Morningstar | Growth Remains Solid, Profits Remain Pressured, and Change Remains Constant for Henry Schein
Henry Schein reported solid quarterly growth, but its profits compressed once again as operating margins decreased 170 basis points to 5.06% and 4 basis points to 6.72% excluding restructuring and litigation charges. We're leaving our fair value estimate unchanged. We recognize these developments are a material improvement over recent trends, and we are pleased to see the firm able to offset strong secular headwinds. However, we would not be surprised to see the firm report mixed results over the near term given the pricing pressure it is facing within the dental consumable market. Given the shifting dental market, narrow-moat Schein announced earlier this year that it was spinning off its animal health segment and using the acquired cash for a major restructuring. The firm will refocus on revamping its core dental operations. While we applaud management for taking these necessary steps to improve the firm’s overall direction, we are concerned that new market entrants have permanently impaired pricing. Thus, we believe it’s critical Schein continue to streamline its operations and shift away from a cumbersome regional sales and delivery platform.We believe a material portion of dental customers for Henry Schein are using lower-cost options for consumable supplies, and the firm has been forced to discount its pricing to preserve volume. As a result, Schein plans to invest in its practice management and value-added services for dental practices over the next several quarters. We believe the firm is trying to create an easier platform for supply ordering and build more stickiness into its client base. These actions have the potential to improve Schein’s outlook, but we remain skeptical that the firm can preserve pricing and volume, especially in its dental consumable product line.
Schein (Henry) provides health care products and services to office-based dental and medical practitioners. The health care distribution segment distributes consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins. The company's technology group offerings include practice management software systems for dental and medical practitioners. The company's practice solutions include financial services on a non-recourse basis, e-services, practice technology, network and hardware services, and continuing education services for practitioners.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.