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Patterson Companies' (PDCO) Earnings Meet Estimates in Q4

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Patterson Companies Inc. (PDCO - Free Report) reported adjusted earnings of 30 cents per share in fourth-quarter fiscal 2018, in line with the Zacks Consensus Estimate. Earnings fell 56.5% year over year.

Net sales dipped 3.1% from the year-ago quarter’s tally to $1.40 billion and missed the Zacks Consensus Estimate of $1.43 billion. Lower sales and gross margin contraction marred the  results in the reported quarter.

Patterson Companies has a Zacks Rank #5 (Strong Sell).

Patterson Companies, Inc. Price and Consensus

Segmental Analysis

The company currently distributes its products through two subsidiaries — Patterson Dental and Patterson Animal Health.

Dental Segment

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

In the fourth quarter, dental sales (40% of total sales) declined 10.1% year over year to approximately $545.8 million. Changes in sales force, disruptions from enterprise resource planning implementation and the expansion of the company’s digital equipment portfolio hindered revenues in the segment.

However, sales were up 0.4% on a constant-currency basis (cc).

Dental Consumable

Sales in the sub-segment were $318 million, down 6.3% year over year. Sales were up 0.4% at cc.

Dental Equipment & Software

Sales in the segment declined 19.8% on a year-over-year basis to $156 million. Sales were up 0.4% at cc.

Other Services and Products

This segment comprises technical service, parts and labor, software support services as well as office supplies. Sales in the segment declined 2.2% on a year-over-year basis to $71.8 million. Sales were up 0.2% at cc.

Animal Health Segment

This segment is a leading distributor of products, services and technologies to the production along with companion animal health markets in North America and the U.K.

Coming to the fourth-quarter performance of the platform (60.5% of total sales), sales increased almost 2.5% on a year-over-year basis to $848 million.

Global companion animal sales inched up 1.9%. Production animal sales increased 2.8%, reflecting strong performance across swine and beef-cattle segment.

Margin Analysis

Gross profit in the reported quarter was $289.8 million, down 13.6% year over year. As a percentage of revenues, gross margin contracted 252 basis points (bps) to 20.7% in the quarter.

Operating income in the fourth quarter was $41.3 million, down 57.1% year over year. As a percentage of revenues, operating margin contracted 420 bps in the quarter.

Guidance

The company expects adjusted earnings per share for fiscal 2019 in the range of $1.73-$1.83 per share. The Zacks Consensus Estimate is pegged at $1.74 per share, which lies within guidance.

Patterson Companies expects deal amortization expenses of $27.3 million or 30 cents per share.

Our Take

Lackluster sales and earnings performance dampened Patterson Companies’ fourth-quarter results. However, the company’s strong fiscal 2019 guidance buoys optimism. We are upbeat about the Animal Health segment that has been performing well lately.

The company provides a wide range of consumable supplies, equipment, software and value-added services. A broad spectrum of products cushions the company against economic downturns in the MedTech space. We believe that a diversified product portfolio, strong veterinary business prospects, accretive acquisitions and strategic partnerships are key growth catalysts.

On the flip side, operating margins have been dull.  Declining revenues in the dental segment is another headwind. The recent fall in the segment is driven by lower sales of CEREC and digital technology products. Management expects headwinds in the technology-based equipment business to persist through fiscal 2019.

Key Picks

A few better-ranked stocks in the broader medical space are Genomic Health (GHDX - Free Report) , Abiomed (ABMD - Free Report) and Stryker Corp. (SYK - Free Report) .

Genomic Health has an expected earnings growth rate of 187.5% for the current quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abiomed has a projected long-term earnings growth rate of 27%. The stock sports a Zacks Rank #1.

Stryker has a projected long-term earnings growth rate of 9.7%. The stock carries a Zacks Rank #2 (Buy).

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