漢瑞祥 (HSIC) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Henry Schein second-quarter conference call.

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 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, and my thanks to each of you for joining us to discuss Henry Schein's second-quarter results.

With me this morning are 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 may affect the 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, August 2, 2012.

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 please 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 to Stanley Bergman.

Good morning, everyone.

And Susan, thank you very much for that introduction.

Today, we are reporting growth in earnings per share of approximately 10%.

While we are pleased with the performance of each of our business units, our financial results were somewhat adversely affected by foreign-currency exchange, particularly relating to the euro and the Canadian dollar; by general economic conditions; and by challenging prior-year comparisons related to increased sales from the biannual IDS show in Germany.

So, on balance, if you take a look at our internal growth of the business in total, I think we could all agree that we are doing well as a Company, gaining market share across the board in each of our business units in this country and abroad.

Of course, the euro translation has an impact on the top line, and to some extent on the middle, bottom line, on the operating margin side, cushioned to some extent by our opportunity to buy products at a bit of a lower price also, and we did have an impact from the Canadian dollar.

We have a very nice business in Canada, also getting market share and very profitable.

But also, the economic conditions, I think in some parts of the world are impacting our growth somewhat.

But in general, our ability to gain market share has enabled us to feel confident about reaffirming guidance, which you will hear about a little later and quite confident about the rest of the year.

Of course, in Europe, our main business is our German business, and with respect to our German business, that -- we had tough comparables because we had a very, very successful IDS show last year.

Having said that, we are quite confident with the strength of our German business.

There are no major concerns relative to reduction of reimbursement in the German dental market, so we continue to be very pleased, not only with our traditional business, but of course with our Camlog business as well.

Yet of course, despite these factors, we are pleased to be reaffirming our financial guidance.

Steven will address that a little later.

In recent weeks, we have completed a couple of smallish acquisitions, I think in total about $60 million, as compared to close to a $9 billion business.

It's not material from a sales point of view but very, very important from a strategic point of view.

We have a strategic plan, 2012 to 2014, which calls for us to complete certain blank spots, and these acquisitions help us advance the closing of these blank spots and filling them in, and therefore pursuing a strategic policy and priority that is contained in our strategic plan.

Of course, these acquisitions will enable us to reach more practitioners, but more importantly, in markets we are not in, and in products and services that we need complementary offerings for.

So, these three little acquisitions are not material in terms of sales, certainly not material in terms of capital deployment, but important from a strategic point of view.

And I will speak about this a little later.

Before I go further, I will ask Steven now to address the financial aspects of the quarter, and then I will come back to give you a little bit more color.

Thank you.

Steven?

Okay.

Thank you, Stan, and good morning to everyone.

I am also pleased to be reporting overall solid financial results for the second quarter of 2012.

I would like to point out that our 2012 second-quarter results include approximately $3.4 million pretax of restructuring costs, and that is approximately $0.03 per share.

We announced this restructuring on our fourth-quarter 2011 conference call.

You will see on Exhibit B [of] this morning's earnings release that we have reconciled GAAP to non-GAAP income for this item.

We have now completed the restructuring, and we do not expect any further costs from that program for the remainder of 2012.

Turning to our financial performance, our net sales for the quarter ended June 30, 2012 were $2.2 billion, reflecting a 3.3% increase compared with the second quarter of 2011.

This consists of 6.5% growth in local currencies and a 3.2% decline related to foreign-currency exchange.

In local currencies, our internal sales growth was 4.6%, and our acquisition growth was 1.9%.

You can see further details of our sales growth that are contained in Exhibit A of our earnings news release.

Our operating margin for the second quarter of 2012 was 7%.

This was a decline of 7 basis points compared to last year's operating margin for the second quarter.

However, I think it's important to look at the operating margin excluding restructuring costs, which we believe is a more appropriate measure.

And when looking at it that way, our adjusted operating margin for the quarter actually improved by 8 basis points to 7.2%.

I would also like to point out that the current-year acquisitions, if we would exclude those, because they initially come in at lower margins until we can integrate and get some synergies.

If we exclude those current year acquisitions also, our operating margin for the second quarter improved by 16 basis points.

It would have been about 7.3%.

If you look at the components, our operating expenses as a percentage of sales, again excluding restructuring costs, improved by 45 basis points as we continue to control and leverage our expense structure.

This improvement was partially offset by a decline of 37 basis points in gross margin, and that's reflected mostly in our Global Animal Health business, where we have higher sales growth, as well as product mix, where our Animal Health sales, because of certain pharmaceuticals, do carry a lower gross margin.

Our effective tax rate for the quarter was 31.2%, which is in line with our guidance, and is down from 31.9% in the second quarter of last year.

We expect our effective tax rate to remain in this 31% range for the remainder of the year, and we also think there's a possibility that it could be slightly lower than 31% for the balance of the year as certain tax-saving initiatives are implemented, as well as earnings from lower tax jurisdictions increasing.

Our net income attributable to Henry Schein for the second quarter of 2012 was $98.1 million, or $1.08 per diluted share.

Excluding restructuring costs, our net income attributable to Henry Schein was $100.3 million, or $1.11 per diluted share, and this represents increase of 6.2% and 9.9%, respectively, compared with the second quarter of 2011.

I think it's important to note that foreign exchange did have a negative impact on our EPS for the quarter, and this negative impact was approximately $0.03.

If we were just to use the same exchange rates that existed last year in the second quarter versus this year, our earnings would have been $0.03 higher for the current quarter.

I think it's also important to remind people that a change in the euro exchange rate, which is our largest non-US currency, a change by $0.10 on average for a quarter would have an impact by approximately $0.015 on our EPS on a quarterly basis.

Let me now provide some detail on our sales results for the second quarter.

Our Global Dental sales for the second quarter declined by 1.3% to $1.2 billion, but that consists of 2.6% growth in local currencies and a 3.9% decline related to foreign-currency exchange.

In local currencies, our internally generated sales were up 2.1%, and acquisition growth contributed about 0.5% to the growth.

We believe that our overall Dental sales growth exceeds the estimates for the market growth for the quarter.

We look at that 2.1% internal sales growth in local currencies in our Global Dental business, it is comprised of 3.2% growth in North America and 0.5% growth internationally.

I will give you detail behind those figures right now.

The North America 3.2% internal growth includes 1.9% growth in our dental consumable merchandise business and 7.9% growth in our dental equipment sales and service revenue.

This equipment growth figure is particularly noteworthy, as it represents the highest growth that we've had in that category in eight quarters.

