Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Henry Schein Inc (HSIC, Financial) exceeded its financial expectations for the third quarter and increased its non-GAAP EPS guidance range to $4.74 to $4.82.
- The company reported strong growth in high-growth, high-margin products and services, contributing over 40% of total non-GAAP operating income.
- Henry Schein Inc (HSIC) successfully launched its global e-commerce platform in the UK and Ireland, with plans to expand to the United States next year.
- The dental equipment business showed stability in North America and increased investment in Europe, Australia, and New Zealand.
- The company continues to return capital to shareholders through its share repurchase program, repurchasing approximately 2 million shares in the third quarter.
Negative Points
- Global sales growth was only 0.4% compared to the third quarter of 2023, with a decrease in LCI sales of 2.6%.
- The GAAP operating margin for the third quarter declined by 140 basis points compared to the prior year.
- There was a decrease in distribution business sales due to lower sales following last year's cyber incident.
- The orthodontic business experienced lower sales due to restructuring and transitioning to the Smilers brand clear aligner.
- The medical sales were impacted by less demand for respiratory diagnostic products and flu and COVID vaccines, along with a shift to generic alternatives for certain branded pharmaceuticals.
Q & A Highlights
Q: Can you comment on the overall health of the dental and medical trends as we move through October and into November, and how should we think about the third-quarter results versus the guidance?
A: The market is stable, with a shift towards lower-priced alternative brands in the U.S., impacting sales but not profitability. October merchandise sales trends were consistent with September. Implants and biomaterials showed strong growth, driven by specific products. Guidance reflects these trends, with expectations of stable market conditions and ongoing market share recovery post-cyber incident.
Q: Regarding 2025, the street expects over 4% revenue growth and nearly 11% EPS growth. Are these expectations aligned with your outlook?
A: We haven't provided 2025 guidance yet, but we're considering market trends and our market share recovery. The momentum from Q3 into Q4 and into 2025 will be key. We'll provide detailed guidance in February, considering these factors.
Q: How do restructuring savings compare to higher depreciation costs, and should margins improve next year?
A: We expect margins to improve as restructuring savings should more than offset increased depreciation expenses. Growth in revenues, especially in distribution, will be crucial for operating margin expansion in 2025.
Q: Can you elaborate on the dental manufacturers wanting to compete more and the restructuring in the clear aligner business?
A: Consumers are seeking value, leading to a shift towards lower-priced brands. This trend has been ongoing and is magnified recently. In the clear aligner business, we're transitioning from Reveal to Smilers, leveraging existing infrastructure to reduce costs and improve product offerings.
Q: How do you see capital allocation in 2025 compared to previous years?
A: We expect capital allocation in 2025 to align with historical trends, focusing on share repurchases and M&A in the $300 million to $400 million range. We're open to opportunistic M&A if it aligns with our strategic goals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
