漢瑞祥 (HSIC) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Henry Schein third-quarter conference (technical difficulty).

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this call is being recorded.

I would now like to introduce your host for today's call, Susan Vassallo, Henry Schein's Vice President of Corporate Communications.

Please go ahead, Susan.

Thank you, operator.

Before we begin I think we have some interference in the background, so if you could just check that, please.

Thank you, operator.

My thanks to each of you for joining us to discuss Henry Schein's third-quarter results.

With me this morning are to Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein, and Steven Paladino, Executive Vice President and Chief Financial Officer.

Before we begin I would like to state that certain comments made during this call will include information that is forward looking.

As you know, risks and uncertainties involved in the Company's business (technical difficulty) matters referred to in forward-looking statements.

As a result, the Company's performance may differ from those expressed in or indicated by such forward-looking statements.

Also, these forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's Securities and Exchange Commission filings.

The content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, today, November 1, 2011.

Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

I ask that during the Q&A portion of today's call you limit yourself to a single question and a follow-up before returning to the queue.

This will provide the opportunity for as many listeners as possible to ask a question within the one hour we have allotted for this call.

With that said, I would like to turn the call over Stanley Bergman.

Thank you very much, Susan.

Good morning, everyone, and thank you for joining us on this call.

We are very pleased to be reporting sales growth in local currencies in each of our five businesses during this third quarter of 2011.

And company wide sales growth was nearly 12%, or approximately 13% when excluding sales of seasonal influenza vaccines for both periods.

Important to adjust for that to understand how our core business is doing.

Third-quarter results were impacted by lower sales and profits from the seasonal influenza vaccine sales.

During the third quarter, we distributed 9.9 million doses of seasonal influenza vaccine versus 11.2 million doses in last year's third quarter.

Now it's important to realize we have substantially sold all of our 11.6 million doses commitment for 2011 as of today, as of this call.

And as we previously announced, we reduced our commitment for influenza vaccine doses by approximately 2 million doses earlier this year.

So excluding sales of influenza vaccine from both periods, net income and diluted earnings per share did increase by double digits.

We are also introducing 2012 guidance for diluted earnings per share to be from $4.25 to $4.34 per share, which represents a growth of 8% to 10% compared to the midpoint of our 2011 EPS guidance.

We would like to note that 2012 fiscal year includes one less week than 2011.

So I think it's important to understand the points I have just made.

Steven will elaborate on these and magnify the important areas to focus on.

Overall, we are quite happy with the performance of our company.

The business is doing very well in each of our business units.

We are very focused; we have just completed a strategic planning process and know exactly where we want to focus for the years 2012 to 2014 so that we can continue to generate earnings in a measured and credible way and continue to show the results that we have over the past 16 years as a public company.

In a moment I will provide some commentary on each of our business units, but first let Steven provide an overview of our quarterly financial results.

Steven, please.

Thank you, Stan, and good morning to everyone.

I am also pleased to be reporting solid sales growth for the third quarter of 2011.

If we turn to our financial performance, our net sales for the quarter ended September 24, 2011, were $2.1 billion, reflecting an increase of 11.5% compared with the third quarter of 2010.

This consists of 7.4% growth in local currencies and a 4.1% increase related to foreign currency exchange.

In local currencies, internally generated sales were up 3.3% while acquisition growth contributed an additional 4.1%.

As Stanley just mentioned, in order to provide more meaningful commentary about the quarter's results, we will be discussing our results both including and excluding the impact of influenza vaccine sales and their related profits.

So excluding sales of seasonal influenza vaccines from both periods, our net sales (inaudible) was 12.9% with 8.6% growth in local currencies including 4.3% internally generated.

You can note the details of our sales growth which are contained on Exhibit A in our earnings news release which was issued earlier today.

Our operating margin for the third quarter of 2011 was 6.8%, which was a decline of 47 basis points compared with the third quarter of 2010.

However, excluding the impact of current-year acquisitions, as well as sales of influenza vaccine from both periods, our operating margin expanded by approximately 14 basis points compared with the prior year.

As we discussed last quarter and in previous quarters, acquisitions sometimes carry a lower margin than our existing core business, and we view that as resetting the base operating margin for the business with opportunities for margin expansion on a go-forward basis.

Our effective tax rate for the quarter was 31.5%, which is in line with our guidance and is down slightly from the 31.7% in the third quarter of 2010.

