November 20, 2014

Patterson Companies Reports Fiscal 2015 Second Quarter Operating Results

  • Sales exceeded $1.1 billion in the quarter, a 10.5 percent increase from the prior year;
  • Year-over-year organic sales grew more than 7 percent;
  • Earnings totaled $0.54 per diluted share;
  • Adjusted operating margin improved 30 basis points, to 9.3 percent;
  • Company reaffirms prior guidance of $2.20 to $2.30 per diluted share for fiscal 2015

ST. PAUL, Minn.--(BUSINESS WIRE)-- Patterson Companies, Inc. (Nasdaq: PDCO) today reported that consolidated sales totaled $1.1 billion in its fiscal second quarter ended October 25, 2014, an increase of 10.5 percent from $998.8 million in the year-earlier period. Organic sales were up more than 7 percent, after excluding the incremental impact of the National Veterinary Services Limited (NVS) acquisition and the Medical unit restructuring, which both occurred in the prior fiscal year. Net income increased to $53.8 million, from adjusted net income of $48.7 million in the year-ago period. Fiscal 2015 second quarter earnings per diluted share was $0.54, up 12.5 percent from adjusted earnings per diluted share of $0.48, in the year-ago period.

Fiscal 2014 second quarter adjusted earnings of $0.48 per diluted share excluded approximately $0.07 per share of costs related to last year's Medical unit restructuring. Fiscal 2015 second quarter results included three additional weeks of contribution from the NVS acquisition. The acquisition, which closed on August 16, 2013, will not affect year-over-year comparisons going forward.

"Patterson Companies produced double-digit sales growth in the fiscal second quarter and we are pleased with the performance across all three of our businesses," said Scott Anderson, chairman and chief executive officer. "During the quarter, we saw the scale and leverage of the company's business model provide the platform for us to focus on our customers and exceed their expectations."

Patterson Dental
Sales for Patterson Dental, Patterson's largest business that accounts for 55 percent of total sales, increased 7.5 percent on a constant currency basis from the year-earlier period to $601.7 million in the second quarter of fiscal 2015. By category, also on a constant currency basis versus the year-ago quarter, sales of:

  • Consumable dental supplies totaled $336.2 million, up 3.1 percent from the prior year;
  • Dental equipment and software rose 16.2 percent from the year-earlier level, with strong contributions from both basic equipment and technology sales, led by new users of CEREC CAD/CAM systems; and
  • Other services and products, consisting primarily of technical service, parts and labor, software support services and artificial teeth, increased 6.8 percent.

Commented Anderson, "Solid growth in sales of consumables was augmented by double-digit gains in basic equipment and technology sales. Patterson Dental is known for providing customers with industry-leading technology that is supported by an unparalleled suite of value-added services. This model continues to be validated in the market as we executed well in equipment sales throughout North America."

Patterson Veterinary
Second quarter fiscal 2015 sales for Patterson Veterinary increased 22.2 percent from the prior year period to $376.5 million. U.S. sales were up 6.4 percent from the prior year, to $202.5 million. For U.S. veterinary sales, versus the year-ago second quarter:

  • Consumable sales rose to $190.9 million, up 7.4 percent;
  • Equipment sales declined to $8.2 million, from $9.4 million;
  • Sales of other services and products, consisting primarily of technical service, parts and labor, and software support services, were $3.4 million, up 4.3 percent to prior year.

Anderson continued, "Patterson Veterinary, which now constitutes just over one-third of our total sales, reported growth in both the United States and the United Kingdom in the fiscal second quarter. NVS, our U.K.-based veterinary business, has been a great acquisition and gained additional market share in that region. We are confident that we will continue to take advantage of the growth opportunities that result from our expanded geographic footprint."

Patterson Medical
Sales for Patterson Medical, the rehabilitation supply and equipment business, increased nearly 2 percent, to $125.1 million, after excluding the impact of the fiscal 2014 planned divestiture of certain non-core assets. Consolidated sales of Patterson Medical currently represent approximately 11 percent of total company sales.

Anderson said, "We were encouraged to see sales growth for the ongoing operations of Patterson Medical in the fiscal second quarter, reversing the trends of the past several quarters. Our renewed focus and strategic execution is having the desired effect on this segment, which delivered improved performance in the period. We expect our strong portfolio of value-added products to capture future growth opportunities in the rehabilitation market."

Share Repurchases and Dividends
Year to date, Patterson repurchased approximately 1.2 million shares of its outstanding common stock, with a value of $47.5 million, leaving approximately 21 million shares for repurchase under the current authorization. In the fiscal 2015 second quarter, approximately 90,000 shares, with a value of $3.6 million, were repurchased. The company also paid $20.2 million in cash dividends to shareholders in the quarter and $40.2 million in the first half of fiscal 2015.

