Amid financial struggles, Minnesota-based Patterson considers merger, sale or other alternatives

Patterson Cos. on Thursday announced a “review of strategic alternatives” after its second-quarter profit fell by one-third.

The result could be a merger, sale or partnership for the dental and veterinary supplier, company CEO Don Zurbay said in a news release. Shares were up in early trading.

The Mendota Heights-based company’s dental and veterinary end markets continue to be challenged, the company said, and prompted the review of available options to increase shareholder value.

The share price closed at $22.83 a share, up 4.3% Thursday. However, share value is down more than 16% in 2024.

The strategic review announcement came with the company’s release of second-quarter financial results.

On an earnings call, Zurbay said Patterson would not answer questions about the review until officials determine that full disclosure is warranted. When analysts pushed for details, he largely avoided responding other than to say the decision was made to maximize shareholder value.

Patterson’s businesses were hit hard by the pandemic. And in the news release, the company said its earnings continue to be hindered by costs associated with the cyberattack on UnitedHealth Group’s Change Healthcare.

Second-quarter earnings attributable to Patterson were $26.8 million, or 30 cents a share, compared with $40 million, or 42 cents a share, in the same quarter last year.

While profits dropped by a third, the company managed a small revenue increase for the quarter. Total sales were up 1.3% overall to $1.7 billion.

Sales for Patterson’s animal health segment rose 2.9% to $1.1 billion in the second quarter, while dental segment sales were $611 million, down 2.3% from the same period a year ago

Overall sales modestly beat analyst expectations, but adjusted earnings for the quarter were 47 cents a share and missed analyst consensus of 49 cents.

Patterson also lowered its guidance for the remainder of its fiscal year. It now expects adjusted earnings in the range of $2.25 to $2.35 a share, down 3.4% at the midpoint of the previous range given.

Michael Cherny, who covers Patterson as an analyst for Leerink Partners, was not surprised by the lower guidance, but he welcomed the surprising strategic review announcement.

“For a stock that has disconnected from historical valuations in what is an admittedly challenging end market, this review could shine a light on this disconnect,” Cherny wrote

Patterson ranked 16th on the Minnesota Star Tribune’s list of Minnesota’s largest public companies.

Patterson distributes consumable products and equipment to dental and veterinary offices. Founded in 1877 in Milwaukee to supply dental and medical supplies, the company moved its headquarters to Minnesota in 1891. For much of its history, Patterson distributed dental and medical supplies and equipment, but in 2001 it acquired Webster Veterinary business and, in 2015, Animal Health International for $1.1 billion.

Patterson is unique among its dental and medical products distributor peers, such as Henry Schein and Benco Dental, that mainly supply medical and dental offices. Today, Patterson’s animal health segment, which includes supplies, equipment and services for pets but also production animals, is larger than the company’s dental business. In its most recent completed fiscal year, the animal health segment had sales of $4.1 billion compared with $2.5 billion for the dental supply business.