Patterson Companies Reports Fiscal 2016 First Quarter Operating Results

ST. PAUL, Minn.--()--Patterson Companies, Inc. (Nasdaq:PDCO) today reported consolidated sales from continuing operations of $1.1 billion (see attached Sales Summary for further details) in its fiscal first quarter ended August 1, 2015, up 22 percent over the same period last year. Sales in the fiscal 2016 period reflect a contribution from recently acquired Animal Health International, Inc. and an extra week of results versus the prior year.

"The past several months have been a particularly exciting time for Patterson Companies as we move forward with our efforts to transform the long-term growth profile of our business"

Adjusted net income from continuing operations1, which reflects the adjustments to exclude certain non-recurring costs and amortization of deal costs, was $46.9 million for the first quarter of 2016, a 17 percent increase over $40.2 million in the same quarter last year. Adjusted diluted earnings per share from continuing operations1 was $0.47 in the 2016 first quarter, an 18 percent year-over-year increase. The company reported GAAP net income from continuing operations of $20.3 million, or $0.20 per diluted share, compared to $38.3 million, or $0.38 per share, in last year's fiscal first quarter.

"The past several months have been a particularly exciting time for Patterson Companies as we move forward with our efforts to transform the long-term growth profile of our business," said Scott Anderson, chairman and chief executive officer. "During the quarter, we began the process of unifying Animal Health International with our legacy veterinary operations and moved forward with the sale of non-core Patterson Medical. Our performance was in line with our internal plan and we remain confident in both the market opportunities we face and our ability to capitalize on them."

Patterson Dental
Sales for Patterson Dental, which accounts for approximately 50 percent of total sales, rose to $575.1 million, up 2.2 percent on a constant currency basis and excluding the extra week, from the same quarter last year. Also, on that same basis, sales by category versus the prior-year quarter were as follows:

  • Consumable dental supplies were up 3.8 percent
  • Technology sales, led by CEREC, increased overall; however, dental equipment and software declined 1.9 percent. The extra week had little impact on equipment sales due to factors such as the time from order to installation, which can span several months
  • Other services and products, consisting primarily of technical service, parts and labor, software support services and office supplies, climbed 3.5 percent

Commented Anderson, "During the quarter, we saw sustained growth in the consumables category, which reinforces our confidence in stable-to-steadily improving dynamics in the dental market. We are also encouraged by the rise in CEREC sales during the quarter, especially among new users. Further, we invested in sales training during the period related to new core-equipment offerings and we expect these efforts to pay off in quarters ahead. Patterson Dental is well-positioned as we move into fiscal 2016."

Patterson Animal Health
Sales for Patterson Animal Health, which comprises approximately 49 percent of sales, totaled $557.3 million, up 48 percent on a constant currency basis. Sales from recently acquired Animal Health International contributed $171.9 million during the quarter. Excluding the acquisition, segment sales were up over 3 percent on a constant currency basis, with U.S. consumables up roughly 5 percent organically, partially offset by a milder flea and tick season in the U.K., which resulted in a tough comparison to last year.

Anderson continued, "Patterson Animal Health demonstrated solid organic growth in the U.S., with stability in companion-animal consumables. Animal Health International's contributions to the segment were in line with our expectations. This acquisition doubles the size of our animal health business. It broadens our capabilities to include the production animal market and will strengthen our scale and market position. Finally, it provides significant opportunities for synergies."

Discontinued Operations
On July 1, 2015, Patterson Companies announced a definitive agreement to sell Patterson Medical to Madison Dearborn Partners for gross proceeds of approximately $715 million in cash. The sale is expected to close in the fiscal second quarter, following the satisfaction of regulatory requirements and other customary closing conditions.

As a result of the definitive agreement, results of Patterson Medical are classified and reported as discontinued operations in all periods beginning with the fiscal 2016 first quarter. During the fiscal 2016 first quarter, sales from discontinued operations totaled $130.8 million and earnings per share totaled $0.10, which includes transaction-related costs.

