Patterson Companies Reports Fiscal 2018 Fourth-Quarter and Year-End Operating Results

  • Fourth-quarter reported net sales totaled $1.4 billion.
  • Fourth-quarter GAAP earnings from continuing operations of $0.23 per diluted share.
  • Fourth-quarter adjusted earnings1 from continuing operations of $0.30 per diluted share.
  • Generated $179 million of cash flow from operations during fiscal 2018.
  • Company issues fiscal 2019 GAAP earnings range of $1.43 to $1.53 per diluted share and adjusted earnings1 range of $1.73 to $1.83 per diluted share.

ST. PAUL, Minn.--()--Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated net sales of approximately $1.4 billion (see attached Sales Summary for further details) in its fiscal fourth quarter ended April 28, 2018, a decline of 3.1 percent compared to the same period last year. Internal sales, which adjust for the effects of currency translation and changes in product selling relationships, declined 3.3 percent.

Reported net income from continuing operations for the fourth quarter of fiscal year 2018 was $20.9 million, or $0.23 per diluted share, compared to $61.4 million, or $0.65 per diluted share, in last year’s fiscal fourth quarter.

Adjusted net income1 from continuing operations, which excludes deal amortization costs and discrete tax matters, totaled $28.2 million for the fourth quarter of fiscal 2018, compared to $65.6 million in the same quarter last year, driven by the anticipated decrease in sales and margins in our Dental segment and a change in estimate related to year-end inventory valuations. Adjusted earnings1 per diluted share from continuing operations totaled $0.30 in the fourth quarter, compared to $0.69 in the fiscal 2017 fourth quarter.

Our fourth-quarter results met our revised expectations and reflected the impact of ongoing challenges that the Company has been facing,” said Mark Walchirk, president and CEO of Patterson Companies. “Looking ahead, we are executing on a number of initiatives to stabilize the core business and build a stronger platform for fiscal 2019, and expect to return to profit growth in the second half of the year. These initiatives are focused on improving our revenue, margin and cash flow performance and unlocking the strength of our value proposition. We are confident that we are taking the right steps to improve performance and deliver shareholder value going forward.”

Patterson Dental
Reported net sales in our Dental segment for the fourth quarter, which represented approximately 39 percent of total company sales, were $545.8 million compared to $607.3 million in the same quarter last year. Internal sales declined 10.5 percent compared to the fiscal 2017 fourth quarter. Year-over-year internal sales by category were as follows:

  • Consumable dental supplies decreased 6.7 percent.
  • Equipment and software declined 20.2 percent.
  • Other services and products, primarily composed of technical service, parts and labor, software support services and office supplies decreased 2.5 percent.

As expected, results in the Dental segment reflected the continued challenges throughout the year as a result of our sales force realignment, ERP implementation and the market transition in the digital equipment category,” continued Walchirk. “We are focused on improving sales productivity, strengthening product mix, leveraging our new ERP platform and expanding our sales penetration in the digital equipment market. We expect these actions will contribute toward stabilizing the Dental business and building momentum around growth and profitability in the second half of fiscal 2019.”

Patterson Animal Health
Reported net sales in our Animal Health segment for the fourth quarter of fiscal 2018, which comprised approximately 61 percent of the company’s total sales, were $848.0 million compared to $827.5 in the same quarter last year. Internal sales for the segment increased 2.4 percent from the fiscal 2017 fourth quarter. Year-over-year internal sales by category were as follows:

  • Production animal increased 2.8 percent.
  • Companion animal rose 1.9 percent.

Sales in our Animal Health segment grew as expected in the quarter, led by our production animal health business, which benefitted from improving fundamentals in the swine and beef categories, partially offset by pressures in the dairy category,” continued Walchirk. “In fiscal 2019, we expect to improve growth and operating performance in the Animal Health business through driving sales execution, improved product mix and effective cost management.”

Share Repurchases and Dividends
In the fourth quarter of fiscal 2018, Patterson paid $24.6 million in cash dividends to shareholders. For fiscal 2018, the company returned a total of $186.7 million to shareholders in the form of share repurchases and dividends.

