Patterson Cos. President and CEO Mark Walchirk bluntly assessed the company's first-quarter results: They did not meet expectations.
The Mendota Heights-based distributor of dental and animal health supplies lost $4.5 million, or 5 cents per share, after earning $30.8 million, or 33 cents per share in the first quarter last year.
The company had to record a $28.3 million reserve for an anticipated legal settlement. Accounting for that reserve and deal amortization costs, adjusted earnings were 26 cents per share, compared with 44 cents a year ago and the 34 cents analysts were expecting.
For the period ended July 28, the company increased revenue 2.5 percent to $1.3 billion. Internal sales adjusted for currency exchanges and product-selling relationships increased by 2.3 percent.
But Walchirk was more concerned with earnings and gross-margin declines.
"While our ongoing initiatives to improve the customer experience and enhance sales execution helped drive improved top line performance, these results were offset by competitive pricing pressures, which negatively impacted our margins," Walchirk said in the earnings release.
Patterson also updated its earnings guidance for the remainder of their fiscal 2019. The company lowered its guidance for earnings to 84 to 94 cents per share after offering initial guidance of $1.43 to $1.53 per share when announcing the fourth-quarter results in June. The new adjusted earnings per share moves to $1.40 to $1.50 per share, down from the initial guidance of $1.73 to $1.83 per share.
Patterson Cos. operates two business segments. The animal health segment, which accounted for about 62 percent of total revenue in the quarter, was a bright spot with internal sales increasing 6 percent to $825.2 million.
Sales of the dental segment continued to struggle at $506.1 million, down 2.7 percent compared with last year.
In February 2016, Patterson and two main dental-supply competitors were made part of class-action lawsuit alleging they conspired against other competitors. Walchirk told analysts on the earnings call that Patterson believes the claims are without merit and they are not admitting to any liability but decided to enter into settlement discussions.
Patterson hasn't entered into a definitive court-approved settlement in the case but began discussions in August and made the $28.3 million reserve to cover potential claims.
Shares of Patterson closed Thursday down 5 percent at $22.54. Year-to-date shares are down 35.3 percent, and over the past 52 weeks shares have traded in the range of $20.23 to $40.90 per share.