Patterson Meets 4Q EPS Est

Zacks

Patterson Companies Inc.’s (PDCO) third-quarter fiscal 2013 adjusted earnings of 52 cents per share (up 4% year-over-year) were in line with the Zacks Consensus Estimate. In the reported quarter, profit edged up roughly 1% year over year to $53.6 million.

Revenue

Revenues for the third quarter grew 2.3% year over year to $915.9 million, marginally exceeding the Zacks Consensus Estimate of $915 million. Sales were mainly led by higher technology equipment sales from the Dental business and consumable offerings from the Veterinary franchise as well.

The quarter had two days less than the year-ago quarter, which lowered sales from the consumable categories in particular by roughly 2%.

Segment Analysis

Revenues from the core Patterson Dental grew 3.5% year over year to $626.5 million. The company was able to resolve the supply-related issue of the industry-leading CEREC Omnicam system, as Sirona Dental Systems, Inc. (SIRO) was able to fulfill its delivery commitments.

Within Patterson Dental, sales of consumable and printed products inched down 0.9% to $308.7 million in the quarter. Adjusted for the fewer selling days, sales inched up 1.2%.

Sales from the equipment and software offerings jumped 10% to $254.0 million, led by solid technology products sales, especially digital imaging products. Other services and products grew 2.3% year over year to $63.8 million.

Revenues from Patterson Veterinary segment inched up 0.4% to $175.4 million. Adjusted for the fewer selling days, sales rose 2.4% led by solid consumable supply sales. Barring the change in a distribution agreement related to nutritional offerings in 2012, sales would have increased by an extra 7% in the quarter.

Revenues from Patterson Medical segment dropped 1.1% year over year to roughly $114.0 million due to lower equipment sales. The division’s equipment franchise continues to be adversely impacted by the uncertainties related to the U.S. health care system and the international markets. Despite such uncertainties, the segment is geared to utilize the worldwide growing trend of the rehabilitation market.

Margins

Gross margin was 32.8% in the third quarter compared with 32.3% in the prior-year quarter. Operating margin declined to 9.8% from 10.0%.

Balance Sheet and Other

Patterson exited the quarter with cash and cash equivalents of $472.4 million, down 17.7% year over year. Long-term debt remained flat at $725 million.

During the quarter, Patterson repurchased roughly 1.4 million shares under its share buyback program. About 7 million shares are still available for repurchase before the authorization expires in 2016.

Guidance

The company reiterated its guidance in the range of $2.00–$2.06 per share for fiscal 2013.

Our View

Patterson provides a wide range of consumables, equipment and software, and value-added services to its customers. Patterson Dental is the company’s largest business segment and one of the two largest distributors of dental products in North America. We believe that the Veterinary business can capture a considerable market size, as the demand for veterinary care is on the rise in the U.S.

Moreover, the alliance with Sirona, further bolsters Patterson Dental’s leading position in the North American dental distribution business. The Omnicare camera for the CEREC system, developed by Sirona and to be distributed by Patterson, is the latest growth driver for this product line.

The company carries a Zacks Rank #2 (Buy). Medical/Dental Supplies companies worth a look are Medical Action Industries Inc. (MDCI), Henry Schein, Inc. (HSIC). The former carries a Zacks Rank #1 (Strong Buy), while the latter carries a Zacks Rank #2 (Buy).

Read the Full Research Report on PDCO

Read the Full Research Report on HSIC

Read the Full Research Report on SIRO

Read the Full Research Report on MDCI

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