(HSIC) Henry Schein’s Earnings Report in Line – Revenues Up

Henry Schein (HSIC) reported EPS of $1.01 in the second quarter of fiscal 2011, in line with the Zacks Consensus Estimate and 12.2% higher than the year-ago period.

Net sales reported a 15.2% rise to $2.1 billion, including a 10.1% increase in local currency and foreign currency growth of 5.1%. Revenues beat the Zacks Consensus Estimate of $2.03 billion.

Henry Schein derives revenues from dental, medical, animal health, international and, technology and value added services. These divisions accounted for 33.3% ($709.3 million), 14.9% ($317.3 million), 12.2% ($260.3 million), 36.7% ($781.7 million) and 2.9% ($62.1 million), respectively, of the total revenue during the quarter.

North American Dental, which is the company’s largest segment, recorded a 4.7% increase in sales driven by a 4.0% rise in local currency coupled with 0.7% growth in foreign exchange. During the quarter, the dental consumable merchandise sales increased 4.8% in local currency.

Moreover, the dental equipments sales marginally rose 1.3% year over year in local currency. Excluding the sales of Biolase products for both the comparable periods, Dental equipment sales grew 3.8% in local currency. The company witnessed Dental consumable merchandise sales growth for the eighth consecutive quarter while Dental equipment sales and service revenues increased for the sixth consecutive quarter.

The 10.8% upside (second consecutive quarter of double-digit sales growth) in medical sales reflected the success of clinical diagnostic products and pharmaceuticals.

The company’s animal health segment witnessed a 10.9% increase in revenues during the quarter primarily attributable to the growth in companion animal and equine space.

Revenues derived from the international market surged 29.8% from the year-ago period, consisting of a 15.1% growth in local currency on the back of the Provet Holdings acquisition, which was completed earlier this year and a 14.7% increase in foreign exchange.

Although the company witnessed sound revenue growth across all its segments, gross margin declined 80 basis points (bps) to 28.7% due to a 16.5% rise in cost of sales. Moreover, a 13.1% growth in selling, general and administrative expenses led to a 37-bps dip in operating margin to 7.09%.

Henry Schein exited the quarter with cash and cash equivalents of $161.8 million, compared to $150.3 million at the end of December 2010. During the reported quarter, the company repurchased 71,338 shares and was left with $67.9 of authorization for future repurchases.

Henry Schein narrowed down its EPS guidance for fiscal 2011. The company expects EPS of $3.92?$3.98 (previous guidance was $3.88?$3.98). The Zacks Consensus Estimate of $3.95 is within the guided range.

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