Patterson Companies Reports Fiscal 2016 Fourth-Quarter Operating Results

  • Fourth-quarter sales reached $1.5 billion, up 41.6 percent on a
    constant currency basis, including the impact of sales from Animal
    Health International, Inc.
  • On the same basis, full fiscal-year sales rose to $5.4 billion, up
    39.5 percent.
  • Quarterly adjusted earnings from continuing operations1
    totaled $0.77 per diluted share, up 35.1 percent over the prior year.
  • Company achieves full fiscal-year adjusted earnings from continuing
    operations
    1 of $2.47 per diluted share.
  • Company establishes adjusted earnings guidance for fiscal 2017 of
    $2.60 to $2.70 per diluted share.

ST. PAUL, Minn.–(BUSINESS WIRE)–Patterson Companies, Inc. (Nasdaq:PDCO) today reported consolidated
sales of $1.5 billion (see attached Sales Summary for further details)
in its fiscal fourth quarter ended April 30, 2016, up 41 percent over
the same period last year. Sales in this fiscal 2016 period include
results from the acquisition of Animal Health International, Inc.

Reported net income from continuing operations was $65.6 million, or
$0.68 per diluted share, compared to $53.5 million, or $0.54 per diluted
share, in last year’s fiscal fourth quarter. Adjusted net income from
continuing operations1, which excludes certain non-recurring
and deal amortization costs, totaled $74.1 million for the fourth
quarter of fiscal 2016, a 32 percent gain over $56.3 million in the same
quarter last year. Adjusted earnings per diluted share from continuing
operations1 was $0.77 in the 2016 fourth quarter, a 35
percent year-over-year improvement.

“Patterson Companies completed fiscal 2016 with solid bottom-line
performance that reflects the additional operational discipline that we
will continue to build into our businesses,” said Scott Anderson,
chairman, president and chief executive officer. “In our Animal Health
segment, integration initiatives remained on pace during the quarter and
our realized synergies were on plan. Although we were pleased with
bottom-line results within our Dental segment, we did not meet our
revenue expectations and intend to capitalize on opportunities to
improve segment results to better reflect the industry leadership we
have built.”

Anderson continued, “Overall, in fiscal 2016, we achieved multiple
milestones that will move us significantly closer to transforming into
two highly focused and efficient business segments with strong growth
prospects.”

Patterson Dental
Sales for Patterson Dental, which represent
approximately 46 percent of total company sales, were $662.1 million,
slightly down on a constant currency basis from the same quarter last
year. On that same basis, year-over-year sales by category were as
follows:

  • Consumable dental supplies rose 3.3 percent
  • Equipment sales declined 6.9 percent, primarily reflecting lower
    digital equipment sales, partially offset by improved CEREC sales,
    which reached a record level in the quarter
  • Other services and products, primarily composed of technical service,
    parts and labor, software support services and office supplies,
    climbed 3.6 percent

Anderson said, “During the fourth quarter, we delivered record CEREC
sales and an increase in consumable sales that was ahead of the growth
in the end markets that we serve. Sales of digital equipment, which
faced a tough year-over-year comparison, underperformed our
expectations. We continue to shape our approach to meet the changing
needs of our markets and customers and to enhance our performance.”

Patterson Animal Health
Sales for Patterson Animal Health,
which comprise approximately 54 percent of the company’s total sales,
more than doubled to $780.8 million. Sales from Animal Health
International, Inc. contributed $403.6 million to the segment during the
quarter. Excluding the contribution from Animal Health International,
Inc., sales improved 8.2 percent on a constant currency basis, largely
driven by a 10.5 percent increase in the U.S. and a 5.0 percent
improvement in the U.K. Changes in selling arrangement for certain
products benefited consolidated Animal Health segment sales by 2 to 3
percent.

