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Why Is Patterson Cos. (PDCO) Down 11.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Patterson Cos. (PDCO - Free Report) . Shares have lost about 11.8% 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 its most recent earnings report in order to get a better handle on the important drivers.

Patterson Companies Q2 Earnings Surpass Estimates

Patterson Companies, Inc. reported adjusted earnings per share (EPS) of 39 cents in second-quarter fiscal 2020, which beat the Zacks Consensus Estimate by 11.4%. However, the bottom line remained flat year over year.
 
Net sales in the quarter were $1.42 billion, outpacing the Zacks Consensus Estimate by 0.2%. However, the figure rose 1% year over year.

Segmental Analysis
 
The company currently distributes products through subsidiaries Patterson Dental and Patterson Animal Health.

Dental Segment

This segment provides a complete range of consumable dental products, equipment, software, turnkey digital solutions and value-added services to dentists, and laboratories throughout North America.
 
In the second quarter, dental sales improved 4.1% year over year to approximately $564.6 million.
 
Dental Consumable
 
Sales in the sub-segment totaled $303.1 million, down 0.2% year over year.
 
Dental Equipment & Software
 
Sales in the segment improved 12.2% on a year-over-year basis to $188.2 million.
 
Other
 
This segment comprises technical service, parts and labor, software support services and office supplies. Sales at the segment improved 3.2% on a year-over-year basis to $73.3 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.
In the second quarter, the segment sales declined 0.8% on a year-over-year basis to $848.2 million.
 
Corporate
 
Sales at the segment were $5.9 million, down 12.8% from the year-ago quarter’s figure of $6.8 million.
 
Gross Margin Analysis

 
Gross profit in the reported quarter was $301.5 million, up 2.2% year over year. As a percentage of revenues, gross margin of 21.3%, improved 30 bps year over year.
 
Operating expenses in the reported quarter totaled $319.6 million, up 25.9% on a year-over-year basis.

Operating loss came in at $18.1 million, against the year-ago quarter’s operating income of $41.2 million.

Fiscal 2020 Guidance Raised

For fiscal 2020, Patterson Companies now expects adjusted earnings per share in the range of $1.36 to $1.46 (up from the prior range of $1.33-$1.43). The mid-point of the guidance of $1.41 is above the Zacks Consensus Estimate of $1.38 per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Patterson Cos. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Patterson Cos. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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