May 25, 2017

Patterson Companies Reports Fiscal 2017 Fourth-Quarter and Year-End Operating Results

  • Fourth-quarter reported net sales totaled $1.4 billion. Full fiscal-year reported net sales rose to $5.6 billion.
  • Fourth-quarter GAAP earnings from continuing operations were $0.65 per diluted share. Adjusted earnings1 from continuing operations totaled $0.69 per diluted share.
  • Full-year GAAP earnings from continuing operations were $1.82 per diluted share. Adjusted earnings1 from continuing operations were $2.34 per diluted share.
  • Company initiates adjusted earnings1 guidance for fiscal 2018 of $2.25 to $2.40 per diluted share.

ST. PAUL, Minn.--(BUSINESS WIRE)-- Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated net sales of $1.4 billion (see attached Sales Summary for further details) in its fiscal fourth quarter ended April 29, 2017, essentially flat compared to the same period last year. Adjusting for the effects of currency translation, sales improved 0.8 percent.

Reported net income from continuing operations was $61.4 million, or $0.65 per diluted share, compared to $65.6 million, or $0.68 per diluted share, in last year's fiscal fourth quarter. Adjusted net income1 from continuing operations, which excludes certain non-recurring items and deal amortization costs, totaled $65.6 million for the fourth quarter of fiscal 2017, down 11.4 percent from $74.1 million in the same quarter last year. Adjusted earnings1 per diluted share from continuing operations totaled $0.69 in the 2017 fourth quarter, down 10.4 percent year-over-year.

"Patterson Companies continues to move through a period of strategic investment and change, responding to the evolving needs of our customers and implementing an enterprise resource planning system to modernize our technology infrastructure for future capabilities. While we have made tremendous progress on these initiatives, our fiscal 2017 financial performance does not reflect the strength of the platform we are building," said Scott Anderson, chairman, president and CEO of Patterson Companies. "During fiscal 2018, we will be implementing a range of necessary actions to improve our execution and margin profile. In addition to our enterprise-wide efficiency programs, these actions will include sales and marketing investments in our Dental segment and continued synergy capture in our Animal Health segment. We believe our existing strategies, supported by these additional actions, will minimize short-term headwinds and enhance the longer-term strength of our business."

Patterson Dental
Reported net sales in our Dental segment, which represented approximately 42 percent of total company sales, were $607.3 million, down 8.3 percent from the same quarter last year. Sales declined 8.2 percent on a constant currency basis from the fiscal 2016 fourth quarter. On that same basis, year-over-year sales by category were as follows:

  • Consumable dental supplies decreased 4.3 percent.
  • Equipment sales declined 16.9 percent, primarily due to a decrease in sales of CEREC products, partially offset by solid growth in core equipment.
  • Other services and products, primarily composed of technical service, parts and labor, software support services and office supplies were flat compared to last year.

"In fiscal 2017, we took the important steps in our Dental segment to evolve our sales approach and broaden our future digital technology portfolio to respond to changing customer needs and serve a wider range of clinical environments. We are confident in these strategies, but recognize that they impacted near-term sales execution," added Anderson. "Consumable sales during the fourth quarter were directly impacted by these actions. In the months ahead, we intend to make incremental investments within our sales and marketing approach to improve execution. We are fully committed to improving our growth and margin profile in Dental and believe that these efforts, along with the addition of new digital technologies, will allow us to capitalize on our unique competitive strengths and the many market opportunities ahead."

Patterson Animal Health
Fourth-quarter reported net sales for Patterson Animal Health, which comprised approximately 58 percent of the company's total sales, were $827.5 million, 6.0 percent higher than last year's fourth quarter. Sales increased 8.6 percent on a constant currency basis from the fiscal 2016 fourth quarter. On that same basis, year-over-year sales by category were as follows:

  • Companion animal sales improved 8.3 percent.
  • Production animal sales rose 8.9 percent, reflecting stronger sales across all species.

"Patterson Animal Health has a strong and growing market position in North America. While this segment generated improved sales during the fourth quarter, we believe there is room for greater profit contribution from this business," continued Anderson. "During fiscal 2017, we began to take important steps forward in this area through marketing and sales execution. We remain disciplined in our commitment to synergy capture to fully realize the strengths of our combined animal health platform."

