HENRY SCHEIN INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• The BOLD+1 Strategic Plan is driving growth and efficiency, with high-growth, high-margin products/services contributing strongly.
• Dental and medical distribution businesses are regaining market share post-cyber incident.
• Dental equipment is stable in NA and seeing increased investment in Europe, Australia, NZ. Implant and endodontic products are growing in various regions.
• Exceeded 40% of operating income from high-growth, high-margin businesses and expect to exceed the 40% target for fiscal 2024.
• Launched global e-commerce platform in UK and Ireland, expect to launch in US next year.
• Restructuring plan is on target, and capital is being returned to shareholders via share repurchase.

Segment Performance

• Dental Distribution: Global dental sales were $1.9 billion, decreasing 1.6%. LCI sales decreased 1.6% (excluding PPE sales, global dental merchandise LCI sales decreased 1.9%, North America merchandise LCI sales decreased 4.0%, international merchandise LCI sales grew 1.0%). Global dental equipment LCI sales increased 1.8% (flat in North America, 5.6% growth internationally). Dental specialty product sales were approximately $258 million, slightly up but impacted by orthodontic business restructuring.
• Technology and Value-Added Services: Global sales were $221 million, with total sales growth of 5.1%. LCI sales declined 1.1% (3.1% decline in North America, 13.4% growth internationally).
• Medical: Global sales were $1.1 billion, with sales growth of 2.9% but LCI sales decreased 4.8% (impacted by less demand for respiratory diagnostic products and flu/covid vaccines, but Home Solutions had strong growth).

Guidance

• Increased non-GAAP EPS guidance range to $4.74 to $4.82 for 2024.
• 2024 total sales growth expected 4%-5% vs 2023.
• Adjusted EBITDA expected to grow in low double-digit percentages vs 2023 adjusted EBITDA of $984 million.
• Plan to issue 2025 guidance on Q4 earnings call in February 2025, expecting modest improvement in dental and medical markets, supported by investments, product launches, and cyber recovery.

Risks

• Impact of cyber incident on market share and customer loss.
• Fluctuations in demand for respiratory diagnostic products, flu and COVID vaccines.
• Migration to generic alternatives for branded injectable pharmaceuticals.
• Movement towards lower-cost products affecting margins.

Q: Can you sort of comment on the overall health of the dental and medical trends as we kind of get through October and into November?

A: The market is pretty stable. There's a shift on the consumable side towards lower-priced alternative brands and our own brands. Equipment investment is positive with practitioners investing in their practices. Implants and endodontic products are growing in various regions.

Q: Jeff Johnson asks about 2025 guidance vs Street expectations?

A: We haven't provided 2025 guidance yet. We'll consider market trends and market share recovery when issuing guidance in February.

Q: Kevin Caliendo asks about restructured savings vs depreciation?

A: Restructuring benefits from lower OpEx will more than offset depreciation increase, expecting operating margin expansion.

Q: Jonathan Block asks about drivers of market improvement?

A: Interest rate reduction could help, practitioners investing in digital technology, stable implant market, and improved Europe outlook are drivers.

Q: Jason Bednar asks about pricing environment and specialty vs non-specialty in dental?

A: Pricing environment has movement towards lower-cost and own brands, specialty parts like implants are growing, non-specialty has shifts but own brands help margins.

Q: John Stansel asks about intra-quarter trends in medical?

A: Medical market is stable post-cyber incident recovery, with some shifts in flu/vaccine demand, and recovery of lost customers.

Q: Brandon Vazquez asks about dental manufacturers competing more and Clear Aligner restructuring?

A: Manufacturers are adjusting to price resistance, Clear Aligner is transitioning from Reveal to Smilers to leverage distribution and reduce costs.

Q: Michael Petusky asks about 2025 capital allocation?

A: Expected to be in line with historical trends, including share repurchases, M&A, and potential debt paydown.