Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Henry Schein Inc (HSIC, Financial) delivered solid second-quarter financial results with strong operating cash flow.
- Gross margin increased, driven by high-growth, high-margin products and services, and successful performance of recent acquisitions.
- North American dental equipment sales showed positive growth across traditional equipment, digital imaging, CAD/CAM, and parts and services.
- The subscription-based Thrive signature program saw an increase in membership, driving customer loyalty.
- The restructuring plan aims to integrate recent acquisitions and right-size operations, targeting $75 million to $100 million in annual savings.
Negative Points
- The pace of recovery from the cyber incident last year has been slower than anticipated, impacting sales.
- Economic challenges in certain markets have led to a revision of the 2024 full-year financial guidance.
- International dental equipment sales were negatively impacted by changes in DSO legislation in France, a slow equipment market in Italy, and the expiration of tax incentives in Australia.
- Sales were affected by ongoing migration to generic alternatives for certain branded pharmaceuticals and lower sales of PPE products.
- Some dental practices are facing cash flow challenges due to reimbursement delays, impacting demand for certain software products and equipment.
Q & A Highlights
Q: Can you explain the reasons behind the reduction in 2024 sales growth expectations?
A: The reduction is primarily due to a slower-than-anticipated recovery from the cyber incident and a more conservative approach to distributor recapture. Additionally, the economic environment has been challenging, impacting our sales growth. We initially expected a stronger economy and faster recovery, but these factors have led us to adjust our guidance.
Q: Why do you still expect to recapture the business lost due to the cyber incident?
A: We have seen sequential month-over-month improvement in recapturing market share. Our field sales force is now focusing on smaller customers, and our telesales team is back to making outbound calls. Customers have responded positively to our outreach, and we are confident in our ability to continue gaining market share.
Q: What are your expectations for organic growth and margin profile in 2025?
A: We expect stable patient traffic and market growth, with a focus on gaining market share. Our specialty businesses, particularly implants and bone regeneration, are expected to contribute positively. We also anticipate growth in our medical business, especially in alternate care settings and homecare. The restructuring initiatives and increased ownership in certain subsidiaries will provide additional opportunities for growth and efficiency.
Q: Can you provide more details on the restructuring program and its impact on 2024 and 2025?
A: The restructuring program aims to achieve $75 million to $100 million in annual run-rate savings over the next 18 months. We expect some immediate benefits in the fourth quarter of 2024, with more complex actions continuing into 2025. The program includes integrating recent acquisitions and optimizing operations to leverage our one-chain approach with customers.
Q: How is your relationship with Dentsply Sirona, and what is the status of your agreement with them?
A: Our relationship with Dentsply Sirona is strong, and we are one of their biggest global customers. We do not have a formal contract but operate under a Memorandum of Understanding. We continue to work well together, and they are committed to adding more sales power to their organization, which benefits us.
Q: Can you comment on the growth rate for implants in Q2 and your expectations for the rest of the year?
A: In Europe, particularly in Germany and France, we continue to see strong growth in implants. In North America, the market has been slower due to the delayed launch of a new product, but we expect growth to resume in the third quarter. Overall, we are confident in our implant business and expect positive trends to continue.
Q: How are trends in July and the third quarter so far compared to the second quarter?
A: We have seen continued growth in our distribution businesses, with sequential improvement in market share recapture. We expect this trend to continue into the third and fourth quarters. Specialty products and technology businesses are also expected to perform better in the second half of the year.
Q: Can you provide more details on the impact of larger customers ordering away and your expectations for their return?
A: We have seen some large customers return, particularly for pharmaceuticals. We are also gaining new large customers. The main challenge has been with smaller practices, but we are confident in our ability to recapture these customers as our sales force focuses on them.
Q: How does the shift towards own brands impact your guidance and future expectations?
A: The shift towards own brands is considered in our guidance and is generally positive for our gross profit. While it may depress sales slightly, it improves our margins. We expect this trend to continue as customers seek cost-effective options.
Q: What are your expectations for the back half of 2024 and as a jumping-off point for 2025?
A: We expect continued market share recapture and growth in specialty products, technology, and value-added services. The restructuring program will also contribute to improved efficiency and profitability. We are confident in our strategic direction and expect to deliver solid results in the medium to long term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
