U.S. Markets closed

Patterson Companies Reports Fiscal 2019 Third-Quarter Results

ST. PAUL, Minn.--(BUSINESS WIRE)--

  • Third-quarter reported net sales totaled $1.4 billion, up 1.6 percent.
  • Third-quarter GAAP earnings of $0.33 per diluted share.
  • Third-quarter adjusted earnings1 of $0.38 per diluted share.
  • Dental segment internal sales increased 0.9%.
  • Company narrows fiscal 2019 GAAP earnings range to $0.89 to $0.94 per diluted share and adjusted earnings1 range to $1.40 to $1.45 per diluted share.

Patterson Companies, Inc. (PDCO) today reported consolidated net sales of approximately $1.4 billion (see attached Sales Summary for further details) in its fiscal third quarter ended January 26, 2019, an increase of 1.6 percent compared to the same period last year. Internal sales, which are adjusted for the effects of currency translation and changes in product selling relationships, increased 2.5 percent.

Reported net income attributable to Patterson Companies, Inc. for the third quarter of fiscal year 2019 was $31.2 million, or $0.33 per diluted share, compared to $109.0 million, or $1.18 per diluted share, in last year’s fiscal third quarter. The prior year period included the recognition of a provisional tax benefit of $77.3 million, reflecting the revaluation of tax-deferred assets and liabilities, net of a one-time transition tax on unremitted foreign earnings as a result of the Tax Cuts and Jobs Act (“2017 Tax Act”) enacted during the prior year period. Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization costs, integration and business restructuring costs and discrete tax matters, totaled $35.6 million for the third quarter of fiscal 2019, or $0.38 per diluted share, compared to $39.6 million in the same quarter last year, or $0.43 per diluted share.

“We are pleased with our performance during the third quarter. We delivered the third consecutive quarter of year-over-year revenue growth as well as continued, sequential operating margin improvement,” said Mark Walchirk, President and CEO of Patterson Companies. “We continued to execute against our strategic priorities, which resulted in Dental segment revenue growth and solid performance in our Animal Health segment. Our progress throughout fiscal 2019 provides us with confidence that we are taking the right steps to build a stronger Patterson that is well positioned to deliver long-term value.”

Patterson Animal Health

Reported net sales in our Animal Health segment for the third quarter of fiscal 2019, which comprised approximately 58 percent of the company’s total sales, were $807.5 million compared to $794.9 million in the same quarter last year. Internal sales for the segment increased 2.8 percent from the fiscal 2018 third quarter.

Patterson Dental

Reported net sales in our Dental segment for the third quarter of fiscal 2019, which represented approximately 42 percent of total company sales, were $579.7 million compared to $577.9 million in the same quarter last year. Internal sales increased 0.9 percent compared to the fiscal 2018 third quarter.

Balance Sheet and Capital Allocation

For the first nine months of fiscal 2019, Patterson Companies generated $76.3 million of cash from operating activities and collected deferred purchase price receivables of $308.6 million for a total of $384.9 million, compared to a total of $77.1 million in the same period last year. During the first nine months of fiscal 2019, debt has been reduced by $231.0 million and cash has grown by $54.4 million.

In the third quarter of fiscal 2019, Patterson Companies paid $24.8 million in cash dividends to shareholders. On a year-to-date basis, Patterson has returned $74.7 million in cash dividends to shareholders.

Year-to-Date Results

Consolidated net sales for the first nine months of fiscal 2019 totaled $4.1 billion, a 1.8 percent year-over-year increase. Reported net income attributable to Patterson Companies, Inc. was $55.6 million, or $0.60 per diluted share, compared to $180.0 million, or $1.93 per diluted share in last year's period. The prior year period included the recognition of a provisional tax benefit of $77.3 million, reflecting the revaluation of tax-deferred assets and liabilities, net of a one-time transition tax on unremitted foreign earnings as a result of the 2017 Tax Act. In July 2018, Patterson Companies booked a pre-tax reserve of $28.3 million for the anticipated settlement of purported class action antitrust litigation.

