Cybersecurity Incident Casts Shadow On Henry Schein's Q4 Performance, Analysts Optimistic On Dental Sector

Dental supply company Henry Schein Inc HSIC reported fourth-quarter 2023 sales of $3.02 billion, slightly missing the consensus of $3.04 billion, down 10.5% year-over-year.

This reflects an internal sales decrease of 12%, calculated at constant foreign exchange rates

Total net sales reflect an estimated reduction of $350 million to $400 million, or 10% to 12%, due to the cybersecurity incident.

“Our fourth quarter financial results included strong growth in our Technology and Value-Added Services businesses, and in global sales of implants and biomaterials largely driven by acquisitions, and were negatively impacted by higher-than-usual acquisition-related expenses and adjustments,” Stanley M. Bergman, Chairman of the Board and CEO.

Global Dental sales were $1.8 billion, down 10.9% Y/Y, driven by merchandise sales down 11.3% and equipment down 9.7%. Global Medical sales were $1 billion, down 17% Y/Y.

Adjusted EPS of 66 cents, down 51% Y/Y, missing the consensus estimate of 70 cents.

Guidance: Henry Schein forecasts fiscal year 2024 adjusted EPS of $5.00-$5.16, versus the consensus of $5.10. The guidance includes an estimated residual impact of the cybersecurity incident of approximately 15 cents per diluted share, which will primarily impact the first quarter.

For 2024, sales growth is expected to be approximately 8% to 12% over 2023 and reflects the expected merchandise sales recovery after the cybersecurity incident and sales from the acquisitions completed in 2023.

2024 Adjusted EBITDA is expected to increase by more than 15%.

William Blair says the recent cybersecurity attack in late 2023 has clouded the assessment of momentum within the dental segments. 

However, the quarter’s performance surpassed expectations, instilling optimism for the dental sector in 2024. 

The only setback appears to be a 2% shortfall in global medical sales, with limited details provided in the release. 

Despite challenges such as tax issues and cybersecurity threats, the company’s solid performance is evident in the full-year 2024 EPS guidance, which aligns with or exceeds Street expectations. 

This suggests a promising outlook for the company to achieve high-single-digit-plus growth.

William Blair keeps the Market Perform rating.

Price Action: HSIC stock is up 0.13% at $80.30 on the last check Tuesday.

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