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    Henry Schein Inc (HSIC)

    Business Description

    Henry Schein, Inc. is a global company that operates in the health care distribution and technology sectors, providing a wide range of products and services to dental and medical professionals . The company distributes consumable products, dental specialty items, medical equipment, pharmaceuticals, and personal protective equipment, among other health care products . Additionally, Henry Schein offers technology and value-added services, including practice management software and consultancy services, to enhance the efficiency and effectiveness of health care practices .

    1. Health Care Distribution - Distributes a comprehensive range of products including consumables, dental specialty products, medical equipment, pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, PPE, vitamins, and orthopedic implants .

      • Dental Specialty Products - Offers implants, orthodontics, and endodontics products to dental practitioners and institutions .
      • Medical Equipment and Supplies - Provides small and large equipment, equipment repair services, and branded and generic pharmaceuticals to medical facilities .

    2. Technology and Value-Added Services - Provides software and technology solutions, including practice management systems, consultancy, education, revenue cycle management, financial services, e-services, and continuing education services to health care practitioners .

    3. Corporate Brand Portfolio - Markets and sells a range of cost-effective, high-quality consumable merchandise products, including in vitro diagnostic devices, and manufactures certain dental specialty products .

    Q3 2024 Summary

    Initial Price$64.21June 28, 2024
    Final Price$73.22September 28, 2024
    Price Change$9.01
    % Change+14.03%

    What went well

    • Henry Schein is recovering from the cyber incident, regaining customers, and growing market share in its core distribution business, particularly in the medical segment, leading to a stable and improving performance.
    • The company is experiencing strong growth in its high-margin implant business, notably in North America with the adoption of the BioHorizons tapered pro conical implant, and is gaining market share in Europe, indicating solid momentum in this segment.
    • Operational efficiencies and restructuring initiatives are leading to significant cost savings, with expectations of operating margin expansion in 2025, as lower operating expenses offset increased depreciation, positioning the company for improved profitability.

    What went wrong

    • Henry Schein is still recovering from a cyber incident that resulted in the loss of customers to drug wholesalers in its medical business. The company acknowledges that it "did lose some customers, specifically lost some to drug wholesalers" and needs to regain some pharmaceutical distribution business.
    • There is a market shift towards lower-priced alternative brands and generic products in the dental market, which may impact Henry Schein's sales revenue and margins. Customers are moving towards "lower-priced alternative brands and our own brands," leading to "stable to slightly reduction in dollar sales" despite units increasing in low single digits.
    • The company's operating margin expansion in 2025 is uncertain and depends on achieving revenue growth in the distribution business, which may face challenges. Management states that "we need to see what kind of momentum we have... before we can commit" to operating margin expansion, indicating potential risks to profitability improvement.

    Q&A Summary

    1. 2025 Guidance Expectations
      Q: Should we lower 2025 revenue and EPS estimates?
      A: Management suggested that current Street estimates of over 4% revenue growth and nearly 11% EPS growth for 2025 might be optimistic. They recommend awaiting February guidance, as market momentum and market trends will influence projections.

    2. Margin Improvement and Restructuring Savings
      Q: Will margins improve next year despite restructuring and depreciation?
      A: Management expects operating margins to improve in 2025. They believe that restructuring savings of $75 million to $100 million by the end of 2025 will more than offset higher depreciation expenses.

    3. Capital Allocation in 2025
      Q: Will capital allocation in 2025 match prior years?
      A: The company anticipates capital allocation in 2025 to align with historical trends, including $300 million to $400 million for share repurchases and similar amounts for M&A, with potential for accelerated debt reduction.

    4. Dental and Medical Market Outlook
      Q: What's driving your optimistic outlook for 2025?
      A: Management foresees stable to improving dental and medical markets in 2025, driven by practitioners investing in digital technology, steady equipment sales, and potential benefits from lower interest rates.

