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Miles of Smiles

By Thomas Scarlett on September 1, 2015

Henry Schein Inc. (NASDAQ: HSIC) is the country’s biggest supplier of dental equipment and products. Going to the dentist remains a crucial part of maintaining health, and Schein has a very strong position in this industry.

In addition to dental laboratories, Henry Schein supplies equipment to practicing dentists and periodontists, government and institutional health care clinics, alternate care sites. The company has nearly 16,000 employees and serves about 800,000 customers.

The need for dental work tends to increase sharply as individuals enter their golden years. With the aging of the baby boomers, Schein seems assured of a large market for its products for many years to come.

The firm operates through a centralized and automated distribution network, with a selection of more than 96,000 national and Henry Schein private-brand products in stock, as well as more than 110,000 additional products available as special-order items. The company also sells practice management software and e-commerce systems, as well as financial services.

Headquartered in Melville, New York, the company has operations or affiliates in 25 countries, including the United States, China, France, Germany, and the United Kingdom.

In 1932, at the bottom of the Great Depression, Henry Schein and his wife Esther borrowed 500 bucks and opened a pharmacy in Queens, New York. The two of them grew their small pharmacy into a Fortune 500 company, the largest distributor of healthcare products and services to office-based practitioners.

The company’s second-quarter earnings results were very promising. Net sales for the quarter ended June 27, 2015 were $2.6 billion, an increase of 0.5% compared with the second quarter of 2014.  This consisted of 7.5% growth in local currencies and a 7.0% decline related to foreign currency exchange. 

Net income attributable to Henry Schein, Inc. for the second quarter of 2015 was $117.9 million, or $1.40 per share.  Excluding restructuring costs of $7.2 million pretax or $0.06 per share, net income for the second quarter of 2015 was $123.2 million or $1.46 per share, an increase of 6.0% and 8.1%, respectively, compared with the second quarter of 2014.

“Our second quarter financial results were solid with internal sales growth in local currencies in each of our four business groups.  Total sales growth was again negatively impacted by the strength of the U.S. dollar against various foreign currencies, in particular the euro,” said Stanley Bergman, Chief Executive Officer of Henry Schein.  “Overall the global markets we serve were healthy during the quarter, and we believe we continued to gain market share.  We are pleased to affirm our guidance range for 2015 adjusted diluted EPS and expect that our restructuring activities will continue to favorably impact our ongoing results.”

Dental sales of $1.3 billion declined 3.5%, consisting of 4.5% growth in local currencies and an 8.0% decline related to foreign currency exchange.  However, in local currencies internally generated sales increased 4.1% and acquisition growth was 0.4%. .

International consumable merchandise internal sales returned to positive growth of 2.0% for the quarter, and international equipment sales and service internal growth of 11.8% was at a multi-year high and included the favorable impact of the biennial International Dental Show.

The company has a market cap of around $10 billion. Its price-earnings ratio of 24 seems quite reasonable considering how well-established it is.

Just as 2013 was ending, the company announced the completion of a 60 percent equity investment in BioHorizons, Inc., a U.S.-based manufacturer of advanced dental implant technology and tissue regeneration products sold globally.

Together with the company’s investment in CAMLOG Biotechnologies AG, a leading manufacturer of dental implants in Europe, Henry Schein now has important positions in the U.S. and German implant markets, as well as a growing presence in the rest of the world. The investment in BioHorizons also strengthens the firm position and product portfolio in the biologics market, which is a critical adjunct to the implant market.

“With the completion of this strategic investment in BioHorizons we have advanced our dental specialties markets business strategy and now have a stronger presence in two of the world’s largest markets for dental implants,” said Bergman.

Implant dentistry is a critical element of the profession’s transition to digital dentistry, Bergman noted, and customer demand for implants and the associated materials is expected to increase as digital processes are adopted and the patient’s dental experience is enhanced.

The company should be a steady performer for some time to come. It’s a buy up to 145.

Tom Scarlett is an investment analyst at Personal Finance and its parent web site Investing Daily.


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