PDCO Patterson Companies Inc

• Reported net sales totaled $1.4 billion.
• GAAP earnings decreased to $0.43 per diluted share.
• Adjusted earnings1 declined to $0.51 per diluted share.
• Company revises fiscal 2018 outlook and now expects adjusted earnings1 to be in the range of $2.00 to $2.10 per diluted share.

Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated net sales of $1.4 billion (see attached Sales Summary for further details) in its fiscal second quarter ended October 28, 2017, a decline of 2.3 percent compared to the same period last year. Adjusting for the effects of currency translation, sales declined 2.8 percent, including a negative impact from recent hurricanes of approximately 60 basis points.

Reported net income for the second quarter of fiscal year 2018 was $40.2 million, or $0.43 per diluted share, compared to $45.8 million, or $0.48 per diluted share, in last year’s fiscal second quarter. Adjusted net income1, which excludes certain non-recurring items and deal amortization costs, totaled $47.6 million for the second quarter of fiscal 2018, down 11.1 percent from $53.5 million in the same quarter last year. Adjusted net income1 includes the previously disclosed pre-tax step-up in enterprise resource planning expenses, which for the quarter was approximately $4 million. Adjusted earnings1 per diluted share totaled $0.51 in the second quarter, down 8.9 percent year-over-year, including the negative impact from recent hurricanes of approximately $0.01 per diluted share.

“Our performance during the 2018 second quarter reflected the impact of several strategic initiatives to position the company for growth, varied end-market conditions and the impact of hurricanes on sales volumes,” said James Wiltz, who served as interim president and chief executive officer during the quarter. “We have completed the U.S. rollout of our enterprise resource planning initiative – a very important milestone – and we will continue to refine this new operational platform. Our Animal Health segment results benefited from sales and marketing execution and favorable end-market fundamentals. Performance in our Dental segment reflected the near-term impact from our strategic initiatives as well as the stable end-market conditions. As previously announced, effective November 20, 2017, Mark Walchirk has joined us as our president and chief executive officer. On behalf of the board of directors, we are excited to welcome Mark to Patterson, and we look forward to his new leadership.”

Patterson Dental

Reported net sales in our Dental segment for the second quarter, which represented approximately 40 percent of total company sales, were $553.6 million, down 8.0 percent from the same quarter last year. Sales declined 8.4 percent on a constant currency basis compared to the fiscal 2017 second quarter, including an estimated 90 basis point negative impact from recent hurricanes. On that same basis, year-over-year sales by category were as follows:

• Equipment sales declined 17.7 percent, primarily due to a decrease in sales of CEREC and digital technology products.
• Consumable dental supplies decreased 4.4 percent.
• Other services and products, primarily composed of technical service, parts and labor, software support services and office supplies increased 0.6 percent.

“While we expanded our technology offerings and worked toward improving our sales force effectiveness in the Dental segment during the second quarter, our results were weaker than anticipated,” continued Wiltz, “We continue to believe our decision to transition to an expanded digital technology portfolio will allow Patterson to better serve a wider range of clinical environments, and we are working to increase sales force headcount and effectiveness.”

Patterson Animal Health

Reported net sales in our Animal Health segment for the second quarter of fiscal 2018, which comprised approximately 60 percent of the company’s total sales, were $823.6 million, up 2.0 percent from last year’s second quarter. Sales increased 1.4 percent on a constant currency basis from the fiscal 2017 second quarter, including an estimated negative impact of 30 basis points from recent hurricanes. On that same basis, year-over-year sales by category were as follows:

• Companion animal sales declined 1.4 percent. After normalizing for changes in selling relationships, companion animal sales rose approximately 3.2 percent.
• Production animal sales increased 4.2 percent, reflecting strong performance across all species.

Said Wiltz, “In our Animal Heath segment, we are pleased with our sales execution, market share gains and margin improvement. We believe we outperformed the market during the second quarter, and we achieved positive topline growth across all species with especially strong performance in our swine business. End-market fundamentals in both the companion animal and production animal markets remain solid, and we are encouraged by the near-term prospects in our Animal Health business.”