Year-to-Date Results
Consolidated sales for fiscal 2018 totaled $5.5 billion, a 2.3 percent year-over-year decrease. Internal sales declined 1.6 percent. Reported net income from continuing operations was $201.0 million, or $2.16 per diluted share, compared to $173.8 million, or $1.82 per diluted share in fiscal 2017. This comparison includes the recognition of a provisional net tax benefit of $76.6 million, reflecting the revaluation of tax-deferred assets and liabilities, net of a one-time transition tax on unremitted foreign earnings as a result of the 2017 Tax Act enacted during the third quarter. Fiscal 2017 results contained a pre-tax non-cash impairment charge of approximately $36 million, or approximately $23 million after taxes, or $0.24 per diluted share, related to the distribution fee associated with the CEREC product component of the previously exclusive arrangement with Sirona Dental Systems.

Adjusted net income1 from continuing operations, which excludes transaction-related costs, deal amortization costs, intangible asset impairment, integration and business restructuring expenses, and discrete tax matters, totaled $156.8 million, or $1.68 per diluted share, compared to $223.3 million, or $2.34 per diluted share, in fiscal 2017.

FY2019 Guidance
Patterson today issued fiscal 2019 earnings guidance from continuing operations, which is provided on both a GAAP and non-GAAP adjusted1 basis:

  • GAAP earnings from continuing operations are expected to be in the range of $1.43 to $1.53 per diluted share.
  • Non-GAAP adjusted earnings1 from continuing operations are expected to be in the range of $1.73 to $1.83 per diluted share.
  • Our non-GAAP adjusted earnings1 guidance excludes the after-tax impact of deal amortization expense of approximately $27.3 million ($0.30 per diluted share).

Our guidance is for current continuing operations as well as completed or previously announced acquisitions and does not include the impact of potential future acquisitions or similar transactions, if any, or impairments and material restructurings beyond those previously publicly disclosed. Our guidance assumes North American and international market conditions similar to those experienced in fiscal 2018.

1Non-GAAP Financial Measures
The Reconciliation of GAAP to non-GAAP Measures table appearing behind the accompanying financial information is provided to adjust reported GAAP measures, namely earnings from continuing operations, net income from continuing operations and earnings per diluted share from continuing operations, for the impact of transaction related costs, deal amortization expenses, intangible asset impairment, integration and business restructuring expenses, along with the related tax effects of these items, the impact of the 2017 Tax Act and other discrete tax matters.

Management believes that these non-GAAP measures may provide a helpful representation of the company's fourth-quarter and full-year performance and earnings guidance, and enable comparison of financial results between periods where certain items may vary independent of business performance. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures.

In addition, the term constant currency represents net sales adjusted to exclude foreign currency impacts. Foreign currency impact represents the difference in results that is attributable to fluctuations in currency exchange rates the company uses to convert results for all foreign entities where the functional currency is not the U.S. dollar. The company calculates the impact as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period's currency exchange rates. The company believes the disclosure of net sales changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.

Fourth-Quarter Conference Call and Replay
Patterson’s fourth-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 fiscal 2018 fourth-quarter conference call can be heard for one week at 800-585-8367 and by providing the Conference ID 4897286 when prompted.

About Patterson Companies Inc.
Patterson Companies Inc. (Nasdaq: PDCO) is a value-added distributor serving the dental and animal health markets.

Dental Market
Patterson’s Dental segment 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’s Animal Health segment is a leading distributor of products, services and technologies to both the production and companion animal health markets in North America and the U.K.