Cash Repatriation
Patterson Companies is repatriating approximately $200 million in foreign cash from both the Patterson Medical group and Patterson Dental Canada. Performing all of these repatriations within the same fiscal year will allow Patterson Companies to gain income tax efficiencies in the range of $15 million to $20 million. The full tax impact of the repatriation has been recorded in the first quarter of fiscal 2016 and was approximately $12 million.

Dividends
In the fiscal 2016 first quarter, the company paid $23.1 million in cash dividends to shareholders. Currently, the company is allowed to repurchase approximately 21 million shares.

Business Outlook
Anderson concluded, "The transformation of Patterson Companies into a company focused on two synergistic businesses – dental and animal health – is off to a solid start. As we move into the new fiscal year, we are executing on the array of growth opportunities before us and gaining efficiencies from the acquisition of Animal Health International, all while sustaining our commitment to industry-leading customer service. We are updating our adjusted fiscal 2016 earnings guidance to a continuing-operations basis. Excluding the contribution from the discontinued Medical business, Patterson's prior adjusted guidance range – on a continued-operations basis – would have been $1.98 to $2.06 per share. With the June closing of the Animal Health International transaction, the company will include 10.5 months of results from these operations during fiscal 2016. This increases the adjusted earnings guidance range on a continuing operations basis to $2.40 to $2.50 per diluted share."

The fiscal 2016 annual financial outlook and adjusted earnings guidance:

  • Assumes stable North American and international markets – conditions similar to fiscal 2015
  • Includes the impact of an extra week in fiscal 2016 compared to the previous year
  • Excludes transaction-related costs, integration expense and deal amortization, non-recurring IT initiative training costs and cash repatriation (See First Quarter Reconciliation table below)
  • Excludes the discontinued operations for Medical

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

             
(Dollars in thousands, except EPS)            
      Three Months Ended
      August 1, 2015    

  July 26, 2014  

Net Income from Continuing Operations - Reported     $ 20,311     $ 38,325
Transaction-Related Costs       9,302       -
Deal Amortization       4,612       1,920
Integration Expense       726       -
Non-Recurring IT Training Costs       145       -
Tax Impact of Repatriation of Cash       11,800       -
Net Income from Continuing Operations - Adjusted     $ 46,896     $ 40,245
             
Diluted Earnings Per Share from Continuing Operations - Reported     $ 0.20     $ 0.38
Transaction-Related Costs       0.09       -
Deal Amortization       0.05       0.02
Integration Expense       0.01       -
Non-Recurring IT Training Costs       0.00       -
Tax Impact of Repatriation of Cash       0.12       -
Diluted Earnings Per Share from Continuing Operations - Adjusted     $ 0.47     $ 0.40
                 

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 8937222, when prompted.

About Patterson Companies, Inc.
Patterson Companies, Inc. is a value-added distributor serving the dental and animal health markets.
Dental Market
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.
Animal Health Market
Patterson Animal Health, formerly Patterson Veterinary, is a leading, full-line distributor in North America and the U.K. of animal health products, services and technologies to both the production-animal and companion-pet markets.

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. Similarly, statements that describe the pending disposition of Patterson Medical, including its financial impact, and other statements of management's beliefs, intentions or goals also are forward-looking statements. 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 the divested companies 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 ability of the parties to consummate the transaction and the satisfaction of the conditions precedent to consummation of the transaction, including the ability to secure regulatory approvals at all or in a timely manner and 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  

 
      August 1,     July 26,  
      2015     2014  
               
Net sales     $ 1,142,870       $ 938,956    
               
Gross profit       288,244         250,617    
               
Operating expenses       226,067         184,621    
               
Operating income from continuing operations       62,177         65,996    
               
Other expense, net       (11,473 )       (7,398 )  
               
