filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
expressed or implied herein.
All forward-looking statements made by us are subject to risks and uncertainties
and are not guarantees of future
performance.
These forward-looking statements involve known and unknown
risks, uncertainties and other factors
that may cause our actual results, performance and achievements
or industry results to be materially different from
any future results, performance or achievements expressed or implied
by such forward-looking statements.
These
statements are generally identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,”
“plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to
make” or other comparable terms.
Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in the documents we
file with the Securities and Exchange Commission (SEC), including our Annual
Report on Form 10-K.
Risk factors and uncertainties that could cause actual results to differ materially from
current and historical results
include, but are not limited to: our dependence on third parties for
the manufacture and supply of our products and
where we manufacture products, our dependence on third parties
for raw materials or purchased components; risks
relating to the achievement of our strategic growth objectives, including
anticipated results of restructuring and
value creation initiatives; risks related to the Strategic Partnership Agreement
with KKR Hawaii Aggregator L.P.
entered into in January 2025; transitions in senior company leadership
(including, without limitation, the transition
to our new Chief Executive Officer); our ability to develop or acquire and
maintain and protect new products
(particularly technology and specialty products) and services and utilize
new technologies that achieve market
acceptance with acceptable margins; transitional challenges associated with acquisitions
and joint ventures,
including the failure to achieve anticipated synergies/benefits, as well as significant
demands on our operations,
information systems, legal, regulatory, compliance, financial and human resources functions in connection with
acquisitions, dispositions and joint ventures; certain provisions
in our governing documents that may discourage
third-party acquisitions of us; adverse changes in supplier rebates
or other purchasing incentives; risks related to the
sale of corporate brand products; risks related to activist investors; security
risks associated with our information
systems and technology products and services, such as cyberattacks or
other privacy or data security breaches
(including the October 2023 incident); effects of a highly competitive (including,
without limitation, competition
from third-party online commerce sites) and consolidating market; political,
economic and regulatory influences on
the health care industry; risks from expansion of customer purchasing
power and multi-tiered costing structures;
increases in shipping costs for our products or other service issues
with our third-party shippers, and increases in
fuel and energy costs; changes in laws and policies governing manufacturing, development
and investment in
territories and countries where we do business; general global and domestic
macro-economic and political
conditions, including inflation, deflation, recession, unemployment (and corresponding
increase in under-insured
populations), consumer confidence, sovereign debt levels, fluctuations in
energy pricing and the value of the U.S.
dollar as compared to foreign currencies and changes to other economic
indicators; failure to comply with existing
and future regulatory requirements, including relating to health care;
risks associated with the EU Medical Device
Regulation; failure to comply with laws and regulations relating to health
care fraud or other laws and regulations;
failure to comply with laws and regulations relating to the collection, storage
and processing of sensitive personal
information or standards in electronic health records or transmissions;
changes in tax legislation, changes in tax
rates and availability of certain tax deductions; risks related to product
liability, intellectual property and other
claims; risks associated with customs policies or legislative import restrictions;
risks associated with disease
outbreaks, epidemics, pandemics (such as the COVID-19 pandemic), or
similar wide-spread public health concerns
and other natural or man-made disasters; risks associated with our global
operations; the threat or outbreak of war
(including, without limitation, geopolitical wars), terrorism or public unrest
(including, without limitation, the wars
in Ukraine and Iran, the Israel-Gaza war and other unrest and threats in the Middle
East and the possibility of a
wider European or global conflict); changes to laws and policies governing
foreign trade, tariffs and sanctions or
greater restrictions on imports and exports, including changes to international
trade agreements and the current
imposition of (and the potential for additional) tariffs by the U.S. on numerous
countries and retaliatory tariffs;
supply chain disruption; litigation risks; new or unanticipated litigation
developments and the status of litigation
matters; our dependence on our senior management, employee hiring and
retention, increases in labor costs or
health care costs, and our relationships with customers, suppliers and
manufacturers; and disruptions in financial
markets.
The order in which these factors appear should not be construed
to indicate their relative importance or
priority.
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
We undertake no duty and have no obligation to update forward-looking statements except as
required by law.
Where You
Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations
page of our website (www.henryschein.com)
and the social media channels identified on the About Media Center page
of our website.
