Patterson Companies Reports Fiscal 2017 First-Quarter Operating Results

  • Reported net sales totaled $1.3 billion, up 16.6 percent. Sales
    grew 23.3 percent in constant currency and adjusting for the extra
    week in the prior-year period.
  • GAAP earnings from continuing operations doubled to $0.40 per
    diluted share. Non-GAAP adjusted earnings from continuing operations
    1
    rose 8.5 percent to $0.51 per diluted share.
  • Company reiterates fiscal 2017 guidance for adjusted earnings from
    continuing operations of $2.60 to $2.70 per diluted share.

ST. PAUL, Minn.–(BUSINESS WIRE)–Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated net
sales of $1.3 billion (see attached Sales Summary for further details)
in its fiscal first quarter ended July 30, 2016, up 16.6 percent over
the same period last year. Sales this quarter include a full-quarter
contribution from the Animal Health International, Inc. acquisition.
Sales in the year-ago quarter included an extra sales week and only a
six-week contribution from Animal Health International, Inc.

Reported net income from continuing operations was $38.9 million, or
$0.40 per diluted share, compared to $20.3 million, or $0.20 per diluted
share, in last year’s fiscal first quarter. Adjusted net income from
continuing operations1, which excludes certain non-recurring
and deal amortization costs, totaled $48.8 million for the first quarter
of fiscal 2017, up 4.0 percent over $46.9 million in the same quarter
last year. Adjusted earnings per diluted share from continuing operations1
totaled $0.51 in the 2017 first quarter, up 8.5 percent year-over-year.

“The business turned in a solid performance overall in the first fiscal
quarter. Enhancing our operational platform for growth is a top priority
for Patterson, and we moved forward with efforts to boost our
effectiveness and improve our ability to compete in an evolving
marketplace,” said Scott Anderson, chairman, president and chief
executive officer. “In Dental, we implemented steps to align our
go-to-market strategy with shifting customer needs. In Animal Health,
our ongoing integration initiatives and progress toward planned
synergies remained on track. We are confident in the platform we are
building for long-term growth and efficiency.”

Patterson Dental
Reported net sales for Patterson Dental,
which represents approximately 43 percent of total company sales, were
$555.0 million, down 3.5 percent. Sales grew 2.1 percent on a constant
currency basis and excluding the extra week from the 2016 first fiscal
quarter. On that same basis, year-over-year sales by category were as
follows:

  • Consumable dental supplies increased 0.9 percent
  • Equipment sales improved 5.4 percent
  • Other services and products, primarily composed of technical service,
    parts and labor, software support services and office supplies, rose
    1.3 percent

Anderson said, “Our customers’ appetite for technology adoption and
equipment investment was strong, and we are well positioned to address
that demand. We also recognize that purchasing patterns of our customers
are evolving and our aim is to lead the industry in addressing that
change. While these sales force realignment actions can cause some
short-term sales disruption, we believe we were competitive during the
quarter in consumable sales and were pleased with the growth in our
equipment sales volumes.”

Patterson Animal Health
Reported net sales for Patterson
Animal Health, which comprises approximately 57 percent of the company’s
total sales, were $762.6 million, up 36.8 percent. Production animal
sales contributed $361.9 million to the segment during the quarter.
Companion animal sales grew 11.7 percent on a constant currency basis
and excluding the extra week from the 2016 first fiscal quarter. U.S.
companion animal sales grew 8.1 percent, adjusting for the extra sales
week in the same period last year and normalizing for the changes in
selling arrangements for certain products.

Anderson added, “We are pleased with the performance of our U.S.
companion animal business and encouraged by the growth this quarter in
our production animal business. Livestock end markets are starting to
improve, and we believe our growth in the quarter outpaced our end
markets. We continue to make progress in our integration and synergies,
while remaining focused on sales execution.”

Discontinued Operations
On August 28, 2015, Patterson
Companies completed the sale of Patterson Medical to Madison Dearborn
Partners for approximately $717 million. As a result of the sale,
Patterson Medical is classified and reported as discontinued operations
for all periods presented.

Share Repurchases and Dividends
In the fiscal 2017 first
quarter, Patterson repurchased approximately 0.5 million shares of its
outstanding common stock, with a value of $25.0 million, leaving
approximately 16 million shares for repurchase under the current
authorization. The company also paid $24.2 million in cash dividends to
shareholders in the first quarter of fiscal 2017.