And we believe the growth was driven largely by our enhanced focus on in this area that we discussed on last quarter's conference call, including enhanced privileges promotions and attractive financing incentives.

The 0.5% international growth included 3.4% growth in consumable merchandise and a decline in equipment sales and service revenues by 6.5%.

Remember that the international dental equipment sales growth reflects a challenging prior-year comparison related to the increased sales we saw last year because of the IDS show in Germany, as well as some economic challenges in Italy.

We go to the Global Animal Health sales, they were $586.3 million in the second quarter.

That's an increase of 11.4% and consists of 14.9% growth in local currencies, offset by a 3.5% decline in foreign exchange.

If you look at our local currency growth, it was 8.7% internally generated, and acquisition growth contributed another 6.2%.

If we further break down our growth between North America and international, the 8.7% internal growth in local currencies included 14.2% growth in North America and 3.4% international growth.

We believe the North American Animal Health growth was fueled by strong flea and tick product sales this quarter.

We also believe that we continue to gain market share in our Global Animal Health business for the quarter.

Now turning to our Global Medical sales, they were $361.1 million in the second quarter.

That's a 5.9% increase and represents components of local currency growth of 6.6%, which was all internally generated, and a 0.7% decline related to foreign currency.

That 6.6% internal growth includes 7.2% growth in North America and a small decline of 2.2% in international.

Again, we believe we continue to gain market share in this business segment, and remember, our North American business represents about 90% of our Medical sales total.

If we look at the Global Technology and Value-Added Services sales, they were $68.2 million in the second quarter.

That represents a 9.8% increase, and the components are 10.6% local currency and a decline of 0.8% related to foreign currency.

If we look at the local currency growth, internally generated sales were 8.6%, and acquisition growth contributed and additional 2%.

And within North America and international, that internal growth was 9% North America and 6.2% internationally.

So, looking at our stock repurchase plan, we continue to be active in repurchasing our common stock in the open market during the second quarter.

Specifically, we repurchased approximately 1.6 million shares of common stock during the quarter at an average price of about $75 per share, and that represents about $118.3 million of cash.

The impact of this repurchase for the quarter was really immaterial to our EPS.

In fact, it was less than $0.01 per share.

If we take a brief look at some of the highlights of our balance sheet and cash flow, we had strong operating cash flow for the quarter of $178.5 million, and that compares to $138 million last year.

The components are improvement in working capital.

That was a key driver, and we continue to believe we will have very strong operating cash flow for the balance of the year and achieve our goal of having cash flow exceed adjusted net income.

Looking at our accounts receivable DSO, or days' sales outstanding, it was about 40 days for the second quarter, and that compares to 40.6 days last year, so a slight improvement.

Inventory turns for the second quarter were consistent this year and last year at 6.5 turns for the second quarter.

I will conclude my remarks by affirming our 2012 financial guidance.

We expect the 2012 EPS to be in the range of $4.30 to $4.40, which represents a growth of 8% to 11% compared to 2011 results.

Again, let me remind people that 2012, our fiscal year, has one less week than 2011, and as always, our 2012 guidance is for current continuing operations, as well as any completed or previously announced acquisitions, but does not include any impact that there may be for any future acquisitions.

So with that summary, I would like to turn it back over to Stan.

Thank you, Steven.

Let me review the highlights from the second quarter for the three business units.

We now have our three global business units, the Global Dental business unit, the Global Animal Health business unit, the Global Medical business unit, which is primarily a business unit focused in North America at this time, and -- or shall we say the US.

And then of course there is a fourth unit, the three verticals, and then there's a horizontal unit of Technology and Value-Added Services, which is global in nature but supports our Global Dental, Animal Health, and Medical groups.

So, let's talk about Global Dental to start with.

We believe that we continue to gain, as noted earlier in my opening remarks, market share -- and I think Steven reaffirmed that -- market share in our Global Dental business during the quarter, with particular strength in the North American equipment business, as we mentioned earlier.

The dental specialty markets are important components of that growth, and we recently strengthened our orthodontic business with the acquisition of Ortho Technology.

We are building a nice orthodontic business.

We started out with Ortho Organizers, added on a couple of businesses there, to expand the offering and the Ortho Technology gives us more products and certainly more sales.

And it's a nice market that is complementary to our overall Henry Schein Dental business.

The Ortho Technology business offers a complete line of orthodontic supplies and services approximately 10,000 customers worldwide.

It's a relatively small business with a lot of customers, and the opportunity to increase sales to these customers is there, because we have the penetration in terms of access to customers, but we have relatively small amounts of sales to each of the customers.

The business will be complementary, of course, to Ortho Organizers, which we acquired in March of 2009.

Business has done very well for us, and that -- as our shareholders know, those that are close to us, Ortho Organizers largely serves general practice dentist professionals, while Ortho Technology sells products primarily to orthodontists.

We have a nice mix of customers here that we are now positioned to introduce our broad offering in the ortho line to.

We envisage multiple synergies between these two organizations, including leveraging Ortho Organizers manufacturing capabilities.

They manufacture certain products and do a good job at that, and Ortho Technology's aesthetic brackets and their best-in-class direct marketing expertise.

Good opportunity.

With this transaction, we are further penetrating what is a $1.25 billion global orthodontics market with a company that has been gaining share for several years.

Ortho Technology is based in Tampa Florida.

It was founded in 1991 and has approximately 90 Team Schein members.

The sales for 2011 were $24 million, not a lot in the context of a $9 billion or so Henry Schein business, but very, very important strategically.

We plan to promote the company as part of the Henry Schein portfolio of orthodontic companies as I noted.

In addition, we have a plan to expand our presence in Asia.

We've, I think, done very well in North America, of course in Europe.

Asia is a market that presents lots of opportunity, rapidly growing market in terms of population.

The middle class is growing, and it's in this context that we made a decision a couple years ago that we wanted to expand into the Asian market and pursue a joint venture with the Accord company.

This transaction establishes our presence in Thailand in a leadership position and will of course serve us as a anchor for further expansion in Asia.

Thailand is the 26th country in which Henry Schein now operates.

Now, of course, Thailand in itself is not that material from a global point of view, but Accord is the premier distributor in southeast Asia, a long history.

We've worked with Mrs.

Suchada, the CEO of the company, for almost 20 years in different ways.

We know the company very well, and the facility, the capacity to do education and work for our suppliers in that part of the world is terrific, and the reputation of Accord is terrific.

The Thai dental market is the fifth largest in Asia.

It's estimated to be about $100 million annually.

