Patterson projects growth in animal health despite weakness in food segment


Last year, distributor Patterson Companies ($PDCO) greatly expanded its presence in animal health when it bought Animal Health International (AHI) for $1.1 billion. When the company announced its fiscal fourth-quarter results on May 26, the impact of the deal was clear: Sales in the company’s animal health business rose 119% from the same period a year ago to $780.0 million. For the full year, animal health sales jumped 96.5% to $2.9 billion.

Minnesota-based Patterson, which also distributes dental equipment, reported that its full-year sales grew 37.7% year-over-year to $5.4 billion and its adjusted net income from continuing operations was $241.4 million, or $2.47 per share, up from $188.7 million ($1.89 per share) a year ago. The company projected adjusted earnings for 2017 of $2.60 to $2.70 per diluted share.

“The solid performance in our industry-leading Animal Health segment this quarter was again led by our U.S. companion animal business, as well as a strong contribution from our U.K. operations,” said Patterson CEO Scott Anderson in the release. He added that the integration of AHI is on track and the two companies are already benefiting from synergies.

Patterson distributes several products to veterinarians in both the companion and food animal segments, including equipment, software support services and consumables. It made its first big push to expand in animal health in 2013, when it acquired U.K. distributor National Veterinary Services. In 2014 it formed a strategic partnership with Abaxis ($ABAX) to sell its full line of veterinary diagnostic products.

When Anderson projected Patterson would see 2% market growth in its production animal segment in fiscal 2017 during a conference call after the earnings release, some analysts expressed concerns about weakness in that market, which is under pressure from a variety of forces, including a shift away from antibiotics and adjustments in herd size that can affect suppliers.

But Anderson said experienced executives that Patterson picked up from AHI are confident the market would rebound. “What they’re beginning to see is a move and an expansion of the herd size as profitability gets better for the producer,” Anderson said during the call. “So we feel really good about the market and our opportunity to really execute in that type of market.”

- here’s the earnings release
- read a transcript of the earnings call at Seeking Alpha

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