HSIC Q2 Deep Dive: Margin Pressures Persist Despite Solid Revenue, New Initiatives Announced

August 13, 2025 at 00:07 AM EDT

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Dental and medical products company Henry Schein (NASDAQ: HSIC) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 3.3% year on year to $3.24 billion. Its non-GAAP profit of $1.10 per share was 7.6% below analysts’ consensus estimates.

Is now the time to buy HSIC? Find out in our full research report (it’s free).

Henry Schein (HSIC) Q2 CY2025 Highlights:

Revenue: $3.24 billion vs analyst estimates of $3.23 billion (3.3% year-on-year growth, in line)
Adjusted EPS: $1.10 vs analyst expectations of $1.19 (7.6% miss)
Adjusted EBITDA: $256 million vs analyst estimates of $271.4 million (7.9% margin, 5.7% miss)
Management reiterated its full-year Adjusted EPS guidance of $4.87 at the midpoint
Operating Margin: 4.7%, in line with the same quarter last year
Organic Revenue rose 1.9% year on year vs analyst estimates of 1.8% growth (11.3 basis point beat)
Market Capitalization: $8.19 billion

StockStory’s Take

Henry Schein’s second quarter drew a negative market reaction, as the company met Wall Street’s revenue expectations but posted non-GAAP earnings below consensus. Management attributed margin pressures primarily to lower pricing in gloves and time-limited promotional initiatives designed to win back lost customers. CEO Stanley Bergman noted that these efforts, while effective in restoring volumes, weighed on profitability. He also cited “lower glove pricing as well as some time-limited targeted sales initiatives” as key factors behind the quarter’s margin dynamics.

Looking ahead, management emphasized ongoing cost control initiatives and new value creation projects, including support from KKR’s Capstone and two global consulting firms. These projects aim to improve distribution gross margins and accelerate sales of owned product lines. CFO Ronald South reiterated that earnings are expected to be weighted to the second half of the year, with anticipated benefits from restructuring and operational efficiency programs. Bergman stated, “We expect these projects...to start producing results towards the beginning of 2026 and will support our ongoing initiatives to drive superior customer satisfaction and our financial goal of high single-digit to low double-digit earnings growth.”

Key Insights from Management’s Remarks

Management focused on sales momentum in core segments, ongoing margin challenges, and the launch of key operational initiatives to address profitability gaps.

Glove pricing and promotions: Margin pressure was driven largely by lower glove prices and targeted sales initiatives aimed at regaining lost customers. Management indicated these activities have now reverted to normal levels, but the competitive environment for gloves remains intense.
Medical and specialty growth: The Medical business, especially Home Solutions, and Specialty Product segments like implants and biomaterials, contributed positively to overall growth. Digital equipment volumes rose, though at lower average prices, reflecting a shift toward entry-level products.
Technology adoption: The Global Technology Group saw accelerating sales, led by cloud-based practice management systems and recurring SaaS revenues. Over 10,000 customers now use Dentrix Ascend and Dentally platforms, with management highlighting a 20% year-over-year increase in cloud customers.
Cost savings and restructuring: Henry Schein’s restructuring efforts and operational consolidation are expected to generate over $100 million in savings by year-end. These efforts are being expanded through partnerships with KKR’s Capstone and two major consulting firms, targeting both gross margin expansion and SG&A efficiency.
Leadership transition: CEO Stanley Bergman announced his retirement at year-end but will remain Chairman. The company has reorganized into three operating divisions, each with new leadership, to ensure continuity and drive the next phase of strategic execution.

Drivers of Future Performance

Henry Schein’s outlook hinges on margin recovery, continued growth in high-margin businesses, and the impact of new cost and technology initiatives.

High-margin business focus: Management aims to have more than 50% of non-GAAP operating income from high-growth, high-margin businesses, including specialty products and owned brands. The ongoing shift toward these segments is expected to support margin improvement and earnings growth.
Operational efficiency programs: The company is accelerating value creation initiatives in partnership with KKR’s Capstone and consulting firms, targeting gross margin enhancement and further reductions in SG&A expenses. These programs are expected to yield incremental savings in 2026 and beyond, leveraging AI and process technology.
Macroeconomic and competitive risks: Tariff-related cost pressures, continued pricing competition in gloves, and uncertainties in equipment sales remain headwinds. Management acknowledged that stabilization in key categories and execution on cost-saving projects are vital for achieving guidance.

Catalysts in Upcoming Quarters

As we look ahead, the StockStory team will focus on (1) the pace of recovery in gross margins as promotional activity normalizes and glove pricing stabilizes, (2) execution and measurable impact of the new value creation and cost efficiency initiatives, particularly those involving technology and consulting partnerships, and (3) continued growth in high-margin segments like specialty products and cloud-based technology platforms. Progress on leadership transition and further updates on restructuring savings will also be key indicators to watch.

Henry Schein currently trades at $67.50, down from $70.15 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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