Business Outlook
Anderson concluded, “We are positioning
Patterson Companies to achieve long-term growth and efficiency goals
that build on the platform we have created. We anticipate that our range
of initiatives, from our enterprise resource planning system deployment,
to our optimization efforts in Dental, to our ongoing integration
efforts in the Animal Health segment will further enhance our
competitiveness and shareholder value. We will continue to closely
monitor the conditions and variables in our end markets. With this in
mind, we reiterate our adjusted earnings guidance for fiscal 2017 in the
range 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 Reconciliation of
    GAAP and Non-GAAP Financial Measures table below)
  • Includes $25 million step up in operating expense associated with the
    ERP implementation

1Reconciliation of GAAP and Non-GAAP Financial
Measures

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
July 30,   August 1,
2016 2015
Net income from continuing operations – reported $ 38,906 $ 20,311
Transaction-related costs 216 9,302
Deal amortization 6,637 4,612
Integration and business restructuring expenses 3,032 871
Tax impact of repatriation of cash       11,800  
Net income from continuing operations – adjusted $ 48,791   $ 46,896  
 
Diluted earnings per share from continuing operations – reported $ 0.40 $ 0.20
Transaction-related costs 0.09
Deal amortization 0.07 0.05
Integration and business restructuring expenses 0.03 0.01
Tax impact of repatriation of cash       0.12  
Diluted earnings per share from continuing operations – adjusted* $ 0.51   $ 0.47  
 
*May not foot due to rounding
 

Our guidance is presented on a non-GAAP basis. Due to the difficulty in
forecasting certain transaction and business restructuring-related
expenses and the tax impact thereof, the company is unable to provide a
reconciliation of adjusted earnings guidance for fiscal 2017 without
unreasonable effort. Because the information necessary to provide such
reconciliation is unavailable, the company is unable to predict its
probable significance.

In addition, the term constant currency represents net sales adjusted to
exclude foreign currency impacts. Foreign currency impact represents the
difference in results that is attributable to fluctuations in currency
exchange rates the company uses to convert results for all foreign
entities where the functional currency is not the U.S. dollar. The
company calculates the impact as the difference between the current
period results translated using the current period currency exchange
rates and using the comparable prior period’s currency exchange rates.
The company believes the disclosure of net sales changes in constant
currency provides useful supplementary information to investors in light
of significant fluctuations in currency rates.

First-Quarter Conference Call and Replay
Patterson’s
first-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 first-quarter conference call can be heard for one week at
888-203-1112 and by providing the Conference ID 9243479, 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
July 30, August 1,
2016 2015
 
Net sales $ 1,332,436 $ 1,142,870
 
Gross profit 317,178 288,244
 
Operating expenses   251,762     226,067  
 
Operating income from continuing operations 65,416 62,177
 
Other expense, net   (7,798 )   (11,473 )
 
Income from continuing operations before taxes 57,618 50,704
 
Income taxes   18,712     30,393  
 
Net income from continuing operations 38,906 20,311
Net income from discontinued operations       9,392  
Net income $ 38,906   $ 29,703  
 
Basic earnings per share:
Continuing operations $ 0.41 $ 0.20
Discontinued operations       0.10  
Net basic earnings per share $ 0.41   $ 0.30  
 
Diluted earnings per share:
Continuing operations $ 0.40 $ 0.20
Discontinued operations       0.10  
Net diluted earnings per share $ 0.40   $ 0.30  
 
Shares:
Basic 95,461 99,436
Diluted 96,090 100,162
 
Dividends declared per common share $ 0.24 $ 0.22
 
Gross margin – reported 23.8 % 25.2
 
Operating expenses as a % of net sales – adjusted 17.7 % 18.0
Adjustments1   1.2     1.8  
Operating expenses as a % of net sales – reported 18.9 % 19.8
 
Operating income as a % of net sales – adjusted 6.1 % 7.2
Adjustments1   (1.2 )   (1.8 )
Operating income as a % of net sales – reported 4.9 % 5.4
 
Effective tax rate – adjusted 33.0 % 34.4
Adjustments1   (0.5 )   25.5  
Effective tax rate – reported 32.5 % 59.9
 
1 Refer to the press release for the definition of
adjustments to reported results
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
   
