Patterson Companies, Inc. (PDCO) Q4 2021 Earnings Call Transcript

Patterson Companies, Inc. (NASDAQ: PDCO) Q4 2021 earnings call dated Jun. 23, 2021

Corporate Participants:

John M. Wright — Vice President, Investor Relations

Mark Walchirk — President and Chief Executive Officer

Don Zurbay — Chief Financial Officer

Analysts:

Michael Cherny — BofA Securities, Inc. — Analyst

Erin Wright — Credit Suisse Securities (USA) LLC — Analyst

Jeffrey Johnson — Robert W. Baird & Co., Inc. — Analyst

Jason Bednar — Piper Sandler — Analyst

Kevin Caliendo — UBS Securities LLC — Analyst

Nathan Rich — Goldman Sachs & Co. LLC — Analyst

Glen Santangelo — Guggenheim Securities LLC — Analyst

Jonathan Block — Stifel, Nicolaus & Co., Inc. — Analyst

John Kreger — William Blair & Co. LLC — Analyst

Presentation:

Operator

Good day and thank you for standing by. Welcome to the Patterson Companies’ Fiscal Year 2021 Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

I would now like to turn the call over to Mr. John Wright, Vice President of Investor Relations. You may begin, sir.

John M. Wright — Vice President, Investor Relations

Thank you, operator. Good morning, everyone, and thank you for participating in Patterson Companies’ fiscal 2021 fourth quarter and full year earnings conference call. Joining me today are Patterson President and Chief Executive Officer, Mark Walchirk; and Patterson Chief Financial Officer, Don Zurbay. After a review of the fiscal 2021 fourth quarter and full year results and outlook by management, we will open the call to your questions. Before we begin, let me remind you that certain comments made during this conference call are forward-looking in nature and subject to certain risks and uncertainties. These factors, which could cause actual results to materially differ from those indicated in such forward-looking statements, are discussed in detail in our Form 10-K and our other filings with the Securities and Exchange Commission.

We encourage you to review this material. In addition, comments about the markets we serve, including growth rates and market shares, are based upon the company’s internal analysis and estimates. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, June 23, 2021. Patterson undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Also, a financial slide presentation can be found in the Investor Relations section of our website at pattersoncompanies.com. Please note that in this morning’s conference call, we will reference our adjusted results for the fourth quarter and full year of fiscal 2021.

The reconciliation table in our press release is provided to adjust reported GAAP measures, namely, operating income, income before taxes, income tax expense, net income, net income attributable to Patterson Companies, Inc. and diluted earnings per share attributable to Patterson Companies, Inc. for the impact of deal amortization, integration and business restructuring expenses, legal reserve costs, accelerated debt-related costs, discrete tax matters, investment gain or loss and goodwill impairment, along with the related tax effects of these items.

We will also discuss free cash flow as defined in our earnings release, which is a non-GAAP measure and use the term internal sales to represent net sales adjusted to exclude the impact of foreign currency and changes in product selling relationships. These non-GAAP measures are not intended to be a substitute for our GAAP results. This call is being recorded, and will be available for replay starting today at 11:00 AM Central Time for a period of one week.

Now, I’d like to hand the call over to Mark Walchirk.

Mark Walchirk — President and Chief Executive Officer

Thank you, John, and welcome, everyone, to Patterson’s fiscal 2021 fourth quarter and full year earnings conference call. We have a lot to discuss on today’s call. So I wanted to provide an overview of what we plan to cover. First, I will walk through the highlights of the year across our businesses, provide some commentary on the performance in each of our segments, and share our perspective on the end market trends that we anticipate will drive our momentum in fiscal 2022. Next, I’ll turn it over to Don to give a more detailed commentary on the fourth quarter and full 2021 fiscal year financial results, as well as the key assumptions and inputs that informed the fiscal 2022 guidance we announced this morning. And finally we’ll take your questions.

