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8-K - FORM 8-K - PATTERSON COMPANIES, INC.d632123d8k.htm

Exhibit 99.1

 

LOGO

Patterson Companies Reports Fiscal 2014 Second Quarter Operating Results

 

    Sales reach nearly $1 billion in the quarter, including contribution of $117.7 million from the acquisition of National Veterinary Services Limited (NVS);

 

    Diluted earnings totaled $0.48 per share, excluding previously announced medical restructuring costs;

 

    Company reaffirms prior guidance of $2.13 to $2.24 per diluted share for fiscal 2014, excluding $0.12 per share in restructuring costs

St. Paul, Minn.—Nov. 21, 2013—Patterson Companies, Inc. (Nasdaq: PDCO) today reported that consolidated sales totaled $998.8 million in its fiscal second quarter ended October 26, 2013, an increase of 15.2 percent from $867.2 million in the year-earlier period. Net income was $48.7 million, or $0.48 per diluted share (excluding costs related to the Medical unit restructuring), up from net income of $45.5 million, or $0.44 per diluted share, in the year-ago period.

Fiscal 2014 second quarter results included $117.7 million of consolidated sales and an EPS contribution of $0.01 per diluted share from the acquisition of NVS, which closed on August 16, 2013.

As previously disclosed, the Company is implementing a global information technology initiative in order to enable Patterson to accommodate future growth, assist in securing future productivity gains and enhance the customer experience. Investments in this initiative reduced the fiscal 2014 second quarter EPS by $0.02 per share. The project has reached another major milestone with the selection of the technology providers.

Patterson Dental

Sales for Patterson Dental, Patterson’s largest business, increased 3.0 percent on a constant currency basis from the year-earlier period to $563.1 million in the second quarter of fiscal 2014. By category, also on a constant currency basis versus the year-ago quarter, sales of:

 

    Consumable dental supplies totaled $321.0 million, up 2.3 percent from the prior year;

 

    Dental equipment and software rose 4.8 percent from the year-earlier level, led by strong performance in technology sales; and

 

    Other services and products, consisting primarily of technical service, parts and labor, software support services and artificial teeth, were up 2.1 percent from last year’s second quarter.

Commented Anderson, “Patterson Dental is well known for providing customers with industry-leading technology wrapped by a suite of value-added services. This approach helped generate improved second quarter results in our dental business. We expect year-over-year sales growth for our dental business in the second half of the year, which is when the majority of our equipment sales tend to occur.”


Patterson Veterinary

Second quarter fiscal 2014 sales for the Patterson Veterinary unit increased 67.1 percent from the prior year period to $308.1 million. When adjusted to exclude the consolidated sales contribution from the NVS acquisition, U.S. sales were up 3.3 percent from the prior year, to $190.4 million. Excluding the impact of NVS and versus the year-ago second quarter:

 

    Consumable veterinary sales totaled $177.7 million, up 1.8 percent; and

 

    Veterinary equipment sales rose 31.2 percent to $9.4 million.

Anderson continued, “We are pleased with the NVS acquisition and its contribution to our performance. Patterson Veterinary now constitutes nearly one-third of our total sales. Our veterinary unit is committed to building our equipment and technical service strategy to satisfy unmet market needs. We have been expanding our sales force and infrastructure, and we are starting to see the benefits of those investments.”

Patterson Medical

Sales for Patterson Medical, the rehabilitation supply and equipment unit, declined to $127.7 million, primarily as a result of reduced sales from the non-core product lines that were divested in the quarter. Fiscal 2014 second quarter sales performance was also impacted by continuing challenges in our international business. The results for the quarter include approximately $0.07 per share of costs for the previously announced restructuring, which is anticipated to reduce fiscal year results by $0.12 per share and will be completed by the end of the fiscal year. The costs will be predominantly non-cash. Taking these actions is estimated to generate annual operational savings of approximately $2 million, or $0.01 per share, beginning in fiscal 2015. Consolidated sales of Patterson Medical currently represent approximately 13 percent of total company sales.