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. 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 Patterson 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. Such risks and uncertainties include, without limitation, operations disruptions attributable to our enterprise resource planning system implementation; our ability to attract or retain qualified sales representatives and service technicians who relate directly with our customers; the reduction, modification, cancellation or delay of purchases of innovative, high-margin equipment; material changes in our purchasing relationships with suppliers; changes in general market and economic conditions; 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 Twelve Months Ended

April 28,
2018

April 29,
2017

April 28,
2018

April 29,
2017

 
Net sales $ 1,400,609 $ 1,445,032 $ 5,465,683 $ 5,593,127
 
Gross profit 289,839 335,498 1,199,366 1,301,397
 
Operating expenses   248,588   239,343   979,477   1,013,469
 
Operating income from continuing operations 41,251 96,155 219,889 287,928
 
Other income (expense):
Other income, net 1,349 1,033 6,117 6,013
Interest expense   (12,289)   (11,401)   (46,743)   (43,060)
 
Income from continuing operations before taxes 30,311 85,787 179,263 250,881
 
Income tax expense (benefit)   9,383   24,430   (21,711)   77,093
 
Net income from continuing operations 20,928 61,357 200,974 173,788
Net loss from discontinued operations   -   334   -   (2,895)
Net income $ 20,928 $ 61,691 $ 200,974 $ 170,893
 
Basic earnings (loss) per share:
Continuing operations $ 0.23 $ 0.65 $ 2.17 $ 1.83
Discontinued operations   -   0.01   -   (0.03)
Net basic earnings per share $ 0.23 $ 0.66 $ 2.17 $ 1.80
 
Diluted earnings (loss) per share:
Continuing operations $ 0.23 $ 0.65 $ 2.16 $ 1.82
Discontinued operations   -   -   -   (0.03)
Net diluted earnings per share $ 0.23 $ 0.65 $ 2.16 $ 1.79
 
Weighted average shares:
Basic 91,846 93,830 92,467 94,897
Diluted 92,446 94,503 93,094 95,567
 
Dividends declared per common share $ 0.26 $ 0.26 $ 1.04 $ 0.98
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
         

April 28,
2018

April 29,
2017

ASSETS
Current assets:
Cash and cash equivalents $ 62,984 $ 94,959
Receivables 826,877 884,803
Inventory 779,834 711,903
Prepaid expenses and other current assets   103,029   111,928
Total current assets 1,772,724 1,803,593
Property and equipment, net 290,590 298,452
Goodwill and other intangible assets 1,205,401 1,238,983
Long-term receivables, net and other   202,949   166,885
Total assets $ 3,471,664 $ 3,507,913
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 610,368 $ 616,859
Other accrued liabilities 205,415 213,318
Current maturities of long-term debt 76,598 14,754
Borrowings on revolving credit   16,000   59,000
Total current liabilities 908,381 903,931
Long-term debt 922,030 998,272
Other non-current liabilities   179,463   211,277
Total liabilities 2,009,874 2,113,480
Stockholders' equity   1,461,790   1,394,433
Total liabilities and stockholders' equity $ 3,471,664 $ 3,507,913
 
 
PATTERSON COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
         
Twelve Months Ended

April 28,
2018

April 29,
2017

 
Operating activities:
Net income $ 200,974 $ 170,893
Net loss from discontinued operations   -   (2,895)
Net income from continuing operations 200,974 173,788
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization 83,816 83,818
Intangible asset impairment - 36,312
Non-cash employee compensation 36,532 19,025
Change in assets and liabilities, net of acquired   (142,427)   (147,329)
Net cash provided by operating activities- continuing operations 178,895 165,614
Net cash used in operating activities- discontinued operations   -   (2,895)
Net cash provided by operating activities 178,895 162,719
 
Investing activities:
Additions to property and equipment (43,263) (47,019)
Collection of deferred purchase price receivables 49,650 51,402
Other investing activities   10,600   (3,190)
Net cash provided by investing activities- continuing operations 16,987 1,193
Net cash provided by investing activities- discontinued operations   -   -
Net cash provided by investing activities 16,987 1,193
 
Financing activities:
Dividends paid (99,199) (95,910)
Repurchases of common stock (87,500) (125,384)
Proceeds from issuance of long-term debt, net 150,000 -
Debt amendment costs - (1,266)
Retirement of long-term debt (164,754) (26,238)
Draw on (payment on) revolver (43,000) 39,000
Other financing activities   14,291   7,635
Net cash used in financing activities (230,162) (202,163)
Effect of exchange rate changes on cash   2,305   (4,243)
Net change in cash and cash equivalents $ (31,975) $ (42,494)
 