As outlined in our press release this morning, Patterson delivered very strong performance during our 2021 fiscal year, which ended April 24, 2021. First of all, I want to sincerely thank and recognize our entire Patterson team for successfully navigating the historic challenges posed by the COVID-19 pandemic. I’m incredibly proud of how our team supported our customers, our industries and our communities during this challenging period, while at the same time executing our strategy and delivering great results. A year ago, we faced significant declines in demand across our end markets, many dental practices were required to close, pet owners were forced to delay non-essential services and supply chains in the beef and swine markets were heavily disrupted.

Through our commitment to our purpose, vision and values, our Patterson team showed the strength of our differentiated value proposition, which proved critical to our success. Throughout the year, we stayed true to our guiding principles of protecting employee health and safety, delivering for our customers when they needed us most and doing our part to help reduce the spread of the virus in our communities. We also made important and sometimes difficult decisions about managing our costs and our balance sheet as we navigated the pandemic to help ensure we would emerge an even stronger Patterson.

Beyond the commitment of our people and sound strategy execution, our performance in fiscal 2021 reflects the fundamental strength and essential nature of the dental and animal health markets. It also reflects Patterson’s enterprise-wide focus over the last several years to strengthen our core business operations around sales execution, operational excellence, effective mix management, expense discipline and working capital improvement. Our ongoing improvement in these areas enabled Patterson to deliver strong top and bottom line growth and value to our customers and shareholders throughout the fiscal year.

In summary, we delivered full year fiscal 2021 internal sales growth of about 8% compared to fiscal 2020 and grew our fourth quarter internal sales by 24%. Fiscal 2021 Dental segment internal sales increased approximately 10% over the prior year and fiscal 2021 Animal Health segment internal sales increased nearly 8% over the prior year. For the full fiscal 2021 year, we achieve adjusted earnings of $1.91 per diluted share, an increase of 23% over fiscal 2020, reflecting the strength of our ongoing initiatives to deliver improved performance. I’m proud of our expanding team and Patterson’s fiscal 2021 results and with that I’ll briefly touch on the drivers of those results in each of our key business segments, starting with Dental.

Fiscal 2020 was another strong year for our Dental business, particularly given the unprecedented disruption within the market. As the dental market transitioned from lockdown to recovery, Patterson’s competitive value proposition was on full display, from our comprehensive and innovative portfolio of products and services, local and national customer support and sophisticated software solutions, we believe Patterson is providing a differentiated customer experience that is helping our customers, recover quickly and drive success in their practices. In addition to sourcing and reliably delivering critical infection control products, our ability to deliver Patterson’s broader consumables portfolio enabled us to facilitate the reopening of our customers’ practices and help them create a safe environment for their patients.

We believe we continue to outperform the market in consumables and we are pleased with our momentum in this category. While a significant portion of our 15% consumables growth for fiscal 2021 was from the sale of infection control products, we delivered approximately 6% year-over-year sales growth in non-infection control consumables products. We believe this strong mid-single-digit growth is due to the continued investments we’ve made in our field, sales and support teams, which is driving improved execution and market share gains. During the fiscal 2021 fourth quarter, we also continued to see increasing demand for our expanding and highly profitable private label portfolio of products, which once again outpaced the growth of the broader consumable category.

Many of our private label products also happen to be in the infection control category, which served as an incremental tailwind for us to continue to drive top line growth and margin improvement. Our ability to deliver strong private label growth in consumables is a testament to our continued focus on this initiative and our investment in expanding our portfolio over the past several years, and we’re pleased to see this strategic initiative continue to drive results. On the equipment side, Patterson generated nearly 8% sales growth in fiscal 2021. As offices reopened and patient traffic increased throughout the fiscal year, dentists invested in their practices and took advantage of Patterson’s comprehensive value proposition.

Our team collaborated with our manufacturing partners to develop creative financing strategies, education initiatives and online events for dental customers. We continue to be the partner of choice for new equipment, software and technology innovation. Throughout the pandemic, our extensive network of local field service technicians and our national support teams in our Patterson Technology Center worked together to deliver the unmatched expertise and service our customers expect from Patterson. Our ability to support our customers throughout the entire life cycle of their equipment and technology investments continues to be an important differentiator for Patterson.