We continue to expect the effective tax rate for the balance of the year to remain in the 31% range.

Net income attributable to Henry Schein Inc.

for the third quarter of 2011 was $92 million or $0.99 per diluted share.

This represents growth compared with the 2010 third quarter of 4.6% and 5.3%, respectively.

However, again excluding seasonal flu vaccine sales, our net income and diluted EPS both increased by approximately 11% for the quarter.

Now I would like to provide some detail on our sales results for the quarter.

Our North American Dental sales for the third quarter of 2011 increased 2.5% to $682.4 million.

This consists of 1.8% growth in local currency and a 0.7% increase related to foreign currency exchange.

Our consumable merchandise sales increased 2.9% in local currencies, all of which was internally generated, as we believe we continue to gain market share.

Our Dental equipment sales declined by 2.1% compared with the prior-year quarter in local currencies and this decline was substantially due to lower sales of Biolase product that we have talked about in the past quarters.

Let me point out that on an encouraging note, our order book for the fourth quarter, going into the fourth quarter was significantly stronger than it had been entering the third quarter.

So we think that that potentially has some positive impact in Q4 from a timing perspective, although it's still early on to really quantify exactly what that benefit may be.

Our North American Medical sales were $402.2 million in the third quarter, which was an increase of 2.6%.

Internally-generated sales increased 1.8% and acquisition growth was 0.8%.

Again, if we exclude the impact of seasonal influenza vaccine sales from both periods, which we believe is a more comparable measure, our Medical sales for the third quarter increased by 8.1% and internally-generated sales increased 7.1%.

So we are very pleased that we believe we continue to gain market share in our Medical business this quarter.

Turning to our North American Animal Health sales, they were $246.5 million for the third quarter, an increase of 9.4%, all of which was internally generated.

As we have discussed in previous quarters, now that the former Butler and Henry Schein Animal Health businesses have been completely integrated, we are seeing the benefits of our coordinated efforts to drive sales growth.

And we certainly believe we gained market share in this market also.

Now international sales for the third quarter of 2011 were $718.5 million, an increase of 28% compared with the prior quarter.

This consists of a 15.2% increase in local currencies and a 12.8% increase related to foreign currency exchange.

Our internal sales increased 3.1% and acquisition growth contributed 12.1% in local currencies to our growth.

If we look at our international Dental sales, which represent about 62% of our international business, they were up 14.6% during the quarter.

This consists of 3.4% growth in local currencies and 11.2% growth from currency exchange rates, and our internally generated sales growth in local currencies was about 2.5% with the remainder of acquisition growth up 0.9%.

We also saw growth in both merchandise, which was up in local currencies by 3.4%, and Dental equipment, which was up by 0.3%.

The balance of our international business is primarily in our international Animal Health sales, which represents about 35% of our international business.

Those sales increased by 61.5% and consists of local growth of 44.6%, an increase related to foreign currency exchange of 16.9%, and our internally-generated sales in local currencies were up 3.7%.

Of course, the large growth continues to be the acquisition of Provet in the Australia/New Zealand market which contributed 40.9% to our growth rate.

Turning to our technology and value-added services sales for the third quarter of 2011 was $62.2 million, up 26.5% compared with the prior-year quarter.

Here we saw internally-generated sales increasing 11.3% in local currencies and acquisition growth contributing the balance of 13.9%.

Again, that is due to the acquisitions earlier this year of both McAllister and ImproMed.

During the quarter we saw particularly strong growth in both our electronic services as well as our financial services businesses.

We continued to repurchase common stock in the open market during the third quarter.

More specifically, we repurchase 1.6 million shares of our common stock during the quarter at an average price of $62.40 per share.

The impact of the repurchase of shares in the third quarter was not material, although we do expect to get benefit on a go-forward basis.

As we have previously stated, the goal of our share buyback was previously to keep the number of shares outstanding flat, but now our strategy is to be a bit more aggressive there and to reduce the number of shares versus the prior year on an ongoing basis.

If we take a brief look at some of the highlights of our balance sheet and cash flow for the quarter, we had very strong operating cash flow for the quarter of $81.3 million which compares to $47.8 million in the 2010 third quarter.

We continue to expect to generate very strong operating cash flow and for that cash flow to exceed our net income.

