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Why Is Patterson Cos. (PDCO) Down 11% Since Last Earnings Report?

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A month has gone by since the last earnings report for Patterson Cos. (PDCO - Free Report) . Shares have lost about 11% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Patterson Cos. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Patterson Companies Q2 Earnings Beat, Animal Health Up

Patterson Companies 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%.

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.

Other

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.

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.

Corporate

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

For fiscal 2019, Patterson Companies has retained its guidance. Notably, earnings per share are expected in the range of $1.40 to $1.50.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Patterson Cos. has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Patterson Cos. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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