Anderson added, “The solid performance in our industry-leading Animal
Health segment this quarter was again led by our U.S. companion animal
business, as well as a strong contribution from our U.K. operations. As
forecasted, livestock end-market conditions continued to create
headwinds for our production animal business during the period. However,
we are pleased with our integration progress and the synergies we are
achieving, and we remain focused on sales execution.”

Discontinued Operations
On August 28, 2015, Patterson
Companies completed the sale of Patterson Medical to Madison Dearborn
Partners for approximately $715 million. As a result of the sale,
results of Patterson Medical are classified and reported as discontinued
operations for all periods presented.

Share Repurchases and Dividends
For the full fiscal year,
Patterson repurchased approximately 4.4 million shares of its
outstanding common stock, with a value of $200 million, leaving
approximately 16 million shares for repurchase under the current
authorization. Patterson did not repurchase shares during the fiscal
2016 fourth quarter. The company also paid $23.6 million in cash
dividends to shareholders in the fourth quarter and $90.6 million in
fiscal 2016.

Year-to-Date Results1
Consolidated sales
for fiscal 2016 totaled $5.4 billion, a 38 percent year-over-year
increase. Reported net income from continuing operations was $185.7
million, or $1.90 per diluted share, compared to reported net income
from continuing operations of $180.1 million, or $1.81 per diluted
share, in the year-ago period. Adjusted net income from continuing
operations was $241.4 million, or $2.47 per diluted share, compared to
adjusted net income from continuing operations of $188.7 million, or
$1.89 per diluted share, in the year-ago period, as outlined in the
Fourth-Quarter and Full-Year Reconciliation table1. Fiscal
2016 also includes the impact of an extra week.

Business Outlook
Anderson concluded, “With the portfolio
changes we made in fiscal 2016, we have taken the initial steps toward
repositioning Patterson Companies for more sustainable and profitable
growth in the future. In fiscal 2017, we will deploy our enterprise
resource planning initiative, further shape our approach in the Dental
segment, capture additional synergies within the Animal Health segment,
intensify our focus on sales execution and seek strategic acquisitions.
These are the key milestones toward achieving our larger growth goals
ahead and I am confident in our ability to meet them. With this in mind,
we are establishing our adjusted earnings guidance for fiscal 2017 of
$2.60 to $2.70 per diluted share.”

The fiscal 2017 annual financial outlook and adjusted earnings guidance:

  • Assumes stable North American and international markets
  • Excludes the impact of additional share repurchases
  • Excludes new acquisitions
  • Excludes transaction-related costs, integration and business
    restructuring expenses and deal amortization (See Fourth-Quarter and
    Full-Year Reconciliation table below)
  • Includes $25 million step up in operating expense associated with the
    ERP implementation

1Fourth-Quarter and Full-Year Reconciliation
The
following non-GAAP table is provided to adjust reported net income and
diluted earnings per share for the impact of tax affected one-time
costs, current and prior-year deal amortization costs and tax costs
related to cash repatriation. Management believes that the adjusted net
income and diluted earnings per share amounts may provide a helpful
representation of the company’s current quarter performance.

               
(Dollars in thousands, except EPS)
Three Months Ended Twelve Months Ended
April 30, April 25, April 30, April 25,
2016 2015 2016 2015
Net income from continuing operations – reported $ 65,620 $ 53,459 $ 185,684 $ 180,083
Transaction-related costs 353 928 10,360 928
Deal amortization 6,910 1,954 25,417 7,721
Integration expense 863 3,842
Accelerated debt issuance costs 3,205
Non-recurring IT training costs 349 601
Tax impact of repatriation of cash       12,300  
Net income from continuing operations – adjusted $ 74,095 $ 56,341 $ 241,409 $ 188,732
 
Diluted earnings per share from continuing operations – reported $ 0.68 $ 0.54 $ 1.90 $ 1.81
Transaction-related costs 0.01 0.11 0.01
Deal amortization 0.07 0.02 0.26 0.08
Integration expense 0.01 0.04
Accelerated debt issuance costs 0.03
Non-recurring IT training costs 0.01
Tax impact of repatriation of cash       0.13  
Diluted earnings per share from continuing operations – adjusted* $ 0.77 $ 0.57 $ 2.47 $ 1.89
 