The rest of the southeast Asia market is about $150 million market opportunity.

Again, this is from a dental point of view, but is also growing rapidly.

Accord is based in Bangkok.

It's Thailand's leading full-service dental distributor.

The company was founded in 1976, has approximately 115 team members, including 45, almost 50% of the company, represented -- is in field sales area, and the 45 field and then another dozen or so in telesales.

So about 50% the company is focused on sales and services 5,000 customers.

Among the many brands Accord carries are a number of exclusives, many, in fact all of them, were key suppliers of Henry Schein in general.

The company in 2011 had sales about $15 million.

Relatively small, but very important in our strategic plan to expand our presence in Asia.

Accord was owned by the Charnsethikul family.

I always get in trouble with that.

Mrs.

Suchada is much easier for me to pronounce.

We acquired 75% of the company, and the founding family will retain the remaining 25%.

Part of our general strategy has always been to enter into new markets, whether it's new products or new geographies with partners.

Accord is operated by Mrs.

Suchada, who is in her second term as President of the Thai Dental Trade Association.

Ask anyone about Mrs.

Suchada in the East Asia area and Global Dental market, and she will carry huge, huge credibility.

She will continue to manage Accord and is grooming the next generation of managers as well.

Accord is widely recognized as a solid, solid company with great management.

Mrs.

Suchada is one of the most respected leaders in the Asian dental community and enjoys extensive relationships with distributors in other countries and key manufacturers.

And of course, we are very excited to enter into this joint venture.

We have an Asian team that we started putting together about four or five years ago and are doing well.

The joint venture in Hong Kong is doing extremely well.

We are the largest player in that market from a dental point of view.

Now, Thailand, and we continue to roll out our Chinese strategy, which is making progress but, of course, quite challenged.

China is a large market, huge opportunity, and we continue to advance our strategy there, too, with the recent Thai acquisition complementing the Hong Kong joint venture.

In June, we held our 17th annual Dental National Sales Meeting and currently celebrate the 15th anniversary of creating Sullivan-Schein, which is now known as Henry Schein Dental.

Of course, bringing those companies together with [Mia] Dental had its challenges.

Bottom line is it's the largest distributor of dental products in the world, very profitable, with a superb management team.

2,000 Team Schein members gathered in Florida with our key suppliers who attended and did a really terrific job.

The largest gathering of its kind in the world, include training and education sessions, and a valuable opportunity for our sales representatives to share best practices amongst themselves.

We had a nice contingency from our international group coming to learn, share best practice, and, of course, everyone spending time with our key supplier representatives.

Always good for investors that want to get a feel for what happens at one of these events to have a discussion with one of the suppliers, maybe more of them, one or two, three, even more, and find out how well these meetings go.

And this meeting was really superb.

It prepares us, of course, for the rest of the year, and particularly for the selling season, which begins towards the end of this quarter and is heavy in the fourth quarter.

At this year's meeting, we launched a new program called Likeable Dentists.

This is a Facebook marketing solution that assists dentists, dental practices, using in social media.

Critical to the future of dental practices, to both their brand, engage with existing and prospective patients.

Our launch of Likeable Dentists is a prime example of our commitment to find innovative solutions that help our customers' practices evolve along with the times.

Very, very important, social media, and capitalize on the increasing importance of e-commerce in the dental market.

So, very, very excited with what is happening on the Global Dental side.

We are by far the biggest dental company in the world, almost -- or just around $5 billion of sales.

We are gaining market share, making progress on our strategic plan.

Got a great management team that is aligning behind the strategic plan in a very nice way.

We have got depth of management in all parts of the world and have many, many opportunities, lots of blanks in terms of product offerings and geographies.

And we are executing, and there is much more to come this year and next year and the following year as we execute the plan.

Let's now turn to the Global Animal Health business.

This business continues to make impressive gains in the market in terms of market share, particularly North America.

As shareholders recall, 2010 was the integration year of this joint venture.

It's great [to back] the Schein business in the US 2011.

We made really good progress in terms of market share, and that progress continues in 2012.

During the second quarter, we completed our acquisition of the AUV Veterinary Services business.

I discussed AUV at length during our previous conference call.

But as a reminder, this transaction brings us a leading presence in the Netherlands and Belgium and advances our pan-European strategy of providing animal health practitioners across the continent with products and services needed to operate more efficient practices and deliver high-quality care.

The key here is that we are almost in a position to go to our major suppliers and say we will take care of your products, major, and of course other, emerging suppliers, across Europe, as we have done on the dental side.

There's some more blanks on the map that need to be filled out.

We will make good progress in that area, I am quite convinced.

And we will create Europe -- we are today Europe's largest animal health distributor, but we will create a unique, unique presence that our manufacturers will turn to, moving us from a market that is more or less a logistics distribution market to one in which we will bring Animal Health Value-Added Services to our veterinary customers in Europe in a similar way to the way we've done in North America and on the dental side in Europe.

North America in Animal Health, and the way we've done it for the dental side in Europe.

I'd like to remind you that AUV's business [kindly] has an operating margin of 1% and will negatively impact our consolidated worldwide operating margin going forward.

No different, by the way, to the Dametus deal of several years ago, and I think we have shown good results there on the dental side.

While we look forward to the opportunity to improve margins at AUV over the next few years, we estimate this acquisition will negatively impact our consolidated operating margins for the second half of the year by approximately 10 basis points.

Having said this, I think the Animal Health business presents huge opportunity for Henry Schein as the only global distributor in the space, and I think we are creating a terrific asset, which all goes towards creating shareholder value.

Now, on the medical side.

Our Global Medical business 90% North America and US-based, have continued impressive growth in this business during the second quarter, which is on the heels of market share gains for quite a while.

It's really due to the increased penetration of the integrated delivery network, larger group practices, and of course the ambulatory surgery center, as well as solid growth in sales of pharmaceutical products and medical equipment.

I think we mentioned this to shareholders in the past.

We've conducted a strategic plan, about 4.5 years ago, to determine which areas of the market we wanted to focus on from a specialty point of view and how we were going to access these new, emerging, delivery networks, these integrated networks.

There are different kind of large group practices.

Ambulatory health care is growing in importance.

Different ways to address that.

So the second component part, how to address this opportunity in terms of the way in which practice of medicine was conducted was addressed to the establishment of a health care services group, which is doing extremely well in penetrating these newer kinds of health care delivery networks.

Another recent acquisition was the Modern Laboratory MLS deal.

This transaction reflects our continued commitment to the physician clinical laboratory market.