July 30, April 30,
2016 2016
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 89,978 $ 137,453
Receivables 719,218 796,693
Inventory 799,176 722,140
Prepaid expenses and other current assets   82,696     91,255  
Total current assets 1,691,068 1,747,541
Property and equipment, net 298,104 293,315
Goodwill and other intangible assets 1,309,188 1,325,889
Long-term receivables, net and other   200,907     154,059  
Total assets $ 3,499,267   $ 3,520,804  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 523,105 $ 566,253
Other accrued liabilities 187,336 226,582
Current maturities of long-term debt 18,563 16,500
Borrowings on revolving credit   108,000     20,000  
Total current liabilities 837,004 829,335
Long-term debt 1,016,184 1,022,155
Other non-current liabilities   228,042     227,568  
Total liabilities 2,081,230 2,079,058
Stockholders’ equity   1,418,037     1,441,746  
Total liabilities and stockholders’ equity $ 3,499,267   $ 3,520,804  
 
         
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
 
Total Foreign Animal Health
July 30, August 1, Sales Exchange International Internal
2016 2015 Growth Impact Impact Growth

Three Months Ended

 
Consolidated net sales
Consumable $ 1,076,221 $ 895,307 20.2 % (2.0 ) % 22.0 % 0.2 %
Equipment and software 160,946 153,483 4.9 (0.4 ) 5.3
Other   95,269     94,080   1.3   (0.7 ) (0.2 ) 2.2  
Total $ 1,332,436   $ 1,142,870   16.6   % (1.7 ) % 17.2   % 1.1   %
 
Dental
Consumable $ 332,948 $ 358,052 (7.0 ) % (0.4 ) % % (6.6 ) %
Equipment and software 150,882 143,670 5.0 (0.4 ) 5.4
Other   71,185     73,395   (3.0 ) (0.3 )   (2.7 )
Total $ 555,015   $ 575,117   (3.5 ) % (0.4 ) %   % (3.1 ) %
 
Animal Health
Consumable $ 743,273 $ 537,255 38.3 % (3.0 ) % 36.6 % 4.7 %
Equipment and software 10,064 9,813 2.6 (0.2 ) 2.8
Other   9,294     10,229   (9.1 ) (4.6 ) (1.7 ) (2.8 )
Total $ 762,631   $ 557,297   36.8   % (3.0 ) % 35.3   % 4.5   %
 
Corporate
Other $ 14,790   $ 10,456   41.4   %   %   % 41.4   %
Total $ 14,790   $ 10,456   41.4   %   %   % 41.4   %
 
 
PATTERSON COMPANIES, INC.
SUPPLEMENTARY FINANCIAL DATA
(In thousands, except per share data)
(Unaudited)
   
Three Months Ended
July 30, August 1,
2016 2015
 
Operating income (loss)
Dental $ 60,295 $ 67,252
Animal Health 14,829 12,972
Corporate   (9,708 )   (18,047 )
Total $ 65,416   $ 62,177  
 
Other income (expense)
Interest income $ 1,295 $ 789
Interest expense (10,162 ) (12,143 )
Other   1,069     (119 )
Total $ (7,798 ) $ (11,473 )
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
   
Three Months Ended
July 30, August 1,
2016 2015
 
Operating activities:
Net income $ 38,906 $ 29,703
Net income from discontinued operations       9,392  
Net income from continuing operations 38,906 20,311

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

Depreciation & amortization 20,359 15,247
Non-cash employee compensation 9,184 6,965
Change in assets and liabilities, net of acquired   (141,228 )   (34,829 )
Net cash (used in) provided by operating activities- continuing
operations
(72,779 ) 7,694
Net cash used in operating activities- discontinued operations       (2,270 )
Net cash (used in) provided by operating activities (72,779 ) 5,424
 
Investing activities:
Additions to property and equipment, net of disposals (15,042 ) (17,064 )
Acquisitions and equity investments (1,104,730 )
Other investing activities   9,337      
Net cash used in investing activities- continuing operations (5,705 )

 

(1,121,794 )
Net cash used in investing activities- discontinued operations    

 

  (54 )
Net cash used in investing activities (5,705 )

 

(1,121,848 )
 
Financing activities:
Dividends paid (24,197 ) (23,128 )
Repurchases of common stock (25,000 )
Proceeds from issuance of long-term debt, net 988,400
Retirement of long-term debt (4,125 )
Draw on revolver 88,000
Other financing activities   (506 )   (745 )
Net cash provided by financing activities 34,172 964,527
 
Effect of exchange rate changes on cash   (3,163 )   (8,923 )
Net change in cash and cash equivalents $ (47,475 ) $ (160,820 )
 

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