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Patterson Companies Reports Fiscal 2014 Third Quarter Operating Results

February 26, 2014

Patterson Companies, Inc. reported that consolidated sales totaled $1.1 billion in its fiscal third quarter ended January 25, an increase of 18.2 percent from $915.9 million in the year-earlier period.

In a release on February 20, the Company noted that net income was $57.9 million, or $0.57 per diluted share (excluding costs related to the Medical unit restructuring), up from net income of $53.6 million, or $0.52 per diluted share, in the year-ago period.

Fiscal 2014 third quarter results included $145.5 million of consolidated sales and an earnings contribution of $0.01 per diluted share from the acquisition of NVS, which closed on August 16, 2013. Fiscal 2014 third quarter results reflect the first full-quarter contribution from NVS.

"Patterson Companies achieved a growth milestone, as we recorded our first quarter with consolidated sales in excess of $1 billion," said Scott Anderson, chairman and chief executive officer. "In addition, we saw solid sales growth in our dental and veterinary businesses, despite the impact of the severe winter weather that hampered activity in many U.S. markets. We believe that the investments that we continue to make in our businesses position us well as we conclude fiscal 2014."

As previously disclosed, the company is implementing a global information technology initiative in order to enable Patterson to accommodate future growth, assist in securing future productivity gains and enhance the customer experience. Investments in this initiative reduced the fiscal 2014 third quarter earnings by approximately $0.02 per share.

Sales for Patterson Dental, representing approximately 60 percent of total sales and the largest of Patterson's businesses, increased 3.2 percent on a constant currency basis from the year-earlier period to $642.0 million in the third quarter of fiscal 2014. By category, also on a constant currency basis versus the year-ago quarter, sales of:

-Consumable dental supplies totaled $310.7 million, up nearly 1.5 percent;

-Dental equipment and software rose 5.6 percent, with all major product categories posting gains; and

-Other services and products, consisting primarily of technical service, parts and labor, software support services and artificial teeth, increased 1.8 percent.

Commented Anderson, "We are particularly encouraged by the strong gains in our equipment and digital categories, which come on top of excellent performance in the year-ago period. In the 2014 third quarter, we saw solid growth for CEREC equipment sales, generating double-digit growth in that category. Patterson Dental also experienced growth in basic equipment sales."

Patterson Veterinary

Third quarter fiscal 2014 sales for the Patterson Veterinary unit increased nearly 90 percent from the prior year period to $333.4 million. U.S. sales were up 7.1 percent from the previous year, to $187.9 million. For U.S. sales versus the year-ago third quarter:

-Consumable veterinary sales totaled $170.8 million, up 5.6 percent; and

-Veterinary equipment sales rose 26.1 percent to $14.4 million.

Anderson said, "We continue to be pleased with NVS, our U.K.- based veterinary business, and its contribution to our performance. Patterson Veterinary now constitutes nearly one-third of our total sales and we are poised to sustain these growth trends. This unit is committed to building our equipment and technical service strategy to satisfy unmet market needs. As a reminder, this quarter is the seasonally slow time of the year for our veterinary business."

Sales for Patterson Medical, the rehabilitation supply and equipment unit, declined to $107.3 million, primarily as a result of divesting non-core product lines in the fiscal first quarter. Fiscal 2014 third quarter sales performance was also impacted by continuing challenges in the unit's international business. Fiscal third quarter results for the business include approximately $0.01 per share of charges for the previously announced restructuring, which is anticipated to be completed by the end of the year and reduce fiscal year results by $0.12 per share. The charges are predominantly non-cash. As the company has previously outlined, taking these actions is estimated to generate annual operational savings of approximately $2 million, or $0.01 per share, beginning in fiscal 2015. Consolidated sales of Patterson Medical currently represent approximately 10 percent of total company sales.

Anderson said, "After adjusting for divesting non-core assets in our international sector, Patterson Medical sales were essentially in-line with our expectations for the quarter. Though U.S. markets continue to stabilize, overall performance has been affected by the continued uncertainty surrounding this nation's health care system and in international markets from the ongoing austerity measures that have dampened demand for the past few years. Yet, we continue to be encouraged by this business' potential, given the underlying demographics that indicate future growth."

Consolidated sales for the first nine months of fiscal 2014 totaled nearly $3 billion, an increase of approximately 11 percent from $2.7 billion in the year-earlier period. Excluding the NVS acquisition, consolidated sales through the first nine months of fiscal 2014 totaled $2.7 billion. Net income was $152.5 million, or $1.50 per diluted share, compared to net income of $146.7 million, or $1.41 per diluted share, in the year-ago period. The fiscal 2014 nine month results include: a $0.02 per diluted share contribution from the NVS acquisition; a $0.05 per share expense impact from the planned technology investments; and excludes $0.08 per share of costs for the Patterson Medical restructuring.

Year to date, Patterson has repurchased approximately 1.1 million shares of its outstanding common stock, leaving approximately 23 million shares for repurchase under the current authorization. Approximately 0.6 million shares, with a value of $26 million, were purchased in the fiscal third quarter. The company also paid $16.6 million in cash dividends to shareholders in the fiscal third quarter.

Commented Anderson, "With three quarters completed and based on our expectations for the remainder of fiscal 2014, we are narrowing our earnings guidance range for the year to $2.13 to $2.20 per diluted share. Patterson Companies is focused on capitalizing on the growth opportunities that lie ahead. We are confident that the investments we are making to augment our business model will stimulate sales and earnings growth, and create long-term shareholder value."

The prior fiscal 2014 earnings guidance range was $2.13 to $2.24 per diluted share. Fiscal 2014 earnings guidance includes a $0.03 to $0.04 per diluted share contribution from the NVS acquisition. This guidance range excludes the non-recurring restructuring costs for Patterson Medical of approximately $0.12 per diluted share.

Patterson Companies, Inc. is a value-added distributor serving the dental, companion-pet veterinarian and rehabilitation supply markets.

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