Patterson Companies (PDCO) Misses Q1 Earnings Estimates

Patterson Companies Inc. PDCO reported adjusted earnings of 26 cents per share in first-quarter fiscal 2019, missing the Zacks Consensus Estimate of 35 cents. Earnings fell 40.9% year over year.

Net sales in the quarter were $1.34 billion, up 2.5% year over year. The figure also beat the Zacks Consensus Estimate of $1.31 billion.

Patterson Companies has a Zacks Rank #4 (Sell).

Segmental Analysis

The company currently distributes its products through two subsidiaries — Patterson Dental and Patterson Animal Health.

Dental Segment

This segment provides a virtually 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 first quarter, dental sales (37.9% of total sales) declined 2.5% year over year to approximately $506.1 million. Changes in sales force, disruptions from enterprise resource planning implementation and the expansion of the company’s digital equipment portfolio hindered revenues in the segment.

Dental Consumable

Sales in the sub-segment were $304.2 million, down 5% year over year.

Dental Equipment & Software

Sales in the segment increased 5.5% on a year-over-year basis to $135 million.

Other

This segment comprises technical service, parts and labor, software support services as well as office supplies. Sales in the segment declined 5.5% on a year-over-year basis to $66.9 million.

Animal Health Segment

This segment is a leading distributor of products, services and technologies to the production along with companion animal health markets in North America and the U.K.

Coming to the first-quarter performance of the platform (61.8% of total sales), sales increased almost 6.3% on a year-over-year basis to $825.2 million.

Global companion animal sales rose 5.5%. Production animal sales increased 6.7%, reflecting strong performance across swine and beef-cattle segment.

Corporate

Sales in the segment were $5 million, down 45% year over year.

Gross Margin Analysis

Gross profit in the reported quarter was $283.7 million, down 5.1% year over year. As a percentage of revenues, gross margin contracted 170 basis points (bps) to 21.2% in the quarter.

Guidance

The company expects adjusted earnings per share for fiscal 2019 in the range of $1.40-$1.50, down from the previous guidance of $1.73-$1.83. The Zacks Consensus Estimate is pegged at $1.73, which is above guidance.

Patterson Companies expects deal amortization expenses of $31.1 million or 33 cents.

Our Take

The company ended the first-quarter on a tepid note, missing the Zacks Consensus Estimate for earnings. Further, the company’s weak fiscal 2019 guidance is a concern. Gross and operating margins have been dull. Declining revenues in the dental segment is another headwind. Management expects headwinds in the technology-based equipment business to persist through fiscal 2019.

However, we are upbeat about the Animal Health segment that has been performing well, lately. The company provides a wide range of consumable supplies, equipment, software and value-added services. A broad spectrum of products cushions the company against economic downturns in the MedTech space. We believe that a diverse product portfolio, strong veterinary business prospects, accretive acquisitions and strategic partnerships are key growth catalysts.

Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which also reported solid earnings this season, are Illumina, Inc ILMN, Integer Holdings Corporation ITGR and Intuitive Surgical, Inc ISRG.

While Illumina and Integer Holdings sport a Zacks Rank #1 (Strong Buy), Intuitive Surgical has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Illumina reported adjusted earnings of $1.43 per share, beating the consensus mark of $1.11.

Integer Holdings posted adjusted earnings of $1.06 per share in the second quarter of 2018, which exceeded the Zacks Consensus Estimate of 90 cents.

Intuitive Surgical reported adjusted earnings of $2.76 per share in the second quarter of 2018, which outpaced the Zacks Consensus Estimate of $2.48 and improved 38% year over year.

Best Electric Car Stock? You'll Never Guess It.

Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!

Much like petroleum 150 years ago, lithium battery power is set to shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge. With battery prices plummeting and charging stations set to multiply, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.

See Zacks Best EV Stock Free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.