What's in Store for Patterson Companies (PDCO) in Q1 Earnings?

Patterson Companies, Inc.’s PDCO first-quarter fiscal 2020 results are expected to release on Aug 29, before the market opens. While its core segments — Patterson Dental and Animal Health — are expected to impress, a highly competitive dental industry raises concern.

The company delivered a negative earnings surprise of 7.5% in the last reported quarter, the average trailing four-quarter negative earnings surprise being 6.2%.

Which Way Are Estimates Headed?

For the quarter to be reported, the Zacks Consensus Estimate for the company’s revenues is pegged at $1.37 billion, suggesting growth of 2.4% from the year-ago reported number. The same for earnings is pinned at 25 cents, indicating a decline of 3.9% from the year-ago reported figure.

Patterson Companies, Inc. Price and EPS Surprise

 

Patterson Companies, Inc. Price and EPS Surprise

Patterson Companies, Inc. price-eps-surprise | Patterson Companies, Inc. Quote

Let’s delve deeper.

Factors to Consider

We expect consumable and private label businesses to have witnessed robust growth in the fiscal first quarter, thereby driving Patterson Companies’ core Dental Supplies segment.

In the last reported quarter, the segment accounted for 39.1% of revenues. For the quarter to be reported, the Zacks Consensus Estimate for the segment’s revenues is pegged at $514 million, up 1.6% year over year.

Notably, the segment saw year-over-year rise in revenues in the last reported quarter, after more than two years of dismal performance. This reflects that management has been stabilizing the unit through continued investments. Notably, management expects a range of new offerings within the segment to have driven results in the quarter to be reported. Also, growth across the equipment category and consumables is expected to have boosted the segment’s internal growth in the quarter.
The Animal Health segment, the leading distributor of veterinary supplies to clinics, public and private institutions, is also expected to have boosted the fiscal first-quarter results.

Notably, the segment accounted for 60.2% of revenues in the last reported quarter. For the quarter to be reported, the Zacks Consensus Estimate for the segment’s revenues is pinned at $850 million, up 3% year over year.

Management expects Companion Animal and Production Animal businesses to have driven the segment in the quarter. Also, the company is constantly adding capabilities to strengthen the Animal Health arm. It has been capitalizing on significant market opportunity in Animal Health by offering a full and comprehensive suite of solutions. For instance, Patterson Companies’ NaVetor practice management software and partnership with VetSource are developments, which are expected to have driven results for the quarter to be reported.

However, Patterson Companies faces significant competition in the U.S. dental products industry. Apart from Henry Schein Dental, a unit of Henry Schein HSIC, the company faces stiff rivalry from distributors that operate on a regional level and hundreds of small local distributors. Notably, such an intensely competitive environment might weigh on Patterson Companies’ margins. In fact, for fiscal 2020, management expects gross margin to decline, owing to continuous surge in operating expenses.

What Does Our Model Say?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the quarter. However, this is not the case here.

Earnings ESP: Patterson Companies has an Earnings ESP of -2.89%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks Worth a Look

Here are a few stocks, which have the right combination to come up with an earnings beat this season.

The Cooper Companies COO currently has an Earnings ESP of +1.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores BURL has an Earnings ESP of +0.17% and a Zacks Rank #2 at present.

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Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report
 
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