 
PATTERSON COMPANIES, INC.
SALES SUMMARY
(Dollars in thousands)
(Unaudited)
                         

April 28,
2018

   

April 29,
2017

   

Total
Sales
Growth

   

Foreign
Exchange
Impact

   

Other (a)

     

Internal
Sales
Growth

Three Months Ended
 
Consolidated net sales
Consumable $ 1,145,258 $ 1,148,337 (0.3) % 1.7 % (1.5) % (0.5) %
Equipment and software 168,393 207,339 (18.8) 0.4 - (19.2)
Other   86,958       89,356     (2.7)       0.8       -       (3.5)  
Total $ 1,400,609     $ 1,445,032     (3.1) %     1.4 %     (1.2) %     (3.3) %
 
Dental
Consumable $ 317,951 $ 339,398 (6.3) % 0.4 % - % (6.7) %
Equipment and software 155,979 194,493 (19.8) 0.4 - (20.2)
Other   71,834       73,417     (2.2)       0.3       -       (2.5)  
Total $ 545,764     $ 607,308     (10.1) %     0.4 %     - %     (10.5) %
 
Animal Health
Consumable $ 827,307 $ 808,939 2.3 % 2.2 % (2.1) % 2.2 %
Equipment and software 12,414 12,846 (3.4) 0.1 - (3.5)
Other   8,257       5,687     45.2       7.9       -       37.3  
Total $ 847,978     $ 827,472     2.5 %     2.2 %     (2.1) %     2.4 %
 
Corporate
Other $ 6,867     $ 10,252     (33.0) %     - %     - %     (33.0) %
Total $ 6,867     $ 10,252     (33.0) %     - %     - %     (33.0) %
 
 
Twelve Months Ended
 
Consolidated net sales
Consumable $ 4,415,643 $ 4,400,888 0.3 % 0.6 % (1.5) % 1.2 %
Equipment and software 709,253 834,526 (15.0) 0.3 - (15.3)
Other   340,787       357,713     (4.7)       0.3       -       (5.0)  
Total $ 5,465,683     $ 5,593,127     (2.3) %     0.5 %     (1.2) %     (1.6) %
 
Dental
Consumable $ 1,251,642 $ 1,321,764 (5.3) % 0.3 % - % (5.6) %
Equipment and software 660,355 780,868 (15.4) 0.3 - (15.7)
Other   284,081       287,587     (1.2)       0.2       -       (1.4)  
Total $ 2,196,078     $ 2,390,219     (8.1) %     0.3 %     - %     (8.4) %
 
Animal Health
Consumable $ 3,164,001 $ 3,079,124 2.8 % 0.7 % (2.1) % 4.2 %
Equipment and software 48,898 53,658 (8.9) - - (8.9)
Other   29,665       27,044     9.7       1.7       -       8.0  
Total $ 3,242,564     $ 3,159,826     2.6 %     0.7 %     (2.1) %     4.0 %
 
Corporate
Other $ 27,041     $ 43,082     (37.2) %     - %     - %     (37.2) %
Total $ 27,041     $ 43,082     (37.2) %     - %     - %     (37.2) %
 
(a) Sales of certain products previously recognized on a gross basis were recognized on a net basis during the three and twelve months ended April 28, 2018.
 