*May not foot due to rounding
 

Fourth-Quarter Conference Call and Replay
Patterson’s
fourth-quarter earnings conference call will start at 10 a.m. Eastern
today. Investors can listen to a live webcast of the conference call at www.pattersoncompanies.com.
The conference call will be archived on Patterson’s website. A replay of
the fourth-quarter conference call can be heard for one week at
888-510-1786 and by providing the Conference ID 4390254, when prompted.

About Patterson Companies, Inc.
Patterson Companies, Inc. is
a value-added distributor serving the dental and animal health markets.

Dental Market
Patterson’s Dental
segment provides a virtually complete range of consumable dental
products, equipment and software, turnkey digital solutions and
value-added services to dentists and dental laboratories throughout
North America.

Animal Health Market
Patterson’s
Animal Health segment is a leading distributor of products, services and
technologies to both the production and companion animal health markets
in North America and the U.K.

This press release contains certain forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are information of a non-historical nature
and are subject to risks and uncertainties that are beyond Patterson’s
ability to control. Forward-looking statements generally can be
identified by words such as “believes,” “expects,” “anticipates,”
“foresees,” “forecasts,” “estimates” or other words or phrases of
similar import. It is uncertain whether any of the events anticipated by
the forward-looking statements will transpire or occur, or if any of
them do, what impact they will have on the results of operations and
financial condition of Patterson or the price of Patterson stock. These
forward-looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from those indicated in
such forward-looking statements, including but not limited to the other
risks and important factors contained and identified in Patterson’s
filings with the Securities and Exchange Commission, such as its
Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, any of
which could cause actual results to differ materially from the
forward-looking statements. Any forward-looking statement in this press
release speaks only as of the date on which it is made. Except to the
extent required under the federal securities laws, Patterson does not
intend to update or revise the forward-looking statements.

 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
         
Three Months Ended Twelve Months Ended
April 30, April 25, April 30, April 25,
2016 2015 2016 2015
 
Net sales $ 1,453,770 $ 1,035,061 $ 5,386,703 $ 3,910,865
 
Gross profit 363,741 288,203 1,322,748 1,060,549
 
Operating expenses   257,397     199,130     975,035     755,963  
 
Operating income from continuing operations 106,344 89,073 347,713 304,586
 
Other expense, net   (8,543 )   (7,132 )   (46,020 )   (30,268 )
 
Income from continuing operations before taxes 97,801 81,941 301,693 274,318
 
Income taxes   32,181     28,482     116,009     94,235  
 
Net income from continuing operations 65,620 53,459 185,684 180,083
Net income (loss) from discontinued operations       11,059     1,500     43,178  
Net income $ 65,620   $ 64,518   $ 187,184   $ 223,261  
 
Basic earnings (loss) per share:
Continuing operations $ 0.69 $ 0.54 $ 1.91 $ 1.82
Discontinued operations       0.11     0.02     0.44  
Net basic earnings per share $ 0.69   $ 0.65   $ 1.93   $ 2.26  
 
Diluted earnings (loss) per share:
Continuing operations $ 0.68 $ 0.54 $ 1.90 $ 1.81
Discontinued operations       0.11     0.01     0.43  
Net diluted earnings per share $ 0.68   $ 0.65   $ 1.91   $ 2.24  
 
Shares:
Basic 95,460 98,981 97,222 98,989
Diluted 96,121 99,677 97,902 99,694
 
Dividends declared per common share $ 0.24 $ 0.22 $ 0.90 $ 0.82
 
Gross margin – reported 25.0 % 27.8 % 24.6 % 27.1 %
 
Operating expenses as a % of net sales – adjusted 16.8 % 18.8 % 17.0 % 19.0 %
Adjustments1   0.9     0.4     1.1     0.3  
Operating expenses as a % of net sales – reported 17.7 % 19.2 % 18.1 % 19.3 %
 