Recent Developments
Chief Executive Officer
On January 12, 2026, we announced the appointment of Frederick
M. Lowery as CEO, effective March 2, 2026.
In
connection with his appointment, Mr. Lowery joined our Board of Directors.
Mr. Lowery succeeded Stanley M.
Bergman, who served as CEO through March 1, 2026.
Mr. Bergman retired as CEO and continues to serve as
Chairman of the Board.
Mr. Bergman will retire as Chairman of the Board as of the end of the 2026 Annual
Meeting of Stockholders and the Board has approved the appointment
of Mr. Bergman as Chairman Emeritus
effective upon his retirement as Chairman.
The Board intends to appoint a new Chairman promptly
following the
Company’s 2026 annual meeting of stockholders.
Tariffs and Related Economic Conditions
The U.S. has adopted new and increased tariffs on imports from countries, which
tariffs remain subject to
frequently evolving exemptions and modifications, as well as to court
challenges, including a recent invalidation in
the Supreme Court of many of the tariffs.
Some countries have imposed retaliatory tariffs and other restrictions on
imports from the U.S.
These developments, and anticipated future developments,
have created a volatile
environment for global trade, and new trade policies with individual countries.
It is unclear whether, or the extent
to which, the current tariffs on trade with numerous countries will remain in place,
or change, the exceptions that
may apply, and their timing.
The tariffs did not have a material impact on our results of operations during fiscal
year 2025, although sales of
U.S. dental equipment were temporarily impacted by market uncertainty
related to tariffs in the second half of the
quarter ended June 28, 2025.
Executive-Level Overview
Henry Schein, Inc. is a solutions company for health care professionals powered
by a network of people and
technology.
We
believe we are the world’s largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care.
We
serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices and
ambulatory surgery centers, as well
as government, institutional health care clinics, home health providers, and
other alternate care clinics.
We
believe
that we have a strong brand identity due to our more than 94 years of experience
distributing health care products.
We
are headquartered in Melville, New York, employ more than 25,000 people (of which more than 13,000 are
based outside of the United States) and have operations or affiliates in 34 countries and
territories.
Our broad
global footprint has evolved over time through our organic growth as well as through
contribution from strategic
acquisitions.
We
have established strategically located distribution centers around
the world to enable us to better serve our
customers and increase our operating efficiency.
This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables
us to be a single source of
supply for our customers’ needs.
As a distributor, we market and sell branded products as well as our own corporate brand portfolio of
cost-effective,
high-quality consumable merchandise products.
We
also manufacture, source and sell a range of company-owned
manufactured products, primarily implants, biomaterial products, endodontics, handpiece
and small equipment,
hand instrument and repair, restoratives, orthodontics, wound care, orthopedics and dental lab products.
We
have
achieved scale in these global businesses primarily through acquisitions, as
manufacturers of these products
typically do not utilize a distribution channel to serve customers.
Our reportable segments consist of: (i) Global Distribution and Value-Added Services; (ii) Global Specialty
Products; and (iii) Global Technology.
Global Distribution and Value-Added Services includes distribution to the global dental and medical markets of
national brand and corporate brand merchandise, as well as equipment and related
technical services.
This segment
also includes value-added services such as financial services, continuing education
services, consulting and other
services.
This segment also markets and sells under our own corporate brand,
a portfolio of cost-effective, high-
quality consumable merchandise.
Global Specialty Products includes manufacturing, marketing
and sales of dental
implant and biomaterial products; and endodontic, orthodontic and orthopedic
products and other health care-
related products and services.
Global Technology includes development and distribution of practice management
software, e-services and other products, which are distributed to health
care providers.
A key element to grow closer to our customers is our One Schein initiative, which
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain, equipment
sales and service and
other value-added services, allowing our customers to leverage the
combined value that we offer through a single
program.
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, corporate brand products and proprietary specialty products
and solutions (including
implant, orthodontic and endodontic products).
In addition, customers have access to a wide range of services,
including software and other value-added services.
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
This trend has benefited
distributors capable of providing a broad array of products and services at low
prices.
It also has accelerated the
growth of DSOs, GPOs, HMOs, group practices, other managed care
accounts and collective buying groups, which,
in addition to their emphasis on obtaining products at competitive prices,
tend to favor distributors capable of
providing specialized management information support.
