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Earnings Preview: Patterson Co.

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Patterson Companies Inc. (PDCO - Free Report) , a Minnesota-based distributor of dental, veterinarian and rehabilitation medical supplies, is slated to report its second quarter fiscal 2013 results before trading begins on Tuesday, November 20.

Analysts polled by Zacks are currently expecting earnings per share of 49 cents on revenues of $894 million. Earnings forecast represent an estimated 5.43% year-over-year increase, indicating an optimistic outlook.

With respect to earnings surprises, the company missed the Zacks Consensus Estimates in two of the last four quarters, while it met estimates in one and beat the same in the other quarter. The company recorded an average negative earnings surprise of 2.85% over the prior four quarters.

First Quarter Recap

Patterson posted moderate first-quarter results, with earnings missing the Zacks Consensus Estimate. However, revenues surpassed the Zacks Consensus Estimate with a year-over-year increase of 5% to approximately $889.2 million.

With respect to business segments, revenues from Patterson Dental grew 6% year over year to $567.4 million. Sales from the equipment and software offerings jumped 19% to $191.9 million, boosted by higher sales of CEREC products and basic equipment. Dental consumable and printed product sales inched up 1% to $310.2 million.

Revenues from the Webster Veterinary Supply unit increased 6.5% year over year to $191.1 million, led by the acquisition of the American Veterinary Supply Corporation.

However, revenues from Patterson Medical segment dropped 3% to $130.7 million due to lower equipment sales. The division’s equipment franchise continues to be adversely impacted by the uncertainty related to the U.S. health care system. In addition, currency fluctuations overshadowed the contributions from Surgical Synergies.

Estimate Revisions Trend


There is a slight positive bias in estimate revisions for both the October quarter as well as the full year. There have been no estimate revisions in the past 7 days in either direction. However, for the past 30 days, 1 out of the 12 estimates has moved upward, while none moved in the opposite direction.

The past 7 days have seen no estimate revision in either direction for fiscal 2013. However, in the past 30 days, 2 out of the 13 estimates climbed up for the year, while none moved in the opposite direction.


For the second quarter of fiscal 2013, the Zacks Consensus Estimate for earnings per share increased by a penny to 49 cents in the last 30 days. However, for the last 7 days, it remained unchanged at 49 cents.

For full-year fiscal 2013, the Zacks Consensus Estimate for earnings per share increased by a penny to $2.12 in the last 30 days. However, for the last 7 days, it remained unchanged at $2.12. 

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 variety of consumables, equipment and software and value-added services to its customers. The company’s wide range of products hedges it from any meaningful sales shortfall.

Patterson Dental is the company’s largest business segment and one of the two largest distributors of dental products in North America. The recent acquisition of Iowa Dental Supply, LLC (IDS), a full service distributor of dental products, will likely boost Patterson Dental’s foothold in the mid-western U.S. markets and provide a competitive edge to the company.

Moreover, the alliance with Sirona Dental Systems, a leading dental technologies company, further bolsters Patterson Dental’s leading position in the North American dental distribution business. The Omnicare camera for the CEREC system, developed by Sirona and to be distributed by Patterson, is the latest growth driver for this product line.

Although Patterson’s Rehabilitation/Medical Supply business is poised to be a key long-term growth driver, the unfavorable impact of the proposed changes in the U.S. health care system, is adversely affecting equipment sales. This is expected to continue in fiscal 2013. Furthermore, the company believes that the Veterinary business could be negatively impacted by a change in distribution agreement with a nutritional vendor.

Moreover, higher sales of lower margin dental equipments (compared to lower sales of higher margin consumable products) along with veterinary products are generating pressure on gross margin. 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.

Patterson faces significant competition in the dental market, especially from Henry Schein (HSIC - Free Report) , which carries a short-term Zacks #3 Rank (Hold). In order to counter the competitive pressure, the company needs to continue introducing new products. Failure to do so will dilute its market share.


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