Patterson Companies Inc. (PDCO), a leading distributor of dental, veterinarian and rehabilitation medical supplies, posted first-quarter fiscal 2012 (ended July 30) earnings per share of 42 cents, below the Zacks Consensus Estimate of 44 cents and the year-ago earnings of 45 cents.
Net income clipped 9.9% year over year to $48.6 million, hit by expenses associated with the Minnesota-based company’s Employee Stock Ownership Plan (“ESOP”). Excluding the impact, the company reported earnings of 45 cents a share.
Revenues
Revenues rose 6% year over year on a comparable basis to roughly $847.4 million, yet missed the Zacks Consensus Estimate of $866 million. Comparable basis sales exclude the impact of the benefit from an additional week a year ago which made fiscal 2011 a 53-week year.
However, on a reported basis, sales fell 0.3% year over year. Patterson witnessed growth across the board in the quarter on a comparable basis.
Segment Analysis
By business segment, revenues from Patterson’s core Dental Supply division rose roughly 4% year over year on a comparable basis to $533.4 million, driven by higher dental equipment and software sales (up 7%).
Dental equipment sales were boosted by healthy sales from Patterson’s CEREC dental restoration systems and digital imaging products. Consumable and printed product sales grew 2% on a comparable basis. The dental market continues to be impacted by a soft economy.
Revenues from the Webster Veterinary Supply unit climbed 8% year over year on a comparable basis to roughly $179.6 million, boosted by solid sales of consumable supplies and veterinary equipment and software.
Separately, the division announced the purchase of veterinary distributor — American Veterinary Supply Corporation serving roughly 2,000 veterinary practices and hospitals in the New York metropolitan area with sales of $25 million. Financial and other terms of the deal were not disclosed.
Patterson’s Rehabilitation Supply (“Patterson Medical”) business remains on a growth track with sales surging 12% year over year (on a comparable basis) to roughly $134.5 million, buoyed by DCC Healthcare acquisition and favorable foreign exchange swings.
The division continues to gain market share despite a changing regulatory environment in North America and international markets. The company has completed the integration of DCC Healthcare.
Margins
Gross margin for the quarter trimmed modestly to 32.8% from 33% a year ago. Operating margin fell to 9.7% from 10.5% a year ago. Operating expenses (as a percentage of sales) rose to 23.2% from 22.5%.
Financial Condition
Patterson ended the quarter with cash and short-term investments of roughly $373.8 million, up 25% year over year. Long-term debt remained flat year over year and sequentially at $525 million. The company repurchased nearly 2 million shares during the quarter.
Guidance
Patterson has backed its earnings per share forecast for fiscal 2012 which is still expected between $1.90 and $2.00. The current corresponding Zacks Consensus Estimate is $1.96. Patterson also expects that the total impact of ESOP expense in fiscal 2012 to be 12 cents a share.
Patterson provides a wide range of consumable supplies, equipment and software and value-added services to its customers. The company competes head-to-head with Henry Schein Inc (HSIC) in the dental market. We currently have a Neutral recommendation on the stock, supported by a short-term Zacks #3 Rank (Hold).
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