Very poor, little market, but very profitable, and strengthens our position on the US West Coast, which is an area of exciting growth.

In fact, MLS is one of the leading distributors in western US of products and services for the POL physician, office laboratory, products on laboratory equipment supplies.

MLS represents many of the most important suppliers in the clinical laboratory business, including serving as exclusive distributor for the Siemens I mentioned chemistry analyzer product on that side of the country and complements our business on the east side of the US.

Sales were $22 million, but the sales are not anywhere reflective of the huge opportunity from a strategic point of view.

Sales are modest, but the strategic benefit is quite large when connected to our US sales and distribution channel, where with this product offering, we will be able penetrate further into the market.

And we said that MLS does have approximately 700 customers, 36 team members.

The company was founded in 1984 in an entrepreneurial way, based in Bakersfield, California.

The entrepreneurs that founded the business will continue with us, as is customary in many of these kinds of relationships at Henry Schein.

Stan Sherrill, CEO and co-owner, a terrific, terrific, knowledgeable individual in this market, will join Henry Schein as the West Coast Lab Sales Manager.

And Bob Ward, President and co-owner, also a great, great entrepreneurial manager who will fit very well into our entrepreneurial culture, will continue to oversee the MLS business to the US military bases and US territories.

These are nice opportunities to leverage not only the MLS business per se, but leverage Henry Schein's other products into these markets.

The transaction also advances our goal of getting market share and adding knowledgeable -- a key component part -- knowledgeable management through strategic acquisitions within important product areas and niche areas.

That's the Dental, the Animal Health, and the Medical Global businesses.

Let me now turn to -- and those are our three major verticals.

To the horizontal that crosses a business unit, the Global Technology Value-Added Service business unit, that covers the vertical, supporting all three horizontal business.

This business is primarily technology, software-related services, and also financial services.

The performance of this group continued to be solid during the second quarter, with strong internal growth in the United States bolstered by strategic acquisitions.

The acquisitions, again, not material from a sales point of view, not even material from a dollars-and-cents-put-to-work point of view, capital deployed shall we say, but much more important from a strategic point of view.

More than 85% of Technology Value-Added Services revenue is derived from North America at this time.

The goal is to expand that globally.

Quarterly results include the particular strength in recurring revenue streams on both the technology side, and as well as, by the way, on the financial services side of the business.

I think you could see that a lot of good things happening here at Henry Schein.

We are gaining market share.

We're focused on increasing our operating margin for my existing portfolio, putting on top of that newer businesses where there's lots of opportunity to increase the margin.

We are executing on our strategic plan with the three global verticals, with a Global Technology and financial services, Value-Added Services., horizontal working well.

I would say that our global services part of the business, that's our distribution, the IT, the human resources, supply chain.

All of that is doing very well as we globalize our business.

We've been doing that for the past decade.

We have a terrific management team supporting the sales and marketing part of the business and great strategies and are executing in a way that is very good, seasoned management team, doing a great job, complemented by lots of additional members of the team who are being integrated nicely in general.

Before we take questions, I would like to touch on the recent US Supreme Court ruling upholding key provisions of the Patient Protection and Affordable Care Act, better known as health care reform.

As we all know, there are likely to be changes to this law before it goes into effect, and in fact, this particular legislation will mature.

Like all major legislation in American history, it will mature over the next decade.

But believe that the overriding goal of expanding access to health care with a focus on preventative care in the primary-care physician office setting and ultimate care setting is a net positive for Henry Schein.

Yes, there will be challenges.

The first line of defense for many Americans remains the emergency room in the hospital.

That will change over time and be moved to the physician office ultimate care setting.

Who pays for that is the big debate, but I think it is clear that the physician will play a more important role in a primary care setting, that preventative care will be important.

These are all areas that Henry Schein has been focused on now for a long time, and I think we are ideally positioned to advance our business under this new environment that will unfold over the next decade or so and sooner.

While there will be cost pressure to contain use of certain higher-priced procedures, devices, therapeutic, we don't see this having much of an impact in the end on Henry Schein.

Like -- very similar, by the way to on the dental side, where we have our special markets business.

Yes, we are dealing with a more sophisticated customer, but a more sophisticated customer is also able to give greater compliance with formularies and the like.

As the market transforms, I think it will be to our benefit for a business that was primarily business to small business in the medical world to transform into small -- into an environment of business to professionally run, larger enterprises, which gives us opportunity to work with those suppliers that are committed to this market to advance our mutual business.

There is a challenge with the new tax that will be levied on manufacturers of medical devices.

The market will adjust over time, but there is a lot of system work needed to comply.

There's going to be a lot of challenges with customers understanding why prices are going up, not too dissimilar with some of the legislation related to the farmer industry, where we have to track lots going back to who manufactured the product.

I think Henry Schein developed very good systems in this area.

It was a challenge for the industry, but I believe the Henry Schein systems that we have today are really a barrier to entry for many smaller players.

I think we will see consolidation on this market, both on the distribution side, probably on the manufacturing side, but also definitely on the customer side.

And I think we are well positioned to -- specifically on the medical side, but there is even some dental opportunity to advance the business during -- and the changes that will be advanced in the health care arena in the next decade with some significant changes in the near term.

Of course, there's no doubt we have to consider the general economic conditions in the markets we serve.

There is definitely somewhat of an impact.

Things are a little different than they were past two or three quarters ago, but I think Steven has taken this into account in reaffirming our guidance in the traditional conservative way in which he has approached guidance and our reconciliation to our internal budgets.

Having said this, we do see a positive impact from the fact that more people are expected to seek routine and preventative medical services, both in the medical world, in the dental world, with more physician activity going to take place, movement away from the acute care setting into the physician space.

The higher traffic that will over time emerge in the physician space by marrying the primary care area is good for Henry Schein in the long run.

Of course, we have to budget changing the dynamics, which is reinforcing one part of the business while sunsetting, to some, extent other parts of the business.

It's all areas that I think our team is well, well ready to adjust.

Any time we have [earned] significant change of dynamics, there are opportunities and there are challenges, of course.

I think we are well-positioned to take advantage of that.

We have, I think, a very good portfolio of businesses, Dental, Medical, Animal Health, and geographies.

I think we are well-positioned, of course not without the usual business risk, but I think this management team here has shown over the decades that these kinds of risks can everybody [moneterized] for the benefit of our shareholders.

With that in mind, Steven and I are ready to take questions.

(Operator Instructions)

Glenn Santangelo, Credit Suisse.

Thanks.

I wanted to ask a quick question about the consumables business.

