Patterson Companies Inc PDCO
Q2 2013 Earnings Call Transcript

Transcript Call Date 11/20/2012

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Patterson Companies' Earnings Conference Call. During today's presentation, all participant lines will be muted. Following the presentation, the conference will be opened for questions. Today's conference is being recorded, November 20, 2012.

I would now like to turn the conference over to Scott Anderson, President and CEO. Please go ahead.

Scott P. Anderson - President and CEO: Thank you, Alisha. Good morning, and thanks for taking time to participate in our second quarter earnings conference call. Joining me today is Steve Armstrong, our Executive Vice President and Chief Financial Officer. We will review some highlights of our second 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've 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 second quarter results; Patterson reported consolidated sales of $867.2 million for the second quarter of fiscal 2013, ended October 27, an increase of 1% from $856.9 million in the year earlier period. Net income of $45.5 million or $0.44 per diluted share compared to $49 million or $0.43 per diluted in the second quarter of fiscal 2012.

Our earnings were affected primarily by below planned sales of dental equipment as well as the absorption of $3 million of incremental interest expense related to Patterson's debt issuance in the third quarter of fiscal 2012. As I will discuss during the next few minutes, several areas of our business including dental technology equipment, and Webster Veterinary performed well in the second quarter. On balance, however, we are not satisfied with our recent operating results, which did not meet our expectations.

Patterson Dental, our largest business, reported sales of $549.1 million, which was substantially unchanged from last year's second quarter. Within this unit, sales of consumable supplies rose 1%, which was consistent with our internal forecast. We believe the consumable market is stable, but until unemployment is significantly reduced and consumer confident improves, it is unrealistic to expect that the underlying market for consumables can perform much beyond current levels.

Sales of basic dental equipment including chairs, units and lightings, were well below forecasted levels, making this product category the primary reason behind our second quarter sales shortfall. While we are encouraged that the dental practitioners have been willing to expend funds of technology related products over the past several years, the basic equipment market recovery has been at a much lower pace.

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