Specifically, on accounts receivable our days sales outstanding continued to be about 42 days, which was slightly improved over the same period last year.

And our inventory turns was 6.6 turns, which also remains unchanged from the third quarter of last year.

I would like to conclude my remarks by discussing our balance of year 2011 as well as 2012 full-year financial guidance.

We are reaffirming our 2011 diluted EPS attributable to Henry Schein, which is expected to be in the range of $3.92 to $3.98.

This represents a growth of about 9% to 11% over the full-year 2010 results.

As always, this 2011 guidance is for continuing operations as well as completed or previously announced acquisitions and does not include the impact of any potential future acquisitions that may occur.

Turning to next year, we are introducing 2012 financial guidance as follows.

For 2012 we expect growth of diluted EPS attributable to Henry Schein to be in the $4.25 to $4.34 range, which represents a growth of approximately 8% to 10% compared with the mid-point of our 2011 guidance.

It's important to note a couple of things as backdrop for the 2012 guidance.

First, as we previously stated, 2012 has one less week than 2011.

In addition we are providing this guidance with the backdrop of what we believe are uncertain economic times, especially in Europe and to a lesser extent in the US.

So, therefore, we want the guidance to reflect that uncertainty.

This guidance also is more current continuing operations and does not include any potentially future acquisitions.

Let me now turn to call back over to Stanley.

Thank you, Steven.

Let me begin my review today of with the North American Dental business.

Growth in sales of Dental (technical difficulty)

Ladies and gentlemen, thank you for standing by.

We are experiencing technical difficulties.

Today's conference will resume momentarily.

Hello, everyone.

Thank you for your patience and we apologize for the technical difficulties.

I would like to turn the call over now again to Stan Bergman.

I am sorry, everyone, but we have had some difficulties with the telephone line.

I think it's with the telephone company, but let me try again.

So let me begin my review of our businesses with a review of the North American business.

Growth in Dental consumable merchandise of 2.9% during the third quarter is, we believe, somewhat ahead of our estimate for the market growth and we believe reflects consistent patient traffic to the dental office.

We have just completed attending a few weeks ago the American Dental Association meeting in Las Vegas.

Our sense from the dentists is that patient traffic remains quite consistent.

There are parts of the country where we actually think it has gone up a little bit, but not much change in a while.

So patient traffic remains consistent.

This represents the ninth consecutive quarter of Dental consumable merchandise sales growth for the Company.

Our Dental equipment results were impacted by somewhat of a cautionary environment for capital equipment purchases.

As Steven mentioned, we entered the fourth quarter with a much stronger order book.

We believe that there was some movement in Dental equipment sales from the third quarter into the fourth quarter.

We have also seen encouraging Dental equipment sales for the first four weeks of the quarter.

Key is for us to provide equipment that helps increase the productivity of the practice while consistently providing increase in the quality of care.

One of the highlights of the third quarter was our 16th annual Dental National Sales Meeting.

Each year we hold five national sales meetings in the US and six overseas, and each of these meetings strengthens supplier partnerships and ability of our sales team to help customers operate more efficient practices while providing quality of care to patients as I noted.

The largest of these meetings, of course, is our Dental meeting.

Under the theme Navigate Change, Finish First this gathering in early August included more than 1,500 Team Schein members and approximately 300 representatives from our 80 top suppliers.

This theme underscores our company's commitment to finding innovative solutions that meet the needs of the dental profession as new product innovations, technological advances, and evolving treatment options affect the profession.

There is a lot of new technology being made available to the dental professional.

We think that our offering at Henry Schein represents a very, very good offering to help our practitioners increase the productivity of their practice using this new technology and, of course, as noted providing better quality of care.

We think we are actually best positioned to do that.

The four-day event including training and education sessions for Henry Schein Dental field sales consultants, equipment sales specialists, and digital technology specialists.

It also provided the valuable opportunity for Henry Schein Dental sales representatives to share best practices, discuss challenges and opportunities, and to meet directly with supplier partner representatives.

But clearly the biggest beneficiaries of our annual sales meetings are our Dental customers.

As we position ourselves consultants to provide expert consultative advise in support of our comprehensive offering of products and services.

I can report to shareholders that the morale, the enthusiasm amongst our sales organization is terrific, and that we are well-positioned to continue to gain market share in our North American, both in Canada and US, Dental businesses on the core business and on the specialty side and generally we are very well-positioned.

