Patterson Companies, Inc. (PDCO) on Thursday reported a 5% increase in profit for the second quarter from last year on higher sales that were boosted by acquisitions, in addition to cost-control measures in recent periods, including company-wide salary reductions enacted in the preceding first quarter.
On a per share basis, earnings for the quarter matched analysts' consensus estimate. Looking ahead, the dental and veterinary products distributor maintained its earnings outlook for fiscal year 2010.
Suppliers of products and equipment to dental practices have been hurt by a decline in sales of dental and medical equipment as dentists and doctors continued to defer purchase of equipment amid the economic slowdown. The recession has also led many patients to defer nonessential dental work, as a big chunk of dental spending is discretionary. Some of the companies have resorted to freezing wages as well as hiring to match the lower demand.
Second-Quarter Results
The St. Paul, Minnesota-based company's net income for the second quarter increased to $49.34 million or $0.41 per share from $46.90 million or $0.40 per share in the same period last year.
On average, ten analysts polled by Thomson Reuters expected the company to report earnings of $0.41 per share for the quarter. Analysts' estimates typically exclude special items.
Consolidated net sales for the quarter grew 7% to $814.95 million from $759.46 million in the year-ago quarter, and beat analysts' consensus revenue estimate of $788.52 million.
The company noted that acquisitions over the past one year accounted for a substantial portion of sales growth during the quarter, while the impact of foreign currency adjustments was minimal.
Net sales from consumable and printed products for the quarter rose to $538.65 million from $493.73 million last year. Equipment and software sales were $210.01 million, up from $200.97 million a year ago. Other sales increased to $66.30 million from $64.76 million in the same period last year.
Commenting on the results , James Wiltz, president and chief executive officer of Patterson Companies, said, "We are generally pleased with Patterson's second quarter performance as our businesses held up relatively well despite the ongoing impact of the recession. Within our Patterson Dental unit, the market for consumable supplies has been affected by high unemployment levels, but our sales of these products have remained generally stable during the first half of fiscal 2010."
Peer Performance
Melville, New York-based Henry Schein, Inc. (HSIC) on November 4 reported an increase in profit for the third quarter to $96.42 million or $1.05 per share from $67.49 million or $0.74 per share a year ago. Net sales for the quarter increased 0.9% to $1.66 billion from $1.64 billion a year ago.
Other Metrics
Patterson's gross profit for the second quarter increased to $266.54 million from $253.58 million a year ago, while gross margin declined to 32.7% from 33.4% in the prior-year period. Operating income was $84.49 million, up from $82.60 million a year ago.
Other expenses for the quarter were $3.76 million, down from $7.51 million in the previous-year quarter.
Segmental Results
Sales of Patterson Dental Supply, Patterson's largest business, were $537.17 million in the second quarter, up slightly from $536.84 million in the year-ago period.
In the segment, sales of consumable dental supplies and printed office products were down 2% from last year as the market for consumable supplies was affected by high unemployment levels. Sales of dental equipment and software increased 3% from a year ago. Quarterly sales of CEREC dental restorative systems surged 45% and offset a 7% decline in sales of basic equipment such as chairs, units and lights.
Sales of other services and products, consisting primarily of technical service parts and labor, software support services and artificial teeth, rose 4% from last year's second quarter.
Patterson stated that the strong growth in CEREC dental restorative products reflected its belief that the weak economy is causing many dental practitioners to focus their investments on equipment with rapid and high rates of return. The growth also was driven by the growing market acceptance of this next-generation system.
Sales of Webster Veterinary unit surged 30% year-over-year to $160.65 million, with internal growth resulting for 8% of the increase, while the October 2008 acquisition of Columbus Serum Co. accounted for the balance.
The Webster Veterinary unit distributes consumable veterinary supplies, equipment and software, diagnostic products, vaccines and pharmaceuticals to companion-pet veterinary clinics. Webster's consumable supply business benefited from higher volumes of veterinary care for companion-pets during the quarter. The company noted that Webster is continuing to remove costs from the Columbus Serum acquisition, and this process will be largely completed in the third quarter.
Sales of Patterson Medical, Patterson's rehabilitation supply and equipment unit, climbed 18% to $117.13 million. The unit is a distributor of rehabilitation supplies and non-wheelchair assistive patient products to the physical and occupational therapy markets. Internal sales increased 5% from last year. The acquisition of Mobilis Healthcare Group in April 2009 and the purchase of Empi Therapy Supply from DJO Inc in June 2009 accounted for the balance of the sales growth. The company noted that equipment sales remained soft as many veterinary practices remained cautious about purchasing equipment.
Year-To-Date Results
For the six months, Patterson reported an increase in net income to $94.40 million or $0.79 per share from $92.87 million or $0.78 per share a year ago.
Net sales for the half year rose to $1.60 billion from $1.50 billion in the same period last year.
Other Developments
Patterson said that as previously announced, Wiltz will retire as president and chief executive officer of the company at the end of the current fiscal year on April 24, 2010. The company's board of directors has named Scott Anderson, currently president of the Patterson Dental Supply subsidiary, as Wiltz's successor.
Paul Guggenheim, currently southwest region manager of Patterson Dental, will become president of Patterson Dental at the end of fiscal 2010.
Guggenheim joined Patterson in 2000 following Patterson Dental's acquisition of Guggenheim Brothers Dental Supply. He has worked in the dental industry for over 25 years and is former chairman of the American Dental Trade Association, now known as the Dental Trade Alliance.
Outlook
For fiscal year 2010, Patterson reiterated its earnings guidance in a range of $1.70-$1.80 per share. Analysts currently expect the company to report earnings of $1.76 per share for the year.
Stock Quotes
PDCO closed Wednesday's regular trading session at $26.32, up $0.53 on a volume of 2.01 million shares. In Thursday's pre-market trading, the stock is trading at $26.20, down $0.12 or 0.46%. In the past 52 weeks, the stock has been trading in a range of $15.75-$28.34.
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