Patterson Companies Inc.
) posted a 9.6% rise in second-quarter fiscal 2014 adjusted
earnings per share (EPS) to 57 cents per share, which was up 9.6%
from 52 cents in the year-ago quarter but were in line with the
Zacks Consensus Estimate. Adjusted net earnings rose 8.0% to
$57.9 million from $53.6 million in the year-ago quarter.
Earnings per share in the quarter ended Jan 25, 2014 excluded
costs related to the Medical unit restructuring as well as
contribution of one cent per share from the acquisition of NVS,
which was closed on Aug 16, 2013.
Revenues for the quarter grew 18.2% to $1,082.7 million, higher
than the Zacks Consensus Estimate of $1,062 million.
Adjusted gross margin fell 40 basis points (bps) to 32.4% in the
quarter from 32.8% a year ago. However, adjusted operating margin
rose 30 bps to 10.1% from 9.8% in the fiscal 2013 quarter.
Revenues from the core Patterson Dental rose 3.2% on a constant
currency basis to $642.0 million in the third quarter. By
category, revenues on a constant currency basis in Consumable
dental supplies went up 1.5% to $310.7 million, Dental equipment
and software revenues rose 5.8% due to strong performance in all
product categories; and Other services and products (consisting
primarily of technical service, parts and labor, software support
services, and artificial teeth) inched up 1.8% in the fiscal 2014
Revenues from Patterson Veterinary surged about 90% to $333.4
million. U.S. revenues went up 7.1% to $187.9 million. Consumable
veterinary revenues rose 5.6% to $170.8 million, and Veterinary
equipment revenues grew 26.1% to $14.4 million.
However, revenues from Patterson Medical dipped to $107.3
million. The decline was attributable to lower sales from the
non-core product lines that were divested in the quarter as well
as continuing challenges in international business.
In the first three quarter of fiscal 2014, Patterson Companies
repurchased about 1.1 million shares of its outstanding common
stock, leaving 23.0 million shares under the current
authorization. The company repurchased roughly 0.6 million shares
for $26 million and paid $16.6 million in cash dividends in the
fiscal third quarter.
Patterson Companies exited the third quarter with cash and cash
equivalents of $464.6 million, down from $505.2 million as of Apr
27, 2013. Long-term debt remained flat at $725 million as of Jan
25, 2014 compared with the same as of Apr 27, 2013.
In the first nine months of fiscal 2014, Patterson Companies had
cash flow of $149.75 million from operations, down 16.5% from
$179.3 million in the year-ago period. Capital expenditures (net)
more than doubled to $30.3 million in the above period from $14.3
million in the same period of fiscal 2013.
Patterson Companies narrowed its EPS guidance to the range of
$2.13-$2.20 from $2.13-$2.24 per share for fiscal 2014, which
includes a 3-4 cents contribution from the NVS acquisition.
However, the outlook does not include restructuring charges of 12
cents. The current Zacks Consensus Estimate for fiscal 2014 EPS
of $2.16 lies within the guided range.
Patterson Companies continues to face a challenging macro
environment as well as continued weakness in Medical segment.
However, we praise the company's nearly unchanged guidance, which
reflects stability. Further, the company's restructuring efforts
to streamline the business should leverage the bottom line in the
Currently, Patterson Companies carries a Zacks Rank #4 (Sell).
While we avoid the company, some better-ranked stocks from the
medical/dental supplies industry that worth a look include
CR Bard Inc.
Becton, Dickinson and Co.
). All of them carry a Zacks Rank #2 (Buy).
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