Patterson panies(US:PDCO)2022-03-02 17:44Financial Data and Key Metrics Changes - Consolidated reported sales for the third quarter of fiscal 2022 were $1.6 billion, an increase of 2.9% year-over-year. Internal sales increased 4.3% compared to the prior year [37] - Adjusted earnings per share for the quarter were $0.55, with year-to-date adjusted earnings per diluted share of $1.56. The adjusted EPS guidance for fiscal 2022 was raised to a range of $2.08 to $2.13 per diluted share, representing a 10% year-over-year improvement [11][12] - Gross margin for the third quarter was 21.1%, up 20 basis points year-over-year and up 130 basis points sequentially from the second quarter [39] Business Line Data and Key Metrics Changes Dental Segment - Internal sales for the Dental segment increased 0.1% year-over-year, with adjusted operating margins at 10.1%, up 70 basis points from the previous year [46][51] - Internal sales of dental consumables decreased 1.8% year-over-year, with a notable decline in infection control products by approximately 20% [46][47] - Equipment internal sales increased nearly 2% year-over-year, driven by double-digit growth in CAD/CAM and digital technology products [18] Animal Health Segment - Internal sales for the Animal Health segment increased over 8%, with Companion Animal internal sales growing 12.4% [27][52] - Adjusted operating margins in the Animal Health segment were 3.4%, an increase of 10 basis points from the prior year [53] Market Data and Key Metrics Changes - The dental market is expected to return to historical growth patterns as the pandemic subsides, with strong demand for innovation in the marketplace [23][25] - The Companion Animal market is experiencing a significant increase in pet ownership, with nearly 1 million pets adopted in the U.S. during 2021, driving higher spending on veterinary care [30][31] Company Strategy and Development Direction - The company is focused on driving margin expansion through improved product mix, particularly in private label, equipment, technology, and software [66][76] - The company aims to capitalize on positive market fundamentals and is committed to making thoughtful investments to drive growth and value creation for shareholders [61][92] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing supply chain challenges, particularly in the core equipment category, but noted strong demand for products [72] - The company remains optimistic about the momentum in its business and the ability to execute its strategy effectively [61] Other Important Information - Free cash flow for the first nine months of fiscal 2022 was $57.7 million, an increase of $49.2 million over the same period last year [55] - The company declared a quarterly cash dividend of $0.26 per diluted share, returning $25.3 million to shareholders [56] Q&A Session Summary Question: Margin progression and future upside - Management characterized the margin progression as being in the middle innings, with opportunities for continued expansion in both business units [65] Question: February exit rates and current status - Management noted a return to pre-Omicron levels and incorporated potential impacts into fourth-quarter guidance [32] Question: Supply chain challenges and quantification of impact - Management indicated ongoing supply chain challenges, particularly with core equipment, but noted strong demand and a promising backlog [73] Question: Pricing environment in Animal Health - Management confirmed that cost increases were anticipated and that they have a strong process to pass on these increases to customers [81] Question: M&A interest and evaluation of targets - Management is actively pursuing strategic investments but is focused on finding the right fit in terms of strategy, finance, and culture [91]