PDCO Patterson Companies Inc

• Reported net sales totaled $1.3 billion, up 16.6 percent. Sales grew 23.3 percent in constant currency and adjusting for the extra week in the prior-year period.
• GAAP earnings from continuing operations doubled to $0.40 per diluted share. Non-GAAP adjusted earnings from continuing operations1 rose 8.5 percent to $0.51 per diluted share.
• Company reiterates fiscal 2017 guidance for adjusted earnings from continuing operations of $2.60 to $2.70 per diluted share.

Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated net sales of $1.3 billion (see attached Sales Summary for further details) in its fiscal first quarter ended July 30, 2016, up 16.6 percent over the same period last year. Sales this quarter include a full-quarter contribution from the Animal Health International, Inc. acquisition. Sales in the year-ago quarter included an extra sales week and only a six-week contribution from Animal Health International, Inc.

Reported net income from continuing operations was $38.9 million, or $0.40 per diluted share, compared to $20.3 million, or $0.20 per diluted share, in last year’s fiscal first quarter. Adjusted net income from continuing operations1, which excludes certain non-recurring and deal amortization costs, totaled $48.8 million for the first quarter of fiscal 2017, up 4.0 percent over $46.9 million in the same quarter last year. Adjusted earnings per diluted share from continuing operations1 totaled $0.51 in the 2017 first quarter, up 8.5 percent year-over-year.

“The business turned in a solid performance overall in the first fiscal quarter. Enhancing our operational platform for growth is a top priority for Patterson, and we moved forward with efforts to boost our effectiveness and improve our ability to compete in an evolving marketplace,” said Scott Anderson, chairman, president and chief executive officer. “In Dental, we implemented steps to align our go-to-market strategy with shifting customer needs. In Animal Health, our ongoing integration initiatives and progress toward planned synergies remained on track. We are confident in the platform we are building for long-term growth and efficiency.”

Patterson DentalReported net sales for Patterson Dental, which represents approximately 43 percent of total company sales, were $555.0 million, down 3.5 percent. Sales grew 2.1 percent on a constant currency basis and excluding the extra week from the 2016 first fiscal quarter. On that same basis, year-over-year sales by category were as follows:

• Consumable dental supplies increased 0.9 percent
• Equipment sales improved 5.4 percent
• Other services and products, primarily composed of technical service, parts and labor, software support services and office supplies, rose 1.3 percent

Anderson said, “Our customers’ appetite for technology adoption and equipment investment was strong, and we are well positioned to address that demand. We also recognize that purchasing patterns of our customers are evolving and our aim is to lead the industry in addressing that change. While these sales force realignment actions can cause some short-term sales disruption, we believe we were competitive during the quarter in consumable sales and were pleased with the growth in our equipment sales volumes.”

Patterson Animal HealthReported net sales for Patterson Animal Health, which comprises approximately 57 percent of the company’s total sales, were $762.6 million, up 36.8 percent. Production animal sales contributed $361.9 million to the segment during the quarter. Companion animal sales grew 11.7 percent on a constant currency basis and excluding the extra week from the 2016 first fiscal quarter. U.S. companion animal sales grew 8.1 percent, adjusting for the extra sales week in the same period last year and normalizing for the changes in selling arrangements for certain products.

Anderson added, “We are pleased with the performance of our U.S. companion animal business and encouraged by the growth this quarter in our production animal business. Livestock end markets are starting to improve, and we believe our growth in the quarter outpaced our end markets. We continue to make progress in our integration and synergies, while remaining focused on sales execution.”

Discontinued OperationsOn August 28, 2015, Patterson Companies completed the sale of Patterson Medical to Madison Dearborn Partners for approximately $717 million. As a result of the sale, Patterson Medical is classified and reported as discontinued operations for all periods presented.

Share Repurchases and DividendsIn the fiscal 2017 first quarter, Patterson repurchased approximately 0.5 million shares of its outstanding common stock, with a value of $25.0 million, leaving approximately 16 million shares for repurchase under the current authorization. The company also paid $24.2 million in cash dividends to shareholders in the first quarter of fiscal 2017.

Business OutlookAnderson concluded, “We are positioning Patterson Companies to achieve long-term growth and efficiency goals that build on the platform we have created. We anticipate that our range of initiatives, from our enterprise resource planning system deployment, to our optimization efforts in Dental, to our ongoing integration efforts in the Animal Health segment will further enhance our competitiveness and shareholder value. We will continue to closely monitor the conditions and variables in our end markets. With this in mind, we reiterate our adjusted earnings guidance for fiscal 2017 in the range of $2.60 to $2.70 per diluted share.”

