Patterson Companies (PDCO) Misses On Q2 Earnings, Cuts View

Patterson Companies Inc. (NASDAQ:PDCO) reported adjusted earnings of 51 cents per share in second-quarter fiscal 2018, missing the Zacks Consensus Estimate of 54 cents. Earnings were also lower than the year-ago figure of 56 cents. Hurricanes hurt Patterson Companies’ earnings per share by approximately a penny in the quarter.

Net sales fell 2.3% from the year-ago quarter to $1.39 billion, which also missed the Zacks Consensus Estimate of $1.42 billion. Adjusting the effects of foreign currency exchange, sales declined 2.8% on a year-over-year basis, including a negative impact of approximately 60 basis points (bps) from the hurricanes.

Patterson Companies has a Zacks Rank #4 (Sell).

Patterson Companies, Inc. Price and Consensus

Patterson Companies, Inc. Price and Consensus | Patterson Companies, Inc. Quote

Segmental Analysis

Animal Health Segment: This segment is a leading distributor of products, services and technologies to the production and companion animal health markets in North America and the U.K. Coming to the second-quarter performance of the platform (60% of total sales), sales increased almost 1.4% at constant currency (cc) on a year-over-year basis to $823.6 million.

Companion animal sales declined 1.4%. Production animal sales increased 4.2%, reflecting strong performance across all segments, especially in the swine business.

Dental Segment: This segment provides a virtually complete range of consumable dental products, equipment, software, turnkey digital solutions and value-added services to dentists and dental laboratories throughout North America. In the second quarter, dental sales (40% of total sales) declined 8.4% at cc year over year to approximately $553.6 million. The decline was led by decreased sales of CEREC and digital technology products.

Equipment sales in the dental segment fell 17.7%. Consumable dental supplies decreased 4.4%. However, other services and products, primarily comprising technical service, parts and labor, software support services and office supplies, increased 0.6%.

Share Repurchase Update

Patterson Companiesrepurchased approximately 1 million shares of its outstanding common stock for $36.5 million in the reported quarter. The company also paid $24.8 million in cash dividends to shareholders.

Guidance Downbeat

The company expects adjusted earnings per share for fiscal 2018 in the range of $2.00 to $2.10, way below the previously issued band of $2.25 to $2.40. Patterson Companies expects deal amortization expenses of $25.3 million or 27 cents per share. The company estimates integration and business restructuring expenses at $5.3 million or 6 cents per share.

Our Take

Patterson Companies exited the second quarter on a tepid note, missing the Zacks Consensus Estimate for both the counts. Furthermore, a downbeat guidance indicates looming concerns. Lackluster performance by the dental segment is a concern. Management expects headwinds in the technology-based equipment business to persist through fiscal 2018. However, we are upbeat about the company’s Animal Health segment that witnessed strong sales last quarter. Patterson Companies provides a wide range of consumable supplies, equipment, software and value-added services. The company’s broad spectrum of products cushions it against economic downturns in the MedTech space. We believe a diversified product portfolio, strong veterinary business prospects, accretive acquisitions and strategic partnerships are key growth catalysts.

Stocks to Consider

A few better-ranked stocks in the broader medical sector are PetMed Express (NASDAQ:PETS) , Luminex Corporation (NASDAQ:LMNX) and IDEXX Laboratories (NASDAQ:IDXX) .

Notably, PetMed Express sports a Zacks Rank #1 (Strong Buy). The company has a long-term expected earnings growth rate of 10%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Luminex represents a return of 5.1% over the last year. The stock has a Zacks Rank #1.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has climbed 39.2% over a year’s time and has a Zacks Rank #2 (Buy).

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