Henry Schein’s (NASDAQ:HSIC) Earnings Are Growing But Is There More To The Story?

As a general rule, we think profitable companies are less risky than companies that lose money. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it’s not always clear whether statutory profits are a good guide, going forward. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Henry Schein (NASDAQ:HSIC).

We like the fact that Henry Schein made a profit of US$712.8m on its revenue of US$10.1b, in the last year. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

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NasdaqGS:HSIC Earnings and Revenue History July 8th 2020
NasdaqGS:HSIC Earnings and Revenue History July 8th 2020

Importantly, statutory profits are not always the best tool for understanding a company’s true earnings power, so it’s well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Henry Schein’s statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Henry Schein’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit gained from US$172m worth of unusual items. While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that’s exactly what the accounting terminology implies. If Henry Schein doesn’t see that contribution repeat, then all else being equal we’d expect its profit to drop over the current year.

Our Take On Henry Schein’s Profit Performance

Arguably, Henry Schein’s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Henry Schein’s true underlying earnings power is actually less than its statutory profit. Nonetheless, it’s still worth noting that its earnings per share have grown at 47% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company’s potential, but there is plenty more to consider. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. For example, we’ve discovered 2 warning signs that you should run your eye over to get a better picture of Henry Schein.

Today we’ve zoomed in on a single data point to better understand the nature of Henry Schein’s profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to ‘follow the money’ and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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