Adjusted net income1 attributable to Patterson Companies, Inc., which excludes deal amortization costs, integration and business restructuring costs, legal reserve costs and discrete tax matters, totaled $95.9 million, or $1.03 per diluted share, compared to adjusted net income of $128.6 million, or $1.38 per diluted share, in the year-ago period.

FY2019 Guidance

Patterson Companies today narrowed its fiscal 2019 earnings guidance, which is provided on both a GAAP and non-GAAP adjusted1 basis:

  • GAAP earnings are expected to be in the range of $0.89 to $0.94 per diluted share.
  • Non-GAAP adjusted earnings1 are expected to be in the range of $1.40 to $1.45 per diluted share.
  • Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of:
    • Deal amortization expenses of approximately $29.6 million ($0.32 per diluted share).
    • Legal reserve costs of approximately $20.7 million ($0.22 per diluted share).
    • A benefit related to the 2017 Tax Act of $2.7 million ($0.03 per diluted share).

Our guidance is for current operations as well as completed or previously announced acquisitions and does not include the impact of potential future acquisitions or similar transactions, if any, or impairments and material restructurings beyond those previously publicly disclosed. Our guidance assumes North American and international market conditions similar to those experienced in fiscal 2018.

1Non-GAAP Financial Measures

The Reconciliation of GAAP to non-GAAP Measures table appearing behind the accompanying financial information is provided to adjust reported GAAP measures, namely operating income, income before taxes, income tax expense, net income, net income attributable to Patterson Companies, Inc. and diluted earnings per share attributable to Patterson Companies, Inc., for the impact of deal amortization, integration and business restructuring expenses, legal reserve costs and discrete tax matters, along with the related tax effects of these items.

Management believes that these non-GAAP measures may provide a helpful representation of the company's third-quarter performance and earnings guidance, and enable comparison of financial results between periods where certain items may vary independent of business performance. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures.

In addition, the term “internal sales” used in this release represents net sales adjusted to exclude foreign currency impact and changes in product selling relationships. Foreign currency impact represents the difference in results that is attributable to fluctuations in currency exchange rates the company uses to convert results for all foreign entities where the functional currency is not the U.S. dollar. The company calculates the impact as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period's currency exchange rates. The company believes the disclosure of net sales changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.

Third-Quarter Conference Call and Replay

Patterson Companies’ fiscal 2019 third-quarter earnings conference call will start at 10 a.m. Eastern today. Investors can listen to a live webcast of the conference call at www.pattersoncompanies.com. The conference call will be archived on the Patterson Companies website. A replay of the fiscal 2019 third-quarter conference call can be heard for one week at 800-585-8367 and by providing the Conference ID 1978448 when prompted.

About Patterson Companies Inc.

Patterson Companies Inc. (Nasdaq: PDCO) is a value-added distributor serving the dental and animal health markets.

Dental Market

Patterson’s Dental segment provides a virtually complete range of consumable dental products, equipment and software, turnkey digital solutions and value-added services to dentists and dental laboratories throughout North America.

Animal Health Market

Patterson’s Animal Health segment is a leading distributor of products, services and technologies to both the production and companion animal health markets in North America and the U.K.

This press release contains certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are information of a non-historical nature and are subject to risks and uncertainties that are beyond Patterson's ability to control. Forward-looking statements generally can be identified by words such as "believes," "expects," "anticipates," "foresees," "forecasts," "estimates" or other words or phrases of similar import. It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations and financial condition of Patterson or the price of Patterson stock. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Such risks and uncertainties include, without limitation, operations disruptions attributable to our enterprise resource planning system implementation; our ability to attract or retain qualified sales representatives and service technicians who relate directly with our customers; the reduction, modification, cancellation or delay of purchases of innovative, high-margin equipment; material changes in our purchasing relationships with suppliers; changes in general market and economic conditions; and the other risks and important factors contained and identified in Patterson's filings with the Securities and Exchange Commission, such as its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, any of which could cause actual results to differ materially from the forward-looking statements. Any forward-looking statement in this press release speaks only as of the date on which it is made. Except to the extent required under the federal securities laws, Patterson does not intend to update or revise the forward-looking statements.