 
PATTERSON COMPANIES, INC.
OPERATING INCOME BY SEGMENT
(In thousands)
(Unaudited)
                 
Three Months Ended     Twelve Months Ended

April 28,
2018

   

April 29,
2017

   

April 28,
2018

   

April 29,
2017

 
Operating income (loss)
Dental $ 46,036 $ 86,315 $ 229,201 $ 263,671
Animal Health 20,128 27,672 78,058 88,132
Corporate   (24,913)       (17,832)       (87,370)       (63,875)
Total $ 41,251     $ 96,155     $ 219,889     $ 287,928
 
 
PATTERSON COMPANIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Dollars in thousands, except per share amounts)
(Unaudited)
                             
For the three months ended April 28, 2018 GAAP

Transaction-
related
costs

Deal
amortization

Intangible
asset
impairment

Integration
and business
restructuring
expenses

Discrete
tax matters

Non-
GAAP

Operating income from continuing operations $ 41,251 $ $ 9,533 $ $ $ $ 50,784
Other expense, net   (10,940)             (10,940)
Income from continuing operations before taxes 30,311 9,533 39,844
Income tax expense (benefit)   9,383     2,893       (608)   11,668
Net income from continuing operations $ 20,928 $ $ 6,640 $ $ $ 608 $ 28,176
             
Diluted earnings per share from continuing operations* $ 0.23 $ $ 0.07 $ $ $ 0.01 $ 0.30
 
Operating income from continuing operations as a % of sales 2.9% 3.6%
Effective tax rate 31.0% 29.3%
 
For the three months ended April 29, 2017 GAAP

Transaction-
related
costs

Deal
amortization

Intangible
asset
impairment

Integration
and business
restructuring
expenses

Discrete
tax matters

Non-
GAAP

Operating income from continuing operations $ 96,155 $ 178 $ 9,745 $ $ 257 $ $ 106,335
Other expense, net   (10,368)             (10,368)
Income from continuing operations before taxes 85,787 178 9,745 257 95,967
Income tax expense (benefit)   24,430   67   3,375     98   2,383   30,353
Net income from continuing operations $ 61,357 $ 111 $ 6,370 $ $ 159 $ (2,383) $ 65,614
             
Diluted earnings per share from continuing operations* $ 0.65 $ $ 0.07 $ $ $ (0.03) $ 0.69
 
Operating income from continuing operations as a % of sales

6.7%

7.4%

Effective tax rate

28.5%

31.6%

 
For the twelve months ended April 28, 2018

GAAP

Transaction-
related
costs

Deal
amortization

Intangible
asset
impairment

Integration
and business
restructuring
expenses

Discrete
tax matters

Non-
GAAP

Operating income from continuing operations $ 219,889 $ $ 38,515 $ $ 8,594 $ $ 266,998
Other expense, net   (40,626)             (40,626)
Income from continuing operations before taxes 179,263 38,515 8,594 226,372
Income tax expense (benefit)   (21,711)     11,793     2,879   76,648   69,609
Net income from continuing operations $ 200,974 $ $ 26,722 $ $ 5,715 $ (76,648) $ 156,763
             
Diluted earnings per share from continuing operations* $ 2.16 $ $ 0.29 $ $ 0.06 $ (0.82) $ 1.68
 
Operating income from continuing operations as a % of sales 4.0% 4.9%
Effective tax rate -12.1% 30.7%
 
For the twelve months ended April 29, 2017 GAAP

Transaction-
related
costs

Deal
amortization

Intangible
asset
impairment

Integration
and business
restructuring
expenses

Discrete
tax matters

Non-
GAAP

Operating income from continuing operations $ 287,928 $ 1,657 $ 39,957 $ 36,312 $ 6,561 $ $ 372,415
Other expense, net   (37,047)             (37,047)
Income from continuing operations before taxes 250,881 1,657 39,957 36,312 6,561 335,368
Income tax expense (benefit)   77,093   625   13,769   13,263   2,481   4,789   112,020
Net income from continuing operations $ 173,788 $ 1,032 $ 26,188 $ 23,049 $ 4,080 $ (4,789) $ 223,348
             
Diluted earnings per share from continuing operations* $ 1.82 $ 0.01 $ 0.27 $ 0.24 $ 0.04 $ (0.05) $ 2.34
 
Operating income from continuing operations as a % of sales

5.1%

6.7%

Effective tax rate

30.7%

33.4%

 
* May not sum due to rounding
 

Contacts

Patterson Companies Inc.
John M. Wright, 651-686-1364
Investor Relations
john.wright@pattersoncompanies.com
pattersoncompanies.com

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