ST. PAUL, Minn.--(November 20, 2008)-- Patterson Companies, Inc. (Nasdaq: PDCO) today reported consolidated sales of $759,461,000 for the second quarter of fiscal 2009 ended October 25, an increase of 2% from $741,992,000 in the year-earlier quarter. Earnings per diluted share of $0.40 were up from $0.39 in the second quarter of fiscal 2008.
Sales of Patterson Dental, Patterson’s largest business, increased to $536,837,000 in the second quarter. The impact on sales from acquisitions (Leventhal & Sons, Inc. in April 2008 and Denesca in September 2008) was largely offset by unfavorable movements in the Canadian dollar during the second quarter.
Sales of the Webster Veterinary unit increased 14% in the second quarter of fiscal 2009 to $123,589,000. The October 2008 acquisition of Columbus Serum Company, a full-service distributor of companion-pet veterinary supplies, equipment and pharmaceuticals serving the Midwestern and mid-Atlantic markets, accounted for 10 percentage points of Webster’s second quarter sales increase. Sales of Patterson Medical, Patterson’s rehabilitation supply and equipment unit, were $99,035,000, virtually unchanged from the year-earlier level.
Net income of $46,903,000 in this year’s second quarter includes incremental interest expense of $6.9 million ($4.3 million, net of tax) associated with the $525 million of long-term debt financing that was completed in the fourth quarter of fiscal 2008. Patterson used the proceeds of the debt issuance and cash to repurchase 19 million shares of its common stock during the second half of fiscal 2008. Net income was $53,741,000 in the second quarter of fiscal 2008.
James W. Wiltz, president and chief executive officer, commented: “Second quarter operating results of our Patterson Dental unit were below forecasted levels due, we believe, to the impact of the difficult economic environment, particularly in October, on its business. Available evidence indicates that dental patients started deferring higher level and discretionary services, which largely accounted for the soft sales of consumable supplies in the quarter. Reflecting the strengthened focus on sales of dental equipment that we initiated earlier in the year, equipment sales were relatively strong during this period. Much of this growth was generated by orders placed prior to the economic turmoil that erupted during the second quarter. We believe it is possible that the continuation of challenging economic conditions may affect the equipment purchasing decisions of dental practitioners at least over the near-term.”
He continued: “Our Webster Veterinary and Patterson Medical units were affected by the difficult economic environment to a lesser degree than Patterson Dental. Webster received a strong sales contribution from its acquisition of Columbus Serum, and the integration of this large and well- established distributor is proceeding on schedule. This acquisition is an important strategic investment, since it expands Webster’s geographic coverage, improves its economies of scale and allows Webster to accelerate deployment of its value-added model. Patterson Medical’s second quarter performance was adversely affected by the conversion to Patterson’s management information systems at the start of the quarter. Issues related to this complex systems transition have been largely resolved.”
Wiltz added: “Given expectations for a continuation of weak economic conditions and the anticipated impact on Patterson’s sales growth, we are reducing our cost structure by an annualized $20 to $25 million. These actions encompass a range of initiatives, including a hiring freeze except for sales personnel as well as wage freezes throughout the company. The initial impact of this expense savings will be realized in the third quarter, and the full impact will be apparent in the fourth quarter. While we feel it is prudent to challenge all levels of our expense structure during these uncertain times, we fully intend to continue investing wisely in our business. Moreover, our operating cash flows are forecasted to remain strong and provide us with ample resources for our growth initiatives and to take advantage of acquisition opportunities. Reflecting these factors, we are forecasting earnings of $0.43 to $0.45 per diluted share for the third quarter of fiscal 2009 ending January 24, 2009. We also have reduced our fiscal 2009 guidance to $1.73 to $1.77 per diluted share from our previously issued full-year guidance of $1.94 to $1.98 per diluted share.”
About Patterson Companies, Inc.
Patterson Companies, Inc. is a value-added distributor serving the dental, companion-pet veterinarian and rehabilitation supply markets.
Dental Market
As Patterson’s largest business, 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.
Veterinary Market
Webster Veterinary is the nation’s second largest distributor of consumable veterinary supplies, euipment and software, diagnostic products, vaccines and pharmaceuticals to companion-pet veterinary clinics.
Rehabilitation Market
Patterson Medical is the world’s leading distributor of rehabilitation supplies and non-wheelchair assistive patient products to the physical and occupational therapy markets. The unit’s global customer base includes hospitals, long-term care facilities, clinics and dealers.