If you take into account that patient traffic is stable, I think our slight caution will be balanced, should be balanced against our ability to continue to grow market share and, therefore, increase shareholder value in the next few quarters.

So let's turn to the Medical business.

We are doing well in this area.

We are continuing to gain market share during the third quarter with growth exceeding 8% if you take out the seasonal flu vaccine.

So, overall, the core business, both in terms of gaining market share with the larger accounts, which is where a lot of activity is taking place, as well as in the specialty areas in the medical world.

So I think we are in a good position there.

Let's take a look at the flu vaccine situation for a moment.

It's very important to understand this business.

It's a solid business for Schein, but if not understood clearly can impact the understanding of how well we are doing on the Medical side.

We have sold substantially all of our 11.6 million dose commitment for 2011.

Some of that is a timing difference between the third and the fourth quarter, and we expect to distribute a similar number of doses in 2012.

Towards that end we recently announced that we have ended our distribution agreement for influenza vaccine product with GSK, which is really the former [ID Bayer] medical business, effectively ending it for this year.

But we have entered into a new agreement and are well-positioned actually to expand our offering in this area in a very competitive way.

We have recently announced that we have entered into a new agreement for 2012/13 flu season.

This is a one-year mutual option agreement to renew for a second year if we want to.

The profitability of the new agreement is expected to be at least comparable, and actually we think potentially higher than the expiring agreement.

So we are quite pleased with the performance of our Medical business in general and you need to understand the implications very clearly of moving a flu vaccine from one quarter to the other.

Let's take a look at our North American Animal Health business.

We continue to be very pleased with the results from this business and believe our performance remains well in excess of market growth.

Our sales growth is due primarily to expanding the breadth and the depth of our product offering and strengthening customer relationships.

This business is off to a very good start actually since the completion of the merger between Butler and the Henry Schein Animal Health businesses to create Butler Schein the leading animal health, companion animal health distribution franchise in the world.

The internal growth in our North American Animal Health business for the first nine months of 2011 exceeded 9%, which I think is a clear indication of our success in combining Butler and Henry Schein Animal Health.

If you add to that the completion of the acquisition of our two veterinary software companies creating the largest platform in that arena, I think you will be -- you can see that we are well-positioned to replicate what we have done on the Dental side in terms of creating the finest value-added services offering in this arena too.

In fact, we have that offering today and we will expand on it.

Now let's look at the international operations.

International sales growth in local currencies included solid internal growth complemented by the acquisition in Australia and New Zealand of the Provet holdings, which we completed at the start of the year.

Of course, Provet is the largest animal health distribution company in Australia and New Zealand.

As Steven mentioned, Dental sales represented about two-thirds of our international sales and about 30% (technical difficulty)

Ladies and gentlemen, we apologize for the technical difficulties.

Please stand by and the conference will resume momentarily.

Thank you once again, everyone, for your patience.

Here is Stanley Bergman.

Sorry, everyone, but don't know what it is.

Somewhere in the system there seems to be a bug.

So I think I covered the Animal Health business.

Why don't I just go quickly through the international business again in case you didn't hear that?

I will abbreviate it because we want to stick, more or less, to the call time and allow for Q&A.

We had a solid quarter on the international side.

Internal growth was good complemented by the Provet acquisition, the acquisition of the largest New Zealand and Australia animal health distribution company.

Business is doing well.

In fact, we are very, very pleased overall with the distribution capability down there; the software business they have, consulting business.

About two-thirds of our international business is Dental, 30% sales come from dental equipment.

We believe that generally in our international businesses patient traffic is consistent, but there are spots within the environment where I think it would be appropriate for us to point out that capital equipment purchases are a little bit more cautionary -- being viewed a little bit more cautionary by the customers.

But, overall, I think our international business is quite stable.

Let's go to the technology side and the value-added services for a little bit, and I will go through this very briefly and cover more in the Q&A.

We had strong internal growth.

Indeed growth in this business has exceeded 20% for well over a year, for five quarters.

As Steven mentioned, the electronic services and financial services businesses continue to perform very well.

If you look at our financial services businesses, I think you will see that we are getting approvals for our customers.

90%-plus of our customers are getting financial approval for their financial deals, so -- and that is helping, of course, ensure that our value to the customer from an equipment point of view is enhanced.