 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
  Three Months Ended   Nine Months Ended
January 26,   January 27, January 26,   January 27,
2019 2018 2019 2018
 
Net sales $ 1,396,745 $ 1,375,222 $ 4,137,817 $ 4,065,074
 
Gross profit 299,509 294,736 878,248 909,527
 
Operating expenses 254,146   244,690   787,155   730,889  
 
Operating income 45,363 50,046 91,093 178,638
 
Other income (expense):
Other income, net 1,427 2,096 8,621 4,768
Interest expense (9,172 ) (11,783 ) (29,849 ) (34,454 )
 
Income before taxes 37,618 40,359 69,865 148,952
 
Income tax expense (benefit) 6,564   (68,596 ) 14,674   (31,094 )
 
Net income 31,054 108,955 55,191 180,046
Net loss attributable to noncontrolling interests (171 )   (447 )  
Net income attributable to Patterson Companies, Inc. $ 31,225   $ 108,955   $ 55,638   $ 180,046  
 
Earnings per share attributable to Patterson Companies, Inc.:
Basic $ 0.34   $ 1.18   $ 0.60   $ 1.94  
 
Diluted $ 0.33   $ 1.18   $ 0.60   $ 1.93  
 
Weighted average shares:
Basic 92,818 91,949 92,677 92,674
Diluted 93,653 92,609 93,347 93,323
 
Dividends declared per common share $ 0.26 $ 0.26 $ 0.78 $ 0.78
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
  January 26,   April 28,
2019 2018
 
ASSETS
Current assets:
Cash and cash equivalents $ 117,431 $ 62,984
Receivables, net 547,180 826,877
Inventory 845,846 779,834
Prepaid expenses and other current assets 169,209   103,029
Total current assets 1,679,666 1,772,724
Property and equipment, net 290,271 290,590
Goodwill and identifiable intangibles, net 1,174,475 1,205,401
Long-term receivables, net and other 176,113   202,949
Total assets $ 3,320,525   $ 3,471,664
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 688,125 $ 610,368
Other accrued liabilities 193,442 205,415
Current maturities of long-term debt 22,131 76,598
Borrowings on revolving credit 29,000   16,000
Total current liabilities 932,698 908,381
Long-term debt 732,640 922,030
Other non-current liabilities 182,490   179,463
Total liabilities 1,847,828 2,009,874
Stockholders' equity 1,472,697   1,461,790
Total liabilities and stockholders' equity $ 3,320,525   $ 3,471,664
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
  Nine Months Ended
January 26,   January 27,
2019 2018
 
Operating activities:
Net income $ 55,191 $ 180,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 62,425 62,787
Non-cash employee compensation 22,282 22,999
Deferred consideration in securitized receivables (308,592 ) (37,068 )
Change in assets and liabilities, net of acquired 245,038   (188,751 )
Net cash provided by operating activities 76,344 40,013
 
Investing activities:
Additions to property and equipment (33,926 ) (28,239 )
Collection of deferred purchase price receivables 308,592 37,068
Other investing activities 2,875   10,600  
Net cash provided by investing activities 277,541 19,429
 
Financing activities:
Dividends paid (74,731 ) (74,641 )
Repurchases of common stock (87,500 )
Retirement of long-term debt (244,010 ) (7,377 )
Draw on revolving credit 13,000 120,000
Other financing activities 6,228   7,546  
Net cash used in financing activities (299,513 ) (41,972 )
Effect of exchange rate changes on cash 75   5,576  
Net change in cash and cash equivalents 54,447 23,046
Cash and cash equivalents at beginning of period 62,984   94,959  
Cash and cash equivalents at end of period $ 117,431   $ 118,005  
 
 
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
 
 

January 26,
2019

 

January 27,
2018

 

Total
Sales
Growth

 

Foreign
Exchange
Impact

 

Other (a)

 