We
believe that the trend towards cost containment has
the potential to favorably affect demand for technology solutions, including software, which
can enhance the
efficiency and facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
The industry ranges from sole practitioners working out of
relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
reliable and substantially complete
order fulfillment.
The purchasing decisions within an office-based health care practice are typically
made by the
practitioner or an administrative assistant.
Supplies and small equipment are generally purchased from more
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base.
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
In many cases, purchasing decisions for consolidated groups are
made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
Our approach to acquisitions and joint ventures has been to expand our role as
a provider of products and services
to the health care industry.
This trend has resulted in our expansion into service areas that complement
our existing
operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned
to capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
there can be no assurances
that we will be able to successfully accomplish this.
We
are focused on building relationships with decision makers
who do not reside in the office-based practitioner setting.
As the health care industry continues to change, we continually evaluate possible
candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our
role as a provider of products and services to
the health care industry.
There can be no assurance that we will be able to successfully pursue
any such
opportunity or consummate any such transaction, if pursued.
If additional transactions are entered into or
consummated, we would incur merger and/or acquisition-related costs, and there
can be no assurance that the
integration efforts associated with any such transaction would be successful.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth
due to the aging population,
increased health care awareness, the proliferation of medical technology
and testing, new pharmacological
treatments, and expanded third-party insurance coverage, partially offset by the effects of unemployment
on
insurance coverage.
In addition, the physician market continues to benefit from the
shift of procedures and
diagnostic testing from acute care settings to alternate-care sites, particularly
physicians’ offices.
According to the U.S. Census Bureau’s International Database, between 2026 and 2036, the 45 and older
population is expected to grow by approximately 10%.
Between 2026 and 2046, this age group is expected to grow
by approximately 17%.
This compares with expected total U.S. population growth rates of
approximately 4%
between 2026 and 2036
and approximately 6% between 2026 and 2046.
According to the U.S. Census Bureau’s International Database, in 2026 there are approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care
and elder-care
services.
By the year 2050, that number is projected to increase to approximately
17 million.
The population aged
65 to 84 years is projected to increase by approximately 12% during
the same period.
As a result of these market dynamics, annual expenditures for health care services
continue to increase in the
United States.
We
believe that demand for our products and services will grow while
continuing to be impacted by
current and future operating, economic and industry conditions.
The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating that
total national health care spending reached
approximately $5.3 trillion in 2024, or 18.0% of the nation’s gross domestic product, the benchmark measure
for
annual production of goods and services in the United States.
Health care spending is projected to reach
approximately $8.6 trillion by 2033, or 20.3% of the nation’s projected gross domestic product.
We
believe similar demographic changes are also occurring in other
markets we serve outside the U.S.
Government
Certain of our businesses involve the distribution, manufacturing, importation,
exportation, marketing, sale and/or
promotion of pharmaceuticals, medical devices and/or in vitro diagnostics
and in this regard, we are subject to
extensive local, state, federal and foreign governmental laws and regulations,
including as applicable to our
wholesale distribution of pharmaceuticals, medical devices, and in vitro diagnostics;
manufacturing activities; and
as part of our specialty home medical supplies businesses that distribute and sell
medical equipment and supplies
directly to patients.
Federal, state and certain foreign governments have also increased
enforcement activity in the
health care sector, particularly in areas of fraud and abuse, anti-bribery and anti-corruption, controlled substances
handling, medical device regulations and data privacy and security standards.
Certain of our businesses involve pharmaceuticals and/or medical devices,
including orthopaedic,
software
regulated as a medical device, and sales of medical equipment and supplies
directly to patients, that are paid for by
third parties and/or patients and must operate in compliance with a variety of burdensome
and complex coding,
billing and record-keeping requirements in order to substantiate claims
for payment under federal, state and
commercial/private health care reimbursement programs.
Government and private insurance programs fund a large portion of the total cost of medical
care, and there have
been efforts to limit such private and government insurance programs, including efforts, thus far
unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act,
as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010.