    5. Market Share Recovery
      Q: Will market share recovery boost consumables next year?
      A: The company expects continued market share recovery in distribution businesses, potentially providing tailwinds in consumables, especially in the first half of 2025.

    6. Implant Business Performance
      Q: What's behind the strong implant performance?
      A: The introduction of the tapered pro conical implant and increased confidence among sales teams are driving strong implant sales, leading to market share gains in North America.

    7. Competitive Environment and Pricing
      Q: Are dental manufacturers becoming more competitive?
      A: There's a trend of consumers opting for lower-priced alternatives, prompting manufacturers to compete more aggressively. This may impact pricing dynamics going into 2025.

    8. Medical Business Trends
      Q: How is the medical segment performing?
      A: The medical business is stable, recovering from past challenges. Growth is expected in areas like home care and orthopedics, with positive trends in ambulatory surgical centers.

    9. Technology and Value-added Services
      Q: What's causing headwinds in value-added services?
      A: Timing issues and a shift from on-premise sales to SaaS models are affecting reported revenues. However, the business is growing, and these effects are expected to normalize.

    10. Clear Aligner Business Restructuring
      Q: What's happening with the clear aligner business?
      A: The company is transitioning from the Reveal brand to Smilers, consolidating offerings to leverage a better product and reduce costs, though it may take a few quarters to fully implement.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Health Care Distribution2,8692,9072,9522,80511,5332,9552,9222,953
    - Dental1,8981,9571,8821,8027,5391,9141,9241,852
    - Animal Health--------
    - Medical9719501,0701,0033,9941,0419981,101
    Technology and Value-Added Services191193210212806217214221
    Corporate TSA Revenues--------
    Total Revenue3,0603,1003,1623,01712,3393,1723,1363,174
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    North America2,2612,2622,363--2,3062,2852,355
    International799838799--866851819
    United States----8,631---
    Other----3,708---
    Total Revenue3,0603,1003,1623,01712,3393,1723,1363,174