Anderson said, “Patterson Medical sales were essentially in-line with our expectations for the period, following our announcement last quarter to divest certain non-core business assets. Overall performance has been affected by the continued uncertainty surrounding this nation’s health care system and in international markets from the ongoing austerity measures that have dampened demand for the past few years. Although this situation is likely to persist in the short-term, we are encouraged by our new leadership team’s renewed focus and vision, and we expect our strong portfolio of value-added products to capture future growth opportunities in the rehabilitation market.”

Share Repurchases and Dividends

Year to date, Patterson repurchased approximately 0.5 million shares of its outstanding common stock, leaving approximately 23.9 million shares for repurchase under the current authorization. The company also paid $48.4 million in cash dividends to shareholders. No shares were purchased in the second quarter.

Year to Date Results

Consolidated sales for the first six months of fiscal 2014 totaled $1.9 billion, an increase of nearly 7 percent from $1.8 billion in the year-earlier period. Net income was $94.6 million, or $0.93 per diluted share, compared to net income of $93.1 million, or $0.89 per diluted share, in the year-ago period. The fiscal 2014 first half results include: a $0.01 per diluted share contribution from the NVS acquisition; a $0.03 per share expense impact from the planned technology investments; and excludes $0.07 per share of costs for the Patterson Medical restructuring.


Business Outlook

Commented Anderson, “Based on our expectations for the second half of fiscal 2014 and the stable conditions of the underlying markets that we serve, we are maintaining our earnings guidance for the year. We are focused on capitalizing on the growth opportunities that lie ahead. We believe that the investments we have made to augment our business model will stimulate sales and earnings growth, and create long-term shareholder value.”

Patterson is maintaining its fiscal 2014 earnings guidance range of $2.13 to $2.24 per diluted share. Fiscal 2014 earnings guidance includes a $0.03 to $0.04 per diluted share contribution from the NVS acquisition. This guidance range excludes the non-recurring restructuring costs for Patterson Medical of approximately $0.12 per diluted share.

The following non-GAAP information is provided to adjust reported net income for the impact of the costs associated with restructuring the Patterson Medical segment. Management believes that the adjusted income amounts provide a better representation of the current quarter performance of the Company.

 

(Dollars in thousands, except EPS)                         
     Three Months Ended     Six Months Ended  
     October 26, 2013     October 27, 2012     October 26, 2013     October 27, 2012  

Net Income—reported

   $ 42,029      $ 45,542      $ 87,920      $ 93,080   

Restructuring costs

     6,650        —          6,650        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income—adjusted

   $ 48,679      $ 45,542      $ 94,570      $ 93,080   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Earnings Per Share—reported

   $ 0.41      $ 0.44      $ 0.86      $ 0.89   

Restructuring costs

     0.07        —          0.07        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings Per Share—adjusted

   $ 0.48      $ 0.44      $ 0.93      $ 0.89   
  

 

 

   

 

 

   

 

 

   

 

 

 

Second Quarter Conference Call and Replay

Patterson’s second 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 web site. A replay of the second quarter conference call can be heard for one week at 1-303-590-3030 and providing the conference ID: 4648988.

About Patterson Companies, Inc.

Patterson Companies, Inc. is a value-added distributor serving the dental, companion-pet veterinarian and rehabilitation supply markets.

Dental Market

As Patterson’s largest business, Patterson Dental 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.

Veterinary Market

Patterson Veterinary is a leading distributor in the U.S. and U.K. of consumable veterinary supplies, equipment and software, diagnostic products, vaccines and pharmaceuticals to companion-pet veterinary clinics.

Rehabilitation Market

Patterson Medical is the world’s leading distributor of rehabilitation supplies and non-wheelchair assistive patient products to the physical and occupational therapy markets. The unit’s global customer base includes hospitals, long-term care facilities, clinics and dealers.


