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Patterson Cos. (PDCO) Down 17.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Patterson Cos. (PDCO). Shares have lost about 17.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Patterson Cos. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Patterson Companies’ Earnings Miss Estimates in Q4

Patterson Companies, Inc. reported adjusted earnings per share (EPS) of 37 cents in the fourth quarter of fiscal 2019, which missed the Zacks Consensus Estimate by 7.5%. However, the bottom line improved 23.3% year over year.
 
Net sales in the quarter were $1.44 billion, up 2.6% year over year, beating the Zacks Consensus Estimate by 0.6%.

FY19 at a Glance

Full-year adjusted earnings per share of $1.40 deteriorated 16.7% from $1.68 a year ago. The reported figure missed the Zacks Consensus Estimate of $1.43.

Revenues in fiscal 2019 grossed $5.57 billion, up 2% from the year-ago period. This figure met the Zacks Consensus Estimate.

Segmental Analysis
 
The company currently distributes products through subsidiaries Patterson Dental and Patterson Animal Health.

Dental Segment

This segment provides a complete range of consumable dental products, equipment, software, turnkey digital solutions and value-added services to dentists as well as laboratories throughout North America.
 
In the fourth quarter, dental sales rose 3.2% year over year to approximately $563.5 million.
 
Dental Consumable
 
Sales in the sub-segment totaled $312.1 million, down 1.9% year over year.
 
Dental Equipment & Software
 
Sales in the segment increased 11.9% on a year-over-year basis to $174.6 million.
 
Other
 
This segment comprises technical service, parts and labor, software support services and office supplies. Sales at the segment improved 7% on a year-over-year basis to $76.8 million.
 
Animal Health Segment

This segment is a leading distributor of veterinary supplies to clinics, public and private institutions and shelters across the United States.

Coming to the fourth-quarter performance of the platform, sales increased 2.2% on a year-over-year basis to $866.4 million.
 
Corporate
 
Sales at the segment were $6.8 million, dipped 0.7% from the year-ago quarter’s $6.9 million.
 
Gross Margin Analysis
 
Gross profit in the reported quarter was $312.5 million, up 7.8% year over year. As a percentage of revenues, gross margin of 21.8%, up 110 bps year over year.
 
Operating expenses in the reported quarter totaled $265.9 million, up nearly 7% on a year-over-year basis.

Fiscal 2020 Guidance

For fiscal 2020, Patterson Companies expects adjusted earnings per share in the range of $1.33 to $1.43. The mid-point of the guidance of $1.38 lies noticeably below the Zacks Consensus Estimate of $1.53.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -19.7% due to these changes.

VGM Scores

Currently, Patterson Cos. has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Patterson Cos. has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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