Call Start: 10:00
Call End: 10:48
Patterson Companies (PDCO)
F1Q11 Earnings Call
August 26, 2010 10:00 a.m. ET
Scott Anderson – President and CEO
Steve Armstrong – EVP, CFO and Treasurer
Glen Santangelo - Credit Suisse
John Kreger – William Blair
Lisa Gill - JP Morgan
Larry Marsh – Barclays Capital
Steven Valiquette - UBS
Robert Willoughby – Banc of America Merrill Lynch
Derek Leckow - Barrington Research
Jeff Johnson – Robert W. Baird
A.J. Rice – Susquehanna Financial Group
Larry Marsh - Barclays Capital
Richard Close - Jefferies & Company
Previous Statements by PDCO
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Welcome to the Patterson Companies first quarter fiscal 2011 conference call. [Operator instructions.] I would now like to turn the conference over to Mr. Scott Anderson, president and chief executive officer. Please go ahead.
Good morning, and thanks for participating in our first quarter earnings conference call. Joining me today is Steve Armstrong, our executive vice president and chief financial officer. At the conclusion of our formal remarks, Steve and I will be pleased to take your questions. Since regulation FD prohibits us from providing investors with any earnings guidance unless we release that information simultaneously, we provided financial guidance for fiscal year 2011 in our press release earlier this morning.
Our guidance is subject to a number of risks and uncertainties that could cause Patterson's actual results to vary from our forecast. These risks and uncertainties are discussed in detail in our annual report and form 10-K and our other SEC filings, and we urge you to review this material.
As a reminder, our first quarter results included the impact of an extra, or 14th week, which will make fiscal 2011 a 53-week year, ending on April 30, 2011.
It's difficult to quantify the exact impact of this additional week on our first quarter results, but we will provide estimates in those areas where it is possible to make reasonable approximations.
In the first quarter, consolidate sales of $850 million rose 8%, from $790 million in the year earlier period. The impact of the additional week is estimated to be approximately 5 percentage points. Net income of $54 million, or $0.45 per diluted share, rose 20%, from $45 million, or $0.38 per diluted share in the first quarter of fiscal 2010.
We are generally pleased with Patterson's first quarter results, considering the ongoing effect of sluggish economic conditions within our served markets. Sales of Patterson Dental Supply increased 6%, to $543 million in this year's first quarter. Sales of consumable dental supplies rose 7% from last year's first quarter, and were essentially unchanged from the year earlier period, after excluding the impact of the additional week.
Our consumable business is continuing to be effected by uneven patient demand for dental services as a result of the soft economy. However, our consumable results over the past few quarters suggest that the overall dental market is stabilizing.
As we predicted earlier this calendar year, consumable demand has remained soft throughout the summer, but we believe there could be modest growth during the latter half of our fiscal year. At the same time, we are encouraged by the strong sales growth of our non-CEREC equipment, which was up 14% in the quarter, including a 17% increase in basic dental equipment. The 17% increase was led by sales of cone beam and panoramic imaging systems, but sales in all major categories including chairs, units, cabinetry, analyzing grew in the quarter.
It needs to be pointed out that it is difficult to measure the impact of an extra week on equipment sales, due to such factors as the length of time from initial order to installation, which can span several months between quarters. Even so, we believe that sales of basic dental equipment still would have been solidly higher on a fully comparable year over year basis. We believe this growth reflects our ability to capture a significant share of the equipment business that has been deferred for the past two years.
Sales of digital sensors and CEREC equipment were down in the first quarter, reflecting the strong comparable sales level that each of these categories faced versus the last year's first quarter. The strength of our CEREC line in the first quarter of fiscal 2010 was generated primarily by the high level of interest in our initial trade-up program following the introduction of the CEREC AC imaging unit early in calendar 2009.
A similar CEREC trade-up program has been running through this year's first quarter, and will end later this month. For the full year, we continue to believe that CEREC sales should increase by at least 10%, and we are committing substantial marketing resources to accomplish this goal. Digital sensor sales in last year's first quarter were aided by a financing promotion that was not run this year.
Turning now to Webster Veterinary. Sales of our veterinary unit increased 6% in the first quarter of fiscal 2011 to $180 million. We were generally pleased with Webster's first quarter performance, including the solidly higher equipment sales reported for this period. Equipment, which constitutes a relatively small but growing portion of Webster's revenue stream, represents a key facet of Webster's drive to expand and strengthen its value added proposition.
Steve will provide greater detail in a few minutes, but we estimate that the impact of the additional week was largely offset by several factors that adversely affected the comparability of Webster's sales, including changes in the distribution arrangements for certain pharmaceuticals, and the exiting of production animal business that was part of Columbus Serum operation prior to its acquisition.