Executive Summary

Q2 FY2025 was mixed: consolidated net sales rose 1.3% to $1.674B, but GAAP EPS fell to $0.30 and adjusted EPS to $0.47, pressured by lower dental equipment sales and continued Change Healthcare cyberattack impact on dental value‑added services .
Management cut FY2025 EPS guidance: GAAP to $1.83–$1.93 (from $2.00–$2.10) and adjusted to $2.25–$2.35 (from $2.33–$2.43), citing persistent dental market pressure; Animal Health performance and cost actions partly offset headwinds .
Company announced a strategic alternatives review (including potential sale/merger), a notable stock catalyst; management will not comment further until appropriate .
Cost actions are underway (rightsizing corporate headcount) with expected annual savings of ~$16M; those savings and lower interest expense/share count should aid H2 EPS trajectory as Change Healthcare impacts lap in Q4 .

What Went Well and What Went Wrong

What Went Well
- Animal Health grew and expanded margins: segment internal sales +1.9% and adjusted operating margin +30 bps to 3.9% YoY; value‑added services rose 17.1% internally .
- Dental consumables stabilized: internal sales +0.7% YoY with negligible deflation impact; management believes share gains continue in the category .
- Strategic initiatives: two Animal Health acquisitions (Infusion Concepts and Mountain Vet Supply), extended PDS Health relationship, and ongoing software investments (Fuse, Eaglesoft, Dolphin) to drive long‑term margin mix improvement .
What Went Wrong
- Dental equipment decline and VAS disruption: dental equipment internal sales −7.5% and dental value‑added services −2.7% due to Change Healthcare; consolidated adjusted gross margin fell to 20.0% (−60 bps) .
- Guidance cut: FY2025 GAAP/adjusted EPS lowered amid muted dental equipment spending and lingering Change Healthcare effects .
- Q2 profitability compressed: GAAP operating margin 2.2% and adjusted operating margin 3.6% (both down YoY), primarily from higher‑margin dental VAS shortfall and equipment softness .

Financial Results

Metric	Q2 FY2024 (Oct 28, 2023)	Q1 FY2025 (Jul 27, 2024)	Q2 FY2025 (Oct 26, 2024)
Net Sales ($USD Billions)	$1.653	$1.542	$1.674
GAAP Gross Margin (%)	20.5%	20.3%	19.6%
Adjusted Gross Margin (%)	20.6%	20.1%	20.0%
GAAP Operating Margin (%)	3.4%	1.9%	2.2%
Adjusted Operating Margin (%)	4.2%	2.3%	3.6%
GAAP Diluted EPS ($)	$0.42	$0.15	$0.30
Adjusted Diluted EPS ($)	$0.50	$0.24	$0.47
Effective Tax Rate (GAAP/Adjusted)	25.3% / 25.1%	23.6% / 23.7%	24.9% / 24.7%
Dividend per Share ($)	$0.26	$0.26	$0.26

Estimates comparison: S&P Global consensus estimates could not be retrieved due to a Capital IQ mapping issue for PDCO, so beat/miss vs consensus is unavailable.

Segment breakdown – Q2 FY2025 vs Q2 FY2024:

Segment/Category	Q2 FY2025 Sales ($mm)	Q2 FY2024 Sales ($mm)	Internal Sales Growth (%)
Dental – Consumables	$348.9	$346.5	+0.7%
Dental – Equipment	$185.2	$200.1	−7.5%
Dental – VAS & Other	$77.6	$79.8	−2.7%
Dental – Total	$611.7	$626.4	−2.3%
Animal Health – Consumables	$998.3	$972.9	+1.6%
Animal Health – Equipment	$30.6	$30.2	+1.4%
Animal Health – VAS & Other	$25.7	$21.6	+17.1%
Animal Health – Total	$1,054.6	$1,024.6	+1.9%
Corporate – VAS & Other	$8.1	$1.8	n/m; internal +62.0%

KPIs and cash flow (YTD through Q2):

KPI	1H FY2024	1H FY2025
Free Cash Flow ($mm)	$(29.3)	$12.2
Cash from Ops ($mm)	$(485.3)	$(458.7)
Capital Expenditure ($mm)	$33.5	$26.2
Deferred Purchase Price Collections ($mm)	$489.5	$497.0
Shareholder Returns YTD ($mm)	$—	$96.2 (dividends + buybacks)
Quarter Dividend Declared ($/sh)	$0.26	$0.26

