Shareholders of Patterson Companies (PDCO, Financial) have faced a challenging year with the stock down about 20% year-to-date. However, a better-than-expected Q4 earnings report has provided some much-needed relief. The dental and animal health product maker met EPS and revenue expectations and issued in-line FY25 EPS guidance, suggesting business stability despite high interest rates and macroeconomic uncertainties.
- Macroeconomic headwinds impacted Q4, notably in PDCO's dental equipment business, where internal sales declined by 12% due to soft demand in the CAD/CAM categories. Reduced equipment spending and unfavorable year-over-year comparisons also hindered growth.
- A major cybersecurity attack at Change Healthcare, PDCO's claims processing vendor, disrupted many dental practices, affecting PDCO's value-added services business. This incident negatively impacted adjusted EPS by $0.04.
- Despite these challenges, PDCO's Dental segment revenue decreased by just 3.8%, thanks to strength in the consumables business, which grew nearly 4% year-over-year. Excluding the deflationary effect on certain infection control products, growth was almost 6%.
- In the Animal Health segment, internal sales grew by approximately 3%, driven by the production animal business. This segment also saw operating margin expansion due to positive sales mix and disciplined cost management. Company-wide, gross margin contracted by 90 basis points year-over-year to 21.8%, primarily due to the revenue shortfall in Dental linked to the cybersecurity incident.
- PDCO's long-term strategy includes driving above-market revenue growth through investments in software and value-added services. Notable developments include the introduction of Patterson CarePay+ for patient financing and a partnership with Pearl to integrate pathology detection into PDCO's practice management software.
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