When I look at the experience or what you guys posted in Europe, clearly probably a little bit faster than what I would have expected.

Then if I look in the US, probably a little slower than what I would have expected.

Was that in line with your expectations, or were you surprised as well?

That's a good question, Glen.

I think you really have to be very careful in measuring one quarter as standalone.

Last quarter, we cautioned that maybe the numbers were a little too high and was not reflective of the markets nor of our market-share gain.

And I think this quarter, one has to be careful to draw conclusions from the quarter as to whether the underlying strength of the market is reflected in the numbers.

One thing is for sure.

We have checked with our major manufacturers, and I think that you can do the cross-checking yourself, we continue to gain market share.

At the same time, I would not draw a conclusion that Henry Schein is gaining market share, albeit modest market share, but we are gaining market share in the key products.

I would not draw conclusion that because Henry Schein is gaining market share, and Henry Schein's internal growth was not as strong as the previous quarter, that the market is really challenged.

I think that would be too narrow a view.

So it would be very hard for me to predict the next quarter.

I think one has to have a much more nuanced view than to conclude that the first quarter the market was racing ahead and the second quarter it's going in a completely different direction.

I think the dental market is a solid market.

Speak to dentists in most parts of the country, they are feeling good.

There are parts of the country where they are not feeling as good, and there are parts of the country where they are ecstatic.

We're in a solid business, and I think we have to be careful to draw conclusions from one quarter versus another and take a more long-term view.

I appreciate that.

Do you mind if I ask one more follow-up question on the Animal Health business?

The Company continues to post solid results there and, Steve, you called out flea and tick sales now for a number of quarters.

I'm wondering how long can that continue?

And I recognize your comments that you are gaining market share within that business.

Could you assess what you think that market is growing organically so we can put it in a little bit better context?

On the flea and tick, remember, this is primarily a seasonal product.

It will continue through the summer months, and then when it gets to the wintertime, it generally tails off.

It's a seasonal product, as I said.

Basically, the season started earlier this year than from prior years, again, because we had a very mild winter.

That caused parasites on animals to start quicker.

It's difficult to measure the overall market.

We think the overall market is somewhere in the mid-single-digit growth range.

Again, we are growing at least 2 times that.

I'm not sure where the market share is coming from.

Some of the other big players are also performing well.

So I guess it's coming from the smaller players.

And right now, there is a lot of momentum in our veterinary business.

Okay.

Thanks so much.

Glen, just to be sure, I don't know how many quarters any company could sustain 14%, I think that was the number, internal growth rate.

We are not counting on that.

We would hope that our Animal Health people continue to gain market share, and -- but I think it's unrealistic to expect those kinds of numbers to be posted going forward on a regular basis.

Because of our unique platform that has come together, we have the widest variety of products.

I think we have a great sales organization, terrific delivery, a great brand.

I think you can expect us to gain market share at this point.

The globalization of the business there has huge opportunity, but I think to expect 14% growth in any one quarter going forward on a regular basis, I think is something we can't count on.

Okay.

Thank you.

Robert Jones, Goldman Sachs.

Thanks for the questions.

Digging into your comments about dental equipment and consumables and the overall internal growth, it seems like you've had continued strength, obviously, in dental equipment.

I was hoping you could share a little bit more detail around the categories that you are specifically seeing the most growth?

And then taking a step back, the global picture, it seems like a fairly wide disparity between the North American equipment growth and the international growth.

Any more insight on the differences there that you could share would be helpful.

Thanks.

First of all, Steven is going to give you the categories.

Let me give you two macro points.

The first is that I think we've pointed that out in our first-quarter call that the first-quarter sales were a little bit depressed because some of the backlog got shipped, [I'm talking about] in the US, that were going to be shipped in the second quarter.

That took place.

On the one side, I think the second quarter -- the first quarter was a little depressed, and the second quarter, I think, is a bit more on the positive side than one would expect to continue.

On the flip side, you have Europe, where we had tremendous growth in our number one, equipment markets, number one by far in Germany because the IDS.

And now we had very good growth, we think, in terms of market share in Germany, but it's on the heels of these comparables.

Again, I think one must be very, very careful in drawing conclusions from one quarter to another.

Steven will give you the exact categories where we have done well, and I would be very careful to conclude that because we have done well in one quarter, it's a trend.

But I think Steven will give you the trend-line thinking as well.

And we remain, by the way, quite positive about our Dental business.

We think we have a good offering on both sides of the Atlantic and have further realigned that offering recently.

But why don't you, Steven, talk about --?

Sure.

Our equipment growth by category was pretty broad-based this quarter.

In North America, we had very strong traditional equipment growth.

Again, we said that we were going to focus on it last quarter.

We felt that there were opportunities in the marketplace and were able to capitalize on that.

But the leading grower for us was the CAD/CAM or E4D segment.

That was our fastest-growing category within the high-tech segment.

It has been our fastest growing category for a little while now.

We would expect that to continue.

But again, I would say that North America was very broad-based, our equipment sales growth.

If you look at international, Bob, I think it's important to remember the IDS trade show.

This is not unexpected to have a very difficult comparison with a strong equipment sales, especially in the Germanic countries, last year in Q2.

That was the primary reason why equipment sales growth internationally was not strong.

It's really the comparison.

The other thing that is impacting it is the Italian market.

The Italian market, because of the overall economy, equipment is down somewhat in the market.

We are actually doing better than the market, both on the equipment and consumables, but we still have the reality of the Italian market.

Hopefully that provides additional color to you.

No, it does.

It's very helpful.

Actually, if I could follow-up on that, Steve.

Within the CAD/CAM space, you mentioned E4D, obviously, being the strongest growth in North America.

Is that in large part you feel because of share shift, or do you feel that this category is finally starting to take up broader acceptance?

And if I could sneak one in on Medical.

Impressive North American growth, especially in this market.

I was wondering if you could parse out for us underlying market growth versus some share shifts within North America in Medical?

Thanks so much.

Yes, Bob, I think what is very, very, very important here is that we don't use these investor calls to pit one supplier against another.

We have to be very careful.

So, let me talk about CAD/CAM.

The CAD/CAM market globally has good opportunity.

And the market, I think, will grow nicely.

I think as dentists understand the importance of this product, there will be more opportunity.

Henry Schein was precluded from the CAD/CAM market in the US for about two decades.

We didn't have product to sell.

We are now selling this product, and perhaps our own customers did not buy the CAD/CAM product until they saw Henry Schein had an offering.

We started offering the product, and I'm not sure if it's market share we're taking from other manufacturer or not.