Certain of our businesses are subject to various additional federal, state,
local and foreign laws and regulations,
including with respect to the sale, transportation, importation, storage, handling
and disposal of hazardous or
potentially hazardous substances; “forever chemicals” such as per-and
polyfluoroalkyl substances; warnings related
to potential cancer or reproductive harm linked to chemicals; amalgam bans; pricing disclosures;
supply chain
transparency around human trafficking and forced labor practices; and safe working
conditions.
In addition,
activities to control medical costs, including laws and regulations lowering
reimbursement rates for
pharmaceuticals, medical devices, medical supplies and/or medical
treatments or services, are ongoing.
Laws and
regulations are subject to change and their evolving implementation may impact
our operations and financial
performance.
Certain of our businesses also maintain contracts with governmental agencies
and are subject to certain regulatory
requirements specific to government contractors.
Our businesses are generally subject to numerous laws and regulations that could
impact our financial performance,
and failure to comply with such laws or regulations could have a material
adverse effect on our businesses.
A few
noteworthy or recent items that may impact our businesses are noted below:
●
Effective February 2, 2026, the FDA’s
Quality Management System Regulation (QMSR) harmonizes
21 CFR Part 820 with the internationally recognized ISO 13485:2016 standard
for quality management
systems.
Concurrently, the FDA retired their QSIT inspection framework and implemented a new
inspection framework under Compliance Program 7382.850,
Inspection of Medical Device Manufacturers,
to align inspections with ISO’s focus on overall system effectiveness, integrated risk management, supplier
oversight, and CAPA performance.
●
On March 18, 2026, the Council of the EU and two European Parliament committees
adopted their joint
negotiating position on the European Commission’s November 2025 proposed
Digital Omnibus on AI
Regulation
.
Trilogue negotiations will commence among the Parliament, Council, and Commission to
agree on a final version of the text.
Any adopted changes would amend the AI Act, which has a staggered
implementation timeline running until full applicability in August 2026.
●
On March 26, 2026, the European Parliament formally adopted the EU Directive
on Combating Corruption,
which establishes a harmonized, criminal law framework to prevent and
combat corruption, such as bribery
in the public and private sectors, across the EU.
The Directive will enter into force on the twentieth day
following its publication in the
Official Journal of the European Union.
Member States must transpose the
Directive into local laws, regulations and administrative provisions within
two (2) years (with limited
exceptions) to reflect the Directive’s harmonized definitions of corruption-related offenses and penalty
structures.
●
Directive No. 2025/794 of April 14, 2025, known as the “Stop-the-Clock”
Directive, amended Directives
(EU) 2022/2464 (CSRD) by introducing a uniform two-year postponement of
the sustainability reporting
requirements for financial years beginning on or after January 1, 2025 and
on or after January 1, 2026.
It
also extends the deadline for transposing Directive (EU) 2024/1760 (CSDDD)
by one year (i.e., July 26,
- and the date of application of the transposed provisions depending
on the type of companies subject
to it (July 26, 2028 or July 26, 2029, as applicable).
●
Regulation (EU) 2025/327 of February 11, 2025 on the European Health Data Space and amending
Directive 2011/24/EU and Regulation (EU) 2024/2847 establishes the European Health Data Space
(EHDS) by providing for common rules, standards and infrastructures and a governance
framework, with a
view to facilitating access to electronic health data for the purpose of primary
use and secondary use of this
data.
This could potentially affect Henry Schein or its customers.
●
The U.S. has adopted new and increased tariffs on imports from countries, and
such tariffs remain subject
to frequently evolving exemptions and modifications, as well as to court challenges,
including a recent
invalidation in the Supreme Court of many of the tariffs, such as IEEPA tariffs, on February 20, 2026.
Some countries have imposed retaliatory tariffs and other restrictions on imports from the
U.S.
These
developments, and anticipated future developments, have created a
volatile environment for global trade,
and new trade policies with individual countries.
It is unclear whether, or the extent to which, the current
tariffs on trade with numerous countries will remain in place, or change, the exceptions
that may apply, and
their timing.
●
In the United States, the One Big Beautiful Bill Act (“OBBBA”),
signed into law on July 4, 2025, includes
a number of provisions that are expected to result in reductions in the number of
Medicaid enrollees, as
well as reductions in federal funding to state Medicaid programs, resulting
in potentially adverse impacts
on utilization of services and coverage of products.