    Executive Team

    NamePositionStart DateShort Bio
    Stanley M. BergmanChairman, Chief Executive Officer, Director1980Stanley M. Bergman has been with Henry Schein, Inc. since 1980, serving as Chairman and CEO since 1989 and as a director since 1982. Under his leadership, the company has grown significantly, with sales increasing from approximately $600 million in 1995 to about $12.3 billion in 2023 .
    James P. BreslawskiVice Chairman, President, Director1980James P. Breslawski has been with Henry Schein, Inc. since 1980. He has served as Vice Chairman since 2018, President since 2005, and as a director since 1992. He previously held the position of CEO of the Henry Schein Global Dental Group from 2005 to 2018 .
    Brad ConnettChief Executive Officer, North America Distribution Group1997Brad Connett has been with Henry Schein since 1997 and currently serves as the CEO of the North America Distribution Group since 2021. He was previously President of the U.S. Medical Group from 2019 through September 2021 .
    Michael S. EttingerExecutive Vice President, Chief Operating Officer1994Michael S. Ettinger has been with Henry Schein, Inc. since 1994. He has served as the Executive Vice President and COO since July 1, 2022. He oversees various corporate functions and is a member of the board of directors of the Henry Schein Cares Foundation, Inc. .
    Lorelei McGlynnSenior Vice President, Chief Human Resources Officer1999Lorelei McGlynn has been with Henry Schein, Inc. since 1999. She has served as the Senior Vice President, Chief Human Resources Officer since 2013, leading the company's global HR strategy and programs .
    Mark E. MlotekExecutive Vice President, Chief Strategic Officer, Director1994Mark E. Mlotek has been with Henry Schein, Inc. since 1994. He has served as the Executive Vice President and Chief Strategic Officer since 2012 and has been a director since 1995 .
    Walter SiegelSenior Vice President, Chief Legal Officer2013Walter Siegel has been with Henry Schein, Inc. since 2013 and has served as the Senior Vice President and Chief Legal Officer since 2021. He is responsible for the company's worldwide legal, compliance, and regulatory functions .
    Ronald N. SouthSenior Vice President, Chief Financial Officer2008Ronald N. South has been with Henry Schein, Inc. since 2008. He has served as the Senior Vice President and CFO since April 2022. He was previously the Vice President of Corporate Finance and Chief Accounting Officer .
    Andrea AlbertiniChief Executive Officer, International Distribution Group2013Andrea Albertini has been with Henry Schein, Inc. since 2013. He currently serves as the CEO of the International Distribution Group since February 2023. He previously held several key positions within the company .
    Leigh BenowitzSenior Vice President, Chief Global Digital Transformation Officer2017Leigh Benowitz has been with Henry Schein, Inc. since 2017 and has served as the Senior Vice President and Chief Global Digital Transformation Officer since August 2022. She leads the Global eCommerce Transformation Organization .
    Trinh ClarkSenior Vice President, Chief Global Customer Experience Officer2007Trinh Clark has been with Henry Schein, Inc. since 2007 and currently serves as the Senior Vice President and Chief Global Customer Experience Officer since August 2022. She focuses on delivering an exceptional customer experience .
    James MullinsSenior Vice President, Global Supply Chain1988James Mullins has been with Henry Schein, Inc. since 1988 and has served as the Senior Vice President, Global Supply Chain since 2018. He leads the global supply chain and U.S. customer service functions .
    Kelly MurphySenior Vice President, General Counsel2011Kelly Murphy has been with Henry Schein, Inc. since 2011 and has served as the Senior Vice President and General Counsel since 2021. She is responsible for the company's legal activities related to mergers and acquisitions globally .
    Christopher PendergastSenior Vice President, Chief Technology Officer2018Christopher Pendergast has been with Henry Schein, Inc. since 2018 as Senior Vice President and Chief Technology Officer. He brings over 30 years of experience in leading large-scale global IT organizations .
    René Willi, Ph.D.Chief Executive Officer, Global Oral Reconstruction Group2013René Willi, Ph.D., has been with Henry Schein, Inc. since 2013 and currently serves as the CEO of the Global Oral Reconstruction Group since 2021. He was previously the President of the Global Dental Surgical Group .

    Questions to Ask Management

    1. Given the restructuring savings target of $75 million to $100 million by the end of 2025, what specific risks could hinder achieving these savings, and how confident are you in realizing operating margin expansion next year?
    2. With a shift towards lower-priced alternative and owned-brand dental products impacting sales but maintaining profitability, how do you plan to drive top-line growth while preserving margins amid increased competition from second-tier manufacturers?
    3. After losing customers to drug wholesalers due to last year's cyber incident, what specific strategies are you employing to regain market share in the medical distribution business, and how will you differentiate your services to prevent further customer attrition?
    4. Despite increasing your non-GAAP EPS guidance for 2024, you have lowered your total sales growth guidance; what factors are causing this divergence, and how sustainable is your EPS growth given the reduced sales outlook?
    5. Considering your significant investments in the global e-commerce platform leading to higher depreciation expenses, how confident are you that these investments will generate the anticipated growth to offset increased costs, especially with the planned U.S. launch next year?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateMarch 3, 2003
    End Date/DurationOngoing
    Total Additional Amount$5.5 billion
    Remaining Authorization$455 million
    DetailsLatest authorization of $500 million on July 31, 2024