Technology products and value-added services help our clients, of course, deliver high quality care operated by -- efficient practice.

This whole integration of technology, value-added services, and our equipment offering working in conjunction with our field sales consultants is working very, very well for us.

So let me anticipate a question and let me try to answer it as best I can.

Although there is uncertainty in the global economy, you can tell by Wall Street's (inaudible) there; one day things are going well in Europe and the other day things are a bit challenged.

We believe that Henry Schein as a company, of course, is affected by these factors but really to a lesser extent compared with other areas in healthcare and certainly other industries.

And we are really optimistic with our inability to increase earnings per share in 2012.

Obviously this is a challenging environment.

We will, as we did in 2008 and 2009, manage our business very, very conservatively and make sure that we are well-positioned to respond to activities that take place in the marketplace.

So we want to be a little bit more cautionary than perhaps a year or so ago.

At the same time, we have a lot of confidence in our business model, particularly our market position, our management team, our future growth prospects.

And it's in that context that at our mid-August Board of Directors meeting that the Board authorized the repurchase of up to $200 million of shares of the Company's common stock.

This program, let me point out, is additive to the $100 million repurchase program announced in November of last year and we subsequently fully executed on that.

We are active in the market during the third quarter -- we were.

We bought back about $100 million of stock, as Steven mentioned, so we feel we are well-positioned in the marketplace.

We have got, as I said, a good management team, good balance sheet, good positioning, good strategies.

So with that in mind, operator, we would like to take some questions.

Operator, we will take some questions now.

(Operator Instructions) A.J.

Rice, Susquehanna Financial.

Hello, everyone.

Just a couple of questions if I could ask them.

First, with respect to next year's guidance, it sounds like you have sort of taken a, I guess, cautionary or maybe some would say realistic tone toward what the economy is going to do.

But it sounds like you are particularly calling out the international market and the dental equipment market internationally.

Can you give us a little more flavor?

Are you assuming that it somehow gets a little worse than what we have seen this year or sort of steady-state?

And also to the extent you can comment on the North American Dental as well?

We have taken the position that -- let's talk about the domestic for a moment.

Growth in Dental consumable merchandise for us was 2.9% during the third quarter, which is, we believe, ahead of the estimate of the market growth.

We believe it reflects solid, steady patient traffic to the dental office, so this is the ninth quarter we have had internal growth.

We reported a decline in equipment sales, some of that largely due to the Biolase switch in strategy, but some of it related to a tad of a cautionary environment that we noticed over about a six- or eight-week period.

We don't believe it's necessarily a trend, because, as Steven noted, we have seen an increase in our backlog.

I think as we do our internal projections and budgets it is important for us to be a little bit more conservative.

It doesn't mean we are down on things.

It doesn't mean we necessarily see this as a trend, but I think it is better for us to be conservative and be more positive when we actually report results in the future than the other way around.

So we are taking actions accordingly and we are running the business in a traditionally -- in a way we have traditionally done it which is conservative.

As it relates to Europe, again we are taking a little bit more of a cautionary position but our business, in particular in Germany, for example, is not 100% reflective of the cautionary position we are taking.

But we are tending, leaning to be more cautionary than optimistic.

Again, I think that is the best way for us to plan.

The way we plan is also the way we would like to relate to the Street, so we want to be transparent.

We believe we are well-positioned, our offerings are good.

We are really talking about at the margin here, rather than the business itself.

Okay, that is helpful.

Maybe just one more thing.

You have commented on the order book coming into the fourth quarter.

It seems ironic to me that people are reporting and some of the studies have said that Dental income seemed to be flat to modestly up but dentists are cautious.

Are you doing anything from a promotional perspective heading into the fourth quarter to try to unlock this potential demand that sometimes you see at year-end?

And what is the average on that order book and will we see most of that flow out in the fourth quarter you think or does that spill over into early next year?

You know, the caution is, I think, indicative of the mood in the market , although I think what is actually happening in the dental office is a lot better than what is happening in some parts of the economy.

So again we are talking about at the margin; we are not talking about huge swings.

As it relates to the fourth quarter, we always have fourth-quarter promotions which are tied into a little bit into financing, although we believe we have had and have a very, very competitive financing options.

In fact I was just in e-mail contact this morning with a fellow, that was [Keith Drayer], that runs our Henry Schein Financial Services.

