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Patterson Companies (PDCO) Misses Q1 Earnings Estimates

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Patterson Companies Inc. (PDCO - Free Report) reported adjusted earnings of 26 cents per share in first-quarter fiscal 2019, missing the Zacks Consensus Estimate of 35 cents. Earnings fell 40.9% year over year.

Net sales in the quarter were $1.34 billion, up 2.5% year over year. The figure also beat the Zacks Consensus Estimate of $1.31 billion.

Patterson Companies has a Zacks Rank #4 (Sell).

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 as well as laboratories throughout North America.

In the first quarter, dental sales (37.9% of total sales) declined 2.5% year over year to approximately $506.1 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.

Dental Consumable

Sales in the sub-segment were $304.2 million, down 5% year over year.

Dental Equipment & Software

Sales in the segment increased 5.5% on a year-over-year basis to $135 million.

Other

This segment comprises technical service, parts and labor, software support services as well as office supplies. Sales in the segment declined 5.5% on a year-over-year basis to $66.9 million.

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 first-quarter performance of the platform (61.8% of total sales), sales increased almost 6.3% on a year-over-year basis to $825.2 million.

Global companion animal sales rose 5.5%. Production animal sales increased 6.7%, reflecting strong performance across swine and beef-cattle segment.

Corporate

Sales in the segment were $5 million, down 45% year over year.

Gross Margin Analysis

Gross profit in the reported quarter was $283.7 million, down 5.1% year over year. As a percentage of revenues, gross margin contracted 170 basis points (bps) to 21.2% in the quarter.

Guidance

The company expects adjusted earnings per share for fiscal 2019 in the range of $1.40-$1.50, down from the previous guidance of $1.73-$1.83. The Zacks Consensus Estimate is pegged at $1.73, which is above guidance.

Patterson Companies expects deal amortization expenses of $31.1 million or 33 cents.

Our Take

The company ended the first-quarter on a tepid note, missing the Zacks Consensus Estimate for earnings. Further, the company’s weak fiscal 2019 guidance is a concern. Gross and operating margins have been dull. Declining revenues in the dental segment is another headwind. Management expects headwinds in the technology-based equipment business to persist through fiscal 2019.

However, 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 diverse product portfolio, strong veterinary business prospects, accretive acquisitions and strategic partnerships are key growth catalysts.

Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which also reported solid earnings this season, are Illumina, Inc (ILMN - Free Report) , Integer Holdings Corporation (ITGR - Free Report) and Intuitive Surgical, Inc (ISRG - Free Report) .

While Illumina and Integer Holdings sport a Zacks Rank #1 (Strong Buy), Intuitive Surgical has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Illumina reported adjusted earnings of $1.43 per share, beating the consensus mark of $1.11.

Integer Holdings posted adjusted earnings of $1.06 per share in the second quarter of 2018, which exceeded the Zacks Consensus Estimate of 90 cents.

Intuitive Surgical reported adjusted earnings of $2.76 per share in the second quarter of 2018, which outpaced the Zacks Consensus Estimate of $2.48 and improved 38% year over year.

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