Henry Schein’s Q1 Results: Margin Gains Offset Revenue Headwinds, Strategic Momentum Builds

Henry Schein Inc. (HSIC) delivered a mixed first-quarter performance, showing resilience in profitability despite revenue pressures. While the $3.17 billion top line fell short of expectations, margin expansion and strategic progress suggest the dental and medical supply giant is executing its long-term roadmap. Investors, however, remain cautious: shares dipped 2.8% pre-market as the revenue miss underscored lingering macroeconomic and operational challenges.

Revenue Challenges, But Underlying Strengths

Total revenue declined 0.1% year-over-year, weighed down by a 1.5% drag from unfavorable foreign exchange rates (notably the euro) and a tough comparison to Q1 2024, when dental equipment sales were deferred from Q4 2023. Excluding these factors, constant currency revenue grew 2%, reflecting steady demand in key segments:
- U.S. Dental Merchandise expanded in low single digits (excluding pandemic-era PPE sales).
- U.S. Medical Distribution rose 4.7% (excluding PPE), driven by growth in home healthcare solutions.
- International markets showed regional divergence, with gains in Canada, Brazil, and Central Europe offsetting softness in France.

The Global E-Commerce Platform (GEP), now live in the U.K. and Ireland, will be a key growth lever. Management plans to roll it out in North America by Q3 2025, aiming to replicate the 20% year-over-year growth seen in cloud-based software subscriptions like Dentrix Ascend, which now serves 9,500 customers.

Margin Expansion and Cost Discipline

Profitability took center stage. Non-GAAP EPS of $1.15 beat estimates by 2.7%, fueled by:
- Operating margin expansion: GAAP operating margins rose 81 bps to 5.53%, while non-GAAP margins increased 14 bps to 7.25%.
- Cost savings: The restructuring program delivered $60 million in annualized savings—part of a $75–100 million target—via facility closures and severance programs.

The company also emphasized its $718 million remaining share repurchase authorization, with $161 million repurchased in Q1. CFO Ron South noted that free cash flow yield remains robust, supporting the long-term goal of high single-digit to low double-digit EPS growth.

Risks and Roadblocks

While the path forward is promising, risks linger:
1. Foreign exchange volatility: The euro’s weakness impacted Q1 results, though management expects neutral FX effects for the rest of 2025.
2. Macroeconomic uncertainty: A slowdown in consumer spending or dental practice investments could pressure margins, though current U.S. patient traffic remains stable.
3. Supply chain bottlenecks: While not yet material, tariffs and logistics challenges remain concerns.

Outlook and Investment Thesis

Management reaffirmed its 2025 guidance:
- Non-GAAP EPS: $4.80–$4.94 (up from $4.67 in .2024).
- Revenue growth: 2–4% YoY, driven by high-margin segments like implants, digital solutions, and the GEP rollout.
- Adjusted EBITDA: Mid-single-digit growth from a $1.1 billion base.

The stock trades near its 52-week low of $60.56, below InvestingPro’s fair value estimate. This creates a potential buying opportunity for investors focused on margin expansion and strategic execution in dental/medical supply—a sector with limited competition.

Conclusion: A Stock to Watch Amid Mixed Signals

Henry Schein’s Q1 results highlight a company navigating headwinds while building momentum in high-margin areas. The 2% constant currency revenue growth and $60 million in annualized cost savings underscore operational discipline, while cloud software and the GEP promise scalable growth.

With $718 million remaining in buybacks and a free cash flow yield that rivals peers, HSIC could rebound if revenue trends stabilize. However, investors must weigh near-term risks—such as FX and macroeconomic uncertainty—against long-term catalysts. At current valuations, the stock appears priced for caution, but the margin and strategic wins suggest a Hold rating with upside potential if Q2 revenue growth accelerates.

In sum, Henry Schein’s Q1 was a reminder that resilience in profitability can outweigh top-line stumbles—if management’s strategic bets on technology and operational efficiency pay off. The next quarter will be critical to confirm whether this is more than a temporary hiccup.