Year to Date Results
Consolidated sales for the first six months of fiscal 2015 totaled $2.2 billion, an increase of more than 15 percent from $1.9 billion in the year-earlier period. Net income was $104.1 million, or $1.04 per diluted share, compared to adjusted net income of $94.6 million, or $0.93 per diluted share, in the year-ago period; results from the first half of fiscal 2014 exclude $0.07 per share of costs for the Patterson Medical restructuring.

Business Outlook
Commented Anderson, "We are maintaining our earnings guidance range for fiscal 2015 of $2.20-$2.30 per diluted share and remain focused on execution; first, by capitalizing on the growth opportunities available through the investments we are making and, second, through our strategies to further enhance our product and service offerings. In summary, we are well-positioned as we enter the second half of the year when we experience our heaviest sales volumes."

The following non-GAAP table is provided to adjust reported net income for the impact of the costs associated with restructuring the medical segment. Management believes that the adjusted income amounts provide a helpful representation of the current quarter performance of the Company.

               
(Dollars in thousands, except EPS)
Three Months Ended Six Months Ended
October 25, 2014 October 26, 2013 October 25, 2014 October 26, 2013
Net Income - reported $ 53,778 $ 42,028 $ 104,067 $ 87,920
Restructuring costs   -   6,650   -   6,650
Net Income - adjusted $ 53,778 $ 48,678 $ 104,067 $ 94,570
 
Diluted Earnings Per Share - reported $ 0.54 $ 0.41 $ 1.04 $ 0.86
Restructuring costs   -   0.07   -   0.07
Diluted Earnings Per Share - adjusted $ 0.54 $ 0.48 $ 1.04 $ 0.93
 

Second Quarter Conference Call and Replay
Patterson's second 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 web site. A replay of the second quarter conference call can be heard for one week at 888-203-1112 and by providing the Conference ID 3519682, when prompted.

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
Patterson Veterinary is a leading distributor in the U.S. and U.K. of consumable veterinary supplies, equipment and software, diagnostic products, vaccines and pharmaceuticals predominantly 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. Any statements made in this press release about the Company's future financial conditions, results of operations, expectations, plans, or prospects, including the information under the heading "Business Outlook", constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "projects," "should," "targets" and/or similar expressions. These forward-looking statements are based on the Company's current estimates and assumptions and, as such, involve uncertainty and risk. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by the forward-looking statements because of a number of factors, including the factors described in Item 1A of the Company's most recent Annual Report on Form 10-K, which factors are incorporated herein by reference. Any forward-looking statement in this release speaks only as of the date in which it is made. Except to the extent required under the federal securities laws, the Company does not intend to update or revise the forward-looking statements.

 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share amounts)
(Unaudited)
 
    Three Months Ended     Six Months Ended
October 25,     October 26, October 25,     October 26,
2014 2013 2014 2013
 
Net sales $ 1,103,325 $ 998,834 $ 2,162,854

$

1,878,959

 
Gross profit 305,822 289,431 602,047 570,949
 
Operating expenses   214,601     214,208     426,072     414,445  
 
Operating income 91,221 75,223 175,975 156,504
 
Other expense, net   (7,784 )   (7,532 )   (15,050 )   (16,656 )
 
Income before taxes 83,437 67,691 160,925 139,848
 
Income taxes   29,659     25,663     56,858     51,928  
 
Net income $ 53,778   $ 42,028   $ 104,067   $ 87,920  
 
Earnings per share:
Basic $ 0.54 $ 0.42 $ 1.05 $ 0.87
Diluted $ 0.54 $ 0.41 $ 1.04 $ 0.86
 
Shares:
Basic 98,802 101,069 99,066 101,048
Diluted 99,376 101,968 99,779 101,944
 
Dividends declared per common share $ 0.20 $ 0.16 $ 0.40 $ 0.32
 
Gross margin - adjusted 31.8 % 32.2 % 32.0 % 32.1 %
NVS -4.1 -3.1 -4.2 -1.6
Medical restructuring         -0.1               -0.1  
Gross margin - reported 27.7 % 29.0 % 27.8 % 30.4 %
 
Operating expenses as a % of net sales - adjusted 22.5 % 23.2 % 22.8 % 23.0 %
NVS -3.0 -2.4 -3.1 -1.2
Medical restructuring         0.6               0.3  
Operating expenses as a % of net sales - reported 19.5 % 21.4 % 19.7 % 22.1 %
 
Operating income as a % of net sales - adjusted 9.3 % 9.0 % 9.2 % 9.1 %
NVS -1.0 -0.7 -1.1 -0.4
Medical restructuring         -0.7               -0.4  
Operating income as a % of net sales - reported 8.3 % 7.6 % 8.1 % 8.3 %
 