The OBBBA also includes changes to corporate tax
rates, limitations on certain deductions and modifications to international
tax provisions.
A more detailed discussion of laws, regulations and governmental activity
is included in Management’s Discussion
and Analysis of Financial Condition and Results of Operations, contained
in our Annual Report on Form 10-K for
the fiscal year ended December 27, 2025, filed with the SEC on February
24, 2026.
Results of Operations
The following tables summarize the significant components of our operating
results and cash flows for the three
months ended March 28, 2026 and March 29, 2025 (in millions):
Three Months Ended
March 28,
March 29,
2026
2025
Operating results:
Net sales
$
3,368
$
3,168
Cost of sales
2,298
2,168
Gross profit
1,070
1,000
Operating expenses:
Selling, general and administrative
Depreciation and amortization
Restructuring and related costs
Operating income
$
$
Other expense, net
$
(32)
$
(30)
Income taxes
(38)
(35)
Net income
Net income attributable to Henry Schein, Inc.
Three Months Ended
March 28,
March 29,
2026
2025
Cash flows:
Net cash provided by (used in) operating activities
$
(97)
$
Net cash used in investing activities
(63)
(99)
Net cash provided by financing activities
Plan of Restructuring and Related Costs
On August 6, 2024, we committed to a restructuring plan (the “2024
Plan”) to integrate our acquisitions, right-size
operations and further increase efficiencies.
We currently expect this plan to be completed by the end of 2027.
During the three months ended March 28, 2026 and March 29, 2025, we recorded
restructuring and related charges
associated with the 2024 Plan of $12 million and $25 million, respectively.
The restructuring and related costs for
these periods primarily related to severance and employee-related costs,
costs to exit facilities and other exit costs.
We expect to record restructuring and related charges associated with the 2024 Plan through the end of 2027;
however, an estimate of the amount of these charges for 2026 through 2027 has not yet been determined.
During the quarter ended March 28, 2026, in connection with the
2024 Plan, we recorded a loss of $2 million
related to the disposal of businesses in the Global Specialty Products
segment.
This amount is included in the $12
million of restructuring and related charges discussed above.
Three Months Ended March 28, 2026 Compared to Three Months Ended March 29, 2025
Note: Percentages for Net Sales; Gross Profit; Operating Expenses; Other
Expense, Net; and Income Taxes are
based on actual values and may not recalculate due to rounding.
Our reportable segments are determined based on how our Chief Executive
Officer manages the business, assesses
performance and allocates resources.
We have three reportable segments:
(i) Global Distribution and Value-Added
Services; (ii) Global Specialty Products; and (iii) Global Technology.
Net Sales
Net sales by reportable segment and by major product or service type were
as follows:
March 28,
% of
March 29,
% of
Increase / (Decrease)
2026
Total
2025
Total
$
%
Global Distribution and Value
-Added Services
Global Dental Merchandise
(1)
$
1,292
38.4
%
$
1,185
37.4
%
$
9.0
%
Global Dental Equipment
(2)
12.4
12.1
8.6
Global Value
-Added Services
(3)
1.7
1.7
10.6
Global Dental
1,766
52.5
1,621
51.2
9.0
Global Medical
(4)
1,073
31.8
1,055
33.3
1.7
Total Global Distribution and Value
-Added Services
2,839
84.3
2,676
84.5
6.1
Global Specialty Products
(5)
11.8
11.6
8.1
Global Technology
(6)
5.1
5.1
7.0
Eliminations
(41)
(1.2)
(37)
(1.2)
(4)
n/a
Total
$
3,368
100.0
%
$
3,168
100.0
%
$
6.3
(1)
Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, gypsum,
acrylics, articulators, abrasives, PPE products and our own corporate brand of consumable merchandise.
(2)
Includes dental chairs, delivery units and lights, digital dental laboratories, X-ray supplies and equipment, equipment repair
services and high-tech and digital restoration equipment.
(3)
Consists of financial services on a non-recourse basis, continuing education services for practitioners, consulting and other services.
(4)
Includes branded and generic pharmaceuticals, home solutions products, vaccines, surgical products, diagnostic tests, infection-
control products, X-ray products, equipment, PPE products, and vitamins.