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Total Sales Growth: Expected to be 4% to 5% over 2023 .
      2. Non-GAAP Diluted EPS: Increased to a range of $4.74 to $4.82, reflecting growth of 5% to 7% compared with 2023 .
      3. Adjusted EBITDA: Expected to grow in the low double-digit percentages versus 2023 adjusted EBITDA of $984 million .
      4. Non-GAAP Effective Tax Rate: Estimated to be 25% .
      5. Restructuring Savings: Estimated to provide over $50 million in annual run rate savings, with a goal of $75 million to $100 million by the end of 2025 .
      6. Share Repurchases: Continued repurchase of shares expected, with $455 million authorized and available .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Total Sales Growth: Expected to be 4% to 6% over 2023 .
      2. Non-GAAP Diluted EPS: Expected to be in the range of $4.70 to $4.82, reflecting growth of 4% to 7% .
      3. Adjusted EBITDA Growth: Expected to grow in the low double-digit percentages versus 2023 .
      4. Non-GAAP Effective Tax Rate: Estimated to be 25% .
      5. Operating Income Contribution: Specialties products, technology, and value-added services expected to contribute more than 40% of total non-GAAP operating income .
      6. Stock Repurchase: An additional $500 million authorized, with expectations to repurchase approximately $175 million in shares .
      7. Restructuring Plan Savings: Targeting between $75 million to $100 million in annual savings .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Non-GAAP Diluted EPS: Expected to be in the range of $5 to $5.16, reflecting growth of 11% to 15% .
      2. Adjusted EBITDA Growth: Expected to increase by more than 15% .
      3. Total Sales Growth: Expected to be 8% to 10% over 2023 .
      4. Cyber Incident Impact: Guidance excludes potential insurance claim proceeds related to a cyber incident .
      5. Market Conditions: Assumes consistent foreign currency exchange rates and market conditions .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Non-GAAP Diluted EPS: Expected to be in the range of $5 to $5.16, reflecting growth of 11% to 15% .
      2. Total Sales Growth: Expected to be 8% to 12% over 2023 .
      3. Adjusted EBITDA Growth: Expected to increase by more than 15% .
      4. Market Growth Rates: Expected to be at the lower end of long-term assumptions .
      5. Foreign Currency Exchange Rates: Assumed to be consistent with current levels .
      6. End Markets: Assumed to remain consistent with current conditions .

    These guidance metrics reflect Henry Schein's expectations for FY 2024, considering various market conditions and internal factors.

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Patterson Dental division of Patterson Companies, Inc. - Primary competitor in the U.S. dental market .
    • Benco Dental Supply Company - Competitor in the U.S. dental market .
    • McKesson Corporation - Primary competitor in the U.S. medical market .
    • Medline Industries, Inc. - Primary competitor in the U.S. medical market .
    • Carestream Health, Inc. - Competitor in dental software .
    • Carestream Dental LLC - Competitor in dental software .
    • Centaur Software Development Co Pty Ltd. (d.b.a. dental4windows, dental4web) - Competitor in dental software .
    • Open Dental Software, Inc. - Competitor in dental software .
    • PlanetDDS LLC - Competitor in dental software .
    • Good Methods Global Inc. (d.b.a. CareStack) - Competitor in dental software .
    • Curve Dental, LLC - Competitor in dental software .
    • Vyne Therapeutics Inc. - Competitor in revenue cycle management, patient relationship management, and patient demand generation software .
    • EDI-Health Group, Inc. (d.b.a. Dental X Change, Inc.) - Competitor in revenue cycle management, patient relationship management, and patient demand generation software .
    • Weave Communications, Inc. - Competitor in revenue cycle management, patient relationship management, and patient demand generation software .
    • Solutionreach, Inc. - Competitor in revenue cycle management, patient relationship management, and patient demand generation software .
    • NextGen division of Quality Systems, Inc. - Competitor in medical practice management and electronic medical records .
    • eClinicalWorks - Competitor in medical practice management and electronic medical records .
    • Allscripts Healthcare Solutions, Inc. - Competitor in medical practice management and electronic medical records .
    • Epic Systems Corporation - Competitor in medical practice management and electronic medical records .
    • GACD Group - Competitor in international dental and medical product distribution .
    • Proclinic SA - Competitor in international dental and medical product distribution .
    • Lifco AB - Competitor in international dental and medical product distribution .
    • Planmeca Oy - Competitor in international dental and medical product distribution .
    • Billericay Dental Supply Co. Ltd. - Competitor in international dental and medical product distribution .