Dental and veterinary products distributor Patterson Companies, Inc. (PDCO) Thursday reported a 14.6% year-over-year decline in profit for the fourth quarter, hurt by lower equipment sales amid the economic downturn, which impacted all three business units. Earning per share for the quarter declined 10% and missed analysts' expectations by four cents, and quarterly revenues edged up a tad, but missed consensus estimate. The company also provided earnings guidance for the full-year 2010, below street view.
The company added that results were impacted by the shift in sales mix due to the October 2008 acquisition of Columbus Serum Co. by the Webster Veterinary unit. The low margin veterinary products of the acquired company accounted for a larger part of quarterly revenues than revenues generated by Patterson's other businesses.
Although the healthcare sector is somewhat resistant to economic slowdown, it is not wholly immune. As the recession has reduced the overall level of discretionary income, patients are postponing or canceling treatments to cut costs. Also, the economy has fairly encroached on the lithe spending of dental practitioners, particularly in the area of high-end equipment.
Living through the tough times, pet owners are also postponing recommended diagnostics, procedures, or medical treatments to cut costs on pet care. According to findings from the National Commission on Veterinary Economic Issues or NCVEI and a study by Brakke Consulting, pet owners report spending less on veterinary services, some practice owners have had to lay off at least one veterinarian and or staff, and up to 44% of veterinarians have canceled or postponed capital investment such as veterinary equipment purchases.
In a statement, president and chief executive officer, James Wiltz said, "Our fourth quarter operating results were below our expectations as we experienced reduced customer demand for the capital equipment offerings at each of our three businesses. In addition, sales of consumable dental supplies continued to be affected by the economy-related trend of patients deferring higher-level and discretionary services."
Fourth Quarter Results
The St. Paul, Minnesota-based company reported net income of $53.96 million or $0.46 per share for the fourth quarter, down from $63.21 million or $0.51 per share in the prior-year quarter.
On average, nine analysts polled by Thomson Reuters expected the company to report earnings of $0.50 per share. Analysts' estimates typically exclude special items. Patterson Companies projected fourth-quarter earnings to range between $0.49 and $0.51 per share.
Net sales for the quarter increased a tad to $779.88 million from $778.39 million in the same quarter last year, but missed six Wall Street analysts' consensus estimate of $809.47 million.
Among Patterson's peers, Melville, New York-based Henry Schein, Inc. (HSIC) earlier this month reported first-quarter net income of $54.85 million or $0.61 per share, up from $51.44 million or $0.56 per share in the previous year, helped by lower costs. Quarterly net sales declined 2.2% to $1.49 billion from $1.52 billion in the year-ago quarter.
Another smaller peer, Westlake, Texas-based Animal Health International, Inc. (AHII) also in May reported a decline in second-quarter net income to $2.3 million or $0.09 per share from $5.5 million or $0.23 per share in the prior-year quarter, reflecting lower spending by production animal customers. Quarterly net sales declined 9.2% to $184.5 million from $203.2 million last year.
Segmental Details
Consolidated segment-wise, sales for consumable dental supplies and printed office products increased to $518.76 million from $494.42 million in the year-ago quarter. Dental equipment and software sales totaled $198.30 million, lower than $223.88 million in the prior-year quarter. Sales of other services and products, consisting primarily of technical service, parts and labor, software support services as well as artificial teeth, edged up to $62.82 million from $60.09 million in the comparable quarter a year ago.
Unit-wise, sales for Patterson dental supply declined 5% to $533.55 million from the year-ago quarter's $562.11 million as the unit was impacted by slower dental equipment and software sales and unfavorable foreign currency.
Webster Veterinary supply unit sales totaled $158.51 million, up 33% from $119.47 million in the prior-year quarter, reflecting the company's October 2008 acquisition of Columbus Serum Co.
Sales for Patterson medical, Patterson's rehabilitation supply and equipment unit, declined 9% to $87.82 million from $96.81 million in the same quarter last year, due to a negative impact from foreign currency as well as lower sales of rehabilitation equipment amid the economic downturn.
Other Metrics
Operating income for the fourth quarter declined to $92.49 million or 11.9% of net sales, from $101.27 million or 13.0% of net sales, in the prior-year quarter. Total operating expenses was $176.62 million or 22.6% of net sales, higher than $171.89 million or 22.1% of net sales, in the year-ago quarter.
Gross profit for the quarter was $269.11 million, down from $273.15 million in the same quarter last year, while gross margin percentage declined 40 basis points to 34.5% from the prior-year quarter's 35.1%.
Full-Year Highlights
For fiscal 2009, Patterson Companies reported net income of $199.64 million, lower than $224.86 million posted in fiscal 2008, while earnings per share remained flat with last year at $1.69.
Analysts expected the company to report earnings of $1.73 per share for fiscal 2009. Patterson Companies also expected earnings to range between $1.72 and $1.74 per share.
The results for the full year were calculated on 118.36 million outstanding shares, compared to 132.91 million outstanding shares last year.
Net sales for the full year increased 3% to $3.09 billion from $3.00 billion in the previous year. The Street was looking for full-year 2009 revenues of 3.12 billion.
Outlook
"We believe that weakness in the general economy will continue to affect our performance for at least several more quarters," added Wiltz.
For fiscal 2010, Patterson Companies expects earnings in a range of $1.70 to $1.80 per share. Analysts currently expect the company to report full-year 2010 earnings of $1.85 per share.
Stock Quote
PDCO closed Wednesday's regular trading session at $22.57, up $0.34 on a volume of 1.22 million shares, lower than the three-month average volume of 1.83 million shares. In the past 52-week period, the stock has been trading in a range of $15.75 to $35.24.
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