He assures me we are as competitive as we have always been.

So the fourth quarter is generally a period when the practitioners sit with their accountants and understand the positive implications an acquisition could have on their tax planning and potentially what a piece of good equipment can do to them.

Practice profitability and efficiency in the quality of the care they deliver in the following year.

So of course our field sales consultants understand that and of course provide advice to the customer so that the customer can mitigate taxes, obviously in a legal way, and at the same time increase productivity and profitability for the next year.

And we support that with good financing options.

We are not going out of our way to change things; I don't think it's necessary.

What is necessary is to make sure that the practitioners understand that investing in the practice is a lot more sound and a lot more profitable than investing in the stock market.

We have in the United States and Canada about 1,300 people taking that message up.

I think that is important.

The mood is there to buy, but we need to just give that little nudge to get the shipment to take place.

And, yes, generally we try to take our orders received and ship them by the end of the fourth quarter, although there is the better of a week in there where, from a tax point of view, it's still beneficial for the customer to receive the product and those sales go into the first quarter next year.

Of course, in order to recognize a sale the equipment has to actually been installed.

So generally product has to be ordered by the Greater New York meeting for it to be installed [and on the order book] before, although there is some plug-and-play product.

I don't want to, though, play that -- that is really a fine point and generally we know a little bit ahead of time how we are doing.

Right now we are cautiously optimistic, but feel that we just need to be -- take that optimism and balance it to make sure that at the end of the day we deliver on the right mix of optimism

Okay, thanks a lot.

Glen Santangelo, Credit Suisse.

I just wanted to follow-up on A.J.'s questions regarding the growth rate and sort of your assumptions.

Stan, as I look at your European results or your international results it looked like they were much more consistent with what we saw in 2Q on a sequential basis.

Whereas if I look at the North American results, it looked like to me the consumables had stepped down about 200 basis points constant currency.

And then as I look at equipment you had six quarters in a row of positive constant currency equipment growth and now you have had a negative quarter.

So I am a little bit -- I just want to make sure I understand what you are saying, because it sounds like you are getting more cautious on Europe.

But as I look at the results today it looks like sequentially you probably did better than I would have thought in Europe and maybe a little bit worse than what I would have thought you would have did in North America.

Glen, we are dealing with basis points here and we just have to be a little cautious.

I mean you really -- there is no firm data out there, not look like in the pharmaceutical industry where you can get a read out or in retail you can get a quick read out.

If we take Europe for a moment, we need to take into account that this was, in fact, an IDS year and there was a lot of new product.

So I think we had to ship that and we took some credit for that.

There is still quite a bit of product in the pipeline compared to last year.

So it's not that Europe is in trouble by any means just we want to be a little bit more cautious there.

As it relates to the US, there is a lot of puts and takes there that go into product mix.

We still believe, and we are hearing this from the practitioner, that traffic is stable so we have relatively stable sales.

On the equipment side, we think we are heading into a good fourth quarter but I don't want to say that it's going to be the easiest quarter ever.

I am just trying to balance this.

I don't know what words I could say.

It's not negative, we are not pessimistic, but this is certainly not 2007 in terms of the sales just flowing in.

If I look at your North American results, I don't know if you guys would be willing to characterize this, but is it fair to say that the market growth rate in the North American market has decelerated on a sequential basis?

Because you are sort of suggesting you are still gaining market share, but I look at kind of your consumable growth, at 2%-plus does that assume that the market is somewhat a little bit below that?

I think you are probably correct.

I think it's -- we were talking about -- I don't think we are talking about more than 100 basis points.

It's not that precise, but I think we are in positive growth territory in terms of dollar growth, in terms of units probably flattish.

It doesn't seem like prices are an issue.

It doesn't seem like there is a swing to private brand.

We are still in a pretty solid market, but there are trends occurring.

It's clear that the bigger practices are getting bigger at the top end and the middle practices, there is more to them moving, unfolding from small to medium.

There is a lot of trends and this does impact the mix, so we are dealing really at the margin right now.

But overall I think the market is stable; there are parts that are more stable than others.

I think some specialty areas are challenged.

I think there are challenges on the upper end of implants, for the example; some of the whitening areas and some of the expensive cosmetics.

But overall I think on balance it's a relatively stable market to growing a little bit in terms of dollars and we think we are gaining market share.

