Henry Schein Q2 2025 slides: sales growth continues despite margin pressure

Introduction & Market Context

Henry Schein Inc (NASDAQ:HSIC) presented its second-quarter 2025 earnings results on August 5, revealing a mixed performance characterized by continued sales growth but declining margins. The healthcare products distributor reported non-GAAP diluted earnings per share of $1.10, missing analyst expectations of $1.19 and falling short of the $1.23 reported in the same quarter last year.

The market reacted negatively to the results, with Henry Schein’s stock dropping 9.34% following the earnings announcement. The company’s shares closed at $63.48, moving closer to its 52-week low of $60.56 and well below its 52-week high of $82.49.

Despite the earnings miss, Henry Schein maintained its full-year guidance, suggesting management’s confidence in a stronger second half of 2025.

Quarterly Performance Highlights

Henry Schein reported total sales of $3.24 billion for Q2 2025, representing a 3.3% increase year-over-year, or 2.7% growth in constant currency. While sales grew, profitability metrics declined across the board.

As shown in the following consolidated results slide, operating income decreased by 7.1% on a non-GAAP basis to $225 million, with operating margin contracting to 6.96% from 7.75% in Q2 2024:

The company’s adjusted EBITDA declined to $256 million from $268 million in the prior-year period. The earnings presentation attributed the operating income decline to lower gross margins and higher operating expenses.

A detailed breakdown of sales performance by product category shows varying growth rates across Henry Schein’s business segments:

Global Dental Merchandise, which represents a significant portion of the company’s business, showed minimal growth at 0.3%. However, Global Medical (TASE:BLWV) sales increased by 6.1%, while Global Dental Equipment grew by 3.0%.

Segment Analysis

Henry Schein’s business is organized into three main segments: Global Distribution & Value-Added Services Group, Global Specialty Products Group, and Global Technology Group. Each segment showed different performance trends in the quarter.

The Global Specialty Products Group, which includes dental implants and biomaterials, demonstrated strong results with constant currency sales growth of 3.3%. More impressively, the segment’s operating income increased to $52 million from $40 million in Q2 2024, with operating margin expanding to 13.5% from 11.0%:

The Global Technology Group, which focuses on practice management systems and other software solutions, was another bright spot with 6.6% constant currency sales growth. The segment’s operating margin improved significantly to 26.8% from 21.8% in the prior-year period:

However, the Global Distribution & Value-Added Services Group, which represents the largest portion of Henry Schein’s business, faced challenges. While sales grew by 2.4% in constant currency, operating income declined to $159 million from $176 million in Q2 2024, with operating margin contracting to 5.8% from 6.6%.

Strategic Initiatives

Henry Schein highlighted several strategic initiatives aimed at improving performance and driving future growth. The company is partnering with KKR Capstone and engaging leading management consulting firms to enhance gross margins and increase efficiencies.

A key development in the quarter was the successful launch of the company’s new Global e-Commerce Platform, HenrySchein.com, in the UK and Ireland, with a phased launch beginning in North America.

The company’s capital allocation strategy remains balanced, with significant investments in both acquisitions and share repurchases:

During Q2 2025, Henry Schein allocated $259 million to share repurchases and $50 million to acquisitions, while generating $120 million in operating cash flow. The company’s debt-to-adjusted EBITDA ratio stood at 2.7x at the end of the quarter.

The presentation also highlighted progress on the company’s BOLD+1 strategy:

According to the company, Henry Schein continues to gain market share and now derives over 45% of its non-GAAP operating income from high-growth, high-margin businesses.

Financial Outlook

Despite the Q2 earnings miss, Henry Schein maintained its full-year 2025 guidance:

The company continues to expect non-GAAP diluted EPS of $4.80 to $4.94 for the full year, with adjusted EBITDA growth in the mid-single digits compared to the $1.1 billion reported in 2024. Total (EPA:TTEF) sales are projected to grow by 2% to 4% over 2024.

The maintained guidance suggests management’s confidence in a stronger second half of the year, despite the challenges faced in Q2. The company’s key takeaways from the quarter emphasized this positive outlook:

CEO Stanley Bergman stated during the earnings call, "We are maintaining our full-year guidance, which continues to reflect earnings weighted to the second half of the year." He added, "We believe Henry Schein is well-positioned to accelerate growth," emphasizing the company’s focus on value creation initiatives and market expansion.

However, investors appear skeptical, as reflected in the significant stock decline following the earnings announcement. The company will need to demonstrate improved margin performance in the coming quarters to regain investor confidence and support its current valuation.

Full presentation:

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