(5)
Includes manufacturing, marketing and sales of dental implant and biomaterial products; and endodontic, orthodontic and
orthopedic products and other health care-related products and services.
(6)
Consists of the development and distribution of practice management software, e-services and other technology-enabled products
for health care providers.
The components of our sales growth were as follows:
Constant Currency
Growth/(Decline)
Total Constant
Currency Growth
Foreign
Exchange
Impact
Total Sales
Growth
Local Internal
Growth
Acquisition
Growth/
(Decline)
Global Distribution and Value
-Added Services
Global Dental Merchandise
3.0
%
1.2
%
4.2
%
4.8
%
9.0
%
Global Dental Equipment
3.5
-
3.5
5.1
8.6
Global Value
-Added Services
7.8
1.2
9.0
1.6
10.6
Global Dental
3.2
1.0
4.2
4.8
9.0
Global Medical
1.3
0.1
1.4
0.3
1.7
Total Global Distribution and Value
-Added Services
2.5
0.6
3.1
3.0
6.1
Global Specialty Products
1.7
1.7
3.4
4.7
8.1
Global Technology
6.9
(1.3)
5.6
1.4
7.0
Total
2.5
0.7
3.2
3.1
6.3
Global Sales
Global net sales for the three months ended March 28, 2026 increased 6.3%,
attributable to internal growth of 2.5%,
acquisition growth of 0.7%, and an increase in foreign exchange of 3.1%.
The components of our sales increase are
presented in the table above.
Global Distribution and Value-Added Services Sales
Global Distribution and Value-Added Services net sales for the three months ended March 28, 2026 increased
6.1%.
The components of our sales increase are presented in
the table above.
The 3.2% increase in internally generated local currency dental sales was
primarily due to sales growth in U.S.,
growth in traditional dental equipment in the U.S. and international
markets, and value-added services sales
attributable to increased sales in our practice transitions business.
The 1.3% increase in internally generated local currency medical sales was
attributable to growth of our Home
Solutions business and dialysis products,
partially offset by lower point of care diagnostic test products related to
respiratory illness.
Global Specialty Products Sales
Global Specialty Products net sales for the three months ended March
28, 2026 increased 8.1%.
The components
of our sales increase are presented in the table above.
The 1.7% increase in internally generated local currency sales was attributable
to growth in our value implant and
biomaterial businesses.
Global Technology Sales
Global Technology net sales for the three months ended March 28, 2026 increased 7.0%.
The components of sales
growth are presented in the table above.
The internally generated local currency increase of 6.9% in Global Technology sales was primarily attributable to
the adoption of our core practice management solutions, particularly
our cloud-based platforms.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
March 28,
Gross
March 29,
Gross
Increase / (Decrease)
2026
Margin %
2025
Margin %
$
%
Global Distribution and Value
-Added Services
$
25.8
%
$
25.4
%
$
7.6
%
Global Specialty Products
55.3
56.0
6.7
Global Technology
68.6
67.9
8.2
Corporate
(1)
n/a
n/a
(4)
n/a
Total
$
1,070
31.8
$
1,000
31.6
$
7.1
Gross margin may not be comparable to that of other distribution companies due to
differing industry practices in
the classification of distribution network costs.
Gross margin percentages also vary across our segments, reflecting
differences in business models.
The Global Specialty Products segment generates
higher gross margins, as it
primarily includes products we develop and manufacture, compared
to the Global Distribution and Value-Added
Services segment, which principally distributes third-party and corporate brand
products.
While the Global
Specialty Products segment has increasingly leveraged the Global
Distribution and Value-Added Services segment
as a sales channel, the impact on overall margins has not been material.
The Global Technology segment also
generates higher gross margins, reflecting our role as both developer and provider of
software products and
services.
Within our Global Distribution and Value
-Added Services segment, gross profit margins may fluctuate between the
periods as a result of the changes in product mix and customer mix.
With respect to customer mix, sales to our
large-group customers are typically completed at lower gross margins as a result of
higher sales volumes, while
sales to office-based practitioners generally carry higher gross margins due to lower volumes.
The increase in Global Distribution and Value-Added Services gross profit for the three months ended March 28,
2026 compared to the prior-year-period is due primarily to increased internally generated sales volume
as described
above.
