Patterson Companies Inc.
) second quarter fiscal 2013 adjusted earnings of 44 cents per
share (up 2.3% year-over-year) missed the Zacks Consensus
Estimate of 49 cents.
In the reported quarter, profit dropped 7% year over year to
$45.5 million (or 44 cents a share). Net income was impacted by
unexpected lower sales of dental equipment and an incremental
interest expense of $3.2 million associated with the company's
debt issuance in the third quarter of 2012.
Revenues for the second quarter inched up 1% year over year to
$867.2 million, trailing the Zacks Consensus Estimate of $894
million. Sales were adversely affected by soft dental equipment
sales (including chairs, units and lighting), partially offset by
strong technology equipment sales. However, the Veterinary
business contributed significantly to total revenues.
Revenues from the core Patterson Dental roughly remained flat
year over year at $549.1 million.
Within Patterson Dental, sales of consumable and printed products
inched up 1% to $315.4 million in the quarter. Sales from the
equipment and software offerings unexpectedly dropped 3.2% to
Higher demand for the CEREC system, which has been
incorporated with the latest Omnicare camera, was constrained by
limited product availability. This offset higher technology
products sales. Other services and products grew 1.6% year over
year to $64.5 million.
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Revenues from the Webster Veterinary segment grew 6.8% to $184.4
million. Internally-generated sales jumped 13% in the reported
quarter. However, sales were affected by a change in a
distribution agreement related to nutritional offerings which
dampened growth by 6%.
Revenues from Patterson Medical segment remained flat year over
year at $133.7 million due to lower equipment sales. Surgical
Synergies, acquired by Patterson in April 2012, contributed 1% to
the sales growth of this business segment.
The division's equipment franchise continues to be adversely
impacted by the uncertainties related to the U.S. health care
system. Despite such uncertainties, the segment is geared to
utilize the worldwide growing trend of the Rehabilitation market.
Gross margin was 32.4% in the second quarter compared to 32.8% in
the prior-year quarter. Operating margin declined to 9% from
Balance Sheet and Other
Patterson exited the quarter with cash and cash equivalent of
$500.4 million. Long-term debt was higher by 38.1% at $725
million. During the quarter, Patterson repurchased roughly 1.6
million shares under its share buyback program. About 8 million
shares are still available for repurchase before the
authorization expires in 2016.
For fiscal 2013, Patterson lowered its earnings forecast to the
range of $2.00-$2.06 per share from the earlier range of
$2.10-$2.16 per share due to the company's disappointing
second-quarter results as well as the persisting macroeconomic
Patterson provides a wide range of consumables, equipment and
software, and value-added services to its customers. The company
competes head-to-head with
Henry Schein Inc.
) in the dental market.
Patterson Dental is the company's largest business segment and
one of the two largest distributors of dental products in North
America. The recent acquisition of Iowa Dental Supply, LLC (IDS),
a full service distributor of dental products, will likely boost
Patterson Dental's foothold in the mid-western U.S. market and
provide a competitive edge as well.
Moreover, the alliance with
Sirona Dental Systems Inc.
), a leading dental technologies company, further bolsters
Patterson Dental's leading position in the North American dental
distribution business. The Omnicare camera for the CEREC system,
developed by Sirona and to be distributed by Patterson, is the
latest growth driver for this product line.
However, the company remains affected by tough macroeconomic
issues in North America and international markets. It is also
facing internal operational shortcomings, which need to be
addressed immediately. We currently have a Neutral recommendation
on the stock, which carries a short-term Zacks #2 Rank (Buy).