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Patterson Companies Reports Second Quarter Operating Results

Tuesday, November 20, 2012 7:30 AM


Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated sales of $867,193,000 for the second quarter of fiscal 2013 ended October 27, an increase of 1% from $856,875,000 in the year-earlier period. Net income of $45,542,000 or $0.44 per diluted share, compared to $48,954,000 or $0.43 per diluted share in the second quarter of fiscal 2012. Net income in this year’s second quarter was affected primarily by below-plan sales of dental equipment, as well as the absorption of $3.0 million of incremental interest expense related to Patterson’s debt issuance in the third quarter of fiscal 2012.

Patterson Dental
Patterson Dental, Patterson’s largest business, reported sales of $549,149,000, substantially unchanged from last year’s second quarter.

  • Sales of consumable dental supplies and printed office products increased 1%.
  • Mid-single digit revenue growth of technology products was offset by softness in basic equipment resulting in a 3% decline in sales of dental equipment and software. Demand for the next-generation CEREC system incorporating the new Omnicam intraoral camera was strong during the quarter, but sales of this recently introduced system were constrained by product availability.
  • Sales of other services and products, consisting primarily of technical service, parts and labor, software support services and artificial teeth, increased 2% from last year’s second quarter.

Webster Veterinary
Internally-generated sales of the Webster Veterinary unit increased 13% in the second quarter. A change in a distribution agreement for nutritional products in the fourth quarter of fiscal 2012 reduced Webster’s second quarter reported sales growth by approximately six percentage points. Webster reported sales of $184,375,000 for the quarter.

Patterson Medical
Sales of Patterson Medical, the rehabilitation supply and equipment unit, which totaled $133,669,000, were virtually unchanged from the year-earlier period. Patterson Medical’s April 2012 acquisition of Surgical Synergies Pty Ltd., a distributor of physiotherapy, rehabilitation and mobility products serving the Australian and New Zealand markets, contributed approximately one percentage point of sales growth in the second quarter.

Scott P. Anderson, president and chief executive officer, commented: “Several areas of our business, including dental technology equipment and Webster Veterinary, performed well in the second quarter. On balance, however, we are not satisfied with our recent operating results, which did not meet our expectations, and we are committed to strengthening Patterson’s long-term performance. While our businesses, like many others, are challenged by current economic conditions, we will continue to make the investments that position Patterson to capitalize upon opportunities in each of our markets.”

He continued: “Sales of basic dental equipment, including chairs, units and lighting, were below planned levels. This shortfall was partially offset by continued growth of our industry-leading range of technology equipment, reflecting the ongoing trend toward the digitization of dentistry. We were particularly encouraged by robust demand for the next-generation CEREC Omnicam system, which became available on a limited basis in the second quarter. This important new product is significantly easier to use than prior versions, while further improving clinical outcomes. We expect the production volumes to ramp up during the second half of our fiscal year.”

“Webster’s solidly higher second quarter sales growth was generated by strong demand for consumable supplies,” Anderson said. “To further strengthen its competitive position, Webster is focusing resources on its growing range of technology solutions for veterinarians and their clients, in addition to expanding local technical support capabilities for its equipment business.”

He added: “Sales of Patterson Medical were below our internal forecast as moderately higher sales of consumable supplies in the U.S. were offset by continued weakness in the unit’s international and equipment business. Despite U.S. healthcare regulatory uncertainties and the weak economic environment in its global markets, we believe Patterson Medical is well-positioned to capitalize upon positive long-term demographic trends in the worldwide rehabilitation market.”

Patterson repurchased approximately 1.6 million common shares during the second quarter under its 25 million-share buyback authorization that expires in 2016. Approximately 8 million shares remain available for repurchase under this authorization.

Reflecting the second quarter sales shortfall and outlook for continued economic uncertainty, Patterson reduced its previously-issued fiscal 2013 financial guidance of $2.10 to $2.16 per diluted share to a new range of $2.00 to $2.06.

About Patterson Companies, Inc.
Patterson Companies, Inc. is a value-added distributor serving the dental, companion-pet veterinarian and rehabilitation supply markets.
Dental Market
As Patterson’s largest business, Patterson Dental 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.
Veterinary Market
Webster Veterinary is a leading distributor of consumable veterinary supplies, equipment and software, diagnostic products, vaccines and pharmaceuticals to companion-pet veterinary clinics.
Rehabilitation Market
Patterson Medical is the world’s leading distributor of rehabilitation supplies and non-wheelchair assistive patient products to the physical and occupational therapy markets. The unit’s global customer base includes hospitals, long-term care facilities, clinics and dealers.

This release contains 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 the Company’s ability to control. The Company cautions shareholders and prospective investors that the following factors, among others, may cause actual results to differ materially from those indicated by the forward-looking statements: competition within the dental, veterinary, and rehabilitative and assistive living supply industries; changes in the economics of dentistry, including reduced growth in expenditures by private dental insurance plans, the effects of economic conditions and the effects of healthcare reform, which may affect future per capita expenditures for dental services and the ability and willingness of dentists to invest in high-technology products; the effects of healthcare related legislation and regulation which may affect expenditures or reimbursements for rehabilitative and assistive products; changes in the economics of the veterinary supply market, including reduced growth in per capita expenditures for veterinary services and reduced growth in the number of households owning pets; the ability of the Company to maintain satisfactory relationships with its sales force; unexpected loss of key senior management personnel; unforeseen operating risks; risks associated with the dependence on manufacturers of the Company’s products; and the ability of the Company to successfully integrate the recent acquisitions into its existing business. Forward-looking statements are qualified in their entirety by the cautionary language set forth in the Company's filings with the Securities and Exchange Commission.

