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Patterson Companies (PDCO)

Q4 2012 Earnings Call

May 24, 2012 10:00 am ET


Scott P. Anderson - Chief Executive Officer, President and Director

R. Stephen Armstrong - Chief Financial Officer, Executive Vice President, Principal Accounting Officer and Treasurer


John Kreger - William Blair & Company L.L.C., Research Division

Michael R. Minchak - JP Morgan Chase & Co, Research Division

Elliot Feldman - Barclays Capital, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Erin E. Wilson - BofA Merrill Lynch, Research Division

Jonathan Block - SunTrust Robinson Humphrey, Inc., Research Division

Steven Valiquette - UBS Investment Bank, Research Division

Jason M. Bednar - Robert W. Baird & Co. Incorporated, Research Division

S. Brandon Couillard - Jefferies & Company, Inc., Research Division

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Patterson Companies Fourth Quarter and Fiscal 2012 Conference Call. [Operator Instructions] This conference is being recorded today, May 24, 2012. And I would now like to turn the conference over to Scott Anderson, President and CEO. Please go ahead.

Scott P. Anderson

Thank you, Douglas. Good morning, and thanks for taking time to participate in our fourth quarter earnings conference call. Joining me today is Steve Armstrong, our Executive Vice President and Chief Financial Officer, who will review some highlights of our fourth quarter performance, following my opening remarks.

Since Regulation FD prohibits us from providing investors with any earnings guidance unless we release that information simultaneously, we provided financial guidance for fiscal 2013 in our press release earlier this morning. This 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 our other SEC filings, and we urge you to review this material.

Turning now to our fourth quarter results. Sales totaled $936.3 million, an increase of 6% from $883.8 million in the fourth quarter of fiscal 2011. Net income of $62.1 million, or $0.58 per diluted share, included incremental expense of $0.03 related to Patterson's Employee Stock Ownership Plan, or ESOP. Excluding this ESOP-related expense, fourth quarter earnings were $0.61 per diluted share. We included an ESOP expense reconciliation table in this morning's release that provides a full detail on this item.

Patterson's reported earnings of $62.7 million, or $0.53 per diluted share, in the fourth quarter of fiscal 2011. For fiscal 2012, consolidated sales rose [Audio Gap] to $3.5 billion. The additional sales week in the first quarter of fiscal 2011, which made that a 53-week period, negatively affected fiscal 2012 sales growth by approximately 2 percentage points.

Net income in fiscal 2012 [Audio Gap] $212.8 million, or $1.92 per diluted share, included $0.13 per share of ESOP-related expense. Excluding this expense, earnings were $2.05 per diluted share for the year. Earnings in fiscal 2011 were $225.4 million, or $1.89 per diluted share.

While on the topic of our recent operating results, I also want to mention that Patterson repurchased approximately 1.2 million shares during the fourth quarter under our 25-million-share buyback authorization that expires in 2016.

For the year, we acquired 12 million shares, with approximately 11 million shares remaining available for repurchase under this authorization. In addition, Patterson's quarterly cash dividend was increased 17% to $0.14 per share in March 2012, bringing our annual dividend rate to $0.56 per share.

Including share repurchases and quarterly dividends, Patterson returned $400 million to shareholders in fiscal 2012, reflecting our commitment to generating value for our stakeholders.

Now for the next few minutes, I will briefly review our fourth quarter operating results for each of our divisions. Each of the 3 businesses performed at planned levels during this period despite persistently soft and unsettled economic conditions both at home and abroad. We believe our ability to perform effectively in the current environment bodes well for Patterson's performance in a stronger economy.

Within Patterson Dental, sales of consumable supplies increased 3.5% before the impact of foreign currency exchange rate. This marks the fourth consecutive quarter of solid consumable sales growth, an indication of the continued strengthening of the overall North American dental market.

We are also encouraged by the 6% improvement in fourth quarter sales of dental equipment, given the fact that equipment sales were particularly robust in the year-earlier period. In addition to mid-single-digit sales growth of basic equipment, we benefited from strong double-digit sales growth of CEREC systems, which was generated primarily by new users. We believe this reflects the growing acceptance of CAD/CAM and other new digital technologies [Audio Gap] which are enabling dentists to strengthen productivity, generate additional income and improve clinical outcomes.

We estimate the CEREC systems have now penetrated only about 12% of the North American dental market, which means this product line has significant sales potential going forward. To help spur continued demand for CEREC and other next-generation products, we will continue to focus our marketing initiatives on Patterson Dental's industry-leading lineup of technology offerings.

Fourth quarter sales of Webster Veterinary increased 13% to $207.5 million, a record level for this unit. The August 2011 acquisition of American Veterinary Supply Corporation, a full-service veterinary distributor located on Long Island, accounted for 2 percentage points of the unit's sales growth for the period. Webster's fourth quarter sales growth was driven by robust demand for consumables supplies, including flea/tick and heartworm medications as the relatively mild winter led to an early onset of these summer pests.

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