Patterson Companies (PDCO) Beats Q2 Earnings, Revenues - Analyst Blog

Patterson Companies Inc. (PDCO) reported second quarter fiscal 2015 adjusted earnings of 54 cents per share, which beat the Zacks Consensus Estimate by 3 cents and increased 12.5% from the year-ago quarter.

The year-over-year growth was primarily driven by 10.5% increase in sales to $1.10 billion in the quarter, well ahead of the Zacks Consensus Estimate of $1.05 billion.

Quarter Details

Patterson Dental (55% of sales) sales increased 7.5% at constant currency to $601.7 million due to 3.1%, 16.2% and 6.8% sales growth in consumable dental supplies, dental equipment & software and Other services & products (consisting primarily of technical service, parts and labor, software support services and artificial teeth), respectively.

Patterson Veterinary (34% of sales) sales surged 22.2% to $376.5 million. US veterinary sales increased 6.4% from the year-ago quarter due to 7.4% growth in consumables and 4.3% growth in sales of other services and products, consisting primarily of technical service, parts and labor, and software support services. However, veterinary equipment sales declined 12.8% on a year-over-year basis.

Patterson Medical (rehabilitation supply and equipment business) sales (11% of sales) increased 2% to $125.1 million.

Adjusted gross margin contracted 40 basis points (bps) to 31.8% in the reported quarter. Operating expenses, as percentage of revenues, declined 70 bps to 22.5%. As a result, adjusted operating margin expanded 30 bps to 9.3%.

At the end of the second quarter, cash and cash equivalents were $342.7 million as compared with $302.3 million at the end of the previous quarter. Long-term debt remained flat at $725 million as of Oct 25, 2014.

In the first six months of fiscal 2015, net cash from operating activities were $98.4 million. During the period, Patterson Companies bought back roughly 1.2 million shares for $47.5 million. The company has approximately 21 million shares remaining for repurchase under the current authorization.

Outlook

Patterson Companies reiterated its earnings guidance of $2.20–$2.30 per share for fiscal 2015. The Zacks Consensus Estimate is pegged at $2.25, which coincides with the mid-point of management's guided range.

Our Take

Patterson Companies reported a better-than-expected second quarter and subsequently, maintained its guidance for the fiscal year. In our view, improving execution, ongoing investments and strong sales outlook for the seasonally-strong second half of fiscal 2015 bode well for the company. However, stiff competition persists from the likes of DENTSPLY International Inc (XRAY), Henry Schein, Inc (HSIC) and MWI Veterinary Supply, Inc (MWIV).

Currently, Patterson Companies carries a Zacks Rank #3 (Hold).