Henry Schein, Inc. (Henry), a dental devices company, has reported net sales of $6.4 billion for the full year of 2008, compared with the net sales of $5.9 billion previous year-end. It has also reported a net income of $243.1 million or $2.67 per diluted share, for the full year of 2008, compared with the net income of $215.2 million or $2.36 per diluted share, in the previous year-end.
Net sales for the last quarter of 2008 were $1.6 billion, down 7.5%, against the fourth quarter of 2007. This consists of a 1.8% decline in local currencies (3.0% decline in internal net sales and 1.2% growth from acquisitions) and a 5.7% decline related to foreign currency exchange. The company previously announced an initiative of reducing sales of certain lower-margin pharmaceutical products. Excluding sales of those products, internal net sales in local currencies declined 1.1%.
Income from continuing operations for the fourth quarter of 2008 was $64.2 million, or $0.72 per diluted share. These results include certain restructuring costs (discussed below) of $23.2 million (or $0.18 per diluted share, after-tax) related to the elimination of about 300 positions from operations and the closing of several smaller facilities. Excluding the impact of these restructuring costs, income from continuing operations for the quarter was $80.2 million, or $0.90 per diluted share, an increase of 4.5% and 8.4%, respectively, against the fourth quarter of 2007. The company recorded a loss on discontinued operations during the fourth quarter of 2008 of $7.3 million (or $0.08 per diluted share, after-tax) related to the previously announced decision to exit its wholesale ultrasound business.
“Although internal net sales declined slightly during the fourth quarter, we are pleased to report that excluding restructuring costs, we had solid operating margin expansion and 8% growth in diluted EPS from continuing operations,” said Stanley M. Bergman, chairman and chief executive officer of Henry Schein. “Operating margin for the quarter, excluding restructuring charges, reached 8.1%, which is up 76 basis points against the prior year fourth quarter.
For the year our operating margin, excluding restructuring charges, was 6.9%, which is up 35 basis points and is in line with our stated company goal for annual operating margin expansion.”
Dental Group sales of $665 million declined 2.4%, consisting of a 0.3% decline in local currencies (all internal) and a 2.1% decline related to foreign currency exchange. The 0.3% internal decline in local currencies consists of a Dental consumable merchandise sales increase of 1.4% and a Dental equipment sales and service revenues decline of 3.6%.
“Our fourth quarter Dental Group results reflect the current economic environment and uncertainty, particularly impacting overall demand for dental equipment,” commented Bergman.
Medical Group sales of $349 million declined 12.6%, consisting of a 13.5% decline in internally generated sales and 0.9% growth due to acquisitions. Excluding sales of certain lower-margin pharmaceutical products, noted above, internal Medical Group sales declined about 6% and declined about 1% when also excluding sales of influenza vaccine. Fourth quarter Medical Group sales growth was negatively impacted by the timing of influenza vaccine sales compared to prior year.
“During the fourth quarter we sold 3.1 million doses of influenza vaccine. For the year we sold 13.6 million doses, which is at the midpoint of our guidance range,” said Mr. Bergman. “We are also pleased with the results from our animal health business. Sales to our veterinary customers represented about 14% of the Medical Group’s fourth quarter total sales and were up about 4.3%.”
For the quarter, International Group sales of $528 million declined 10.8%, consisting of 2.9% growth in local currencies (0.1% internally generated and 2.8% from acquisitions) and a 13.7% decline related to foreign currency exchange.
“Results in our International Group reflect a strengthening of the U.S. dollar,” added Mr. Bergman. “Yet we are pleased to report solid internal sales growth in most of our major markets, with double-digit internal sales gains in local currencies reported in Australia and New Zealand.”
Technology and Value-Added Services Group sales of $42 million increased 6.5% during the quarter, consisting of 10.9% growth in local currencies (all internally generated) and a 4.4% decline related to foreign currency exchange.
“During the quarter we saw continued strong growth in financial services as equipment and practice financing transactions posted 10.4% growth, which follows 30% growth reported in the previous quarter. Our electronic services business also was strong during the quarter,” stated Bergman.
Full Year Results
Net sales increase consists of 7.5% local currency growth (1.3% internally generated and 6.2% from acquisitions) and 0.8% related to foreign currency exchange. Excluding sales of certain lower-margin pharmaceutical products, noted above, internal net sales growth in local currencies was 3.6%.
Income from continuing operations for 2008 was $251.0 million, or $2.75 per diluted share. Excluding the charge in the third quarter of 2008 related to the Lehman Brothers bankruptcy ($0.03 per diluted share, after-tax) and the fourth quarter restructuring costs, income from continuing operations for 2008 was $270.0 million, or $2.96 per diluted share, reflecting growth of 14.4% and 14.3%, respectively, against 2007.
Stock Repurchase Plan
Henry Schein repurchased 568,410 shares of common stock during the fourth quarter of 2008 for a total purchase price of about $28 million. The impact of this share repurchase was immaterial to fourth quarter diluted EPS. During 2008 the company repurchased 1,621,710 shares of common stock for a total purchase price of about $83 million. Approximately $58 million remains authorized for future common stock repurchases.
In November 2008 Henry Schein announced plans to eliminate about 300 positions from its operations around the world and to close several smaller facilities. This initiative is substantially complete. The company recorded costs associated with this initiative of $23.2 million in the fourth quarter of 2008, and expects to record remaining costs of $1 million to $3 million in the first quarter of 2009. Annual pretax cost savings from this initiative are expected to be about $24 million to $27 million and are included in our 2009 EPS guidance.
2009 EPS Guidance
“We are revising our full-year 2009 financial guidance due to worsening economic conditions, our expectation for continued economic weakness and the strengthening of the U.S. dollar,” commented Bergman. Henry Schein’s 2009 financial guidance now is as follows:
2009 diluted EPS is expected to be $3.11 to $3.26, representing growth of 5% to 10% against reported 2008 results, excluding charges related to the Lehman Brothers bankruptcy, as well as restructuring costs. This compares with previous guidance for 2009 diluted EPS of $3.27 to $3.36. The 2009 guidance does not include any restructuring costs expected to be recorded during the year.
For the first quarter of 2009, the company expects diluted EPS to be in the range of flat to growth in the low-single-digit percentages, against the first quarter of 2008, excluding restructuring costs expected to be recorded during the quarter, as described above.
2009 diluted EPS guidance is for current continuing operations including completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any.