Henry Schein Inc. (HSIC) reported EPS of $1.15 in the fourth quarter of 2011, up 15% year over year and was ahead of the Zacks Consensus Estimate of $1.12. The company also reported EPS of $3.97 for fiscal 2011, up 10.9% from the adjusted EPS of the previous year and beat the Zacks Consensus Estimate of $3.94.

Henry Schein reported a 15.6% year-over-year increase in revenues to $2.3 billion, which surpassed the Zacks Consensus Estimate of $2.2 billion. The revenue growth included internal growth of 5.3%, acquisition growth of 4.7%, but a decline related to foreign currency exchange of 0.1% and growth due to an extra week of 5.7% in the reported quarter. For the full year, the company reported revenues of $8.5 billion, up 13.3% and surpassed the Zacks Consensus Estimate of $8.4 billion. This consisted of internal growth of 4.5%, acquisition growth of 4.9%, growth related to foreign currency exchange of 2.4% and growth due to the extra week of 1.5%.

Henry Schein primarily derives revenues from dental, medical, animal health, international and, technology and value-added services. These divisions accounted for 34.4% ($806.6 million), 15.9% ($373.3 million), 10.9% ($255.9 million), 35.6% ($833.8 million) and 3.0% ($70.7 million) of the total revenue, respectively, during the quarter.

North American Dental, which is the company’s largest segment, registered an 11.9% upside in sales driven by a 4.5% rise in internal sales and growth due to the extra week of 7.5%. During the quarter, the dental consumable merchandise sales increased 4.8% with 3.8% growth in Dental equipment sales and services revenues in local currency. The growth in Dental consumable merchandise sales was on the back of consistent patient visit to dental offices.

The 13.9% upside in medical sales reflected internal growth of 7.1%, acquisition growth of 0.7% and growth due to the extra week of 6.1%. During the fourth quarter, the company distributed approximately 1.7 million doses of seasonal influenza vaccines, which totaled 11.6 million doses with sales of $88.3 million for the year.

The company’s animal health segment witnessed a 14.9% surge in revenues during the quarter, primarily attributable to growth in companion animal and equine space and improved customer relationships. Recently, the company acquired Oak Hill Capital Partners’ interest in Butler Schein Animal Health, and now owns 71.7% of Butler Schein business.

Revenues from the international market climbed 20% from the year-ago period, consisting of internal growth of 4.8%, acquisition growth of 12.2% and growth due to the extra week of 3.0%. There was no net impact from foreign exchange during the quarter. Balanced growth in dental, medical and veterinary segment, combined with the acquisition of Provet Holdings in Australia and New Zealand, were responsible for this solid performance.

Although the company witnessed strong revenue growth across all its segments, a 5.6% rise in cost of sales led to 50 basis points (bps) drag in gross margin to 27.8%. Moreover, operating margin during the quarter was 6.9%, down 11 bps year over year.

Henry Schein exited the fiscal with cash and cash equivalents of $147.3 million compared with $150.3 million at the end of December 2010. During the reported quarter, the company repurchased 1.1 million shares for $68 million. The impact of the repurchase of shares on fourth quarter EPS was less than a penny. With this, the company had $100 million remaining for future repurchases.

Outlook

Henry Schein reaffirmed its fiscal 2012 EPS guidance of $4.25-$4.34, representing growth of nearly 87%-9% compared with 2011 results.

The company continues to drive strong top-line growth and establish broad domestic and international footprint in dental, vet, and medical supply distribution.

However, competition remains tough. While Henry Schein’s primary competitors in the Dental market are Patterson Companies Inc. (PDCO) and McKesson Corporation (MCK). Currently, Henry Schein retains a short-term Zacks#3 Rank (Hold), which also corresponds to our long-term ‘Neutral’ recommendation on the stock.

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