Internal
Sales
Growth

Three Months Ended

 
Consolidated net sales
Consumable $ 1,079,566 $ 1,074,189 0.5% (1.0)% (0.1)% 1.6%
Equipment and software 234,251 222,574 5.2 (0.5) 5.7
Other 82,928   78,459   5.7 (0.6) 6.3
Total $ 1,396,745   $ 1,375,222   1.6% (0.9)% —% 2.5%
 
Dental
Consumable $ 294,708 $ 302,296 (2.5)% (0.6)% —% (1.9)%
Equipment and software 217,649 207,000 5.1 (0.5) 5.6
Other 67,376   68,581   (1.8) (0.5) (1.3)
Total $ 579,733   $ 577,877   0.3% (0.6)% —% 0.9%
 
Animal Health
Consumable $ 784,858 $ 771,893 1.7% (1.1)% (0.1)% 2.9%
Equipment and software 16,602 15,574 6.6 6.6
Other 6,035   7,400   (18.4) (1.8) (16.6)
Total $ 807,495   $ 794,867   1.6% (1.1)% (0.1)% 2.8%
 
Corporate
Other $ 9,517   $ 2,478   284.1% —% —% 284.1%
Total $ 9,517   $ 2,478   284.1% —% —% 284.1%
 
(a) Sales of certain products previously recognized on a gross basis were recognized on a net basis during the three and nine months ended January 26, 2019.
 
 
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
 
 

January 26,
2019

 

January 27,
2018

 

Total
Sales
Growth

 

Foreign
Exchange
Impact

 

Other (a)

 

Internal
Sales
Growth

 

Nine Months Ended

 
Consolidated net sales
Consumable $ 3,327,214 $ 3,270,385 1.7% (0.2)% (0.2)% 2.1%
Equipment and software 563,269 540,860 4.1 (0.2) 4.3
Other 247,334   253,829   (2.6) (0.1) (2.5)
Total $ 4,137,817   $ 4,065,074   1.8% (0.2)% (0.1)% 2.1%
 
Dental
Consumable $ 902,753 $ 933,691 (3.3)% (0.1)% —% (3.2)%
Equipment and software 520,292 504,376 3.2 (0.2) 3.4
Other 205,268   212,247   (3.3) (0.1) (3.2)
Total $ 1,628,313   $ 1,650,314   (1.3)% (0.2)% —% (1.1)%
 
Animal Health
Consumable $ 2,424,461 $ 2,336,694 3.8% (0.3)% (0.2)% 4.3%
Equipment and software 42,977 36,484 17.8 17.8
Other 20,679   21,408   (3.4) (0.2) (3.2)
Total $ 2,488,117   $ 2,394,586   3.9% (0.3)% (0.2)% 4.4%
 
Corporate
Other $ 21,387   $ 20,174   6.0% —% —% 6.0%
Total $ 21,387   $ 20,174   6.0% —% —% 6.0%
 
(a) Sales of certain products previously recognized on a gross basis were recognized on a net basis during the three and nine months ended January 26, 2019.
 
 
PATTERSON COMPANIES, INC.
OPERATING INCOME BY SEGMENT
(In thousands)
(Unaudited)
 
  Three Months Ended   Nine Months Ended

January 26,
2019

 

January 27,
2018

January 26,
2019

 

January 27,
2018

 
Operating income (loss)
Dental $ 51,120 $ 58,439 $ 128,587 $ 183,165
Animal Health 15,033 18,037 56,096 57,930
Corporate (20,790 ) (26,430 ) (93,590 ) (62,457 )
Total $ 45,363   $ 50,046   $ 91,093   $ 178,638  
 
 
PATTERSON COMPANIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(Dollars in thousands, except per share amounts)
(Unaudited)
           
For the three months ended January 26, 2019 GAAP Deal amortization

Integration and
business
restructuring
expenses

Legal reserve Discrete tax matters Non-GAAP
Operating income $ 45,363 $ 9,274 $ -