Discontinued Operations
On August 28, 2015, Patterson Companies completed the sale of Patterson Medical to Madison Dearborn Partners for approximately $717 million. As a result of the sale, Patterson Medical is classified and reported as discontinued operations for all periods presented.

Share Repurchases and Dividends
For the full fiscal year, Patterson repurchased approximately 2.9 million shares of its outstanding common stock, with a value of $125.4 million, leaving approximately 13.6 million shares for repurchase under the current authorization, which expires in March 2018. The company also paid $25.0 million in cash dividends to shareholders in the fourth quarter and $95.9 million in cash dividends to shareholders during fiscal 2017.

Full-Year Results1
Reported net sales for fiscal 2017 totaled $5.6 billion, a 3.8 percent increase from fiscal 2016. Adjusting for the effects of currency translation and the extra week in the prior fiscal-year period, sales for the year grew 6.5 percent. Sales grew 2.9 percent when excluding the additional six-week impact of Animal Health International, Inc. Reported net income from continuing operations was $173.8 million, or $1.82 per diluted share, compared to $185.7 million, or $1.90 per diluted share last year. Adjusted net income1 from continuing operations, totaled $223.3 million, or $2.34 per diluted share, compared to adjusted net income1 from continuing operations of $241.4 million, or $2.47 per diluted share last year. Reported net income from continuing operations and adjusted net income1 from continuing operations in fiscal 2017 also include the previously disclosed pre-tax step-up in enterprise resource planning expenses of approximately $25 million. As noted above, sales in the prior fiscal year included an extra sales week and approximately six fewer weeks of contribution from Animal Health International, Inc.

Business Outlook
Anderson concluded, "Since we set out on our strategic path in 2015 to rebalance our business portfolio, modernize our IT platform and sharpen our go-to-market approach, Patterson Companies has made significant progress. We expect that the key decisions we made and actions we took during fiscal 2017 will lead to lasting, positive impacts. However, we expect the headwinds of these investments and initiatives to extend into our current fiscal year. As we enter fiscal 2018, we are encouraged by: market stability across our businesses; the maturing of our ERP implementation process and our ability to effectively use this system to drive our business; the new wave of digital technology we expect to be coming to market in our Dental segment; and disciplined synergy capture in Animal Health. We are optimistic about Patterson Companies' long-term growth prospects and the returns these investments will bring to our customers, employees and shareholders."

Fiscal 2018 Guidance
Patterson today established its fiscal 2018 earnings guidance from continuing operations, which is provided on both a GAAP and non-GAAP adjusted1 basis:

  • GAAP earnings are expected to be in the range of $1.90 to $2.05 per diluted share.
  • Non-GAAP adjusted earnings1 are expected to be in the range of $2.25 to $2.40 per diluted share.
  • Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of:
    • Deal amortization expense of approximately $25.5 million ($0.27 per diluted share)
    • Integration and business restructuring expenses of approximately $6.4 million ($0.07 per diluted share)
    • Transaction-related costs of approximately $0.3 million ($0.00 per diluted share)

Our guidance is for current continuing 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 2017.

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 earnings from continuing operations, net income from continuing operations, and earnings per diluted share from continuing operations, for the impact of transaction related costs, deal amortization, intangible asset impairment, integration and business restructuring expenses, accelerated debt issuance costs and discrete tax matters.

Management believes that these non-GAAP measures may provide a helpful representation of the company's fourth quarter and full year performance, 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 constant currency used in this release represents net sales adjusted to exclude foreign currency impacts. 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.

Fourth-Quarter Conference Call and Replay
Patterson's fourth-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 Patterson's website. A replay of the fiscal 2017 fourth-quarter conference call can be heard for one week at 888-203-1112 and by providing the Conference ID 8211258 when prompted.

About Patterson Companies, Inc.
Patterson Companies, Inc. 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, including but not limited to 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.

Source: Patterson Companies, Inc.