Income from continuing operations before taxes       50,704         58,598    
               
Income taxes       30,393         20,273    
               
Net income from continuing operations       20,311         38,325    
Net income from discontinued operations       9,392         11,964    
Net income     $ 29,703       $ 50,289    
               
Basic earnings per share:              
Continuing operations     $ 0.20       $ 0.39    
Discontinued operations       0.10         0.12    
Net basic earnings per share     $ 0.30       $ 0.51    
               
Diluted earnings per share:              
Continuing operations     $ 0.20       $ 0.38    
Discontinued operations       0.10         0.12    
Net diluted earnings per share     $ 0.30       $ 0.50    
               
Shares:              
Basic       99,436         99,329    
Diluted       100,162         100,182    
               
Dividends declared per common share     $ 0.22       $ 0.20    
               
Gross margin - reported       25.2   %     26.7   %
               
Operating expenses as a % of net sales - adjusted       18.0   %     19.4   %
Adjustments1       1.8         0.3    
Operating expenses as a % of net sales - reported       19.8   %     19.7   %
               
Operating income as a % of net sales - adjusted       7.2   %     7.3   %
Adjustments1       (1.8 )       (0.3 )  
Operating income as a % of net sales - reported       5.4   %     7.0   %
               
Effective tax rate - adjusted       34.4   %     34.4   %
Adjustments1       25.5         0.2    
Effective tax rate - reported       59.9   %     34.6   %
               

1 Refer to the press release for the definition of adjustments to reported results

 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
             
      August 1,    

  April 25,  

      2015     2015
      (Unaudited)      
ASSETS            
Current assets:            
Cash and short-term investments     $ 236,091     $ 400,632
Receivables       624,340       586,263
Inventory       716,707       408,422
Prepaid expenses and other current assets       94,358       59,561
Current assets held for sale       130,306       118,347
Total current assets       1,801,802       1,573,225
Property and equipment, net       258,964       204,133
Goodwill and other intangible assets       1,368,818       424,949
Investments and other       173,314       109,605
Long-term assets held for sale       636,756       635,794
Total assets     $ 4,239,654     $ 2,947,706
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
Accounts payable     $ 456,259     $ 323,294
Other accrued liabilities       198,353       215,075
Current liabilities held for sale       39,523       39,316
Total current liabilities       694,135       577,685
Long-term debt       1,725,000       725,000
Other non-current liabilities       257,277       81,484

Long-term liabilities held for sale

      49,189       49,414
Total liabilities       2,725,601       1,433,583
Stockholders' equity       1,514,053       1,514,123
Total liabilities and stockholders' equity     $ 4,239,654     $ 2,947,706
                 
 
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
                                       
                  Total     Foreign     Animal Health        
      August 1,    

  July 26,  

    Sales    

 Exchange 

    International    

  Internal  

 
      2015     2014    

  Growth  

    Impact     Impact     Growth  

Three Months Ended

                                     
                                       
Consolidated net sales                                      
Consumable and printed products1     $ 895,307     $ 695,639     28.7   %   (2.7 ) %   24.6 %   6.8   %
Equipment and software       153,483       156,394     (1.9 )     (1.5 )     -     (0.4 )  
Other1       94,080       86,923     8.2       (1.4 )     0.5     9.1    
Total     $ 1,142,870     $ 938,956     21.7   %   (2.4 ) %   18.3 %   5.8   %
                                       
Dental                                      
Consumable and printed products1     $ 358,052     $ 325,290     10.1   %   (1.5 ) %   - %   11.6   %
Equipment and software       143,670       148,783     (3.4 )     (1.5 )     -     (1.9 )  
Other1       73,395       68,801     6.7       (1.1 )     -     7.8    
Total     $ 575,117     $ 542,874     5.9   %   (1.5 ) %   - %   7.4   %
                                       