The increase in gross margin rates was attributable primarily to the impact
of higher gross margins in the
Global Distribution and Value-added Services and Global Technology
businesses as well as favorable business
mix.
The increase in Global Specialty Products gross profit primarily reflects
increased internally generated sales
volume and gross profit from acquisitions.
The decrease in gross margin rates was due to product mix.
The increase in Global Technology gross profit is the result primarily of higher internally generated sales.
The
increase in gross margin rates was due to product mix.
Operating Expenses
Operating expenses (consisting of selling, general and administrative
expenses; depreciation and amortization; and
restructuring and related costs) by segment were as follows:
% of
% of
March 28,
Respective
March 29,
Respective
Increase / (Decrease)
2026
Sales
2025
Sales
$
%
Global Distribution and Value
-Added Services
$
19.4
%
$
19.2
%
$
7.0
%
Global Specialty Products
40.7
40.7
8.2
Global Technology
41.8
42.1
6.4
Corporate
n/a
n/a
(5)
n/a
24.3
24.3
6.1
Adjustments
(1)
n/a
n/a
n/a
Total operating expenses
$
26.4
$
26.0
$
7.8
(1)
Adjustments represent items excluded from segment operating income to enable comparison of financial results between periods.
These
items may vary independently of business performance.
Please see
.
These adjustments (current quarter vs. prior
quarter) consist of (i) acquisition intangible amortization ($45 million vs. $43 million), (ii) restructuring and related costs ($12 million
vs. $25 million), (iii) change in contingent consideration ($1
million vs. $(2) million), (iv) cyber incident-insurance proceeds, net of
third-party advisory expenses (no activity) vs. $(20) million net proceeds), (v) impairment of intangible assets (no activity) vs. $1
million),
and (vi) costs associated with shareholder advisory matters and implementation related select value creation consulting costs
($13 million vs. $8 million).
The net increase in operating expenses was
attributable to the following:
Operating Costs
(excluding
acquisitions)
Acquisitions
Adjustments
Total
Global Distribution and Value
-Added Services
$
$
$
-
$
Global Specialty Products
-
Global Technology
-
-
Corporate
(5)
-
-
(5)
-
Adjustments
-
-
Total operating expenses
$
$
$
$
The components of the net increase in total operating expenses are presented
in the table above.
The increase in
operating costs (excluding acquisitions) during the three months ended
March 28, 2026 was primarily attributable
to unfavorable impact of foreign exchange rates.
During the three months ended March 28, 2026, our operating
costs were favorably impacted by the remeasurement to the fair value
of a previously held equity investment of $11
million within our Global Specialty Products segment.
During the three months ended March 29, 2025, our
operating costs were favorably impacted by insurance proceeds of $20 million
related to the October 2023 cyber
incident included in the Adjustments category.
Other Expense, Net
Other expense, net was as follows:
March 28,
March 29,
Variance
2026
2025
$
%
Interest income
$
$
$
21.8
%
Interest expense
(39)
(35)
(4)
(12.6)
Other, net
-
(1)
n/a
Other expense, net
$
(32)
$
(30)
$
(2)
(8.0)
Interest income increased primarily due to increased interest rates.
Interest expense increased primarily due to
increased borrowings.
Income Taxes
Our effective tax rate was 25.5% for the three months ended March 28, 2026, compared
to 24.9% for the prior year
period.
The difference between our effective and federal statutory tax rates primarily relates to state
and foreign
income taxes and interest expense.
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases
of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs,
purchases of fixed assets and
repurchases of common stock.
Working capital requirements generally result from increased sales, special
inventory forward buy-in opportunities and payment terms for receivables
and payables.
Historically, sales have
tended to be stronger during the second half of the year and special inventory
forward buy-in opportunities have
been most prevalent just before the end of the year, and have caused our working capital requirements
to be higher
from the end of the third quarter to the end of the first quarter of
the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
Please see
for further information.
Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers
for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which
is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands.
Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory.
We finance our business to provide adequate funding for at least 12 months.
Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may
change.
Consequently, we may change
our funding structure to reflect any new requirements.