Share Repurchases and Dividends

In the second quarter of fiscal 2018, Patterson repurchased approximately 1.0 million shares of its outstanding common stock, with a value of $36.5 million, leaving approximately 11.9 million shares for repurchase under the current authorization, which expires in March 2018. The company also paid $24.8 million in cash dividends to shareholders in the second quarter of fiscal 2018. For the first six months of fiscal 2018, the company has returned a total of $124 million to shareholders in the form of share repurchases and dividends.

Year-to-Date Results1

Consolidated sales for the first six months of fiscal 2018 totaled $2.7 billion, a 2.2 percent year-over-year decrease. Reported net income was $71.1 million, or $0.76 per diluted share, compared to $84.7 million, or $0.88 per diluted share in last year's period. Adjusted net income1, which excludes certain deal amortization costs and integration and business restructuring costs, totaled $89.0 million, or $0.95 per diluted share, compared to adjusted net income of $102.3 million, or $1.06 per diluted share, in the year-ago period.

Fiscal 2018 Guidance

Patterson today revised its fiscal 2018 earnings guidance, which is provided on both a GAAP and non-GAAP adjusted1 basis:

• GAAP earnings are now expected to be in the range of $1.67 to $1.77 per diluted share.
• Non-GAAP adjusted earnings1 for fiscal 2018 are now expected to be in the range of $2.00 to $2.10 per diluted share.
• Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of:
  • Deal amortization expense of approximately $25.3 million ($0.27 per diluted share)
  • Integration and business restructuring expenses of approximately $5.3 million ($0.06 per diluted share)

Our guidance is for current continuing operations as well as completed or previously announced acquisitions and does not include the impact of potential future acquisitions or similar transactions, if any, or impairments and material restructurings beyond those previously publicly disclosed. Our guidance assumes North American and international market conditions similar to those experienced in the first half of fiscal 2018.

1Non-GAAP Financial Measures

The Reconciliation of GAAP to non-GAAP Measures table appearing behind the accompanying financial information is provided to adjust reported GAAP measures, namely earnings, net income and earnings per diluted share, for the impact of transaction related costs, deal amortization expenses and integration and business restructuring expenses, along with the related tax effects of these items.

Management believes that these non-GAAP measures may provide a helpful representation of the company's second quarter and full-year performance, and enable comparison of financial results between periods where certain items may vary independent of business performance. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures.

In addition, the term constant currency used in this release 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.

Second-Quarter Conference Call and Replay

Patterson’s second-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 fiscal 2018 second-quarter conference call can be heard for one week at 800-585-8367 and by providing the Conference ID 6697939 when prompted.

About Patterson Companies, Inc.

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

Dental Market

Patterson'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 Market

Patterson'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. Such risks and uncertainties include, without limitation, operations disruptions attributable to our enterprise resource planning system implementation; our ability to attract or retain qualified sales representatives and service technicians who relate directly with our customers; the reduction, modification, cancellation or delay of purchases of innovative, high-margin equipment; material changes in our purchasing relationships with suppliers; changes in general market and economics conditions; and 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 Six Months Ended October 28, October 29, October 28, October 29, 2017 2016 2017 2016   Net sales $ 1,385,737 $ 1,418,241 $ 2,689,852 $ 2,750,677   Gross profit 315,743 318,960 614,791 636,138   Operating expenses   243,984     239,157     486,199     490,919     Operating income 71,759 79,803 128,592 145,219   Other income (expense): Other income, net 1,160 1,622 2,672 3,986 Interest expense   (11,468 )   (10,097 )   (22,671 )   (20,259 )   Income before taxes 61,451 71,328 108,593 128,946   Income tax expense 21,207 25,572 37,502 44,284         Net income $ 40,244   $ 45,756   $ 71,091   $ 84,662     Earnings per share: Basic $ 0.43   $ 0.48   $ 0.76   $ 0.89   Diluted $ 0.43   $ 0.48   $ 0.76   $ 0.88     Weighted average shares: Basic 92,722 95,290 93,037 95,510 Diluted 93,351 95,904 93,683 96,138   Dividends declared per common share $ 0.26 $ 0.24 $ 0.52 $ 0.48     PATTERSON COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)         October 28, April 29, 2017 2017 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 101,456 $ 94,959 Receivables 849,205 884,803 Inventory 796,369 711,903 Prepaid expenses and other current assets   96,578   111,928 Total current assets 1,843,608 1,803,593 Property and equipment, net 286,715 298,452 Goodwill and other intangible assets 1,220,865 1,238,983 Long-term receivables, net and other   177,291   166,885 Total assets $ 3,528,479 $ 3,507,913   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 634,594 $ 616,859 Other accrued liabilities 209,283 213,318 Current maturities of long-term debt 14,754 14,754 Borrowings on revolving credit   92,000   59,000 Total current liabilities 950,631 903,931 Long-term debt 991,232 998,272 Other non-current liabilities   219,676   211,277 Total liabilities 2,161,539 2,113,480 Stockholders' equity   1,366,940   1,394,433 Total liabilities and stockholders' equity $ 3,528,479 $ 3,507,913    

