Patterson Companies, Inc. (NASDAQ:PDCO) Q2 2023 Earnings Call Transcript

A.J. Rice: Okay. Maybe just the other follow-up question would be when you guys talk about the sort of macro challenges of inflation, interest rate rising, and then sort of the uncertainty about the economy generally, I understand the issues you have on inflation and understand the issues you had the interest rates rising with financing and so forth. But what about the slowdown in the economy? It’s hard for me to look at your numbers, and see that you’re seeing any impact there. Consumables, you’re describing steady, and your equipment orders are strong. So is there any place today that you feel the economic uncertainty is impacting the business? Or is it more of we’re just mindful of this and we’re keeping an eye on it?

Don Zurbay: I would characterize it more as the latter. Obviously, when we talk about impacts on our market and the macroeconomic conditions relative to the markets we’re in, I mean, I think it’s kind of on the margin. The thing we like about our portfolio, the thing we like about being in both the Dental and Animal Health business, and frankly, all three businesses, if you really break Animal Health down into companion and production, these are resilient markets. They proven that in the past. I think and that’s proving out here now. So, that’s how we would look at it. I mean compared to a lot of industries, like I said, when we talk about move — moves, they’re small moves. They’re things that we’re monitoring, but we don’t expect a significant impact.

I mean, in terms of the rest of the impacts of the economy, I mean, you mentioned interest rates, I think interest rates really affect the equipment portfolio, as we mentioned, to some extent, but the real impact for interest rates on us is on our debt. We have a responsible debt structure where we have roughly 50% of our debt fixed, 50% variable, but the interest rate increases that we’ve been seeing have had an impact on the variable side. And I would estimate those at maybe $0.05 of EPS that we’re dealing with, but that we’re overcoming as we talked about reaffirming our guidance, we’re really looking at other parts of the business to cover that.

A.J. Rice: Okay, that’s helpful. Thanks so much.

Operator: Your next question comes from the line of Jon Block from Stifel. Your line is open.

Jonathon Block: Thanks, guys. Good morning. Maybe I’ll just start on the Animal Health side of the business. The overall AH’s weren’t too far from our expectations, but production animal, Don, as you mentioned at low single digits. I know you have the 11% year ago comp, but why the drags in headwinds now? I believe that when off patent, call it well over a year ago, and so your first feeling that now why? And if so, should we expect that to sort of last for the next two or three quarters until arguably, you lap that?

Kevin Barry: Yes, hey, Jon, it’s Kevin, I can jump in and Don can add. The Draxxin issue, you’re right, it came off patent last year. I think the impact sort of builds over time, right. I think as those products come off patents, it’s not a quick switch. And I think our production animal team, who — that the team that executes very well out in the market has done a good job of managing that transition over the past 9 months here. And so, the impacts are accumulated for us over the fiscal year and I think this is the first quarter where we really saw real sizable impact on that category from the generic — generics coming in. So I think we will see this dynamic in the next couple of quarters as we comp over the prior periods. But it’s obviously built into our guidance and that team is executing really well to keep the — keep our customers operating well and helping them understand what’s going to be best for their operations.

Jonathon Block: Got it. I’ll jump to my second question and that was helpful. So on dental consumables ex infection prevention, roughly the past five quarters, the growth has been plus three plus three plus three plus two, and now plus one. And arguably, the price contributions probably improved along the way. So maybe a couple questions here. When you see the low-single-digit long-term for dental consumables, is that inclusive of infection prevention or exclusive? And then also, is that long-term of fiscal ’24 timeframe? And if so, how do you get there, considering price may play less of a role next year relative to fiscal ’23? Thanks, guys.

Don Zurbay: Yes, we would consider it over the long-term inclusive of the PPE dynamic. As we mentioned, that’s kind of moderate as we move forward. And when you’re talking about the long-term, I’d say that’s how you’d look at that. Sorry, Jon, what was the second part of that question?