The fiscal 2017 annual financial outlook and adjusted earnings guidance:

• Assumes stable North American and international markets
• Excludes the impact of additional share repurchases
• Excludes new acquisitions
• Excludes transaction-related costs, integration and business restructuring expenses and deal amortization (See Reconciliation of GAAP and Non-GAAP Financial Measures table below)
• Includes $25 million step up in operating expense associated with the ERP implementation

1Reconciliation of GAAP and Non-GAAP Financial MeasuresThe following non-GAAP table is provided to adjust reported net income and diluted earnings per share for the impact of tax affected one-time costs, current and prior-year deal amortization costs and tax costs related to cash repatriation. Management believes that the adjusted net income and diluted earnings per share amounts may provide a helpful representation of the company’s current quarter performance.

  (Dollars in thousands, except EPS)   Three Months Ended July 30,   August 1, 2016 2015 Net income from continuing operations - reported $ 38,906 $ 20,311 Transaction-related costs 216 9,302 Deal amortization 6,637 4,612 Integration and business restructuring expenses 3,032 871 Tax impact of repatriation of cash   -     11,800   Net income from continuing operations - adjusted $ 48,791   $ 46,896     Diluted earnings per share from continuing operations - reported $ 0.40 $ 0.20 Transaction-related costs - 0.09 Deal amortization 0.07 0.05 Integration and business restructuring expenses 0.03 0.01 Tax impact of repatriation of cash   -     0.12   Diluted earnings per share from continuing operations - adjusted* $ 0.51   $ 0.47     *May not foot due to rounding  

Our guidance is presented on a non-GAAP basis. Due to the difficulty in forecasting certain transaction and business restructuring-related expenses and the tax impact thereof, the company is unable to provide a reconciliation of adjusted earnings guidance for fiscal 2017 without unreasonable effort. Because the information necessary to provide such reconciliation is unavailable, the company is unable to predict its probable significance.

In addition, the term constant currency represents net sales adjusted to exclude foreign currency impacts. Foreign currency impact represents the difference in results that is attributable to fluctuations in currency exchange rates the company uses to convert results for all foreign entities where the functional currency is not the U.S. dollar. The company calculates the impact as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period’s currency exchange rates. The company believes the disclosure of net sales changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.

First-Quarter Conference Call and ReplayPatterson’s first-quarter earnings conference call will start at 10 a.m. Eastern today. Investors can listen to a live webcast of the conference call at www.pattersoncompanies.com. The conference call will be archived on Patterson’s website. A replay of the first-quarter conference call can be heard for one week at 888-203-1112 and by providing the Conference ID 9243479, when prompted.

About Patterson Companies, Inc.Patterson Companies, Inc. is a value-added distributor serving the dental and animal health markets.

Dental MarketPatterson's Dental segment provides a virtually complete range of consumable dental products, equipment and software, turnkey digital solutions and value-added services to dentists and dental laboratories throughout North America.

Animal Health MarketPatterson's Animal Health segment is a leading distributor of products, services and technologies to both the production and companion animal health markets in North America and the U.K.

This press release contains certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are information of a non-historical nature and are subject to risks and uncertainties that are beyond Patterson's ability to control. Forward-looking statements generally can be identified by words such as "believes," "expects," "anticipates," "foresees," "forecasts," "estimates" or other words or phrases of similar import. It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations and financial condition of Patterson or the price of Patterson stock. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements, including but not limited to the other risks and important factors contained and identified in Patterson's filings with the Securities and Exchange Commission, such as its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, any of which could cause actual results to differ materially from the forward-looking statements. Any forward-looking statement in this press release speaks only as of the date on which it is made. Except to the extent required under the federal securities laws, Patterson does not intend to update or revise the forward-looking statements.

  PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)   Three Months Ended July 30, August 1, 2016 2015   Net sales $ 1,332,436 $ 1,142,870   Gross profit 317,178 288,244   Operating expenses   251,762     226,067     Operating income from continuing operations 65,416 62,177   Other expense, net   (7,798 )   (11,473 )   Income from continuing operations before taxes 57,618 50,704   Income taxes   18,712     30,393     Net income from continuing operations 38,906 20,311 Net income from discontinued operations   -     9,392   Net income $ 38,906   $ 29,703     Basic earnings per share: Continuing operations $ 0.41 $ 0.20 Discontinued operations   -     0.10   Net basic earnings per share $ 0.41   $ 0.30     Diluted earnings per share: Continuing operations $ 0.40 $ 0.20 Discontinued operations   -     0.10   Net diluted earnings per share $ 0.40   $ 0.30     Shares: Basic 95,461 99,436 Diluted 96,090 100,162   Dividends declared per common share $ 0.24 $ 0.22   Gross margin - reported 23.8 % 25.2   Operating expenses as a % of net sales - adjusted 17.7 % 18.0 Adjustments1   1.2     1.8   Operating expenses as a % of net sales - reported 18.9 % 19.8   Operating income as a % of net sales - adjusted 6.1 % 7.2 Adjustments1   (1.2 )   (1.8 ) Operating income as a % of net sales - reported 4.9 % 5.4   Effective tax rate - adjusted 33.0 % 34.4 Adjustments1   (0.5 )   25.5   Effective tax rate - reported 32.5 % 59.9   1 Refer to the press release for the definition of adjustments to reported results     PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)     July 30, April 30, 2016 2016 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 89,978 $ 137,453 Receivables 719,218 796,693 Inventory 799,176 722,140 Prepaid expenses and other current assets   82,696     91,255   Total current assets 1,691,068 1,747,541 Property and equipment, net 298,104 293,315 Goodwill and other intangible assets 1,309,188 1,325,889 Long-term receivables, net and other   200,907     154,059   Total assets $ 3,499,267   $ 3,520,804     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 523,105 $ 566,253 Other accrued liabilities 187,336 226,582 Current maturities of long-term debt 18,563 16,500 Borrowings on revolving credit   108,000     20,000   Total current liabilities 837,004 829,335 Long-term debt 1,016,184 1,022,155 Other non-current liabilities   228,042     227,568   Total liabilities 2,081,230 2,079,058 Stockholders' equity   1,418,037     1,441,746   Total liabilities and stockholders' equity $ 3,499,267   $ 3,520,804               PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited)   Total Foreign Animal Health July 30, August 1, Sales Exchange International Internal 2016 2015 Growth Impact Impact Growth