This release contains 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 the Company’s ability to control. The Company cautions shareholders and prospective investors that the following factors, among others, may cause actual results to differ materially from those indicated by the forward-looking statements: competition within the dental, veterinary, and rehabilitative and assistive living supply industries; changes in the economics of dentistry, including reduced growth in expenditures by private dental insurance plans, the effects of economic conditions and the effects of healthcare reform, which may affect future per capita expenditures for dental services and the ability and willingness of dentists to invest in high-technology products; the effects of healthcare related legislation and regulation which may affect expenditures or reimbursements for rehabilitative and assistive products; changes in the economics of the veterinary supply market, including reduced growth in per capita expenditures for veterinary services and reduced growth in the number of households owning pets; the ability of the Company to maintain satisfactory relationships with its sales force; unexpected loss of key senior management personnel; unforeseen operating risks; risks associated with the dependence on manufacturers of the Company’s products; and the ability of the Company to successfully integrate the recent acquisitions into its existing business. Forward-looking statements are qualified in their entirety by the cautionary language set forth in the Company’s filings with the Securities and Exchange Commission.

For additional information contact:

 

Ann Gugino    R. Stephen Armstrong
Vice President, Planning and Strategy    Executive Vice President & CFO
651-686-1600    651-686-1600


PATTERSON COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except for per share amounts)

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     October 26,     October 27,     October 26,     October 27,  
     2013     2012     2013     2012  

Net sales

   $ 998,834      $ 867,193      $ 1,878,959      $ 1,756,418   

Gross profit

     289,431        280,599        570,949        566,299   

Operating expenses

     214,208        202,730        414,445        405,838   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     75,223        77,869        156,504        160,461   

Other expense, net

     (7,532     (8,452     (16,656     (17,343
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

     67,691        69,417        139,848        143,118   

Income taxes

     25,663        23,875        51,928        50,038   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 42,028      $ 45,542      $ 87,920      $ 93,080   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

        

Basic

   $ 0.42      $ 0.44      $ 0.87      $ 0.89   

Diluted

   $ 0.41      $ 0.44      $ 0.86      $ 0.89   

Shares:

        

Basic

     101,069        103,706        101,048        104,371   

Diluted

     101,968        104,415        101,944        105,099   

Dividends declared per common share

   $ 0.16      $ 0.14      $ 0.32      $ 0.28   

Gross margin—adjusted

     32.2%        32.4%        32.1%        32.2%   

NVS

     -3.1           —          -1.6           —     

Medical restructuring

     -0.1           —          -0.1           —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin—reported

     29.0%        32.4%        30.4%        32.2%   

Operating expenses as a % of net sales—adjusted

     23.2%        23.4%        23.0%        23.1%   

NVS

     -2.4           —          -1.2           —     

Medical restructuring

     0.6           —          0.3           —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses as a % of net sales—reported

     21.4%        23.4%        22.1%        23.1%   

Operating income as a % of net sales—adjusted

     9.0%        9.0%        9.1%        9.1%   

NVS

     -0.7           —          -0.4           —     

Medical restructuring

     -0.7           —          -0.4           —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income as a % of net sales—reported

     7.6%        9.0%        8.3%        9.1%   

Effective tax rate—adjusted

     35.6%        34.4%        36.0%        35.0%   

NVS

     -1.0           —          -0.5           —     

Medical restructuring

     3.3           —          1.6           —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate - reported

     37.9%        34.4%        37.1%        35.0%   


PATTERSON COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

     October 26,      April 27,  
     2013      2013  
     (Unaudited)         

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 516,058       $ 505,228   

Receivables, net

     550,769         448,158   

Inventory

     442,125         360,563   

Prepaid expenses and other current assets

     57,975         47,387   
  

 

 

    

 

 

 

