EUR 850.00 For Business Accounts Only

Morningstar | Henry Schein's 1Q Results Show Restructuring Progress

Henry Schein's fiscal first-quarter results broadly met our expectations, and we are reiterating our no-moat rating. We anticipate a potential slight increase to our fair value estimate after we incorporate management's minor lift in 2019 outlook. The company raised the top end of its non-GAAP 2019 EPS guidance range by four cents, which now spans $3.38-$3.50 (versus our previous estimate of $3.40). We continue to view 2019 as a transitional year for Henry Schein, as the company works through its remaining spin-off activities. While the company benefited from robust demand in the quarter, we still expect ongoing challenges from discount products and pricing pressure will be a long-term headwind.

Schein's results showed relatively healthy demand during the quarter. Global dental sales grew at 3.2% internally in local currencies compared with the same period last year, driven by growth in international and North American regions. We continue to anticipate headwinds from discount vendors, and we also remain concerned about the increasing concentration of corporate dentistry buyers and its affect on long-term pricing power. We still think the company's dental strategy will focus on its specialty business, where we think the company is likely to pursue M&A opportunities. Based on management's conference call commentary, we find it likely that the company will target an acquisition in the nonpremium implant segment. Separately, the company's medical segment held a healthy 5.1% internal sales growth rate in local currencies despite a fairly light influenza season. We remain skeptical that the company will develop sustainable returns on invested capital in this segment, which faces notable competitors with larger scale operations.