 

Second Quarter Conference Call and Replay

Patterson’s second quarter earnings conference call will start at 10:00 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 Patterson’s web site. A replay of the second quarter conference call can be heard for one month at 1-303-590-3030 and providing the conference ID: 4574654.

 
       
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share amounts)
(Unaudited)
 
 
Three Months Ended Six Months Ended
 
October 27, October 29, October 27, October 29,
2012 2011 2012 2011
 
 
Net sales $ 867,193 $ 856,875 $ 1,756,418 $ 1,704,297
 
Gross profit 280,599 280,983 566,299 559,259
 
Operating expenses   202,730     197,724     405,838     394,007  
 
Operating income 77,869 83,259 160,461 165,252
 
Other expense, net   (8,452 )   (6,215 )   (17,343 )   (11,350 )
 
Income before taxes 69,417 77,044 143,118 153,902
 
Income taxes   23,875     28,090     50,038     56,338  
 
Net income $ 45,542   $ 48,954   $ 93,080   $ 97,564  
 
 
Earnings per share:
Basic $ 0.44 $ 0.43 $ 0.89 $ 0.86
Diluted $ 0.44 $ 0.43 $ 0.89 $ 0.85
 
Shares:
Basic 103,706 112,538 104,371 114,057
Diluted 104,415 113,186 105,099 114,737
 
Dividends declared per common share $ 0.14 $ 0.12 $ 0.28 $ 0.24
 
Gross margin 32.4 % 32.8 % 32.2 % 32.8 %
 
Operating expenses as a % of net sales 23.4 % 23.1 % 23.1 % 23.1 %
 
Operating income as a % of net sales 9.0 % 9.7 % 9.1 % 9.7 %
 
Effective tax rate 34.4 % 36.5 % 35.0 % 36.6 %
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
   
 
October 27, April 28,
2012 2012
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 500,374 $ 573,781
Receivables, net 407,835 464,869
Inventory 330,953 319,952
Prepaid expenses and other current assets   37,861   44,911
Total current assets 1,277,023 1,403,513
 
Property and equipment, net 192,354 195,465
Goodwill and other intangible assets 1,023,619 1,022,809
Investments and other   127,244   117,581
 
Total Assets $ 2,620,240 $ 2,739,368
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 223,035 $ 207,915
Other accrued liabilities 159,679 196,733
Current maturities of long-term debt   50,000   125,000
Total current liabilities 432,714 529,648
 
Long-term debt 725,000 725,000
Other non-current liabilities   105,780   109,518
Total liabilities 1,263,494 1,364,166
 
Stockholders' equity   1,356,746   1,375,202
 
Total Liabilities and Stockholders' Equity $ 2,620,240 $ 2,739,368
 
PATTERSON COMPANIES, INC.
SUPPLEMENTARY FINANCIAL DATA
(Dollars in thousands)
(Unaudited)
         
 
 
Three Months Ended Six Months Ended
October 27, October 29, October 27, October 29,
2012 2011 2012 2011
 
Consolidated Net Sales
Consumable and printed products $ 586,757 $ 569,972 $ 1,174,315 $ 1,144,934
Equipment and software 206,920 214,025 433,962 413,676
Other   73,516     72,878     148,141     145,687  
Total $ 867,193   $ 856,875   $ 1,756,418   $ 1,704,297  
 
Dental Supply
Consumable and printed products $ 315,377 $ 312,236 $ 625,533 $ 621,105
Equipment and software 169,311 174,913 361,250 335,940
Other   64,461     63,456     129,758     126,927  
Total $ 549,149   $ 550,605   $ 1,116,541   $ 1,083,972  
 
Rehabilitation Supply
Consumable and printed products $ 96,791 $ 95,009 $ 192,818 $ 191,725
Equipment and software 30,445 31,702 58,334 62,759
Other   6,433     6,859     13,260     13,538  
Total $ 133,669   $ 133,570   $ 264,412   $ 268,022  
 
Veterinary Supply
Consumable and printed products $ 174,589 $ 162,727 $ 355,964 $ 332,104
Equipment and software 7,164 7,410 14,378 14,977
Other   2,622     2,563     5,123     5,222  
Total $ 184,375   $ 172,700   $ 375,465   $ 352,303  
 
Other (Expense) Income, net
Interest income $ 842 $ 897 $ 2,341 $ 2,726
Interest expense (9,127 ) (6,169 ) (18,695 ) (12,522 )
Other   (167 )   (943 )   (989 )   (1,554 )
$ (8,452 ) $ (6,215 ) $ (17,343 ) $ (11,350 )
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
   
Six Months Ended
October 27, October 29,
2012 2011
 
 
Operating activities:
Net income $ 93,080 $ 97,564
Depreciation & amortization 21,906 19,539
Stock-based compensation 7,456 6,301
ESOP compensation 11,400 367
Change in assets and liabilities, net of acquired  

(642

)

  (4,687 )
Net cash provided by operating activities

133,200

119,084
 
Investing activities:
Additions to property and equipment, net of disposals (8,765 ) (22,379 )
Acquisitions and equity investments   (10,591 )   (8,726 )
Net cash used in investing activities (19,356 ) (31,105 )
 
Financing activities:
Dividends paid (29,346 ) (27,213 )
Share repurchases (85,174 ) (218,858 )
Draw on revolver - 20,000
Other financing activities  

(69,733

)   6,340  
Net cash used in financing activities

(184,253

) (219,731 )
 
Effect of exchange rate changes on cash   (2,998 )   (6,845 )
 
 
Net increase (decrease) in cash and cash equivalents $ (73,407 ) $ (138,597 )

(Source: Business Wire )
(Source: Quotemedia)

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