Patterson Companies, Inc. (PDCO)
F4Q10 (Qtr End 04/24/10) Earnings Call Transcript
May 20, 2010 10:00 am ET
Scott Anderson – President and CEO
Steve Armstrong – EVP, CFO and Treasurer
John Kreger – William Blair
Larry Marsh – Barclays Capital
Derek Leckow – Barrington Research
Robert Willoughby – Banc of America/Merrill Lynch
Jeff Johnson – Robert W. Baird
Steve Sinclair [ph] – UBS
AJ Rice – Susquehanna Financial Group
Previous Statements by PDCO
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Ladies and gentlemen, thank you for standing by. Welcome to the Patterson Companies fourth quarter fiscal 2010 earnings conference call. During today’s presentation, all participant lines are muted. Following the presentation, the conference will be opened for questions. (Operator instructions) This conference is being recorded today, May 20, 2010.
I would now like to turn the conference over to our host, Scott Anderson, President and CEO. Please go ahead, sir.
Thank you, Alisha. Good morning and thanks for participating in our fourth quarter conference call. I am humbled to be doing my inaugural call as Patterson’s CEO, considering the two gentlemen who have preceded me in this role, Pete Frechette and Jim Wiltz, both outstanding leaders and change agents in the specialty distribution market.
Let me begin by noting that 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’ve 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 on Form 10-K and other SEC filings, and we urge you to review this material.
Consolidated sales rose 4% to $812.8 million in the fourth quarter of 2010. Internal growth accounted for 1% of our fourth quarter sales growth with acquisitions and foreign currency adjustments accounting for the balance. Fourth quarter earnings of $61.8 million or $0.52 per diluted share were up 15% from $54 million or $0.46 per diluted share in the fourth quarter of 2009.
For the year, consolidated sales totaled $3.2 billion, up 5% from $3.1 billion in fiscal 2009. Net income for the year came to $212.3 million or $1.78 per diluted share, an increase of 6% from $199.6 million or $1.69 per diluted share in fiscal 2009.
Patterson’s overall fourth quarter results generally reflect the impact of the nation’s slow economic recovery. This impact was particularly evident in the performance of our Patterson dental unit, which recorded sales growth of 3% to $527.3 million in the fourth quarter. Sales were affected by uneven patient demand for dental services that affected our consumables business, as well as by the hesitancy of practitioners to commit to new capital investments.
However, we believe the dental market is stabilizing, and we are encouraged by some preliminary indications that the market may be starting to strengthen. For example, sales of digital imaging systems, including sensors, panoramic and combing units grew over 18% in the fourth quarter. Although a broadly based recovery of the dental market is expected to be gradual, we are taking a pro-active approach, having initiated new sales and marketing programs to stimulate sales in several product categories. This approach includes using our leadership in equipment technology to bolster our performance until the market recovers for basic equipment, including chairs, power units, and cabinetry.
As evidenced by the robust sales growth of imaging products, dental practitioners are more willing at this time to invest in systems that offer a strong return on investment over a relatively short period. For this reason, we believe the outlook for many of our technology products remains promising.
And while CEREC sales were off approximately 10% in the recent quarter, we strongly believe this product will be a significant contributor to the future of dentistry. In an economy, where selling capital goods has been a challenge, CEREC sales rose over 15% for the year, and we believe we should see similar growth in fiscal 2011.
We believe Patterson is positioned to capture a significant share of the equipment business both basic and new technology that has been deferred during the past two years due to concerns about the economy.
From an operational standpoint, I would also like to briefly review a number of recent developments at our dental operation. We extended Patterson’s exclusive distribution agreement for Schick digital x-ray products in the US and Canada to December 31, 2012. Schick, a wholly owned subsidiary of Sirona Dental Systems, is the acknowledged leader in digital sensor technology, which is one of the fastest growing segments in dentistry. Extending our exclusive agreement with Schick will enable us to continue providing the best digital x-ray solutions to dentists.
As I mentioned last quarter, we are building a new 100,000 square foot state-of-the-art technology center that will replace our smaller current facility. The new centre will serve technology needs not only of dentist, but also veterinarians and physical and occupational therapists. We believe our customers will be embracing technology at a steadily growing pace, and our extended technology centre will enable Patterson to meet their needs.
Turning now to Webster sales of our veterinarian unit increased 2% in the fourth quarter of fiscal 2010 to $162 million. We were generally pleased with Webster’s fourth-quarter performance, although revenues were affected by a shift in its sales mix towards agency sales of certain pharmaceuticals. This sales mix shift masked an increase in consumable sales that we believe would have been between 5% and 6% on a comparable basis.