Patterson Companies Earnings Call Insights: Dental Equipment and Medical Side

Patterson Companies, Inc. (NASDAQ:PDCO) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Dental Equipment

Kevin Ellich – Piper Jaffray: Just wanted to start off with dental equipment obviously you have the tough comp from the CEREC trade-up program. But just wondering what else did you guys see and what was impacting it and how did basic dental perform, basic dental equipment perform this quarter?

Scott P. Anderson – Chairman, President and CEO: First of all I talk about CEREC, because that had the biggest impact in the quarter. It really came in right on our internal plan and the early four things that went on in the quarter around CEREC number one is we placed all new Omnicams in our training centers as well as established new demonstration units with all of our sales people in our branches. Two as we began to deliver Omnicams to customers trading up from Bluecam we have a substantial backlog of customers to get to in the coming quarters, which we are very excited about. Three is we also sold and installed new Omnicam units to new customers and four I think is one of the really important points as we really worked over this first quarter to normalize our inventory level of CEREC products to position ourselves to meet the ongoing demand throughout our entire fiscal year. So we feel very good about our CEREC pipeline and we expect double-digit growth in our fiscal year. I would also note that Sirona has been stellar in our agreed upon delivery schedule and we remain on track with that. On the core equipment business, it was down slightly in the quarter coming off really six month run of strong business but it still sort of bumps along the same level that it’s been at for really the last three years. I would say we’re cautiously optimistic though in what we see in the pipeline already out of the gate in our second quarter and feel good about this market conditions going into the end of the calendar year.

Kevin Ellich – Piper Jaffray: And then Scott, your comment about expecting double-digit growth for the year is that just on the CEREC sales or is that for all of equipment?

Scott P. Anderson – Chairman, President and CEO: I think when you put all of our equipment together, we expect to get there by the end of the fiscal year obviously strong double-digit sales in CEREC and our digital products and mid-single-digit sales for our core equipment piece…

Kevin Ellich – Piper Jaffray: And then, consumables are showing nice recovery, just wondering if there is anything you can callout that’s driving that or is it just more macro recovery? And then, also were there any pockets of the country that performed better than the others?

Scott P. Anderson – Chairman, President and CEO: We feel real good about the consumable story, this is now six months of solid growth and it feels like its strengthening across all product lines. There are certain pockets of the country that are stronger than others. If 100 million people lived in North Dakota, things will be really good. But it’s I would say we really take sort of a macro look at it and we feel like the underlying market is starting to grow and I think that just lends to the thesis of stability in the dental market and really positive things in this space over the next 10 to 15 years.

Kevin Ellich – Piper Jaffray: Do you think we’ll see continuation of this kind of 3% type growth for the year?

Scott P. Anderson – Chairman, President and CEO: I would anticipate that.

Kevin Ellich – Piper Jaffray: Then, just a quick one for Steve, NVS, obviously you guys completed that deal, I think annual revenues were kind of in that 270 range Steve, if I’m correct, is that kind of what you’re expecting on a pro forma basis for the year?

R. Stephen Armstrong – EVP, CFO and Treasurer: Actually, NVS generates revenue of nearly $500 million, (indiscernible) about GBP300 million. We’re expecting about roughly 75%, 80% of that for the year.

Medical Side

Lisa Gill – JPMorgan: I actually just had two questions. My first would just be around the medical side. Can you talk about what you’re seeing on the sales trends and obviously bringing in a new head of that sales, what are your expectations for this year in the guidance around the turnaround, Steve or Scott?

Scott P. Anderson – Chairman, President and CEO: Sure, we’re excited to have Mike join the team and I’ve been very impressed by all of the folks in the Medical division over the last five months as I’ve been sort of the interim leader I think we’ve got a very solid plan for this year and I’m confident in the ability of the management team to deliver on it. We are taking some action in the European business that we worked on during our strategic review over the last year. We like this business a lot because we feel number one we have such a strong competitive position but we also really like the long term trends in terms of the aging population. So I feel like Mike’s sort of marching orders are to move quickly with the team in place and he doesn’t need a whole lot of time to evaluate where the business is at because we’ve been working on that for the last six months and he’s absolutely in agreement with the direction we are going to take.

Lisa Gill – JPMorgan: What do you say Scott that what’s been happening with the medical side of the business, what’s been the key drivers or do you think that you think you can turn around at Patterson not the right product to the right participant or is it more of overall the economic recovery, I mean just help me to understand what are going to be the key drivers to turning this around. I know you talked about the divestitures in getting rid of – somewhat new sales are being more focused in Europe. What are some of the other key variables as you really try to turn the business around?

Scott P. Anderson – Chairman, President and CEO: I’ll start with the external factors the external factors are this has been a tough market and tough industry for the last 24 to 36 months as the affordable healthcare has been enacted and austerity measures particularly in the U.K. have been enacted. So we know there has been an adjustment in the health care system but that doesn’t change the fact that there’s going to be very strong underlying demand for physical and occupational therapy, modalities, and the products that go with that. So, we’re comfortable that we can weather that external pressure. From an internal standpoint, our Medical business is a bit of a complex business. We have a lot of things going on in terms of both distribution and some light manufacturing and one of the things we’ve worked on over the last 6 to 12 months is really to start to tighten the focus of who we are and what we do in that business and this will be a year where the team executes on that.

Lisa Gill – JPMorgan: Then my second question would just be around your comment around capturing market share on the dental side of the business. If we look at your consumable sales, they’ve been, here in this quarter, roughly about the same as your largest competitor. So, is it – are you capturing market share from the smaller guys? How should we think about the market right now?

Scott P. Anderson – Chairman, President and CEO: Yeah, I think we’re growing a little faster than the market right now, Lisa, and we look at that as an ongoing trend. We’re excited about the story we have to tell to our customers in terms of what Patterson can do to really help dentists grow their practices and take advantage of what is going to be an environment of very strong demand for dental care going forward. We are an absolute leader on the equipment side of the business with over 50% market share of capital goods and as that market rebounds, we’re excited to really be a leader in that recovery. And then, you couple that with our position on technology with CEREC and CAD/CAM and digital x-ray. We think all of those things put together, puts us in a strong position to grow faster in the market for many years to come.