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Patterson Companies Earnings Lag

Zacks Equity Research

Patterson Companies Inc. (PDCO) posted fourth-quarter fiscal 2014 adjusted earnings per share of 60 cents per share, which was down from the year-ago quarter by a couple of cents and from the Zacks Consensus Estimate by 6 cents. Adjusted net earnings fell 3.4% to $61.4 million from $63.6 million in the year-ago quarter.

Earnings per share in the quarter ended Apr 26, 2014 excluded costs related to the Medical unit restructuring as well as contribution of a penny per share from the acquisition of NVS, which was closed on Aug 16, 2013.

Revenues in the quarter grew 14.2% to $1,102.1 million, slightly lower than the Zacks Consensus Estimate of $1,123 million.

Adjusted gross margin fell 130 basis points (bps) to 32.3% in the quarter from 33.6% a year ago. Adjusted operating margin also dipped 70 bps to 10.1% from 10.8% in the fiscal 2014 quarter.

Inclement weather, tough macroeconomic environment and unfavorable currency fluctuations are attributable disappointing earnings and margins during the quarter.

Segment Results

Revenues from the core Patterson Dental slid 1.5% on a constant currency basis to $622.8 million in the fourth quarter. By category, on a constant currency basis, revenues from Consumable dental supplies rose 0.4% to $337.7 million; Dental equipment and software declined 4.7%, with strong gains in basic equipment categories, and Other services and products, consisting primarily of technical service, parts and labor, software support services and artificial teeth, went up slightly from prior year.

Revenues from Patterson Veterinary surged 77% to $361.8 million. Revenues from Consumable veterinary sales dipped 0.5% to $190.2 million, but Veterinary equipment sales rose 24.0% to $11.5 million.

Revenues from Patterson Medical were essentially flat compared with the prior year, after accounting for the planned divestiture of non-core product lines in the fiscal first quarter as part of the restructuring of the division.

Share Repurchase

In March, Patterson Companies raised its quarterly dividend rate by 25% to 20 cents per share. Patterson paid $20.3 million in cash dividends to shareholders in the quarter.

The company has repurchased roughly 1.2 million shares for $49 million in the quarter. For the full fiscal year, Patterson Companies repurchased approximately 2.4 million shares of its outstanding common stock, leaving approximately 22 million shares for repurchase under the current authorization.

Fiscal Year Results

For the full fiscal year, Patterson Companies reported net earnings of $213.9 million, or $2.06 per share, compared with $210.3 million, or $2.03 per share in fiscal 2013. The full year earnings excluded eight and one-half months of contribution from the NVS acquisition of 4 cents per share and 13 cents for the Patterson Medical restructuring costs. It missed the Zacks Consensus Estimate of $2.16 per share.

Consolidated revenues for fiscal 2014 escalated 11.7% to $4,063.7 million. Excluding the NVS acquisition, consolidated revenues for fiscal 2014 grew marginally.

Financial Position

Patterson Companies exited the fiscal year with cash and cash equivalents of $305.7 million, down from $505.2 million as of Apr 27, 2013. Long-term debt remained flat at $725 million as of Apr 26, 2014 compared with the same as of Apr 27, 2013.

In fiscal 2014, Patterson Companies had cash flow of $195.8 million from operations, down 34.6% from $299.2 million in the prior fiscal year. Capital expenditures nearly doubled to $40.4 million in the above period from $22.0 million in fiscal 2013.


Patterson Companies expects earnings per share in the range of $2.20–$2.30 for fiscal 2015. The current Zacks Consensus Estimate for fiscal 2014 of $2.38 lies above the guided range. The company anticipates stable North American and international markets, with conditions similar to fiscal 2014, and no material acquisitions during the year.

Our Take

Currently, Patterson Companies carries a Zacks Rank #4 (Sell). While we avoid the company, some better-ranked stocks from the medical/dental supplies industry that worth a look include The Cooper Companies Inc. (COO), Milestone Scientific Inc. (MLSS), and Steris Corp. (STE). All of them carry a Zacks Rank #2 (Buy).

Read the Full Research Report on PDCO
Read the Full Research Report on COO
Read the Full Research Report on STE
Read the Full Research Report on MLSS

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