What I can tell you is that for us, we are growing, and we'll continue to grow.

We saw exactly the same in the sensor market.

Henry Schein, for a long time, didn't have a good sensor.

When we had a good sensor and made it available to our customers in collaboration with Danaher and the DEXIS Sensor, we have done well.

I don't want to talk about whether we are number one or number two, because depending how you define it, we are number one or two.

Is it units?

Is it sales?

Is it a quarter?

The bottom line is I think we have grown from virtually nothing in the sensor business to a significant player in the United States, albeit with the support, been terrific support of Danaher, and I think we will do it in the CAD/CAM space.

This is no different to the chair story.

We didn't have a chair many years ago, and we partnered Pelton & Crane to bring the Pelton & Crane chair to market.

That business was subsequently bought by Danaher, and today, we are a significant player in the chair business, [chairs units like].

I don't know if it's coming from somebody else, or the market is growing.

To pit one manufacturer against another doesn't make sense.

What I can tell you is we do very well with CAD/CAM in Europe.

In Germany in particular, I think we are by far the biggest player.

We have a different product in Germany than the one we have in the US.

What is important is the service behind it and the value that we as a distributor can bring to our customers.

The product is important.

I think we have a very good product here.

We have a good product in Europe as well.

The most important thing is how does that product fit into the practice and what can we do to help the practitioner run a better business so they can provide better clinical care.

And I think we do that part better than anyone else.

As it relates to the medical marketplace, I think I've covered it in my remarks.

Four or five years ago, we undertook a study to determine what specialties would be important from a product purchase point of view and from a value-added service point of view in terms of selling services to the customer.

We also conducted an in-depth study on the areas we needed to beef up within Schein to service the emerging areas of dental delivery -- medical delivery.

And we created a Healthcare Services Group.

I think that group is the best in the marketplace.

It's not because it's a Schein group.

They struggled three years ago, four years ago when they started off.

Because quite frankly, the GPOs and the big groups didn't even know who we were, which was servicing small guys.

Today, we are well known in that are, and I think our team is doing a good job.

And I think we are taking market share across the board, not only from one distributor, but I think in general, because we realize -- the marketplace realizes that although, yes, there are hospital suppliers that could offer in theory the full line, we have unique capabilities.

After one distributor or another [has tested], has understood that Henry Schein has tools that are great in this area, but they're not as great as they are going to be.

We're investing a lot of money in this area.

Thanks for all the details.

John Kreger, William Blair.

This is actually [Robbie Fatah] in for John today.

To go back to organic growth, realizing that the first quarter was maybe a bit of an anomaly, and the second quarter isn't really indicative of a trend.

Is it fair to say that growth will be in between those numbers going forward, in the 4% to 5% or a little bit higher than that range?

Or what is an appropriate expectation for organic growth going forward?

Robbie, the one thing one cannot do -- it's not you only, but it's Wall Street in general.

We cannot give you any guidance within basis points of the market share growth and how we expect to do.

The bottom line is iMIS data doesn't exist for dentistry.

There is so much being written in this area, and it's all over the place within a range.

I think we can conclude that dentists are doing quite well relative to the marketplace.

I think one can conclude that there is a growing demand for dentistry.

The public is becoming more and more aware.

Are dentists going to be subject to some price pressure and therefore looking for lower-priced products?

Some of them will be.

Are they going to look for more generics, which carry a lower selling price but a higher margin?

Yes.

The bottom line is we are investing in dentistry because we believe this is a great industry, lots and lots of upside in this country and abroad.

To give you a precise number as to whether it's going to be between last quarter and this quarter, I think would be irresponsible.

How could anyone give you that answer?

We don't know.

But what we d know is the trends are okay.

Dentists are feeling good.

They are under price pressure.

There are certain plans emerging that are bringing more traffic to sit in their chair, albeit at a lower price.

Capitation is alive and well.

The growing group practice movement is out there, although some of the practices are doing well, others are not.

I think a large part of Henry Schein's growth is coming from the group practices.

But they are under pressure, too.

There is private equity going in there.

They want lower prices.

Bottom line is I think Henry Schein is positioned to take advantage of these dynamic changes on the heels of a market that is relatively stable compared to where it was, for example, in October of 2008.

Fair enough.

If I could ask one more on margins.

In the second half, can you frame for us the impact of your other recent acquisitions?

I know you talked about AUV being about a 10-basis-point hit.

Can you give us a sense of on a consolidated basis, you do you still expect some expansion in the second half?

Yes, the other acquisition is, because of the size, really will not be significant to the operating margin.

It's really the AUV, which you remember was about $270 million in revenues, and we did say that will be about 10 basis points impact.

Remember, we don't look at that as a negative.

We still see significant opportunities with AUV to increase their operating margin.

We feel that it will prove to be a great acquisition over time.

Right now, it's right on plan to what our expectations have been.

And again, we look at it as resetting the base of our operating margin.

I think other than the AUV, the current acquisitions don't really move the needle enough.

Again, we do expect to get operating margin expansion in the second half of the year also.

Great.

Thanks very much.

Brandon Couillard, Jefferies.

Guys, was the vitality in the North American dental equipment largely a function of the backlog position you had exiting the first quarter?

Or did you see some better new order trends in the period?

And then how did the backlog shape up exiting the second quarter?

Steve, any chance you could break out the impact of the IDS show on the international dental equipment side?

I think we covered this also a couple of times on the equipment.

First of all, in last quarter's call, we said that the number was artificially depressed because of our backlog.

And I think we played that out.

Our backlog, within basis points, I don't know the exact number in front of me.

Steven probably has it if it's worth -- if it's material to even go through that, is not too different to what it was last year, within a range.

So basically, the dental equipment market took a deep dive in 2009, end of 2008, 2009, started recovering 2010 and 2011, and I think we are in the same place today.

I think some of the equipment -- take the sensors, there's more of them, but that's at a lower price.

E4D is growing.

I think one quarter you get a lot more traditional equipment, one quarter we don't.

I would say it's a pretty stable market.

There is two good things that are working in our favor.

One is interest rates are extremely low.

There are great deals in the area.

I don't think we have deals that are materially different to others.

Perhaps we don't mark up our money as much as others do, but it's quite stable and very low prices in terms of money.

Money is readily available.

I think 90% of all leases are quickly approved, and with our 5%, we got to go look and scrounge, and there's 5% that are not.

Typical patents in the post-2011 period, yes, cash is available much easier prior to 2008, but at a higher rate.