PATTERSON COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)        

Six Months Ended

October 28,

October 29,

2017 2016  

Operating activities:

Net income $ 71,091 $ 84,662 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 41,833 42,007 Non-cash employee compensation 16,635 14,693 Change in assets and liabilities, net of acquired   (52,451 )   (196,668 ) Net cash provided by (used in) operating activities 77,108 (55,306 )

Investing activities:

Additions to property and equipment (16,431 ) (29,377 ) Collection of deferred purchase price receivables 24,581 26,210 Other investing activities   11,626     (3,095 ) Net cash provided by (used in) investing activities 19,776 (6,262 )

Financing activities:

Dividends paid (49,969 ) (47,655 ) Repurchases of common stock (71,254 ) (50,000 ) Retirement of long-term debt (7,377 ) (8,250 ) Draw on revolver 33,000 143,000 Other financing activities   3,561     974   Net cash provided by (used in) financing activities (92,039 ) 38,069 Effect of exchange rate changes on cash   1,652     (3,567 ) Net change in cash and cash equivalents $ 6,497   $ (27,066 )     PATTERSON COMPANIES, INC. SALES SUMMARY (Dollars in thousands) (Unaudited)                    

 

 

Total Foreign

 

October 28,

October 29,

Sales Exchange

Internal

2017

2016

Growth Impact

Growth

Three Months Ended

  Consolidated net sales Consumable $ 1,116,091 $ 1,112,232 0.3 % 0.5 % (0.2 ) % Equipment and software 181,337 217,194 (16.5 ) 0.4 (16.9 ) Other   88,309   88,815 (0.6 )   0.3     (0.9 )   Total $ 1,385,737 $ 1,418,241 (2.3 ) % 0.5   % (2.8 ) %   Dental Consumable $ 311,217 $ 324,237 (4.0 ) % 0.4 % (4.4 ) % Equipment and software 169,513 205,062 (17.3 ) 0.4 (17.7 ) Other   72,900   72,254 0.9     0.3     0.6     Total $ 553,630 $ 601,553 (8.0 ) % 0.4   % (8.4 ) %   Animal Health Consumable $ 804,874 $ 787,995 2.1 % 0.6 % 1.5 % Equipment and software 11,824 12,132 (2.5 ) - (2.5 ) Other   6,885   7,019 (1.9 )   0.9     (2.8 )   Total $ 823,583 $ 807,146 2.0   % 0.6   % 1.4   %   Corporate Other $ 8,524 $ 9,542 (10.7 ) % -   % (10.7 ) % Total $ 8,524 $ 9,542 (10.7 ) % -   % (10.7 ) %    

