PATTERSON COMPANIES, INC. (PDCO)·Q4 2024 Earnings Summary

Executive Summary

• Q4 FY2024 revenue was $1.72B (+0.1% YoY) and adjusted EPS was $0.82; GAAP EPS was $0.74. Both GAAP and adjusted EPS were reduced by ~$0.04 from the Change Healthcare cyberattack that disrupted Dental value‑added services billings .
• Dental consumables remained the bright spot (+3.7% internal), while Dental equipment (-11.9% internal) and Dental value‑added services (-11.0% internal) weighed on mix; Animal Health delivered 2.5% internal sales growth, led by production animal .
• Management initiated FY2025 guidance: GAAP EPS $2.00–$2.10, adjusted EPS $2.33–$2.43 (excludes ~$0.33/share amortization), with low single‑digit sales growth, roughly flat operating margin, 24–25% tax rate, slightly higher interest expense, and lower average share count YoY; Change Healthcare headwind is largest in Q1 FY25, easing through Q3, with a positive comp in Q4 .
• Potential stock catalysts: resilient Dental consumables share gains, production animal strength, pace of Dental equipment recovery (macro/innovation dependent), and execution on software/value‑added services monetization now that claims processing has transitioned to a new provider .

What Went Well and What Went Wrong

• What Went Well

  • Dental consumables delivered sustained above‑market growth (+3.7% internal in Q4; nearly 4.5% for FY2024, ~6% ex infection‑control deflation), reflecting steady patient traffic, strong execution, private label traction, and DSO investments .
  • Animal Health: production animal grew high single digits in Q4 (+8.8% internal), and segment adjusted operating margin expanded to 5.8% in Q4 and 4.4% for FY2024, driven by mix, rebate optimization, private label, and expense discipline .
  • Strategic tech investments advancing: CarePay+ in Dental, Pearl AI “Second Opinion” integration into Eaglesoft, Turnkey Insights for production animal, and a relationship with Weave to enhance vet client engagement .

• What Went Wrong

  • Dental equipment sales declined 11.9% internally in Q4 on tough comps, macro pressures, and a thinner innovation cycle; management remains cautious on near‑term equipment demand .
  • Dental value‑added services fell 11% internally, primarily from the Change Healthcare cyberattack; Q4 EPS impact was ~$0.04, with lingering volume headwinds while onboarding an alternative claims provider .
  • Consolidated margins compressed YoY: Q4 gross margin 21.5% (Adj: 21.8%) and operating margin 5.1% (Adj: 6.0%), reflecting lower Dental equipment/value‑added services contribution and elevated software investments .

Financial Results

Segment sales

KPIs and mix

Non‑GAAP adjustments and context: Adjusted results exclude deal amortization and realign interest rate swap mark‑to‑market to net sales; management notes the swap has minimal impact on net income .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our fourth quarter results were driven by strong performances in our dental consumables and production animal businesses… Our outlook reflects the continued confidence in our strategy focused on investing to drive enhanced growth and profitability over the long term…” — Don Zurbay, CEO .
• “During the outage, Patterson suspended charging for [claims processing] service, resulting in a $0.04 impact to both our GAAP and adjusted EPS in the fourth quarter.” — Don Zurbay, CEO .
• “Adjusted operating margins in our Animal Health segment in fiscal fourth quarter were 5.8%… driven by… operational efficiencies, expense discipline, private label, and maximizing rebate performance.” — Kevin Barry, CFO .
• “We are being cautious on dental equipment… less visibility on an innovation cycle this year.” — Management Q&A .

Q&A Highlights

• Dental consumables share gains: Management cited at least six quarters of sustained above‑market growth, supported by steady traffic, sales execution, private label, and DSO investments; ex PPE, FY growth ~6% .
• Dental equipment outlook: Teams executing well but cautious near term given macro and lighter innovation; expect improvements when innovation and macro tailwinds return .
• Change Healthcare impact cadence: ~$0.04 EPS headwind in Q4; slightly less in Q1 FY25, tapering in Q2–Q3, turning to a favorable comp in Q4; revenue lost during outage is not recoverable; PDCO moved to a new provider .
• Companion animal strategy: Intentional mix and manufacturer/customer decisions to prioritize contribution margin, moderating near‑term top line but supporting profit; still view long‑term market growth as positive .
• Software/OpEx: Peak start‑up costs for DCs/ERP are behind; continuing investment in the commercial software franchise (Eaglesoft/Fuse/ortho) will be a sustaining OpEx headwind as products commercialize .

Estimates Context

• S&P Global consensus (EPS and revenue for Q4 FY2024 and FY2025) was unavailable due to a data mapping issue, so we cannot quantify beat/miss versus Street for this quarter. Management noted that excluding the ~$0.04 EPS impact from the Change Healthcare incident, underlying Q4 EPS would have exceeded last year, and FY EPS would have landed at the high end of prior guidance, which may influence estimate adjustments .
• Implications: Street models should incorporate the FY2025 transition dynamics (claims processing migration), CFO’s guidance framework (low single‑digit sales growth, roughly flat operating margin, 24–25% tax rate, slightly higher interest expense, and lower average share count), and the quarterly cadence of the Change Healthcare headwind (largest in Q1, easing thereafter) .

Key Takeaways for Investors

• Resilient core with consumables share gains: Dental consumables growth continued above market; sustained execution and private label support mix resilience through macro cycles .
• Production animal is an earnings anchor: Strong growth and margin expansion offset Dental equipment softness; watch for continued rebate/private label leverage .
• Near‑term headwind is transitory: The Change Healthcare disruption reduced Q4 EPS by ~$0.04 and will weigh on Q1 FY25 the most, but is expected to normalize by Q4 FY25 under the new provider .
• Equipment recovery hinges on macro and innovation: Management remains cautious given rates and a lighter innovation year; exclusive Solea CO2 laser distribution is a potential medium‑term catalyst .
• Software/value‑added services are strategic: CarePay+, Pearl AI, Turnkey Insights, and Weave expand monetization and customer stickiness; as volumes normalize post‑claims transition, contribution should rebuild .
• FY2025 setup: Low single‑digit sales growth, roughly flat operating margin, 24–25% tax rate, slightly higher interest expense, and a lower share count set a modest EPS growth path (adjusted EPS midpoint implies ~3% YoY) .
• Trading lens: Near‑term prints may be choppy (Q1 FY25 headwind, equipment caution), but sustained consumables share gains, production animal profitability, and execution on software could drive estimate stability and multiple support as the claims headwind fades .

Notes:

• Press release figures and reconciliations are from the Q4 FY2024 8‑K and exhibit; the Q4 FY2024 call transcript provides additional qualitative and adjusted margin context .
• Prior‑quarter comparisons use Q3 FY2024 8‑K and call materials for trend analysis .
• S&P Global consensus estimates were unavailable for PDCO this quarter, so we did not present beat/miss columns.