Our acquisition strategy is focused on investments in companies,
including high growth high margin businesses
aligned with our BOLD+1 strategy, that add new customers and sales teams, increase our geographic footprint
(whether entering a new country, such as emerging markets, or building scale where we have already invested in
businesses), and finally, those that enable us to access new products and technologies.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with
sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
Net cash used in operating activities was $97 million for the three months
ended March 28, 2026, compared to net
cash provided by operating activities of $37 million for the prior year.
The net change of $134 million was
primarily attributable to changes in working capital accounts (primarily
accounts receivable, inventory, and
accounts payable and accrued expenses), partially offset by an increase in operating
income.
Net cash used in investing activities was $63 million for the three months
ended March 28, 2026, compared to net
cash used in investing activities of $99 million for the prior year.
The net change of $36 million was primarily
attributable to lower acquisition activity.
Net cash provided by financing activities was $120 million for the
three months ended March 28, 2026, compared
to net cash provided by financing activities of $89 million for the prior
year.
The net change of $31 million was
primarily due to a reduction in acquisitions of noncontrolling interests
in subsidiaries, and decreased repurchases of
common stock, partially offset by decreased net borrowings.
The following table summarizes selected measures of liquidity and capital
resources:
March 28,
December 27,
2026
2025
Cash and cash equivalents
$
$
Working
capital
(1)
1,199
1,236
Debt:
Bank credit lines
$
1,046
$
Current maturities of long-term debt
Long-term debt
2,327
2,310
Total debt
$
3,408
$
3,107
Leases:
Current operating lease liabilities
$
$
Non-current operating lease liabilities
(1)
Includes $442 million and $491 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at March 28, 2026 and December 27, 2025, respectively.
Our cash and cash equivalents consist of bank balances and investments
in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations
increased to 45.7 days as of March 28, 2026 from
44.1 days as of March 29, 2025.
During the three months ended March 28, 2026, we wrote
off approximately $5
million of fully reserved accounts receivable against our trade receivable
reserve.
Our inventory turns from
operations decreased to 4.6 as of March 28, 2026 from 4.8 as of March 29, 2025.
Our working capital accounts
may be impacted by current and future economic conditions.
Leases
We
have operating and finance leases for corporate offices, office space, distribution and other
facilities, vehicles
and certain equipment.
Our leases have remaining terms of less than one year to approximately
22 years, some of
which may include options to extend the leases for up to 10 years.
As of March 28, 2026, our right-of-use assets
related to operating leases were $312 million and our current and non-current
operating lease liabilities were $78
million and $263 million, respectively.
Stock Repurchases
On January 27, 2025, our Board of Directors authorized the repurchase
of up to an additional $500 million in shares
of our common stock.
On May 19, 2025, we executed an accelerated share repurchase program
to repurchase a total of $250 million of
our outstanding common stock based on volume-weighted average
prices.
In May 2025, we received 3,122,832
shares at an estimated fair value of $224
million.
In July 2025, we received an additional 368,651 shares at an
estimated fair value of $26 million, representing the final amount of shares
to be received under this accelerated
share repurchase program.
On September 8, 2025, our Board of Directors authorized the repurchase of
up to an additional $750 million in
shares of our common stock.
From March 3, 2003 through March 28, 2026, we repurchased $6.1 billion, or
109,486,614 shares,
under our
common stock repurchase programs, with $655 million available
as of March 28, 2026 for future share repurchases.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right,
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
Accounting Standards Codification Topic 480-10 is
applicable for noncontrolling interests where we are or may be required
to purchase all or a portion of the
outstanding interest in a consolidated subsidiary from the noncontrolling
interest holder under the terms of a put
option contained in contractual agreements.
As of March 28, 2026 and December 27, 2025, our balance
for
redeemable noncontrolling interests was $903 million and $895 million,
respectively.
Please see
Redeemable Noncontrolling Interests
for further information.
Critical Accounting Estimates
There have been no material changes in our critical accounting estimates
from those disclosed in Item 7 of our
Annual Report on Form 10-K for the year ended December 27, 2025.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted
or will be adopted, see
Accounting Policies, Accounting Pronouncements Recently Adopted and Recently Issued Accounting
of the Notes to the Condensed Consolidated Financial Statements
included under Item 1.
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