Animal Health                                      
Consumable and printed products1     $ 537,255     $ 370,349     45.1   %   (3.7 ) %   46.3 %   2.5   %
Equipment and software       9,813       7,611     28.9       (0.2 )     -     29.1    
Other1       10,229       8,340     22.6       (5.1 )     5.6     22.1    
Total     $ 557,297     $ 386,300     44.3   %   (3.6 ) %   44.5 %   3.4   %
                                       
Corporate                                      
Other1     $ 10,456     $ 9,782     6.9   %   -   %   - %   6.9   %
Total     $ 10,456     $ 9,782     6.9   %   -   %   - %   6.9   %
                                       
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                  
      August 1,    

  July 26,  

                 
      2015     2014                  
                               
Operating income (loss)                              
Dental     $ 67,252       $ 62,549                    
Animal Health       12,972         13,987                    
Corporate       (18,047 )       (10,540 )                  
      $ 62,177       $ 65,996                    
                               
Other (expense) income, net                              
Interest income     $ 789       $ 1,250                    
Interest expense       (12,143 )       (8,768 )                  
Other       (119 )       120                    
      $ (11,473 )     $ (7,398 )                  
                               
                               
            Twelve
      Three Months Ended     Months Ended
      July 26,     October 25,     January 24,    

  April 25,  

    April 25,
      2014     2014     2015     2015     2015
                               
Net income from continuing operations - reported     $ 38,325       $ 41,865       $ 46,434     $ 53,459     $ 180,083
Transaction-related costs       -         -         -       928       928
Deal amortization       1,920         1,917         1,930       1,954       7,721
Net income from continuing operations - adjusted     $ 40,245       $ 43,782       $ 48,364     $ 56,341     $ 188,732
                               
Diluted earnings per share from continuing operations - reported     $ 0.38       $ 0.42       $ 0.47     $ 0.54     $ 1.81
Transaction-related costs       -         -         -       0.01       0.01
Deal amortization       0.02         0.02         0.02       0.02       0.08
Diluted earnings per share from continuing operations - adjusted1     $ 0.40       $ 0.44       $ 0.49     $ 0.57     $ 1.89
                               
1 May not foot due to rounding
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
             
      Three Months Ended
      August 1,     July 26,
      2015     2014
             
Operating activities:            
Net income     $ 29,703       $ 50,289  
Net income from discontinued operations       9,392         11,964  
Net income from continuing operations       20,311         38,325  

Adjustments to reconcile net income to net cash provided by operating activities:

           
Depreciation & amortization       15,247         9,656  
Non-cash employee based compensation       6,965         6,412  
Change in assets and liabilities, net of acquired       (34,829 )       13,901  

Net cash provided by operating activities- continuing operations

      7,694         68,294  

Net cash (used in) provided by operating activities- discontinued operations

      (2,270 )       476  
Net cash provided by operating activities       5,424         68,770  
             
Investing activities:            
Additions to property and equipment, net of disposals       (17,064 )       (16,173 )
Acquisitions and equity investments       (1,104,730 )       -  
Purchase of investments       -         (359 )

Net cash used in investing activities- continuing operations

      (1,121,794 )

 

    (16,532 )

Net cash (used in) provided by investing activities- discontinued operations

      (54 )

 

    5,086  
Net cash used in investing activities       (1,121,848 )

 

    (11,446 )
             
Financing activities:            
Dividends paid       (23,128 )       (20,062 )
Share repurchases       -         (42,877 )
Proceeds from issuance of long-term debt, net       988,400         -  
Payment on revolver       -         (130,000 )
Draw on revolver       -         130,000  
Other financing activities       (745 )       (811 )
Net cash provided by (used in) financing activities       964,527         (63,750 )
             
Effect of exchange rate changes on cash       (8,923 )       2,258  
Net decrease in cash and cash equivalents     $ (160,820 )     $ (4,168 )
                     

 

Contacts

Patterson Companies, Inc.
Ann B. Gugino, 651-686-1600
Executive Vice President & CFO

 

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