Effective tax rate - adjusted 36.0 % 35.6 % 35.8 % 36.0 %
NVS -0.5 -1.0 -0.5 -0.5
Medical restructuring         3.3               1.6  
Effective tax rate - reported 35.5 % 37.9 % 35.3 % 37.1 %
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
       
 
October 25, April 26,
2014 2014
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 342,722 $ 305,683
Receivables, net 587,835 607,580
Inventory 499,893 436,463
Prepaid expenses and other current assets   59,276   65,991
Total current assets 1,489,726 1,415,717
 
Property and equipment, net 219,541 204,939
Goodwill and other intangible assets 1,049,163 1,067,583
Investments and other   99,019   176,438
 
Total Assets $ 2,857,449 $ 2,864,677
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 337,761 $ 342,056
Other accrued liabilities   209,325   201,407
Total current liabilities 547,086 543,463
 
Long-term debt 725,000 725,000
Other non-current liabilities   121,662   124,550
Total liabilities 1,393,748 1,393,013
 
Stockholders' equity   1,463,701   1,471,664
 
Total Liabilities and Stockholders' Equity $ 2,857,449 $ 2,864,677
 
 
PATTERSON COMPANIES, INC.
SUPPLEMENTARY FINANCIAL DATA
(Dollars in thousands)
(Unaudited)
                 
Three Months Ended Six Months Ended
October 25, October 26, October 25, October 26,
2014 2013 2014 2013
 
Consolidated Net Sales
Consumable and printed products

1

$ 790,840 $ 714,643 $ 1,587,617 $ 1,324,592
Equipment and software

1

228,572 205,569 408,001 401,712
Other 83,913 78,622 167,236 152,655
Total $ 1,103,325 $ 998,834 $ 2,162,854 $ 1,878,959
 
Dental Supply
Consumable and printed products

1

$ 336,221 $ 328,017 $ 670,559 $ 656,025
Equipment and software

1

195,961 169,559 344,744 331,384
Other 69,566 65,476 139,099 129,876
Total $ 601,748 $ 563,052 $ 1,154,402 $ 1,117,285
 
Veterinary Supply
Consumable and printed products $ 360,225 $ 291,923 $ 731,111 $ 480,124
Equipment and software 8,447 9,573 16,058 17,636
Other 7,800 6,624 15,605 10,043
Total $ 376,472 $ 308,120 $ 762,774 $ 507,803
 
Rehabilitation Supply
Consumable and printed products $ 94,394 $ 94,703 $ 185,947 $ 188,443
Equipment and software 24,164 26,437 47,199 52,692
Other 6,547 6,522 12,532 12,736
Total $ 125,105 $ 127,662 $ 245,678 $ 253,871
 
Operating Income
Dental Supply $ 59,008 $ 53,174 $ 112,221 $ 108,664
Veterinary Supply 14,336 12,151 28,323 21,198
Rehabilitation Supply 17,877 9,898 35,431 26,642
$ 91,221 $ 75,223 $ 175,975 $ 156,504
 
Other (Expense) Income, net
Interest income $ 1,046 $ 1,138 $ 2,607 $ 2,299
Interest expense (8,544 ) (8,777 ) (17,312 ) (17,344 )
Other (286 ) 107 (345 ) (1,611 )
$ (7,784 ) $ (7,532 ) $ (15,050 ) $ (16,656 )
 
 

1

Certain products were reclassed from equipment to consumables in current and prior periods
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
       
Six Months Ended
October 25, October 26,
2014 2013
 
Operating activities:
Net income $ 104,067 $ 87,920
Depreciation & amortization 24,684 23,041
Non-cash employee compensation 13,694 13,568
Change in assets and liabilities, net of acquired   (44,050 )   (31,375 )
Net cash provided by operating activities 98,395 93,154
 
Investing activities:
Additions to property and equipment, net (30,186 ) (17,444 )
Acquisitions and equity investments, net of cash - (140,963 )
Proceeds from sales 46,369 6,546
Other investing activities   (543 )   (4,436 )
Net cash provided by (used in) investing activities 15,640 (156,297 )
 
Financing activities:
Dividends paid (40,174 ) (48,388 )
Share repurchases (47,539 ) (22,199 )
Draw on revolver

130,000

135,000
Payment on revolver

(130,000

)

-
Other financing activities   844     8,514  
Net cash (used in) provided by financing activities (86,869 ) 72,927
 
Effect of exchange rate changes on cash   (7,202 )   1,046  
 
Net increase in cash and cash equivalents $ 19,964   $ 10,830  
 

Patterson Companies, Inc.
Ann B. Gugino, 651-686-1600
Vice President & CFO

Source: Patterson Companies, Inc.

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