 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
               
Three Months Ended Twelve Months Ended
April 29, April 30, April 29, April 30,
2017 2016 2017 2016
 
Net sales $ 1,445,032 $ 1,453,770 $ 5,593,127 $ 5,386,703
 
Gross profit 335,498 363,741 1,301,397 1,322,748
 
Operating expenses   239,343     257,397     1,013,469     975,035  
 
Operating income from continuing operations 96,155 106,344 287,928 347,713
 
Other income and expense:
Other income, net 1,033 1,591 6,013 4,045
Interest expense   (11,401 )   (10,134 )   (43,060 )   (50,065 )
 
Income from continuing operations before taxes 85,787 97,801 250,881 301,693
 
Income tax expense   24,430     32,181     77,093     116,009  
 
Net income from continuing operations 61,357 65,620 173,788 185,684
Net income (loss) from discontinued operations   334         (2,895 )   1,500  
Net income $ 61,691   $ 65,620   $ 170,893   $ 187,184  
 
Basic earnings (loss) per share:
Continuing operations $ 0.65 $ 0.69 $ 1.83 $ 1.91
Discontinued operations   0.01         (0.03 )   0.02  
Net basic earnings per share $ 0.66   $ 0.69   $ 1.80   $ 1.93  
 
Diluted earnings (loss) per share:
Continuing operations $ 0.65 $ 0.68 $ 1.82 $ 1.90
Discontinued operations           (0.03 )   0.01  
Net diluted earnings per share $ 0.65   $ 0.68   $ 1.79   $ 1.91  
 
Shares:
Basic 93,830 95,460 94,897 97,222
Diluted 94,503 96,121 95,567 97,902
 
Dividends declared per common share $ 0.26 $ 0.24 $ 0.98 $ 0.90
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
       
April 29, April 30,
2017 2016
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 94,959 $ 137,453
Receivables 884,803 796,693
Inventory 711,903 722,140
Prepaid expenses and other current assets   111,928   91,255
Total current assets 1,803,593 1,747,541
Property and equipment, net 298,452 293,315
Goodwill and other intangible assets 1,238,983 1,325,889
Long-term receivables, net and other   166,885   154,059
Total assets $ 3,507,913 $ 3,520,804
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 616,859 $ 566,253
Other accrued liabilities 213,318 226,582
Current maturities of long-term debt 14,754 16,500
Borrowings on revolving credit   59,000   20,000
Total current liabilities 903,931 829,335
Long-term debt 998,272 1,022,155
Other non-current liabilities   211,277   227,568
Total liabilities 2,113,480 2,079,058
Stockholders' equity   1,394,433   1,441,746
Total liabilities and stockholders' equity $ 3,507,913 $ 3,520,804
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
       
Twelve Months Ended
April 29, April 30,
2017 2016
 
Operating activities:
Net income $ 170,893 $ 187,184
Net income (loss) from discontinued operations   (2,895 )   1,500  
Net income from continuing operations 173,788 185,684
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization 83,818 82,383
Intangible asset impairment 36,312 -
Non-cash employee compensation 17,710 28,851
Change in assets and liabilities, net of acquired   (146,014 )   (102,045 )
Net cash provided by operating activities- continuing operations 165,614 194,873
Net cash used in operating activities- discontinued operations   (2,895 )   (38,544 )
Net cash provided by operating activities 162,719 156,329
Investing activities:
Additions to property and equipment (47,019 ) (79,354 )
Acquisitions and equity investments, net of cash assumed - (1,106,583 )
Proceeds from sale of securities - 48,744
Other investing activities   48,212     22,320  
Net cash provided by (used in) investing activities- continuing operations 1,193 (1,114,873 )
Net cash provided by investing activities- discontinued operations   -     714,239  
Net cash provided by (used in) investing activities 1,193 (400,634 )
Financing activities:
Dividends paid (95,910 ) (90,597 )
Repurchases of common stock (125,384 ) (200,000 )
Proceeds from issuance of long-term debt, net - 988,400
Debt amendment costs (1,266 ) -
Retirement of long-term debt (26,238 ) (682,375 )
Draw on revolver 39,000 20,000
Other financing activities   7,635     7,441  
Net cash provided by (used in) financing activities (202,163 ) 42,869
Effect of exchange rate changes on cash   (4,243 )   (8,371 )
Net change in cash and cash equivalents $ (42,494 ) $ (209,807 )
 
