Patterson Companies Inc.
) posted second-quarter fiscal 2014 adjusted earnings per share
(EPS) of 47 cents per share, which was up 6.8% from 44 cents in
the year-ago quarter but missed the Zacks Consensus Estimate by a
Earnings per share in the quarter ended Oct 26, 2013 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 fell 15.2% to $998.8 million. Revenues
were higher than the Zacks Consensus Estimate of $995 million.
Adjusted gross margin fell marginally to 32.2% in the quarter
from 32.4% a year ago. However, adjusted operating margin
remained flat at 9.0% on a year-over-year basis.
Revenues from the core Patterson Dental rose 3.0% on a constant
currency basis to $563.1 million in the second quarter. By
category, revenues on a constant currency basis in Consumable
dental supplies went up 2.3% to $321.0 million, Dental equipment
and software rose 4.8% due to strong performance in technology
sales and Other services and products (consisting primarily of
technical service, parts and labor, software support services,
and artificial teeth) inched up 2.1% in the fiscal 2014 second
On a positive note, revenues from Patterson Veterinary surged
67.1% to $308.1 million. After excluding the sales contribution
from the NVS acquisition, U.S. revenues went up 3.3% to $190.4
million. Excluding the impact of NVS, Consumable veterinary
revenues rose 1.8% to $77.7 million, and Veterinary equipment
revenues grew strongly by 31.2% to $9.4 million.
However, revenues from Patterson Medical dipped 4.5% to $127.7
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.
Year to date, PDCO repurchased about 0.5 million shares of its
outstanding common stock, leaving 23.9 million shares for
repurchase under the current authorization. However, Patterson
Companies did not repurchase any shares in the second quarter.
PDCO exited the second quarter with cash and cash equivalents of
$516.1 million, up from $505.2 million as of Apr 27, 2013.
Long-term debt remained flat at $725 million as of Oct 26, 2013
compared with the same as of Apr 27, 2013.
In the first half of fiscal 2014, Patterson Companies had cash
flow of $93.2 million from operations, down 30.1% from $133.2
million in the year-ago period. Capital expenditures (net) nearly
doubled to $17.4 million in the above period from $8.8 million in
the same period of fiscal 2013.
PDCO has reiterated its EPS guidance to the range of $2.13-$2.24
per share for fiscal 2014, which includes 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 EPS for fiscal 2014 is pegged at $2.17.
We remain disappointed with Patterson's fiscal 2014 second
quarter results, which missed the Zacks Consensus Estimate for
EPS, reflecting a challenging macro environment, as well as
continued weakness in Medical segment. However, we praise the
company's unchanged guidance which reflects stability. Further,
the company's restructuring efforts to streamline the business
should leverage the bottom line in the long term.
Currently, PDCO carries a Zacks Rank #4 (Sell). While we avoid
Patterson, some better-ranked stocks from the medical/dental
supplies industry that worth a look include
Merit Medical Systems, Inc.
). All of them carry a Zacks Rank #1 (Strong Buy).
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