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
GAAP EPS	FY2025	$2.00–$2.10 per diluted share	$1.83–$1.93 per diluted share	Lowered
Adjusted EPS (Non‑GAAP)	FY2025	$2.33–$2.43 per diluted share	$2.25–$2.35 per diluted share	Lowered
Adjusted EPS excludes (after‑tax)	FY2025	Deal amortization ~$29.1M ($0.33/sh)	Deal amortization ~$29.9M ($0.34/sh); integration & restructuring ~$7.6M ($0.09/sh); inventory pre‑payment write‑off ~$2.8M ($0.03/sh); investment gain ~$2.9M (−$0.03/sh)	Expanded exclusions
Dividend per share (quarterly)	Ongoing	$0.26	$0.26	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2024, Q1 FY2025)	Current Period (Q2 FY2025)	Trend
Strategic alternatives	No review discussed in Q4/Q1	Announced evaluation of potential sale/merger/combination; no further comment until appropriate	New catalyst
Change Healthcare impact (Dental VAS)	Q4 EPS −$0.04 from outage; move to new claims provider; lingering impact expected Q1, improving by Q4	Continued drag on VAS; adjusted GM −60 bps; expecting moderation in Q3 and a favorable comp in Q4; new platform monetizes slightly less per customer	Improving, laps in Q4
Dental equipment demand	Q4: soft from tough comps and limited innovation; cautious FY2025 outlook	Internal sales −7.5% YoY; need further rate declines and more innovation to reaccelerate	Remains soft
Dental consumables	Q4: ~4% growth; deflation moderating	+0.7% YoY; deflation negligible; market flat to slightly down, PDCO gaining share	Stable to slightly positive
Animal Health performance	Q4: production strong; companion moderated; AH margins up	Internal +1.9%; production mid‑single digit; AH adj OM +30 bps YoY	Positive momentum
Cost actions	Q1: pursuing operational cost discipline	Rightsized corp headcount; ~$16M annual savings expected; partial Q2 benefit, full H2 benefit	Savings ramping
Software/AI and payments	Q4: Pearl Second Opinion AI into Eaglesoft; CarePay+; Turnkey enhancements	Continued investment in Fuse/Eaglesoft/Dolphin; external integrations: Bola AI Voice‑AI (Aug) and Rectangle Health payments (Dec)	Building ecosystem
Tariffs/macro	Q4/Q1: macro cautious; elevated rates	Monitoring tariffs; direct imports small; working with manufacturers	Watchful

Management Commentary

“Our second quarter results were mixed, given the challenging end market environment… we took dedicated cost management actions to optimize our operations… invested in enhancing our higher margin products and services.” – Don Zurbay, CEO .
“We expect this realignment of our organization will generate annual cost savings of approximately $16 million.” – Don Zurbay .
“Adjusted net income… $41.8 million or $0.47 per diluted share… decrease… related to lower sales of dental equipment and the continued negative impact of the cybersecurity attack on Change Healthcare.” – Kevin Barry, CFO .
“We are evaluating potential strategic alternatives to maximize shareholder value… we cannot assure that such evaluation will result in a transaction.” – Company statement .

Q&A Highlights

Guidance reduction drivers: market headwinds (largely dental) outside control vs. controllable offsets (OpEx discipline, logistics efficiency, pricing); Change Healthcare impact lapping in Q4; interest expense down and share count lower aiding H2 EPS .
Dental equipment outlook: recovery likely needs further rate declines and renewed manufacturer innovation; October DS World helped but market still soft .
Change Healthcare status: majority migrated to new provider; per‑customer monetization slightly lower; Q4 FY2024 impact was −$0.06 to EPS cohort; comp favorability expected in Q4 FY2025 .
Animal Health: no major changes in buy‑sell/agency assumed; solid manufacturer relations; new products in H2 to support growth .
Cost savings cadence: ~$16M annualized with limited Q2 benefit; full run‑rate expected in H2 FY2025 .

Estimates Context

S&P Global consensus for PDCO could not be retrieved due to a Capital IQ mapping issue for the ticker, so beat/miss comparisons versus Wall Street consensus are unavailable for Q2 FY2025 and the prior two quarters. As a result, estimate-driven conclusions are not provided.

Key Takeaways for Investors

Strategic alternatives review is a clear stock catalyst; paths include sale/merger/combinations, but timing/outcome uncertain .
H2 set‑up improves: ~$16M cost savings ramp, lower interest expense/share count, and Change Healthcare impact laps in Q4 – favoring EPS recovery into year‑end .
Dental equipment remains the swing factor; watch rates and innovation cycles to gauge reacceleration; consumables execution and share gains cushion the segment .
Animal Health continues to be a stabilizer with margin expansion and production strength; H2 companion animal product launches could add top‑line support .
Software/value‑added services strategy is intact despite short‑term Change Healthcare disruption; integrations (AI diagnostics, voice charting, payments) should improve margin mix over time .
Guidance reset lowers the bar; execution on cost, software monetization, and Animal Health mix can drive relative upside if dental equipment stabilizes .
Dividend ($0.26/qtr) and buybacks ($96.2M YTD) signal continued capital returns while maintaining flexibility for M&A .

Citations:
Press release and 8‑K Q2 FY2025: .
Q2 FY2025 call transcript: .
Prior quarter references (Q1 FY2025): .
Prior quarter references (Q4 FY2024): .
Adjacent press releases: Bola AI Voice‑AI integration (Aug 26, 2024) ; Rectangle Health payments integration (Dec 10, 2024) .

PATTERSON COMPANIES, INC. (PDCO)·Q2 2025 Earnings Summary