570.1 million, or $3.60 per diluted share, an increase of 5.3% and 8.8%, respectively, compared with 2016 on a non-GAAP basis. Note that 2016 non-GAAP net income excludes restructuring costs. 2017 non-GAAP net income excludes a one-time charge 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 (see Exhibit B for reconciliation of GAAP net income and EPS to non-GAAP net income and EPS).
2018 EPS Guidance
Henry Schein today raised its 2018 full year diluted EPS guidance range to reflect the impact of U.S. tax reform legislation, including the estimated two cent impact associated with the aforementioned one-time cash bonus, and now expects the following:
2018 diluted EPS attributable to Henry Schein, Inc. is expected to be $4.03 to $4.14, up from previous guidance of $3.85 to $3.96. This new guidance reflects growth of 57% to 61% compared with 2017 GAAP diluted EPS of $2.57 and growth of 12% to 15% compared with 2017 non-GAAP diluted EPS of $3.60.
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. Guidance also assumes foreign exchange rates that are generally consistent with current levels.
Fourth Quarter 2017 Conference Call Webcast
The Company will hold a conference call to discuss fourth quarter 2017 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.
Henry Schein Reports Record Fourth Quarter and Full Year 2017 Financial Results
