Henry Schein takes $121M charge against earnings after exiting Melville building

Henry Schein Inc., Long Island's largest public company by revenue, took a one-time $121 million pre-tax charge in the fourth quarter after writing off an unprofitable business unit and exiting a lease on one of its two Melville headquarters buildings, the distributor of dental supplies announced Thursday.

Fourth-quarter net sales were $3.4 billion, a 1.2% increase over the year-ago period, despite a $194 million decline in sales of COVID-19 test kits and gloves and other personal protective equipment. That compares to a consensus revenue estimate of $3.37 billion among analysts polled by S&P Capital IQ.

The company's diluted earnings per share, excluding charges and other items, came in at $1.21, a penny below S&P's consensus estimate.

Shares of Henry Schein tumbled 6.6% Thursday to close at $82.82.

In exiting the lease at its 180,000-square-foot Baylis Road building, Henry Schein joins many companies seeking to trim real estate holdings as employees continue to work remotely even as the COVID-19 pandemic ebbs.

In an interview, chief financial officer Ronald South said that Henry Schein renewed its 15-year lease in July 2020, "early in the pandemic," and faced a "significant" cost in negotiating its withdrawal. 

A February survey of 300 U.S. CEOs by recruitment software provider Greenhouse found that 49% said they would look to cut real estate expenses, making it the top target for belt-tightening, ahead of marketing and advertising (36%), wages (34%), benefits (32%) and insurance (31%).

Jeff D. Johnson, an analyst with Robert W. Baird & Co. Inc., said that "continued work-from-home strategies" have made a number of medical technology companies like Henry Schein "reassess real-estate needs in recent quarters."

The company issued financial guidance for 2023 calling for sales growth of 1% to 3% over 2022.

Diluted earnings per share, excluding certain items, are forecast to be $5.25 to $5.42, ranging from 2% below to 1% above 2022's $5.38. The guidance reflects an expected 35-cent to 40-cent per share  reduction related to COVID-19 test kits and PPE products. 

Fourth quarter results were "impacted by a high incidence of flu and COVID-19 cases, which caused increased rates of patient appointment cancellations and furthered staffing shortages" at dentist offices,  Henry Schein chairman and CEO Stanley M. Bergman said in a statement. "However, patient flows appear to have returned to more normal levels in January."

Henry Schein estimates that 90% of U.S. dental practices and 80% of North American dental laboratories are active customers.

By Ken Schachter

kenneth.schachter@newsday.comkschach

Ken Schachter covers corporate news, including technology and aerospace, and other business topics for Newsday. He has also worked at The Miami Herald and The Jerusalem Post.