Leading distributor of dental, veterinarian and rehabilitation medical supplies Patterson Companies Inc. (PDCO) posted third-quarter fiscal 2011 (ended January 29) earnings per share of 47 cents, missing the Zacks Consensus Estimate by a penny while matching the year-ago earnings. Net income fell 1.2% year over year to $55.4 million as higher operating costs more than offset a modest increase in the top line.
Revenues edged up 0.6% year over year to roughly $824.7 million, largely missing the Zacks Consensus Estimate of $846 million. Healthy sales from the company’s Rehabilitation Supply unit were eclipsed by the declines across Dental Supply and Veterinary Supply businesses. Revenues from Patterson’s dental technology equipment offerings were much softer than expected.
By products catergory, revenues from consumable and printed products rose 3.8% year over year to $520 million while equipment and software sales dipped 6.7% to $232.6 million. Other revenues increased 3.5% to roughly $72 million.
Segment Analysis
Revenues from the core Dental Supply division fell 2.6% year over year to $557 million hit by lower dental equipment and software sales (down 12%). Dental equipment business was hurt by lower-than-expected revenues from CEREC dental restoration systems and digital imaging products, impacted by the company’s move to reduce promotional activities for such offerings.
Revenues from Webster Veterinary Supply unit inched down 1.3% to roughly $149.7 million as the change in distribution arrangements of certain pharmaceuticals continues to impinge on the segment’s consumable revenues.
Patterson’s high-growth Rehabilitation Supply (“Patterson Medical”) business has been shaping up to be a major long-term growth driver. Revenues from this segment ballooned 22.5% year over year to $117.9 million, buoyed by healthy internal growth and the acquisition of DCC Healthcare, which has boosted Patterson Medical’s foothold in the U.K. and continental Europe.
Gross margin climbed to roughly 34.1% from 33.7% a year-ago. Operating margin declined narrowly to 11.2% from 11.4% a year ago. Operating expenses (as a percentage of sales) increased to 22.8% from 22.2% in earlier-year quarter.
Balance Sheet
Patterson ended the quarter with cash and short-term investments of roughly $388 million, up 18% sequentially. Log-term debt remained flat sequentially at $525 million.
Outlook
Based on its third quarter results and expectations for the fourth quarter, Patterson has trimmed its earnings per share forecast for 2011 to $1.86-$1.88 from the earlier guidance of $1.89-$1.99. The current Zacks Consensus Estimate for fiscal 2011 is $1.88.
Minnesota-based Patterson provides a wide range of consumable supplies, equipment and software and value-added services to its customers. The company competes head-to-head with Henry Schein Inc (HSIC) in the dental market. We currently have a Neutral recommendation on Patterson.
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