Patterson Companies (PDCO), a leading distributor of dental, veterinarian and rehabilitation medical supplies, is slated to report its fourth-quarter fiscal 2012 results before trading begins on Thursday, May 24. Analysts polled by Zacks are currently expecting revenues and earnings per share of $914 million and 57 cents, respectively, for the quarter and $3,510 million and $1.91, respectively, for the fiscal.
With respect to earnings surprises, the Minnesota-based company has either met or trailed the Zacks Consensus Estimate in the previous three out of four quarters while it managed to beat it on one occasion. The company produced an average negative earnings surprise of 1.63% over the prior four quarters.
Third Quarter Recap
Patterson posted decent third quarter results with earnings matching the Zacks Consensus Estimates and revenues surpassing the same. Net income fell 4% year over year to roughly $53.1 million (or 50 cents a share), impacted by the company’s Employee Stock Ownership Plan (“ESOP”) expenses. Revenues rose 8.5% year over year to roughly $895 million.
By business segment, revenues from the Dental Supply division climbed 9% year over year to $605 million. The company recorded double-digit growth in revenues from its CEREC dental restoration systems and digital imaging products in the quarter, leading to a 21% surge in dental equipment and software sales that registered $231.4 million. Increased promotional initiative benefited the dental equipment business.
Dental consumable and printed product sales grew 3% to $311.4 million. Other services and products revenues dipped 4% to $62.3 million.
Revenues from the Webster Veterinary Supply unit jumped roughly 17% year over year to roughly $174.6 million, helped by the contributions of veterinary distributor American Veterinary Supply Corporation, which Patterson bought in August 2011.
Patterson Medical was the weak spot in the quarter with sales declining 2% to $115.3 million. The results were hurt by lower equipment and software sales, which slipped 10.3% in the quarter.
Estimate Revisions Trend
Agreement
Estimates for the fourth quarter demonstrate absolute lack of activity with no movements in either direction over the last week and month. A similar trend applies to fiscal 2012.
Magnitude
Given the lack of estimate revision, estimates for the fourth quarter as well as fiscal 2012 have been stationary over the last 7 and 30 days. The current Zacks Consensus Estimate for fiscal 2012 is $1.91, representing an estimated 1.06% year-over-year increase.
Our View
Patterson is exploring lucrative acquisition deals to strengthen its market position and geographic reach. Moreover, its sustained investment in infrastructure should boost operational efficiencies. Recently, Patterson Medical announced the takeover of Australia-based Surgical Synergies Pty Ltd to expand its rehabilitation market in Australia as well as in New Zealand.
Patterson provides a wide range of consumables, equipment and software and value-added services to its customers. It should benefit from improving North American dental industry fundamentals.
Patterson is investing in technology upgrades to its CEREC platform, helping it to increase the associated customer base. Adoption of new technology equipment (including CEREC and Schick digital x-ray) is expected to grow as dentists continue to spend on switching from film to digital radiography.
The company remains upbeat about the prospects of its dental equipment business (especially CEREC). Its move to boost promotional activities is expected to contribute to higher demand for this product category in the future.
Patterson is also investing in technologies to boost the profitability of its veterinary business. Moreover, its Rehabilitation Supply business is poised to be a key long-term growth driver despite the unfavorable impact of the austerity measures in the UK and regulatory uncertainties in the U.S. The division should benefit from the synergies of acquisitions.
However, Patterson faces significant competition in the dental market, especially from Henry Schein (HSIC). Although its move to boost promotional activities for its dental technology equipment offerings should bear fruit, associated expenses are likely to dilute the bottom line and margins.
Moreover, charges associated with ESOP are expected to weigh on its fourth quarter earnings. Patterson tightened its earnings per share forecast for fiscal 2012 to a band of $1.90 to $1.94 from its earlier view of $1.90 to $1.97. The company still expects the total impact of ESOP expense in fiscal 2012 to be 12 cents a share.
We currently have a long-term Neutral recommendation on Patterson. The stock retains a short-term Zacks #2 Rank (Buy).
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