So that is the sense and again it's not precise.

It's an impressionist painting, not an architectural rendering.

Thanks for all that detail, Stan.

I appreciate it.

Steve, maybe if I could just ask you one quick question and then I will jump off.

The one less week in fiscal 2012, could you give us a sense for maybe how much that costs you from an earnings perspective?

And thanks for all the details.

Sure.

It's not equivalent to a full week because it is the holiday week, but it's probably equivalent to anywhere from half-a-week to two-thirds of a week depending on the market.

And that is blended for company-wide so that would be the impact that we are estimating it to have.

And just while I am speaking, I just would like to also comment that we are taking a conservative position on the exchange rates that are built into our guidance.

We are using a lower conversion rate than where the current dollar to euro is.

It's at about $1.36, $1.37.

Since there is a lot of uncertainty as to what will happen there, we have elected to be a little bit more conservative in our guidance.

So we feel that that is the right approach because again the uncertainty is high.

So I just wanted to make that comment also.

Thank you.

Robert Jones, Goldman Sachs.

Thanks for the questions.

Just wanted to go back to equipment once again.

Steve, you mentioned Biolase having a negative impact in the quarter.

Do you have what the equipment growth was ex the Biolase impact in the quarter?

Yes, substantially all of the negative impact was related to Biolase.

Our equipment sales growth was relatively flat.

It might have been slightly up, slightly down; I don't have the precise number in front of me.

But all of the negativity was related to Biolase, so equipment sales were flat ex-Biolase.

That is helpful.

And then just to follow up on that, is there any more detail you can give us around the trends in high tech versus basic equipment in the quarter, maybe in the US and also what you are seeing in Europe?

You know, it's I think nothing really new there.

The areas of interest for equipment continue to be the high-tech areas because of return on investments and people needing to improve their overall productivity in their office.

So that continues to be the areas of interest.

Basic equipment, while it's not doing terribly, is less attractive from a growth perspective.

So when you talk about this cautionary approach from dentists on capital spending is that really more towards the basic equipment or is it equipment across the board?

Well, it's a little bit across the board but it's probably more weighted towards basic.

Remember, if we use recent history, the 2009 and 2010 period, we saw dental offices really have no major reduction in their profitability, but yet they had a very cautious tone towards buying equipment.

So we don't know if that is going to recur or not.

We hope that people have learned from that, that what is going on in the general markets is not indicative to what is going on in the dental market.

But, again, that is in the back of our minds that dentists did hold back on purchases in the 2009 and 2010 period and it's possible that that will occur to some extent -- we think a lesser extent -- but to some extent going forward.

So that is built into our guidance also.

Great.

And then just one quick one; sorry if I missed this and I will hop off.

Was there any M&A assumptions built into the fiscal 2012 guidance?

Thanks.

No, there is no new M&A activities.

It includes all of the completed acquisitions through the date of this call, which really the big ones this year were Provet and the veterinary software companies and Sogim in France.

But no new acquisition activity is contemplated in our guidance.

Lisa Gill, JPMorgan.

Good morning, it's actually Mike Minchak in for Lisa.

A couple questions, the first on margins.

You talked about the impact that acquisitions had on the year-over-year margin comparisons.

As Provet is going to cycle in the beginning of the year and that will essentially reset the bar, within your guidance do you assume returning to that historical target of 30 to 50 basis points of operating margin expansion next year, or have you adopted a more conservative stance there as well?

No, we still feel like we can get that range of operating margin expansion.

Part of it is dependent on overall sales growth, as you know, and our goal really continues to be the operating margin expansion, excluding the positive or negative benefit from any acquisitions that may occur in the future, but we still feel like we can get margin expansion.

If sales growth is more robust it would be on the high end of the range, and if it's less robust on the low end of the range.

So it's still something that we feel comfortable that we can achieve and we are very focused on it internally.

Great.

And then with respect to your comments on the share buyback going forward, is this a change in the terms of the priorities for use of excess cash or would acquisitions still be your first priority for uses of cash?

Then maybe if you can give us a sense of what is built into your guidance for next year in terms of share repurchases.

Sure.

It's really not a change in deployment of capital, because we have the benefit that we feel that we can -- we have a very strong balance sheet.

We feel we can do both acquisitions at similar rates to what we have historically done, as well as the stock buyback.

So it's not really that we are going to do more of one and less of another.