Six Months Ended

  Consolidated net sales Consumable $ 2,196,196 $ 2,188,453 0.4 % (0.3 ) % 0.7 % Equipment and software 318,286 378,140 (15.8 ) 0.1 (15.9 ) Other   175,370   184,084 (4.7 )   (0.1 )   (4.6 )   Total $ 2,689,852 $ 2,750,677 (2.2 ) % (0.2 ) % (2.0 ) %   Dental Consumable $ 631,395 $ 657,185 (3.9 ) % 0.1 % (4.0 ) % Equipment and software 297,376 355,944 (16.5 ) 0.2 (16.7 ) Other   143,666   143,439 0.2     0.1     0.1     Total $ 1,072,437 $ 1,156,568 (7.3 ) % 0.1   % (7.4 ) %   Animal Health Consumable $ 1,564,801 $ 1,531,268 2.2 % (0.5 ) % 2.7 % Equipment and software 20,910 22,196 (5.8 ) - (5.8 ) Other   14,008   16,313 (14.1 )   (1.8 )   (12.3 )   Total $ 1,599,719 $ 1,569,777 1.9   % (0.5 ) % 2.4   %   Corporate Other $ 17,696 $ 24,332 (27.3 ) % -   % (27.3 ) % Total $ 17,696 $ 24,332 (27.3 ) % -   % (27.3 ) %     PATTERSON COMPANIES, INC. OPERATING INCOME BY SEGMENT (In thousands) (Unaudited)                 Three Months Ended Six Months Ended October 28, October 29, October 28, October 29, 2017 2016 2017 2016   Operating income (loss) Dental $ 65,207 $ 77,043 $ 124,726 $ 137,338 Animal Health 23,217 21,854 39,893 36,683 Corporate   (16,665 )   (19,094 )   (36,027 )   (28,802 ) Total $ 71,759   $ 79,803   $ 128,592   $ 145,219       PATTERSON COMPANIES, INC. RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per share amounts) (Unaudited)                    

For the three months ended October 28, 2017

GAAP

Transaction-related costs

Deal amortization

Integration andbusinessrestructuringexpenses

Non-GAAP

Operating income $ 71,759 $ — $ 9,660 $ 1,688 $ 83,107 Other expense, net   (10,308 )   —   —   —   (10,308 ) Income before taxes 61,451 — 9,660 1,688 72,799 Income tax expense   21,207     —   3,346   638   25,191   Net income $ 40,244   $ — $ 6,314 $ 1,050 $ 47,608             Diluted earnings per share* $ 0.43   $ — $ 0.07 $ 0.01 $ 0.51     Consolidated operating income as a % of sales 5.2 % 6.0 % Effective tax rate 34.5 % 34.6 %  

For the three months ended October 29, 2016

GAAP

Transaction-related costs

Deal amortization

Integration andbusinessrestructuringexpenses

 

Non-GAAP

Operating income $ 79,803 $ 896 $ 10,247 $ 804 $ 91,750 Other expense, net   (8,475 )   —   —   —   (8,475 ) Income before taxes 71,328 896 10,247 804 83,275 Income tax expense   25,572     338   3,537   304   29,751   Net income $ 45,756   $ 558 $ 6,710 $ 500 $ 53,524             Diluted earnings per share* $ 0.48   $ 0.01 $ 0.07 $ 0.01 $ 0.56     Consolidated operating income as a % of sales 5.6 % 6.5 % Effective tax rate 35.9 % 35.7 %   For the six months ended October 28, 2017 GAAP

Transaction-related costs

Deal amortization

Integration andbusinessrestructuringexpenses

Non-GAAP Operating income $ 128,592 $ — $ 19,290 $ 8,594 $ 156,476 Other expense, net   (19,999 )   —   —   —   (19,999 ) Income before taxes 108,593 — 19,290 8,594 136,477 Income tax expense   37,502     —   6,691   3,249   47,442   Net income $ 71,091   $ — $ 12,599 $ 5,345 $ 89,035             Diluted earnings per share* $ 0.76   $ — $ 0.13 $ 0.06 $ 0.95     Consolidated operating income as a % of sales 4.8 % 5.8 % Effective tax rate 34.5 % 34.8 %   For the six months ended October 29, 2016 GAAP

Transaction-related costs

Deal amortization

Integration andbusinessrestructuringexpenses

Non-GAAP Operating income $ 145,219 $ 1,243 $ 20,261 $ 5,679 $ 172,402 Other expense, net   (16,273 )   —   —   —   (16,273 ) Income before taxes 128,946 1,243 20,261 5,679 156,129 Income tax expense   44,284     469   6,914   2,147   53,814   Net income $ 84,662   $ 774 $ 13,347 $ 3,532 $ 102,315             Diluted earnings per share* $ 0.88   $ 0.01 $ 0.14 $ 0.04 $ 1.06     Consolidated operating income as a % of sales 5.3 % 6.3 % Effective tax rate 34.3 % 34.5 %   * May not sum due to rounding  

View source version on businesswire.com: http://www.businesswire.com/news/home/20171121005301/en/

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