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What You'll Want to Know About Patterson Companies' Mixed Q1 Results

By Keith Speights - Aug 29, 2019 at 3:00PM

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The dental and animal health products distributor beat earnings estimates, but narrowly missed revenue expectations.

Patterson Companies (PDCO 0.38%) was in the doghouse with investors after reporting its fiscal 2019 fourth-quarter results in June. Shares of the dental and animal health products distributor sank after it missed analysts' earnings estimates and provided disappointing fiscal 2020 guidance.

When the company announced its fiscal 2020 first-quarter results before the market opened on Thursday, it gave investors some things to like -- but some things to dislike as well.

Dog holding a toothbrush in its mouth

Image source: Getty Images

By the numbers

Patterson reported Q1 revenue of $1.33 billion, a slight decrease from the prior-year period's total of $1.34 billion. That also fell short of the $1.36 billion consensus estimate from Wall Street analysts.

The company reported net income of $30 million, or $0.32 per share, on a generally accepted accounting principles (GAAP) basis. This reflected a significant improvement from the net loss of $4.5 million, or $0.05 per share, in the prior-year period. 

On a non-GAAP adjusted basis, Patterson posted Q1 net income of $25.4 million, or $0.27 per share. This reflected a 6% increase from the prior-year period's adjusted net income of $24 million and a 4% increase from its earnings per share (EPS) of $0.26. Wall Street analysts had estimated that Patterson would announce adjusted EPS of $0.24.

Behind the numbers

Patterson experienced year-over-year revenue declines in both of its business segments. Animal health revenue slipped from $825.2 million in the first quarter of fiscal 2019 to $817.5 million in the recent quarter. Dental sales fell from $506.1 million to $501.1 million. 

The company's big bottom-line improvement stemmed in part from higher gross margins in the latest quarter combined with lower operating expenses. However, the most important factor behind Patterson's swing from a net loss to a profit was a large one-time investment gain and a lower legal reserve.

"Our results in the first quarter of fiscal 2020 reflect the impact of our continued actions to drive improved profitability in our core business, as we delivered the second consecutive quarter of year-over-year adjusted EPS growth," CEO Mark Walchirk said. "Despite experiencing modest internal sales growth in the quarter, we drove improved profitability in both of our business segments through operational improvements, effective mix management, and expense discipline."

Looking ahead

The company now anticipates GAAP net EPS for fiscal 2020 will be between $1.13 and $1.23, up from its previous guidance of between $0.99 and $1.09. It also reaffirmed its previous non-GAAP adjusted EPS guidance range of $1.33 to $1.43.

Patterson Companies continues to offer an intriguing twist on investing in healthcare. However, the company still has some work to do before its stock will be an attractive option for growth-oriented investors.

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