Total current assets

     1,566,927         1,361,336   

Property and equipment, net

     198,917         192,020   

Goodwill and other intangible assets

     1,078,708         1,020,396   

Investments and other

     104,747         108,026   
  

 

 

    

 

 

 

Total Assets

   $ 2,949,299       $ 2,681,778   
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities:

     

Accounts payable

   $ 353,399       $ 249,795   

Other accrued liabilities

     178,234         198,724   

Borrowings on revolving credit

     135,000         —     
  

 

 

    

 

 

 

Total current liabilities

     666,633         448,519   

Long-term debt

     725,000         725,000   

Other non-current liabilities

     116,052         113,804   
  

 

 

    

 

 

 

Total liabilities

     1,507,685         1,287,323   

Stockholders’ equity

     1,441,614         1,394,455   
  

 

 

    

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,949,299       $ 2,681,778   
  

 

 

    

 

 

 


PATTERSON COMPANIES, INC.

SUPPLEMENTARY FINANCIAL DATA

(Dollars in thousands)

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     October 26,     October 27,     October 26,     October 27,  
     2013     2012     2013     2012  

Consolidated Net Sales

        

Consumable and printed products

   $ 707,578      $ 586,757      $ 1,309,788      $ 1,174,315   

Equipment and software

     212,634        206,920        416,516        433,962   

Other

     78,622        73,516        152,655        148,141   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 998,834      $ 867,193      $ 1,878,959      $ 1,756,418   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dental Supply

        

Consumable and printed products

   $ 320,952      $ 315,377      $ 641,221      $ 625,533   

Equipment and software

     176,624        169,311        346,188        361,250   

Other

     65,476        64,461        129,876        129,758   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 563,052      $ 549,149      $ 1,117,285      $ 1,116,541   
  

 

 

   

 

 

   

 

 

   

 

 

 

Veterinary Supply

        

Consumable and printed products

   $ 291,923      $ 174,589      $ 480,124      $ 355,964   

Equipment and software

     9,573        7,164        17,636        14,378   

Other

     6,624        2,622        10,043        5,123   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 308,120      $ 184,375      $ 507,803      $ 375,465   
  

 

 

   

 

 

   

 

 

   

 

 

 

Rehabilitation Supply

        

Consumable and printed products

   $ 94,703      $ 96,791      $ 188,443      $ 192,818   

Equipment and software

     26,437        30,445        52,692        58,334   

Other

     6,522        6,433        12,736        13,260   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 127,662      $ 133,669      $ 253,871      $ 264,412   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (Expense) Income, net

        

Interest income

   $ 1,138      $ 842      $ 2,299      $ 2,341   

Interest expense

     (8,777     (9,127     (17,344     (18,695

Other

     107        (167     (1,611     (989
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (7,532   $ (8,452   $ (16,656   $ (17,343
  

 

 

   

 

 

   

 

 

   

 

 

 


PATTERSON COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

     Six Months Ended  
     October 26,     October 27,  
     2013     2012  

Operating activities:

    

Net income

   $ 87,920      $ 93,080   

Depreciation & amortization

     23,041        21,906   

Stock-based compensation

     2,168        7,456   

ESOP compensation

     11,400        11,400   

Change in assets and liabilities, net of acquired

     (31,375     (642
  

 

 

   

 

 

 

Net cash provided by operating activities

     93,154        133,200   

Investing activities:

    

Additions to property and equipment, net of disposals

     (17,444     (8,765

Acquisitions and equity investments

     (140,963     (10,591

Other investing activity

     2,110        —     
  

 

 

   

 

 

 

Net Cash used in investing activities

     (156,297     (19,356

Financing activities:

    

Dividends paid

     (48,388     (29,346

Share repurchases

     (22,199     (85,174

Draw on revolver

     135,000        —     

Other financing activities

     8,514        (69,733
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     72,927        (184,253

Effect of exchange rate changes on cash

     1,046        (2,998
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 10,830      $ (73,407
  

 

 

   

 

 

 

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