This release contains 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 the Company’s ability to control. The Company cautions shareholders and prospective investors that the following factors, among others, may cause actual results to differ materially from those indicated by the forward-looking statements: competition within the dental, veterinary, and rehabilitative and assistive living supply industries; changes in the economics of dentistry, including reduced growth in expenditures by private dental insurance plans, the effects of economic conditions and the effects of healthcare reform, which may affect future per capita expenditures for dental services and the ability and willingness of dentists to invest in high-technology products; the effects of healthcare related legislation and regulation which may affect expenditures or reimbursements for rehabilitative and assistive products; changes in the economics of the veterinary supply market, including reduced growth in per capita expenditures for veterinary services and reduced growth in the number of households owning pets; the ability of the Company to maintain satisfactory relationships with its sales force; unexpected loss of key senior management personnel; unforeseen operating risks; risks associated with the dependence on manufacturers of the Company’s products; and the ability of the Company to successfully integrate the recent acquisitions into its existing business. Forward-looking statements are qualified in their entirety by the cautionary language set forth in the Company’s filings with the Securities and Exchange Commission.
Second Quarter Conference Call and Replay
Patterson’s second quarter earnings conference call will start at 10:00 a.m. Eastern today. Investors can listen to a live webcast of the conference call at www.pattersoncompanies.com. Listeners should go to this website at least 15 minutes prior to the call to download and install any necessary audio software. The conference call will be archived on Patterson’s web site. A replay of the second quarter conference call can be heard through November 27 by dialing 1-303-590-3000 and providing the 11122337 confirmation code.
| PATTERSON COMPANIES, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
| (In thousands, except for earnings per share) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| October 25, | October 27, | October 25, | October 27, | |||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Net sales | $ | 759,461 | $ | 741,992 | $ | 1,503,320 | $ | 1,443,395 | ||||||||
| Gross profit | 253,575 | 252,299 | 505,305 | 489,433 | ||||||||||||
| Operating expenses | 170,973 | 166,686 | 343,109 | 328,613 | ||||||||||||
| Operating income | 82,602 | 85,613 | 162,196 | 160,820 | ||||||||||||
| Other expense, net | (7,514 | ) | 755 | (13,426 | ) | 1,360 | ||||||||||
| Income before taxes | 75,088 | 86,368 | 148,770 | 162,180 | ||||||||||||
| Income taxes | 28,185 | 32,627 | 55,903 | 60,895 | ||||||||||||
| Net income | $ | 46,903 | $ | 53,741 | $ | 92,867 | $ | 101,285 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 0.40 | $ | 0.40 | $ | 0.79 | $ | 0.75 | ||||||||
| Diluted | $ | 0.40 | $ | 0.39 | $ | 0.78 | $ | 0.74 | ||||||||
| Shares: | ||||||||||||||||
| Basic | 117,421 | 135,907 | 117,656 | 135,846 | ||||||||||||
| Diluted | 118,328 | 136,923 | 118,520 | 136,834 | ||||||||||||
| Gross margin | 33.4 | % | 34.0 | % | 33.6 | % | 33.9 | % | ||||||||
| Operating expenses as a % of net sales | 22.5 | % | 22.5 | % | 22.8 | % | 22.8 | % | ||||||||
| Operating income as a % of net sales | 10.9 | % | 11.5 | % | 10.8 | % | 11.1 | % | ||||||||
| Effective tax rate | 37.5 | % | 37.8 | % | 37.6 | % | 37.5 | % | ||||||||
| PATTERSON COMPANIES, INC. | ||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
| (Dollars in thousands) | ||||||
| October 25, | April 26, | |||||
| 2008 | 2008 | |||||
| (Unaudited) | ||||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and short-term investments | $ | 256,643 | $ | 308,164 | ||