Now it's available a little less, but readily available at a slightly lower rate, quite a bit lower rate, should we say.

So, I think the finances are there.

Then we've got the accelerated depreciation, which is going to help us again in the fourth quarter.

So, it's hard to tell you exactly what the growth rates are going to be, but it's a positive market.

There is absolute great reason to buy a CAD/CAM machine.

I think there is still 60% of the market that doesn't have sensors.

That market is going to go toward sensors.

Is it going to be this year or next, I can't tell you.

I think from a Henry Schein point of view, adding Planmeca becomes a plus.

Planmeca is the number one in the industry for the 2D panoramic and general panoramic machines.

And these are all exciting areas.

So, I think this all bodes well for Schein.

But again, the trading range we are talking about in terms of growth is so finite that it would be, I think, foolhardy for Steven and I to give you an estimate.

Yes, I completely agree.

The second part of your question on international, when you look at it on the country-specific basis, again, the Germanic countries was down, but it was expected to be down because of IDS.

That was the main reason that reflected the equipment's negative sales growth on the overall international basis.

And a smaller reason was really, as I said earlier, the Italian market.

The Italian market, we saw declines in the market, and our equipment sales were also declining, although they declined less than the market.

So those are really the two reasons.

We think the IDS is a timing thing.

Italy, I think, won't get worse and hopefully will improve somewhat over time.

So, we are feeling like the markets are still relatively stable, and our goal, as always, is to grow faster than whatever the underlying market growth is.

Okay, I will move on.

I believe GSK recently started initial shipments of the flu vaccine for the upcoming season.

At this stage, do you have a view on how you expect the actual shipments to fall between the third and fourth quarter?

And how is your sell-through pricing shaping up relative to last year, if you have a view at this stage?

It's still very, very, very early.

I'm happy to give you our guess.

And I really will say it's a guess, because we are totally reliant on when we get product from the manufacturers, but my guess is that product will come early, similar to last year, in the market.

It may be a little bit more weighted towards Q3 than Q4, but really I would be very cautious on that, because we really just don't know hand.

What we are happy to do on the Q3 conference call, as we have done historically, is we will talk about what we shipped that quarter.

And since we are releasing partially into Q4, we will probably know the bulk of what we will have shipped for the whole year.

And we always are very transparent on that and provide that detail.

Pricing, no major -- pricing is still early also to be able -- but I'm not seeing any major changes from pricing also at this time.

Again, I just want to repeat, it's still very early in the process.

Okay.

Thank you.

Larry Marsh, Barclays.

Thanks, Stanley, Steve.

A couple quick ones.

Maybe get you to elaborate on two of your prepared comments, Stanley.

First is it strikes me that last November when you gave guidance you called out some uncertainties in Europe, and it feels to me that that is coming to fruition as you talk about it.

I don't think that is a surprise to you guys.

And then you specifically said Germany is still very strong.

The comps versus last year on equipment are down.

But as you think about Germany, Stanley, when you say strength in the market, as you think about that, is that still a business that you believe you can grow at market over the next couple of years?

As you think of IDS for 2013, is this going to be as big a deal as normal given the environment, or it's always a big deal?

Larry, you are asking a question that we ask internally on a regular basis.

We ask this question at our monthly meetings with our German team and then every third day on the e-mail [just to validate the answer].

I'm being a little facetious here.

But you are in the right area.

You are asking a good question.

The only thing I can say, and I don't want to set a precedent in these calls, by the way, for what I'm about to say.

What I can tell you is we develop budgets.

They start being developed I think in June or July, right, Steven?

When do we start our budget?

We're just starting now.

Now, right?

So, we are starting now.

Then we have a --the grand meeting in Europe.

I think it's in October, when Steven gets together with all the managers.

What I can tell you is the German business is delivering in accordance with budget.

No one knew -- I don't want to start referring to budgets on future businesses, because I don't think it's germane to go into budgets on all of our businesses.

But the point here that I'm trying to address is we did expect that something would give, whether it was too-high comparables in the previous year versus the potential for this year, the foreign-exchange issue, perhaps the fact that the Germans were already getting a little excited about having to fund the rest of Europe.

We didn't expect any reimbursement adjustments in Germany.

That is too politically a hot potato.

No one wants to mess around with dentist reimbursement.

It's insignificant.

Everyone in Germany takes advantage of it.

Different to going out to hospitals and drug companies.

That was something that we didn't take into account.

Having said that, I think the business is growing.

I know the business is growing and is more or less in the plus column, delivering in accordance with expectations.

We had a management change about 1.5 years ago, which has gone very well.

We have got great management.

I think there is opportunity to grow on the equipment side, but I think there's huge opportunity to grow on the consumable side.

We have very important equipment presence, and our consumable presence is not as good as our equipment.

Because if you recall, the genesis of our major part of our business in Germany extends from the former Siemens Dental.

So our team are extremely good at equipment.

At the same time, our team is more comfortable sometimes selling $150,000 product, or EUR100,000 product, than perhaps going after the disposables.

We have built plans in the last two or three years to do that.

I think there is opportunity to go after the consumable business, the specialty business.

I think the German market is relatively stable, but our opportunity for growth there is quite good.

That goes right into the IDS question.

I think if the manufacturers continue to come up with good products, I think our major manufacturers, the ones that I'm in dialogue with, seem to have good plans for new products.

They launch those new products at IDS.

I'm not sure we will have huge growth, but we'll have growth.

Okay, great.

Thanks for the elaboration.

A quick follow-up for Steve.

I want to make sure that I'm thinking of FX right.

I think you had said $0.03 this quarter that you fought through.

Does that suggest -- in my mind, that's going to be at least $0.03 a quarter, Q3 and Q4, maybe even a little bit more.

You are confirming the guidance despite this big negative headwind on FX.

Is that the right way to think about it?

And what am I missing?

First, on the current quarter, and I'm glad you asked the question, because I think we did say in the prepared remarks that we had $0.03 negative impact in the quarter purely related to foreign exchange.

That is just the difference between average exchange rates that existed Q2 last year versus applying the current average rate.

To highlight that, last year, the average rate for the euro, and again, that's our biggest currency, was somewhere around $1.44 or $1.45.

And this year, the current average rate for the quarter was somewhere around $1.28.

So it's a big movement.

I do think it's a testament to our core business that we were able to deliver strong growth and fight through that $0.03 headwind.

The headwind, assuming again -- and I don't want to predict foreign currency rates, because I don't think it's truthful, and I don't think anyone really knows how.

But assuming rates stay where they are, the impact will lessen because the euro did weaken last year.

