Patterson Companies (PDCO) Q4 Earnings Top, Sales Strong

Patterson Companies Inc. (NASDAQ:PDCO) reported fourth-quarter fiscal 2016 adjusted earnings of 77 cents per share from continuing operations that beat the Zacks Consensus Estimate by a penny and improved 35.1% year over year on higher sales.

Quarter Details

Net sales from continuing operations increased 40.5% (41.6% on a constant currency basis) year over year to $1.45 billion, which narrowly missed the Zacks Consensus Estimate of $1.47 billion. However, the year-over-year improvement reflected robust performance by the Animal Health division.

Patterson Animal Health (54% of total sales) sales surged almost 119.3% on a year-over-year basis to $780.8 million (121.6% on a constant currency basis) on the back of a 127.7% increase in consumable and printed products sales. Sales of other services and products improved almost 40%. Animal Health International contributed $403.6 million to net sales.

The strong year-over-year upside was driven by solid results in the U.S. companion animal business, as well as a strong contribution from the U.K. operations. These fully offset sluggish livestock end-market conditions in the quarter.

Patterson Dental (46% of total sales) sales decreased 1% to $662.1 million. Consumable sales increased 3.3% at constant currency to $354.6 million. Meanwhile, sales from dental equipment and software decreased 6.9%. Sales from other services and products climbed 3.6% on a year-over-year basis.

Gross margin contracted 280 basis points (bps) to 25% in the reported quarter.

Adjusted operating expenses, as a percentage of revenues, decreased 200 bps to 16.8%. However, adjusted operating margin contracted 80 bps to 8.2%.

Fiscal 2016 Highlights

Adjusted earnings surged 30.7% to $2.47 in fiscal 2016, driven by 37.7% increase in sales, which totaled $5.39 billion.

Patterson Companies bought back approximately 4.4 million shares worth $200 million, leaving approximately 16 million shares for repurchase under the current authorization. The company also paid dividends worth $90.6 million.

Outlook

Patterson Companies forecasts adjusted earnings in the range of $2.60--$2.70 per share, including $25 million incremental operating expenses related to the ERP implementation for fiscal 2017. The company expects North American and international markets to remain stable through fiscal 2017.

Zacks Rank & Key Picks

Patterson Companies currently has a Zacks Rank #3 (Hold).

Better-ranked stocks in the medical sector are Halyard Health (NYSE:HYH) , C.R. Bard (NYSE:BCR) and CONMED (NASDAQ:CNMD) . While Halyard sports a Zacks Rank #1 (Strong Buy), C.R. Bard and CONMED carry a Zacks Rank #2 (Buy).