$

-

$

- $ 54,637
Other expense, net   (7,745 )   -   -     -   -     (7,745 )
Income before taxes 37,618 9,274 - - - 46,892
Income tax expense (benefit)   6,564     2,219   -     -   2,686     11,469  
Net income 31,054 7,055 - - (2,686 ) 35,423
Net loss attributable to noncontrolling interests   (171 )   -   -     -   -     (171 )
Net income attributable to Patterson Companies, Inc. $ 31,225   $ 7,055 $ -   $ - $ (2,686 ) $ 35,594  
           
Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.33   $ 0.08 $ -   $ - $ (0.03 ) $ 0.38  
 
Operating income as a % of sales 3.2 % 3.9 %
Effective tax rate 17.4 % 24.5 %
 
For the three months ended January 27, 2018 GAAP Deal amortization

Integration and
business
restructuring
expenses

Legal reserve Discrete tax matters Non-GAAP
Operating income $ 50,046 $ 9,692 $ - $ - $ - $ 59,738
Other expense, net   (9,687 )   -   -     -   -     (9,687 )
Income before taxes 40,359 9,692 - - - 50,051
Income tax expense (benefit)   (68,596 )   2,209   (370 )   -   77,256     10,499  
Net income 108,955 7,483 370 - (77,256 ) 39,552
Net loss attributable to noncontrolling interests   -     -   -     -   -     -  
Net income attributable to Patterson Companies, Inc. $ 108,955   $ 7,483 $ 370   $ - $ (77,256.00 ) $ 39,552  
           
Diluted earnings per share attributable to Patterson Companies, Inc.* $ 1.18   $ 0.08 $ -   $ - $ (0.83 ) $ 0.43  
 
Operating income as a % of sales 3.6 % 4.3 %
Effective tax rate (170.0 )% 21.0 %
 
For the nine months ended January 26, 2019 GAAP Deal amortization

Integration and
business
restructuring
expenses

Legal reserve Discrete tax matters Non-GAAP
Operating income $ 91,093 $ 28,955 $ -

$

28,263

$

- $ 148,311
Other expense, net   (21,228 )   -   -     -   -     (21,228 )
Income before taxes 69,865 28,955 - 28,263 - 127,083
Income tax expense (benefit)   14,674     6,794   -     7,523   2,686     31,677  
Net income 55,191 22,161 - 20,740 (2,686 ) 95,406
Net loss attributable to noncontrolling interests   (447 )   -   -     -   -     (447 )
Net income attributable to Patterson Companies, Inc. $ 55,638   $ 22,161 $ -   $ 20,740 $ (2,686 ) $ 95,853  
           
Diluted earnings per share attributable to Patterson Companies, Inc.* $ 0.60   $ 0.24 $ -   $ 0.22 $ (0.03 ) $ 1.03  
 
Operating income as a % of sales 2.2 % 3.6 %
Effective tax rate 21.0 % 24.9 %
 
For the nine months ended January 27, 2018 GAAP Deal amortization

Integration and
business
restructuring
expenses

Legal reserve Discrete tax matters Non-GAAP
Operating income $ 178,638 $ 28,982 $ 8,594 $ - $ - $ 216,214
Other expense, net   (29,686 )   -   -     -   -     (29,686 )
Income before taxes 148,952 28,982 8,594 - - 186,528
Income tax expense (benefit)   (31,094 )   8,900   2,879     -   77,256     57,941  
Net income 180,046 20,082 5,715 - (77,256 ) 128,587
Net loss attributable to noncontrolling interests   -     -   -     -   -     -  
Net income attributable to Patterson Companies, Inc. $ 180,046   $ 20,082 $ 5,715   $ - $ (77,256 ) $ 128,587  
           
Diluted earnings per share attributable to Patterson Companies, Inc.* $ 1.93   $ 0.22 $ 0.06   $ - $ (0.83 ) $ 1.38  
 
Operating income as a % of sales 4.4 % 5.3 %
Effective tax rate (20.9 )% 31.1 %
 
* May not sum due to rounding
 

View source version on businesswire.com: https://www.businesswire.com/news/home/20190228005195/en/