Three Months Ended

  Consolidated net sales Consumable $ 1,076,221 $ 895,307 20.2 % (2.0 ) % 22.0 % 0.2 % Equipment and software 160,946 153,483 4.9 (0.4 ) - 5.3 Other   95,269     94,080   1.3   (0.7 ) (0.2 ) 2.2   Total $ 1,332,436   $ 1,142,870   16.6   % (1.7 ) % 17.2   % 1.1   %   Dental Consumable $ 332,948 $ 358,052 (7.0 ) % (0.4 ) % - % (6.6 ) % Equipment and software 150,882 143,670 5.0 (0.4 ) - 5.4 Other   71,185     73,395   (3.0 ) (0.3 ) -   (2.7 ) Total $ 555,015   $ 575,117   (3.5 ) % (0.4 ) % -   % (3.1 ) %   Animal Health Consumable $ 743,273 $ 537,255 38.3 % (3.0 ) % 36.6 % 4.7 % Equipment and software 10,064 9,813 2.6 (0.2 ) - 2.8 Other   9,294     10,229   (9.1 ) (4.6 ) (1.7 ) (2.8 ) Total $ 762,631   $ 557,297   36.8   % (3.0 ) % 35.3   % 4.5   %   Corporate Other $ 14,790   $ 10,456   41.4   % -   % -   % 41.4   % Total $ 14,790   $ 10,456   41.4   % -   % -   % 41.4   %     PATTERSON COMPANIES, INC. SUPPLEMENTARY FINANCIAL DATA (In thousands, except per share data) (Unaudited)     Three Months Ended July 30, August 1, 2016 2015   Operating income (loss) Dental $ 60,295 $ 67,252 Animal Health 14,829 12,972 Corporate   (9,708 )   (18,047 ) Total $ 65,416   $ 62,177     Other income (expense) Interest income $ 1,295 $ 789 Interest expense (10,162 ) (12,143 ) Other   1,069     (119 ) Total $ (7,798 ) $ (11,473 )     PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)     Three Months Ended July 30, August 1, 2016 2015   Operating activities: Net income $ 38,906 $ 29,703 Net income from discontinued operations   -     9,392   Net income from continuing operations 38,906 20,311

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

Depreciation & amortization 20,359 15,247 Non-cash employee compensation 9,184 6,965 Change in assets and liabilities, net of acquired   (141,228 )   (34,829 ) Net cash (used in) provided by operating activities- continuing operations (72,779 ) 7,694 Net cash used in operating activities- discontinued operations   -     (2,270 ) Net cash (used in) provided by operating activities (72,779 ) 5,424   Investing activities: Additions to property and equipment, net of disposals (15,042 ) (17,064 ) Acquisitions and equity investments - (1,104,730 ) Other investing activities   9,337     -   Net cash used in investing activities- continuing operations (5,705 )

 

(1,121,794 ) Net cash used in investing activities- discontinued operations   -  

 

  (54 ) Net cash used in investing activities (5,705 )

 

(1,121,848 )   Financing activities: Dividends paid (24,197 ) (23,128 ) Repurchases of common stock (25,000 ) - Proceeds from issuance of long-term debt, net - 988,400 Retirement of long-term debt (4,125 ) - Draw on revolver 88,000 - Other financing activities   (506 )   (745 ) Net cash provided by financing activities 34,172 964,527   Effect of exchange rate changes on cash   (3,163 )   (8,923 ) Net change in cash and cash equivalents $ (47,475 ) $ (160,820 )  

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Patterson Companies, Inc.Ann B. Gugino, 651-686-1600Executive Vice President & CFOorJohn M. Wright, 651-686-1364Vice President, Investor Relations