Operating income as a % of net sales – adjusted 8.2 % 9.0 % 7.6 % 8.1 %
Adjustments1   (0.9 )   (0.4 )   (1.1 )   (0.3 )
Operating income as a % of net sales – reported 7.3 % 8.6 % 6.5 % 7.8 %
 
Effective tax rate – adjusted 33.3 % 34.7 % 34.2 % 34.2 %
Adjustments1   (0.4 )   0.1     4.3     0.2  
Effective tax rate – reported 32.9 % 34.8 % 38.5 % 34.4 %
 
1 Refer to the press release for the definition of
adjustments to reported results
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
       

  April 30,  

  April 25,  

2016 2015
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 137,453 $ 400,632
Receivables 796,693 586,263
Inventory 722,140 408,422
Prepaid expenses and other current assets 91,255 59,561
Current assets held for sale     118,347
Total current assets 1,747,541 1,573,225
Property and equipment, net 293,315 204,133
Goodwill and other intangible assets 1,325,889 424,949
Long-term receivables, net and other 154,059 107,147
Long-term assets held for sale     635,794
Total assets $ 3,520,804 $ 2,945,248
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 566,253 $ 323,294
Other accrued liabilities 226,582 215,075
Current maturities of long-term debt 16,500
Borrowings on revolving credit 20,000
Current liabilities held for sale     39,316
Total current liabilities 829,335 577,685
Long-term debt 1,022,155 722,542
Other non-current liabilities 227,568 81,484
Long-term liabilities held for sale     49,414
Total liabilities 2,079,058 1,431,125
Stockholders’ equity   1,441,746   1,514,123
Total liabilities and stockholders’ equity $ 3,520,804 $ 2,945,248
 
 
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
                 
Total Foreign Animal Health
April 30, April 25, Sales Exchange International Internal
2016 2015 Growth Impact Impact Growth

Three Months Ended

 
Consolidated net sales
Consumable1 $ 1,111,287 $ 677,236 64.1 % (1.4 ) % 59.6 % 5.9 %
Equipment and software 246,930 268,363 (8.0 ) (0.5 ) (7.5 )
Other1   95,553   89,462 6.8   (0.6 ) 0.2   7.2  
Total $ 1,453,770 $ 1,035,061 40.5   % (1.1 ) % 39.0   % 2.6   %
 
Dental
Consumable1 $ 354,563 $ 344,873 2.8 % (0.5 ) % % 3.3 %
Equipment and software 234,222 252,859 (7.4 ) (0.5 ) (6.9 )
Other1   73,359   71,106 3.2   (0.4 )   3.6  
Total $ 662,144 $ 668,838 (1.0 ) % (0.5 ) %   % (0.5 ) %
 
Animal Health
Consumable1 $ 756,724 $ 332,363 127.7 % (2.3 ) % 121.4 % 8.6 %
Equipment and software 12,708 15,504 (18.0 ) (0.1 ) (17.9 )
Other1   11,354   8,114 39.9   (3.2 ) 2.1   41.0  
Total $ 780,786 $ 355,981 119.3   % (2.3 ) % 113.4   % 8.2   %
 
Corporate
Other1 $ 10,840 $ 10,242 5.8   %   %   % 5.8   %
Total $ 10,840 $ 10,242 5.8   %   %   % 5.8   %
 
 

Twelve Months Ended

 
Consolidated net sales
Consumable1 $ 4,153,921 $ 2,697,581 54.0 % (2.0 ) % 51.8 % 4.2 %
Equipment and software 857,001 865,013 (0.9 ) (1.2 ) 0.3
Other1   375,781   348,271 7.9   (1.2 ) (0.3 ) 9.4  
Total $ 5,386,703 $ 3,910,865 37.7   % (1.8 ) % 35.7   % 3.8   %
 