 
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
                       
Total Foreign Animal Health

 

April 29, April 30, Sales Exchange International

Internal

2017 2016 Growth Impact Impact

Growth

Three Months Ended

 
Consolidated net sales
Consumable $ 1,148,337 $ 1,111,287 3.3 % (1.8 )% % 5.1 %
Equipment and software 207,339 246,930 (16.0 )% (0.1 )% % (15.9 )%
Other   89,356   95,553 (6.5 )% (0.7 )% % (5.8 )%
Total $ 1,445,032 $ 1,453,770 (0.6 )% (1.4 )% % 0.8 %
 
Dental
Consumable $ 339,398 $ 354,563 (4.3 )% % % (4.3 )%
Equipment and software 194,493 234,222 (17.0 )% (0.1 )% % (16.9 )%
Other   73,417   73,359 0.1 % (0.1 )% % 0.2 %
Total $ 607,308 $ 662,144 (8.3 )% (0.1 )% % (8.2 )%
 
Animal Health
Consumable $ 808,939 $ 756,724 6.9 % (2.6 )% % 9.5 %
Equipment and software 12,846 12,708 1.1 % (0.2 )% % 1.3 %
Other   5,687   11,354 (49.9 )% (5.3 )% % (44.6 )%
Total $ 827,472 $ 780,786 6.0 % (2.6 )% % 8.6 %
 
Corporate
Other $ 10,252 $ 10,840 (5.4 )% % % (5.4 )%
Total $ 10,252 $ 10,840 (5.4 )% % % (5.4 )%
 
 

Twelve Months Ended

 
Consolidated net sales
Consumable $ 4,400,888 $ 4,153,921 5.9 % (2.1 )% 4.7 % 3.3 %
Equipment and software 834,526 857,001 (2.6 )% % % (2.6 )%
Other   357,713   375,781 (4.8 )% (0.7 )% % (4.1 )%
Total $ 5,593,127 $ 5,386,703 3.8 % (1.7 )% 3.6 % 1.9 %
 
Dental
Consumable $ 1,321,764 $ 1,378,886 (4.1 )% (0.1 )% % (4.0 )%
Equipment and software 780,868 806,993 (3.2 )% % % (3.2 )%
Other   287,587   290,355 (1.0 )% % % (1.0 )%
Total $ 2,390,219 $ 2,476,234 (3.5 )% % % (3.5 )%
 
Animal Health
Consumable $ 3,079,124 $ 2,775,035 11.0 % (3.1 )% 7.0 % 7.1 %
Equipment and software 53,658 50,008 7.3 % (0.2 )% % 7.5 %
Other   27,044   37,206 (27.3 )% (7.2 )% (0.5 )% (19.6 )%
Total $ 3,159,826 $ 2,862,249 10.4 % (3.1 )% 6.8 % 6.7 %
 
Corporate
Other $ 43,082 $ 48,220 (10.7 )% % % (10.7 )%
Total $ 43,082 $ 48,220 (10.7 )% % % (10.7 )%
 
 
PATTERSON COMPANIES, INC.
OPERATING INCOME BY SEGMENT
(In thousands)
(Unaudited)
               
Three Months Ended Twelve Months Ended
April 29, April 30, April 29, April 30,
2017 2016 2017 2016
 
Operating income (loss)
Dental $ 86,315 $ 88,722 $ 263,671 $ 312,176
Animal Health 27,672 30,210 88,132 94,318
Corporate   (17,832 )   (12,588 )   (63,875 )   (58,781 )
Total $ 96,155   $ 106,344   $ 287,928   $ 347,713  
 
 
PATTERSON COMPANIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Dollars in thousands, except per share amounts)
(Unaudited)
                               
