Henry Schein's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Henry Schein (HSIC)

Q1 2012 Earnings Call

May 08, 2012 10:00 am ET


Susan Vassallo - Vice President of Corporate Communications

Stanley M. Bergman - Executive Chairman and Chief Executive Officer

Steven Paladino - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Executive Director


Glen J. Santangelo - Crédit Suisse AG, Research Division

Robert P. Jones - Goldman Sachs Group Inc., Research Division

S. Brandon Couillard - Jefferies & Company, Inc., Research Division

Steven Valiquette - UBS Investment Bank, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Michael R. Minchak - JP Morgan Chase & Co, Research Division

Elliot Feldman - Barclays Capital, Research Division

Jonathan Block - SunTrust Robinson Humphrey, Inc., Research Division



Good morning, ladies and gentlemen, and welcome to the Henry Schein First Quarter Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Susan Vassallo, Henry Schein's Vice President of Corporate Communications. Please go ahead, Susan.

Susan Vassallo

Thank you, operator, and my thanks to each of you for joining us to discuss Henry Schein's first quarter results. With me this morning are Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein; and Steven Paladino, Executive Vice President and Chief Financial Officer.

Before we begin, I would like to state that certain comments made during this call will include information that is forward-looking. As you know, risks and uncertainties involved in the company’s business may affect the matters referred to in forward-looking statements. As a result, the company's performance may differ from those expressed in or indicated by such forward-looking statements. Also, these forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's Securities and Exchange Commission filings. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 8, 2012. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. I ask that during the Q&A portion of today's call you please limit yourself to a single question and a follow-up before returning to the queue. This will provide the opportunity for as many listeners as possible to ask a question within the one hour we have allotted for this call. With that said, I would like to turn the call over to Stanley Bergman.

Stanley M. Bergman

Good morning and thank you, Susan. And thank you, everyone for joining us. Before I begin to discuss the quarter, let me just note that last night the Fortune rankings, Fortune 500 rankings were issued, and Henry Schein placed 303 in the 2012 Fortune 500 Ranking of America's Largest Corporations. We are very pleased by this recognition of our ability to record steady growth even during challenging economic times. Our steady growth in -- position on the ranking is reflective of the wonderful work that our team of over 15,000 Team Schein Members around the world has undertaken in the past 16 years as a public company. Today, we are also pleased to be reporting overall sales growth of 7.8%. This is the first quarter that we are presenting net sales results for our global customer-centric business units and each of our global Dental, Animal Health, Medical and Technology and Value-Added Services units reported growth in local currency in mid single digits or better. So I think with the new way in which we're reporting our sales with these new global verticals, it'll give our shareholders a far better ability to understand the performance of the company and align the sales reporting and the profitability reporting of the company with our strategic plan.

Based on the strength of our first quarter financial results and our continued confidence in our outlook for the rest of the year, we are increasing EPS guidance -- or our EPS guidance range for 2012. Reflecting this outlook, our Board of Directors recently voted to authorize the repurchase of up to additional $200 million shares of Henry Schein common stock. Earlier this year, as discussed during our last quarterly call, we are continuing to optimize our cost structure and improve profitability. We look forward to the future with more efficient organization; the organization will be far more focused and efficient at using our resources and in that context, even have a sharper global view of our customers and their evolving needs.

In a moment, I'll provide some commentary on each of our business units. Again, thank you to our 15-plus-thousand team Schein members around the world who are producing outstanding results for our shareholders quarter-upon-quarter. But before I go into further details and provide commentary, let me ask Steve Paladino, our CFO, to provide commentary on the first quarter financial results.

Steven Paladino

Okay, thank you, Stan, and good morning to everyone. I am also very pleased to be reporting strong financial results for the first quarter of 2012. Before we begin, I'd like to point out that our 2012 first quarter results include restructuring costs of $11.8 million pretax or $0.09 per diluted share. We announced this restructuring on our last quarterly conference call and Exhibit B to this morning's earnings news release reconciles our GAAP to non-GAAP earnings and EPS from continuing operations.

Turning to our financial performance. Our net sales for the quarter ended March 31, 2012 were $2.1 billion, reflecting a 7.8% increase compared with the first quarter of 2011. This consists of 8.4% growth in local currencies and a 0.6% decline related to foreign currency exchange. In local currencies, our internally generated sales were up 7.8% and the acquisition growth was 0.6%. You can see the details of our sales growth that are contained also in Exhibit A in our earnings news release.

Let me point out that the comparison to the prior year first quarter was favorably impacted because the first quarter of 2012 did not include the December holiday week, whereas that particular holiday week was included in the first quarter of 2011. So this made for a somewhat easier sales growth comparison in the first quarter of 2012. If we adjust for that sales growth for that impact, our worldwide internally generated sales growth for the first quarter was 5.6% in local currencies, and that compares to the 7.8% I just mentioned. This impact was favorable on a worldwide consolidated basis on all of our sales categories, except for Dental equipment. This is because the last calendar week of the year is an exceptionally strong week for Dental equipment sales. This strong week was included in Q1 of last year in our reported sales, but again not in Q1 of the current year. And practitioners often make equipment purchases during the last calendar week of the year to take advantage of various tax incentives as well as other factors. This impact was primarily exhibited in our North American Dental equipment sales, and I will provide the specifics of this impact later on. We also believe that sales were somewhat favorably impacted by the overall mild winter weather this year. This factor had a positive impact in our Dental and Animal Health businesses due to increased patient traffic. However, we believe medical sales were adversely impacted by this mild weather as we saw a decline in sales of certain diagnostic consumable products for the quarter and I'll also talk about this impact later on.

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