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Patterson Companies (PDCO) Q2 Earnings Beat, Revenues Miss

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Patterson Companies Inc. (PDCO - Free Report) reported adjusted earnings of 39 cents per share in the second quarter of fiscal 2019, beating the Zacks Consensus Estimate of 36 cents. Earnings however fell 23.5% year over year.

Net sales in the quarter were $1.40 billion, up 1.4% year over year, missing the Zacks Consensus Estimate by a slight 0.01%.

Patterson Companies has a Zacks Rank #3 (Hold).

Segmental Analysis

The company currently distributes products through 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 second quarter, dental sales (39% of total sales) declined 2% year over year to approximately $542.5 million.

Dental Consumable

Sales in the sub-segment were $303.8 million, down 2.4% year over year.

Dental Equipment & Software

Sales in the segment fell 1.1% on a year-over-year basis to $167.7 million.


This segment comprises technical service, parts and labor, software support services as well as office supplies. Sales in the segment declined 2.6% on a year-over-year basis to $71 million.

Patterson Companies, Inc. Price, Consensus and EPS Surprise

Patterson Companies, Inc. Price, Consensus and EPS Surprise | Patterson Companies, Inc. Quote

Animal Health Segment

This segment is a leading distributor of veterinary supplies to clinics, public and private institutions and shelters across the United States.

Coming to the second-quarter performance of the platform (61% of total sales), sales increased almost 3.9% on a year-over-year basis to $855.4 million.


Sales at the segment were $6.83 million, down 19.9% year over year.

Gross Margin Analysis

Gross profit in the reported quarter was $295.1 million, down 6.5% year over year. As a percentage of revenues, gross margin contracted 180 basis points (bps) to 21% in the second quarter.

Operating expenses in the reported quarter totaled $253.9 million, up 4% on a year-over-year basis.

Guidance Intact

For fiscal 2019, Patterson Companies has retained its guidance. Notably, earnings per share are expected in the range of $1.40 to $1.50. The Zacks Consensus Estimate is pegged at $1.42, within the guided range.

Our Take

Patterson Companies ended the second quarter of fiscal 2019 on a tepid note. While earnings beat estimates, revenues missed the same marginally. 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 catalysts.

On the flip side, a year-over-year decline in earnings per share is discouraging. Declining revenues at the Dental segment is another headwind. Contraction in gross margins adds to the woes. Management expects headwinds in the technology-based equipment business to persist through fiscal 2019.

Earnings of MedTech Majors at a Glance

A few top-ranked stocks in the broader medical space which delivered robust earnings this season are Genomic Health, Inc. , Illumina, Inc. (ILMN - Free Report) and Hill-Rom Holdings Inc. .

Genomic Health sports a Zacks Rank #1 (Strong Buy), while Illumina and Hill-Rom carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Genomic Health reported adjusted earnings per share of 35 cents in the third quarter of 2018, which outpaced the Zacks Consensus Estimate of 7 cents.

Illumina reported adjusted earnings per share of $1.52, which surpassed the consensus mark by 21.6%.

Hill-Rom Holdings posted adjusted earnings per share of $1.63 in fourth-quarter fiscal 2018, which exceeded the Zacks Consensus Estimate by 7.9%.

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