We feel like we can do both.

Really we haven't assumed any significant impact other than what we have bought through the third quarter.

So again that is a little bit of conservatism built into guidance on future buybacks, because until we buy it back we really don't assume a significant impact in our 2012 guidance.

But I think the most important thing is it's not a change in strategy related to acquisitions.

We still feel like our markets are fragmented.

We can continue to make good strategic and financially attractive acquisitions, and that is still the goal for the Company to grow the business.

But, simultaneously, we feel like an attractive investment is to reduce our share count slightly on the year-over-year basis.

Great.

Thanks for the comments.

John Kreger, William Blair.

Thanks very much.

Kind of coming back to your comments about a stronger order book for Dental equipment, do you think you can show positive growth in the fourth quarter and the US and in your international business for Dental equipment?

You know, I think we believe the answer is yes that we should be able to given the order book growth and barring any unusual new developments that no one is anticipating.

So I would say the short answer is, yes, we do believe we can show growth in equipment.

Great, thanks.

And I think in the last couple of quarters it seems you guys have spoken more about a more aggressive strategy to tap some of the specialty markets within Dental.

Can you just give us an update there?

Have you had any progress there?

Is that contributing to your consumable growth?

Sure.

Specialties are still in a development stage, Dental specialties.

So while we are seeing good growth in our Dental specialties group and it's enhancing the overall growth of our Dental business, it's not today large enough that it moves the needle all that much.

We would hope to, over a short period of time, get bigger in the specialty areas and have it more -- a bigger contributor to growth.

But right now it's still in the development stage, and while we have a lot of good properties and assets there, now it's the time to look at those properties and get them to work more synergistically with each other in order to drive enhanced growth going forward.

So it's still a good opportunity for us on a go-forward basis.

Great, thanks.

And then just one final one.

If you think about your outlook for 2012, you are currently delivering very strong growth, well above the market in both the physician office and the vet spaces.

Do you think that is sustainable next year, or as you comp some of the favorable impacts should we assume that will look more like the broader market trends?

Well, I think we still believe we can gain market share in both of those business units.

In the Animal Health, somewhere at almost double digits -- I think it was 9.4% this quarter -- I think it may in the longer term have to come down because you can't keep growing at the 2 or 3 times what the market is growing for the extended period.

But right now we are feeling very optimistic with both Animal Health and Medical, and we see continued very strong growth.

We just have to be a little bit more realistic on a long-term perspective.

Great, thanks very much.

I will now turn the call back over to Mr.

Bergman for closing remarks.

Thank you very much, operator.

Again, I want to apologize for the technical issues we had.

This is actually the first time we have had this kind of an issue in 16 years, so appreciate your patience.

So in conclusion, we do remain optimistic about the business.

I think we were trying to just be a little bit realistic in terms of foreign exchange implications as far as the euro is going up and down quite erratically.

We think we are heading into a good fourth quarter in the US and abroad from an equipment point of view, but again we want to make sure that we manage towards a conservative expectation.

We think that the consumables business in the US is quite steady and we see continuous market growth on our Medical business in the US as well as our global Animal Health business.

So I think one has to be very careful to ex out the impact of flu vaccine which is quite the market in 2011 third quarter.

And if one takes that out I think it was a solid quarter and I am quite confident that we are heading into a solid fourth quarter, but just want to make sure that we manage expectations quite carefully.

So having said that all, if you have a question, please feel free to call Steven at 631-843-5915 and Susan at the same number except the last two digits change to 64 -- sorry, 62.

She sits next-door to me so I don't call her very often.

So thank you very much, everyone.

Please, again, feel free to call Steven or Susan if you have any questions.

We would be very pleased to answer those and look forward to speaking with you again at the next quarter and seeing you at different conferences.

We will be at the JPMorgan conference; that will be another good chance to see us.

I believe Steven will be at the Credit Suisse, I don't know if I am going to be there.

No, you are not planning on being there, but we will be at Credit Suisse in two weeks.

Steven will be at the Credit Suisse in two weeks.

He will make a general presentation, be available for one-on-ones.

And likewise, I will be available with Steven in San Francisco for the general presentation and breakout session and the one-on-ones.

Thank you very much and have a good year, new year, holiday season.

Thank you.

This concludes Henry Schein third-quarter conference call.

You may now disconnect.