Dental
Consumable1 $ 1,378,886 $ 1,319,407 4.5 % (1.3 ) % % 5.8 %
Equipment and software 806,993 818,342 (1.4 ) (1.3 ) (0.1 )
Other1   290,355   277,254 4.7   (1.1 )   5.8  
Total $ 2,476,234 $ 2,415,003 2.5   % (1.3 ) %   % 3.8   %
 
Animal Health
Consumable1 $ 2,775,035 $ 1,378,174 101.4 % (2.8 ) % 101.4 % 2.8 %
Equipment and software 50,008 46,671 7.2 (0.1 ) 7.3
Other1   37,206   31,725 17.3   (3.8 ) (3.4 ) 24.5  
Total $ 2,862,249 $ 1,456,570 96.5   % (2.7 ) % 95.8   % 3.4   %
 
Corporate
Other1 $ 48,220 $ 39,292 22.7   %   %   % 22.7   %
Total $ 48,220 $ 39,292 22.7   %   %   % 22.7   %
 

1 Certain sales were reclassified from consumable to
other in current and prior periods.

 
 
PATTERSON COMPANIES, INC.
SUPPLEMENTARY FINANCIAL DATA
(In thousands, except per share data)
(Unaudited)
               
Three Months Ended Twelve Months Ended
April 30, April 25, April 30, April 25,
2016 2015 2016 2015
 
Operating income (loss)
Dental $ 88,722 $ 86,333 $ 312,176 $ 300,357
Animal Health 30,210 16,483 94,318 56,670
Corporate   (12,588 )   (13,743 )   (58,781 )   (52,441 )
Total $ 106,344   $ 89,073   $ 347,713   $ 304,586  
 
Other (expense) income, net
Interest income $ 916 $ 970 $ 2,830 $ 4,026
Interest expense (10,134 ) (7,869 ) (50,065 ) (33,693 )
Other   675     (233 )   1,215     (601 )
Total $ (8,543 ) $ (7,132 ) $ (46,020 ) $ (30,268 )
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
       
Twelve Months Ended
April 30, April 25,
2016 2015
 
Operating activities:
Net income $ 187,184 $ 223,261
Net income from discontinued operations   1,500     43,178  
Net income from continuing operations 185,684 180,083

Adjustments to reconcile net income from continuing operations to
net cash provided by operating activities:

Depreciation & amortization 82,383 44,523
Non-cash employee compensation 28,851 23,070
Change in assets and liabilities, net of acquired   (102,045 )   (42,612 )
Net cash provided by operating activities- continuing operations 194,873 205,064
Net cash (used in) provided by operating activities- discontinued
operations
  (38,544 )   57,627  
Net cash provided by operating activities 156,329 262,691
 
Investing activities:
Additions to property and equipment, net of disposals (79,354 ) (60,662 )
Acquisitions and equity investments (1,106,583 ) (10,515 )
Proceeds from sale of securities 48,744 40,775
Other investing activities   22,320     17,492  
Net cash used in investing activities- continuing operations (1,114,873 )

 

(12,910 )
Net cash provided by investing activities- discontinued operations   714,239  

 

  3,311  
Net cash used in investing activities (400,634 )

 

(9,599 )
 
Financing activities:
Dividends paid (90,597 ) (81,760 )
Share repurchases (200,000 ) (47,539 )
Proceeds from issuance of long-term debt, net 988,400 250,000
Retirement of long-term debt (682,375 ) (250,000 )
Settlement of swap (29,003 )
Draw on revolver 20,000
Other financing activities   7,441     7,367  
Net cash provided by (used in) financing activities 42,869 (150,935 )
 
Effect of exchange rate changes on cash   (8,371 )   (19,805 )
Net change in cash and cash equivalents $ (209,807 ) $ 82,352  
 

Contacts

Patterson Companies, Inc.
Ann B. Gugino, 651-686-1600
Executive
Vice President & CFO
or
John M. Wright, 651-686-1364
Vice
President, Investor Relations

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