For the three months ended April 29, 2017 GAAP

Transaction-related
costs

Deal amortization

Intangible asset
impairment

Integration and
business
restructuring
expenses

Accelerated debt
issuance costs

Discrete tax
matters

Non-GAAP
Operating income from continuing operations $ 96,155 $ 178 $ 9,745 $ $ 257 $ $ $ 106,335
Other expense, net   (10,368 )                 (10,368 )
Income from continuing operations before taxes 85,787 178 9,745 257 95,967
Income tax expense   24,430     67   3,375     98     2,383     30,353  
Net income from continuing operations $ 61,357   $ 111 $ 6,370 $ $ 159 $ $ (2,383 ) $ 65,614  
   
Diluted EPS from continuing operations* $ 0.65   $ $ 0.07 $ $ $ $ (0.03 ) $ 0.69  
 
Consolidated operating income as a % of sales 6.7 % 7.4 %
Effective tax rate 28.5 % 31.6 %
 
For the three months ended April 30, 2016 GAAP

Transaction-related
costs

Deal amortization

Intangible asset
impairment

Integration and
business
restructuring
expenses

Accelerated debt
issuance costs

Discrete tax
matters

Non-GAAP
Operating income from continuing operations $ 106,344 $ 567 $ 10,779 $ $ 1,948 $ $ $ 119,638
Other expense, net   (8,543 )                 (8,543 )
Income from continuing operations before taxes 97,801 567 10,779 1,948 111,095
Income tax expense   32,181     214   3,869     736         37,000  
Net income from continuing operations $ 65,620   $ 353 $ 6,910 $ $ 1,212 $ $   $ 74,095  
   
Diluted EPS from continuing operations* $ 0.68   $ $ 0.07 $ $ 0.01 $ $   $ 0.77  
 
Consolidated operating income as a % of sales 7.3 % 8.2 %
Effective tax rate 32.9 % 33.3 %
 
For the twelve months ended April 29, 2017 GAAP

Transaction-related
costs

Deal amortization

Intangible asset
impairment

Integration and
business
restructuring
expenses

Accelerated debt
issuance costs

Discrete tax
matters

Non-GAAP
Operating income from continuing operations $ 287,928 $ 1,657 $ 39,957 $ 36,312 $ 6,561 $ $ $ 372,415
Other expense, net   (37,047 )                 (37,047 )
Income from continuing operations before taxes 250,881 1,657 39,957 36,312 6,561 335,368
Income tax expense   77,093     625   13,769   13,263   2,481     4,789     112,020  
Net income from continuing operations $ 173,788   $ 1,032 $ 26,188 $ 23,049 $ 4,080 $ $ (4,789 ) $ 223,348  
   
Diluted EPS from continuing operations* $ 1.82   $ 0.01 $ 0.27 $ 0.24 $ 0.04 $ $ (0.05 ) $ 2.34  
 
Consolidated operating income as a % of sales 5.1 % 6.7 %
Effective tax rate 30.7 % 33.4 %
 
For the twelve months ended April 30, 2016 GAAP

Transaction-related
costs

Deal amortization

Intangible asset
impairment

Integration and
business
restructuring
expenses

Accelerated debt
issuance costs

Discrete tax
matters

Non-GAAP
Operating income from continuing operations $ 347,713 $ 13,699 $ 39,468 $ $ 7,144 $ $ $ 408,024
Other expense, net   (46,020 )           5,153       (40,867 )
Income from continuing operations before taxes 301,693 13,699 39,468 7,144 5,153 367,157
Income tax expense   116,009     3,339   14,051     2,701   1,948   (12,300 )   125,748  
Net income from continuing operations $ 185,684   $ 10,360 $ 25,417 $ $ 4,443 $ 3,205 $ 12,300   $ 241,409  
   
Diluted EPS from continuing operations* $ 1.90   $ 0.11 $ 0.26 $ $ 0.05 $ 0.03 $ 0.13   $ 2.47  
 
Consolidated operating income as a % of sales 6.5 % 7.6 %
Effective tax rate 38.5 % 34.2 %
 

* May not sum due to rounding

 

Patterson Companies, Inc.
Ann B. Gugino, 651-686-1600
Executive Vice President & CFO
or
John M. Wright, 651-686-1364
Vice President, Investor Relations

Source: Patterson Companies, Inc.

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