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Earnings Preview: Patterson Co.

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Patterson Companies (PDCO - Free Report) , a Minnesota-based distributor of dental, veterinarian and rehabilitation medical supplies, is slated to report its first quarter fiscal 2013 results before trading begins on Thursday, August 23.

Analysts polled by Zacks are currently expecting earnings per share of 49 cents on revenues of $883 million. Earnings forecast represent an estimated 15.87% year-over-year increase, indicating an optimistic outlook.

With respect to earnings surprises, while the company managed to beat the Zacks Consensus Estimate in the last quarter, it either met or trailed in the previous three quarters. The company recorded an average negative earnings surprise of 2.35% over the prior four quarters.

Fourth Quarter Recap

Patterson posted decent fourth quarter results with earnings surpassing the Zacks Consensus Estimate by a penny. Revenues also surpassed the Zacks Consensus Estimate with a year-over-year increase of 6% to approximately $936.3 million. However, profit slipped 0.9% year over year to roughly $62.1 million (or 58 cents a share), impacted by the company’s Employee Stock Ownership Plan (“ESOP”) expenses.

By business segment, revenues from Patterson Dental rose 4.5% year over year to $598.9 million driven by healthy growth in sales of dental equipment and software along with consumable supplies. Sales of equipment and software offerings were boosted by higher sales of CEREC products. Dental consumable and printed product sales grew 3.3% to $331.1 million.

Revenues from the Webster Veterinary Supply unit increased 12.8% year over year to $207.5 million, helped by the August 2011 acquisition of veterinary distributor American Veterinary Supply Corporation, which Patterson bought in.

Sales from Patterson Medical segment inched up 2.5% to $130 million led by unexpected consumable sales in North America. However, the division’s equipment franchise continues to be adversely impacted by uncertainty related to the U.S. health care system, which is likely to persist throughout fiscal 2013.

Estimate Revisions Trend


Estimates for the first quarter demonstrate a lack of activity with no movements in either direction over the last week and month. A similar trend applies to fiscal 2013.


Given the lack of estimate revision, estimates for the first quarter as well as fiscal 2013 have been stationary over the last 7 and 30 days. The current Zacks Consensus Estimate for fiscal 2013 is $2.14, representing an estimated 11.28% year-over-year increase.

Neutral on Patterson Co.

We currently have a Neutral recommendation on the stock, which carries a short-term Zacks #2 Rank (Buy).

Patterson provides a wide range of consumables, equipment and software and value-added services to its customers. It should benefit from improving North American dental industry fundamentals.

Patterson remains committed to delivering incremental returns to investors by leveraging its earnings power. The company returned $400 million to its shareholders in fiscal 2012, representing an encouraging prospect for stakeholders.

Patterson’s Rehabilitation Supply business is poised to be a key long-term growth driver despite the unfavorable impact of the proposed changes in the U.S. health care system, which is likely to continue in 2013. In April 2012, it acquired Australia-based distributor of rehabilitation, physiotherapy, and mobility products,Surgical Synergies Pty Ltd to expand its presence in Australia and New Zealand.

However, the company expects a loss of $45 million in fiscal 2013 in the Veterinary business due to a change in a distribution deal with a nutritional vendor. Also, the equipment business under Patterson Medical continues to be impacted by uncertainties related to the U.S. health care reforms.

The company expects consumable sales from the dental business to be a drag due to a weak global economy (especially Europe), high unemployment rate and a complete lack of consumer confidence.

Moreover, Patterson faces significant competition in the dental market, especially from Henry Schein (HSIC - Free Report) . In order to counter the competitive pressure, the company needs to continue introducing new products. Failure to do so will dilute the company’s market share.

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