So, if it stays the same, the impact will be lessened in Q3 and Q4.

After saying all that, I would like to point out again that we feel confidence in our guidance.

We are trying to be a bit conservative on exchange rates as we sit here today, and we feel confident that we will deliver our EPS guidance for the year unless some really unusual thing happens in the world that we are not expecting.

Okay.

Very good.

Thanks.

So I think we have room for one more caller, Susan was saying, and that's it.

Sorry.

We have time for one more question.

Jeff Johnson, Robert Baird.

Thank you.

A couple follow-ups here.

Stanley, I hear what you are saying on not wanting to give us growth guidance and to focus on the big picture.

I get that, but let me ask one question if I could try to tease a couple things out.

I think we are all pretty confident that June is when dental demand really started to lighten up in the US, at least that's what I'm hearing pretty clearly in my checks.

I know you also pulled a lot of your sales reps out of the field that month for the sales meeting.

A lot of guys went down and enjoyed a week with family in Orlando.

How much as those sales reps now back in the field, is the 1.9% consumable number that we saw in the third quarter -- or in the second quarter, is that a reasonable level to assume?

Or should we think about as those sales reps are back, a bit of strengthening in the next couple of quarters on that consumables side?

Then also in Europe, is it fair to think of the European dental market in general staying in positive territory the rest of the year, or how do you read those tea leaves?

Jeff, I want to put this as diplomatically as possible, because I think you are probably -- you are, I think, one of the most knowledgeable analysts in the dental space.

We are dealing with tens of basis points right now.

For me or for anybody in the dental industry to give you an opinion on that would be very difficult.

Yes, June was an unusual month because we had our national sales meeting, and I think that always takes people out of the field.

But I don't want to take that and now extrapolate it for the rest of the year, because it's a factor.

There are other factors, too, positive and negative.

Mostly positive, I would say.

Now as it relates to the growth rate we experienced, to extrapolate that for the rest of the year, I don't know.

It would be very, very, very difficult.

There are so many factors.

Is there a movement from more expensive products to less expensive products?

I think it could be that.

How are our specialty businesses doing versus perhaps some of the maturer products?

What I'm quite comfortable with is that we will not lose market share and quite comfortable that we will move into positive.

How much positive in market share?

I don't know.

I don't know if the visits to dentists are really down.

What I do know is there was a good traffic into the dental office in the first quarter because of the weather.

And my sense is that appointments that could have occurred perhaps a little later in the year were pulled into first quarter, because dentists probably called their customers and said I've got two extra days or three extra days.

They didn't say it this way, but found that two or three extra days and pulled customers in.

By the way, a big driver of that is our Dentrix software, which helps to optimize the use of dental-chair time.

So, I don't know.

At the same time, I think the good weather, many say, impacted positively on our Animal Health business.

At the same time, the Animal Health business continues to show good numbers -- extraordinary numbers.

We are dealing with a very narrow trading range.

I don't think the market is going to go backwards, but I would be shocked if it really grew significantly.

I think we are in a stable market.

I think dentists have cash.

They are paying their bills on time.

They are more engaged in marketing, going after patients that perhaps they wouldn't have gone after in the past, and drawing more patients into the practice.

I think that's good for the pie.

But there are so many nuanced little differences, so it would be very hard to give you a precise number.

Having said that, I do believe it's a positive industry, both in this country and in Europe.

Now as for Europe, I think Germany is stable.

I think France is stable.

I think the UK has challenges, but I think we have got a great team in the UK, not that we don't have a great team elsewhere, but this team is I think particularly focused right now and is winning.

[It, to me, is a] problem.

You read the newspaper.

It's a problem.

We are the biggest and only national distributor of equipment, so we're going to have a challenge there.

Spain is a problem.

It's not material, but you add Spain to Italy, and it starts having impact somewhere at Schein.

But you have the anchor of Germany, and I would say Australia is --it's a nice business.

I don't know what it is today.

It's about 3% or 4% of Schein.

Is that what it is in Dental business, something like that?

It's okay, but there's definitely a bifurcated economy.

The majority of the people are not doing well, but there is a lot of people in Australia that are doing well.

So I would say, in my mind, I look at Australia and I say there's some challenges, maybe, but then I look at Canada, which seems to be roaring away.

I could justify many different scenarios.

What I can tell you is that I would be quite surprised if we don't remain in a decent positive environment from a Henry Schein market share growth and translating to actual organic sales.

And there is lots of opportunity to manage costs in the business and lots of opportunity to expand into new markets that will generate profits in the next year or so.

So, I think our Dental business is quite stable to growing.

Our Medical business is in good shape.

We are gaining market share in a complex market, and Animal Health continues to do much better than we thought.

That is very helpful, Stanley.

Steve, last question --

And our technology businesses are bringing in nice profits as well.

Although the sales are not material, the profits are.

Understood.

Steve, last question then.

With regards to IDEXX, I'm sure you don't have necessarily anything firm you can say there, but how much business do you do with IDEXX outside the US?

And how important do you think that is in maintaining that relationship on a worldwide basis?

I don't have a specific number for outside the US.

I would have to get back to you on that.

It's not material.

Outside the US is not material.

We have -- we work with IDEXX in a couple of markets, but the market is extremely [fractionalized] amongst a lot of manufacturers outside the US.

Yes, and overall on IDEXX, unfortunately, there is really not any important new news from the last call.

We are still waiting to hear what IDEXX is doing and what they are doing with the FTC.

We are hearing that sometime late August, early September we will hear more information, but I don't have really an update other than that.

We still feel good, very good, about our relationship with IDEXX, so that's a positive on our side.

I'm sorry we went over the mark today, but there really is a lot going on in the business.

And I think it was well worth the extra 20 minutes or so.

Thank you everyone for participating in the call.

Steven is ready to handle additional calls.

You can call Susan Vassallo in our communications department, Gerard Meuchner in our communications department.

And I think the people have the number.

If not, Steven is 621-843-5915, and Susan, 5562.

Please feel free to call.

We're very pleased to answer questions.

I think we are feeling good about the Company.

I just visited a number of our businesses in North America in the last two weeks and spent a little time before that in Europe.

Heading to Europe again to do some business there in the next month, although parts of Europe are on vacation, but parts are [visible], not be as heavily on vacation.

And the impression I have from our management coming in and out of headquarters and in the field is that the morale is good and generally we feel good about winning.

So, thank you very much for your interest, and we will be back in 90 days.

This concludes today's Henry Schein's second-quarter conference call.

You may now disconnect.