By the numbers
Q2 sales: $3.14 billion
1.2% increase year over year
Q2 net income: $104 million
25.7% decrease year over year
Henry Schein said Tuesday the recovery from a cyber incident that hit the company late last year has been slower than anticipated.
CEO Stanley Bergman told investors on an earnings call that the recovery “has been slower, but consistent,” with each month “a little bit better” than the last. The company expects to keep winning back customers.
The distributor of medical and dental supplies took some systems offline in October in response to the cyber incident, which may have exposed the personal information of more than 29,000 people. Henry Schein offered price discounts to the up to 10% to 15% of customers that switched suppliers when the systems went offline, Goldman Sachs analysts said in December.
In February, Henry Schein told investors the impact of the incident would continue into 2024 but would primarily be felt in the first quarter. The company’s second-quarter results show the fallout is dragging on for longer than expected.
William Blair analysts said in a note to investors that the “lingering impacts from the cyberattack are somewhat surprising.”
On the call, Stifel analyst Jonathan Block challenged the company’s expectations for recovery, suggesting that “either you get them back with incentives or they might move … to a different platform that they’re somewhat content with.” Almost 10 months on from the incident, Block asked Henry Schein executives why they remain confident that customers will return.
“We need to get our field sales force visiting again the smaller customers,” Bergman said. “They’ve been focused on the big ones, and that’s been pretty good … And we need to kick our telesales team back into full action. They had to deal with the fallout of the cyber incident.” He added, “Only in the last couple of months, actually the last six or so weeks, are they doing outbound calls.”
Henry Schein sales reps who have spoken to smaller customers report they “are very happy to see them,” Bergman said, and “they just wondered why they were not there in the last couple of months.” The response informs Bergman’s belief customers will return to Henry Schein.
William Blair analysts said second-quarter sales came in 4% below consensus. Henry Schein responded to the slow recovery by reducing its full-year revenue growth guidance range to 4% to 6% year over year. The company expected 8% to 12% year-over-year sales growth in 2024 but cut its forecast to 8% to 10% after seeing first-quarter results.
On the call, Henry Schein also shared details of a new restructuring plan targeting annual savings of $75 million to $100 million. CFO Ronald South said the firm “can take some immediate actions that will provide some short-term benefits.” Other changes such as combining certain operations will take longer, South added.
William Blair analysts said the restructuring “could help offset some sales weakness though likely not until 2025-plus.”