Patterson Companies (PDCO), a leading distributor of dental, veterinarian and rehabilitation medical supplies, recently truncated its guidance for fiscal 2011 and forecasted revenue and earnings for the third quarter, which were below Street expectations.
The company’s shares slid roughly 10% in early trading on February 18 following the announcement. Patterson is slated to release its third quarter fiscal 2011 results on February 24.
Minnesota-based Patterson stated that it expects to post third quarter earnings of 46-47 cents per share on revenues of roughly $825 million, which is below the corresponding consensus forecasts of 51 cents and roughly $866 million.
According to the company, revenues from its consumable business grew 3% in the third quarter while sales of dental equipment technology offerings were much softer than expected.
Based on its predicted results for the third quarter and expectations for the fourth quarter, the company has pared down its earnings per share forecast for 2011 to $1.86-$1.88 from the earlier guidance of $1.89-$1.99, also trailing the consensus view of $1.95.
Patterson provides a wide range of consumable supplies, equipment and software and value-added services to its customers. The company has been successful in growing revenues over the past few quarters driven by double-digit growth at its Rehabilitation Supply unit, buoyed by the synergies from acquisitions.
Revenues and profit leaped 5% and 8% year over year, respectively, in the second quarter, supported by higher sales from the core Dental Supply business, acquisitions and favorable currency exchange swings. Higher sales from the CEREC dental restoration systems contributed to Dental Supply revenue growth while acquisition boosted Rehabilitation Supply sales.
Patterson faces significant competition in the dental market, especially from Henry Schein Inc (HSIC). The U.S. dental products distribution industry is highly competitive and consists principally of national, regional and local full-service and mail-order distributors.
Moreover, the company’s aggressive acquisition strategy has an inherent integration risk. Our Neutral recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).
HENRY SCHEIN IN (HSIC): Free Stock Analysis Report
PATTERSON COS (PDCO): Free Stock Analysis Report
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