Patterson Companies, Inc. (PDCO)

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Patterson Companies (PDCO)

Q4 2011 Earnings Call

May 26, 2011 10:00 am ET


R. Armstrong - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Scott Anderson - Chief Executive Officer, President and Director


Jeffrey Johnson - Robert W. Baird & Co. Incorporated

Lisa Gill - JP Morgan Chase & Co

Steven Valiquette - UBS Investment Bank

Brian M. Delaney

Robert Jones - Goldman Sachs Group Inc.

Ross Taylor - CL King & Associates, Inc

John Kreger - William Blair & Company L.L.C.



Ladies and gentlemen, thank you for standing by, and welcome to the Patterson Companies Fourth Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded, May 26, 2011. I would now like to turn the conference over to our host, Scott Anderson, President and CEO. Please go ahead.

Scott Anderson

Thanks, Alicia. Good morning, and thanks for participating in our fourth quarter earnings conference call. Joining me today is Steve Armstrong, our Executive Vice President and Chief Financial Officer. At the conclusion of our formal remarks, Steve and I will be pleased to take your questions.

Since Regulation FD prohibits us from providing investors with any earnings guidance unless we release that information simultaneously, we've provided financial guidance for fiscal 2012 in our press release earlier this morning. This guidance is subject to a number of risks and uncertainties that could cause Patterson's actual results to vary from our forecast. These risks and uncertainties are discussed in detail in our annual report on Form 10-K and our other SEC filings, and we urge you to review this material.

Turning to our fourth quarter results. We ended fiscal 2011 on a strong note due to solid performances in each of our businesses. Consolidated sales of $883.8 million were up 9% from $812.8 million in last year's fourth quarter. Net income came in at $62.7 million or $0.53 per diluted share, compared to $61.8 million or $0.52 per diluted share in the year-earlier period.

Now for the next few minutes, I will provide some operational highlights of our 3 businesses. Sales of Patterson Dental Supply rose 5% in the fourth quarter to $573.1 million. We believe the fundamentals of the North American dental market are continuing to strengthen, as evidenced by our 3% consumable sales growth that we posted for the quarter. Our Consumable business has been strengthening in recent quarters, and we view this as a leading indicator of the overall dental market. As a result of improving market fundamentals, we believe dentists are gradually becoming more confident about investing in their practices. In addition, we instituted additional marketing programs at the beginning of the quarter. These factors helped generate an 11% sales growth of total equipment and software that we registered in the fourth quarter. Within this overall product category, sales of new technology equipment, including CEREC dental restorative systems and digital radiography products, posted mid-teens growth, while sales of basic dental equipment recorded single-digit growth.

All in all, we believe we are building sales momentum in our Dental Equipment business and are forecasting equipment sales growth in the high single digits for fiscal 2012. However, it does bear mentioning that our equipment sales may experience quarterly fluctuations as they have historically, given the sales cycle related to these capital expenditures and the potential impact of prevailing economic conditions.

Turning now to Patterson Medical. Sales of our rehabilitation supply and equipment unit increased 22% to $126.8 million in the fourth quarter. Although the Rehabilitation business acquired in June 2010 from DCC Healthcare accounted for the majority of the unit sales growth, we were encouraged by Patterson Medical's internal growth of 3%, internally generated sales, attained plan levels and benefited from solid demand for the unit's industry-leading range of consumable supplies.

Patterson Medical's overall results for this period continued to be affected somewhat by budgetary constraints imposed by the British Government on health care expenditures, but the impact of this situation is lessening. Despite these austerity moves, Patterson Medical's U.K.-based Homecraft operation continued to grow during the fourth quarter as the unit's export business and the contribution from the DCC acquisitions resulted in Homecraft sales growth of 116%.

Expenses related to the acquired DCC units also had an impact on Patterson Medical's results. But these expenses should continue to diminish going forward as a percentage of revenue as the integration of these businesses proceeds on schedule.

Patterson Medical's management team, especially the staff at the Homecraft unit, had a demanding year as they integrated an operation almost equal in size to their own, coped with an extremely difficult local market and transitioned the top management of the unit. We are encouraged by Patterson Medical's fiscal 2011 performance and believe this unit is well positioned domestically and internationally as an ongoing growth driver.

Turning to Webster Veterinary. Sales of our veterinary unit increased 14% in the fourth quarter to $183.9 million. Webster's fourth quarter sales growth benefited from strong demand for new combination products in the flea/tick and heartworm category, which helped fueled a 12% increase in sales of consumable supplies. In addition, Webster posted continued strong sales of veterinary equipment and software, which rose 41% from last year's fourth quarter. Webster's Equipment business has been growing at solid rates in recent quarters, and we intend to continue investing in this relatively new portion of Webster's operation that has expanded the unit's full-service platform.

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