Dental and medical products company Henry Schein (NASDAQ:HSIC) missed Wall Street’s revenue expectations in Q1 CY2025, with sales flat year on year at $3.17 billion. Its non-GAAP profit of $1.15 per share was 3.6% above analysts’ consensus estimates.
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Henry Schein (HSIC) Q1 CY2025 Highlights:
- Revenue: $3.17 billion vs analyst estimates of $3.23 billion (flat year on year, 2% miss)
- Adjusted EPS: $1.15 vs analyst estimates of $1.11 (3.6% beat)
- Adjusted EBITDA: $259 million vs analyst estimates of $260.8 million (8.2% margin, 0.7% miss)
- Management reiterated its full-year Adjusted EPS guidance of $4.87 at the midpoint
- Operating Margin: 5.5%, in line with the same quarter last year
- Free Cash Flow Margin: 0.2%, down from 4.9% in the same quarter last year
- Organic Revenue was flat year on year (-1.8% in the same quarter last year)
- Market Capitalization: $8.71 billion
StockStory’s Take
Henry Schein’s results for the first quarter reflected a combination of flat sales and cost discipline, with management attributing the slow start to January’s weather disruptions and foreign exchange headwinds. CEO Stanley Bergman emphasized that after these early challenges, sales momentum improved through February and March, supported by higher volumes in core dental and medical distribution and a steady increase in new dental practice build-outs. The company also highlighted continued progress in its high-growth, high-margin specialty and technology segments, which are central to its BOLD+1 strategic plan.
Looking ahead, management reiterated its full-year adjusted EPS guidance, projecting that ongoing restructuring efforts, cost controls, and sourcing strategies will help counteract tariff-related uncertainties and stabilize profitability. CFO Ron South discussed that most sales growth this year is expected to be internally generated, with foreign exchange expected to have a neutral impact. Management noted, “We believe our current and future actions with our suppliers and customers will be effective at mitigating this year's impact on our financial results from the current tariff situations.”
Key Insights from Management’s Remarks
Management discussed several operational and market factors shaping performance in Q1, as well as ongoing initiatives to improve efficiency and future growth prospects:
- Weather and Comparison Impacts: January’s slow sales were attributed to weather-related disruptions, while year-over-year comparisons were affected by prior deferrals in dental equipment sales from late 2023 into early 2024.
- Strategic Shift to High-Margin Segments: Specialty products (implants, biomaterials, endodontics, and orthopedics) and technology services continued to outpace core distribution growth. Management expects these segments to contribute over half of operating income by 2027, up from 40% in 2024.
- Cost Restructuring Progress: Restructuring initiatives—focused on operational efficiency and expense reduction—are on track to deliver annual run-rate savings at the high end of the $75-100 million target, supporting margin stability despite flat revenue.
- Global eCommerce Platform Rollout: The company’s new Global eCommerce Platform (GEP) is now fully operational in the UK and Ireland, with a phased North American launch expected in Q3, aiming to improve customer experience and digital sales penetration.
- Tariff Mitigation and Sourcing: Henry Schein has diversified its sourcing to lower-tariff countries and continues to work closely with suppliers and customers to minimize financial impacts from shifting tariff policies, particularly on corporate brand and specialty products.
Drivers of Future Performance
Henry Schein’s outlook for the remainder of the year centers on internal growth, margin preservation, and careful management of external risks, particularly tariffs and sourcing challenges.
- Expansion of High-Margin Businesses: Management is prioritizing growth in specialty products, value-added services, and technology, with the expectation that these will drive a greater share of profits and help offset slower growth in distribution.
- Operational Efficiency Gains: The ongoing restructuring program is set to deliver incremental cost savings, which management believes will support margin performance even if revenue growth remains modest.
- Tariff and Supply Chain Adaptation: Actions to diversify sourcing and offer alternative products are designed to limit the impact of tariffs on input costs, but management acknowledged ongoing uncertainty around supplier pricing and future trade policy changes.
Top Analyst Questions
- Jon Block (Stifel): Asked about the impact of foreign exchange and the dollar's contribution to reported revenue guidance. Management clarified that Q1 faced euro-driven headwinds but expects currency effects to be neutral for the balance of the year.
- Jason Bednar (Piper Sandler): Sought clarification on tariff mitigation strategies and their effectiveness. Management stated their sourcing diversification and supplier negotiations are expected to limit overall profit impact.
- Jeff Johnson (Baird): Inquired about the cost savings run rate from restructuring efforts. CFO Ron South confirmed a $60 million run rate entering the year, with further savings expected throughout 2025.
- Mike Petusky (Barrington Research): Asked about sources of growth in the home solutions business. Management cited expansion with new referral sources and growth in existing accounts, estimating the unit is approaching $400 million in annualized sales.
- Allen Lutz (Bank of America): Questioned softness in the U.S. dental implant market. Management attributed this to weaker demand for higher-end procedures, while lower-cost and value-focused implant products remained stable.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be watching (1) progress on the North American rollout of the Global eCommerce Platform and its impact on digital sales, (2) continued margin performance as cost restructuring efforts are realized, and (3) the ability of high-growth, high-margin specialty and technology businesses to further offset slower distribution growth. In addition, we will monitor how effectively Henry Schein manages ongoing tariff and sourcing challenges, especially if trade policies shift further.
Henry Schein currently trades at a forward P/E ratio of 14.5×. Should you load up, cash out, or stay put? Find out in our free research report.
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