| Receivables, net | 365,189 | 364,050 | ||||
| Inventory | 311,637 | 281,238 | ||||
| Prepaid expenses and other current assets | 38,366 | 31,589 | ||||
| Total current assets | 971,835 | 985,041 | ||||
| Property and equipment, net | 158,418 | 148,932 | ||||
| Goodwill and other intangible assets | 924,906 | 881,750 | ||||
| Other | 55,929 | 60,650 | ||||
| Total Assets | $ | 2,111,088 | $ |
2,076,373 |
||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 188,523 | $ | 194,405 | ||
| Other accrued liabilities | 123,666 | 141,652 | ||||
| Current maturities of long-term debt | 130,006 | 130,010 | ||||
| Total current liabilities | 442,195 | 466,067 | ||||
| Long-term debt | 525,333 | 525,024 | ||||
| Other non-current liabilities | 80,862 | 80,495 | ||||
| Total liabilities | 1,048,390 | 1,071,586 | ||||
|
Stockholders’ equity |
1,062,698 | 1,004,787 | ||||
|
Total Liabilities and Stockholders’ Equity |
$ | 2,111,088 | $ |
2,076,373 |
||
| PATTERSON COMPANIES, INC. | ||||||||||||||||
| SUPPLEMENTARY FINANCIAL DATA | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| October 25, | October 27, | October 25, | October 27, | |||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Consolidated Net Sales | ||||||||||||||||
| Consumable and printed products | $ | 493,731 | $ | 480,646 | $ | 991,914 | $ | 945,376 | ||||||||
| Equipment and software | 200,966 | 199,377 | 382,258 | 378,973 | ||||||||||||
| Other | 64,764 | 61,969 | 129,148 | 119,046 | ||||||||||||
| Total | $ | 759,461 | $ | 741,992 | $ | 1,503,320 | $ | 1,443,395 | ||||||||
| Dental Supply | ||||||||||||||||
| Consumable and printed products | $ | 309,679 | $ | 310,130 | $ | 622,272 | $ | 605,537 | ||||||||
| Equipment and software | 170,642 | 168,989 | 321,007 | 321,722 | ||||||||||||
| Other | 56,516 | 55,386 | 113,443 | 106,973 | ||||||||||||
| Total | $ | 536,837 | $ | 534,505 | $ | 1,056,722 | $ | 1,034,232 | ||||||||
| Rehabilitation Supply | ||||||||||||||||
| Consumable and printed products | $ | 68,819 | $ | 69,796 | $ | 139,192 | $ | 136,118 | ||||||||
| Equipment and software | 24,393 | 23,919 | 49,186 | 45,094 | ||||||||||||
| Other | 5,823 | 4,848 | 11,357 | 8,613 | ||||||||||||
| Total | $ | 99,035 | $ | 98,563 | $ | 199,735 | $ | 189,825 | ||||||||
| Veterinary Supply | ||||||||||||||||
| Consumable and printed products | $ | 115,233 | $ | 100,720 | $ | 230,450 | $ | 203,721 | ||||||||
| Equipment and software | 5,931 | 6,469 | 12,065 | 12,157 | ||||||||||||
| Other | 2,425 | 1,735 | 4,348 | 3,460 | ||||||||||||
| Total | $ | 123,589 | $ | 108,924 | $ | 246,863 | $ | 219,338 | ||||||||
| Other (Expense) Income, net | ||||||||||||||||
| Interest income | $ | 1,870 | $ | 2,710 | $ | 3,792 | $ | 5,058 | ||||||||
| Interest expense | (8,183 | ) | (2,599 | ) | (16,235 | ) | (5,096 | ) | ||||||||
| Other | (1,201 | ) | 644 | (983 | ) | 1,398 | ||||||||||
| $ | (7,514 | ) | $ | 755 | $ | (13,426 | ) | $ | 1,360 | |||||||
| Note: Certain amounts previously reported have been reclassified to conform with the current presentation. | ||||||||||||||||
| PATTERSON COMPANIES, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Dollars in thousands) | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended | ||||||||
| October 25, | October 27, | |||||||
| 2008 | 2007 | |||||||
| Operating activities: | ||||||||
| Net income | $ | 92,867 | $ | 101,285 | ||||
| Depreciation & amortization | 13,864 | 12,324 | ||||||
| Share-based compensation | 3,938 | 3,978 | ||||||
| Change in assets and liabilities, net of acquired | (52,839 | ) | (8,748 | ) | ||||
| Net cash provided by operating activities | 57,830 | 108,839 | ||||||
| Investing activities: | ||||||||
| Additions to property and equipment, net of disposals | (17,495 | ) | (9,180 | ) | ||||
| Acquisitions | (69,877 | ) | (11,539 | ) | ||||
| Net cash used in investing activities | (87,372 | ) | (20,719 | ) | ||||
| Net cash provided by financing activities | 5,650 | 7,111 | ||||||
| Effect of exchange rate changes on cash | (27,629 | ) |
8,120 |
|||||
| Net | ||||||||