As a result, we believe we continue to grow ahead of the market in both core equipment and high-tech categories, proof that dentists continue to choose Patterson when investing in their practices to provide better oral health care. As part of that effort, we have also been focused on selling our higher margin software and e-services products. Patterson currently offers three comprehensive and growing practice management platforms to help our customers with everything from revenue cycle management to practice analytics and insights to patient communication. Looking forward, we are confident the dental market continues to present attractive growth opportunities for several reasons.

First, we expect to see patient demand levels will continue to increase as progress around vaccine administration will help alleviate any remaining pent-up demand and drive patient traffic back to pre-pandemic levels. Second, we expect dentists will continue investing in the latest technologies and practice management software to build and modernize their practices. Third, we expect demand for infection control products to remain above pre-pandemic levels over the long-term as dentists and their patients embrace this new standard of care. And finally, we are encouraged by the heightened awareness that oral health has a direct link to the patient’s overall health.

I want to again acknowledge and thank the entire dental team for their performance and commitment to serving our customers. Turning now to Animal Health; as I mentioned earlier, our Animal Health segment achieved full year internal sales growth of about 8% year-over-year led by internal sales growth of nearly 17% in our companion animal business during fiscal 2021. In the fiscal 2021 fourth quarter alone, overall Animal Health internal sales grew about 14% year-over-year, driven by companion animal internal sales growth of 30%. Across both companion and production, our efforts have enabled us to outpace our end markets and grow our share. On the companion side, the rise in pet ownership and adoptions during the pandemic drove increased spending, veterinary clinic traffic and pet wellness visits. Our field sales team executed well on this opportunity contributing to our strong top line results.

Our deep existing relationships with veterinarians and comprehensive offering, positioned us well to support their growth, not only by providing a broad array of consumable products but also services, equipment and the latest technologies. Our expanding portfolio of private label products also performed well, driving improved sales mix while deepening our relationships with our customers. As veterinary practices welcomed an influx of new pet owners mid-pandemic, our practice management software, branded mobile app development services and prescription home delivery services enable them to scale and improve their customer experience.

For example, we leveraged our ePetHealth technology program to send alerts to pet owners with reminders about their vaccine schedules, wellness visits and other pet health milestones that drove vet clinic traffic, increased demand for supplies and helped pet owners take great care of their pets. We’re proud of our deep value proposition for veterinarians and how Patterson continues to be a trusted and indispensable partner to help them succeed. Given the attractive dynamics in the companion animal market, Patterson leveraged our strengthened balance sheet to acquire Miller Vet Holdings, a multiregional veterinary distributor. We completed the transaction earlier this month.

We believe Miller Vet is a strong cultural fit with Patterson Animal Health with complementary market positions in the Midwest, Mid-Atlantic and Southeast. This transaction is expected to expand our core sales reach, drive synergies and more broadly demonstrates Patterson’s focus on making strategic investments to deliver profitable growth and shareholder value. We are excited to welcome the talented Miller Vet team to Patterson and to build on our legacy of providing exceptional customer service. We believe our continued strong performance and investment in the companion animal space, positions us well for the year ahead.

While new pet ownership and adoption growth rates will likely stabilize in fiscal ’22, there is now a larger population of pet owners, and we expect the normalized long-term growth rate of the Companion Animal segment to be higher than pre-pandemic levels. On the production animal side, our team executed well to drive operational improvements and deliver value to our customers. Although production animal internal sales in fiscal 2021 were down approximately 1%, we are pleased with their performance given the significant pandemic-related challenges we faced over the past year.

Our production animal team did an excellent job managing through these historic COVID-19 related challenges and provided our customers with highly specialized service and delivery models to support herd health and strengthen the quality of the food supply. Looking forward to fiscal 2022, we expect several key factors will enable us to return our Production Animal business performance back to historical growth levels. First, is the recovery of the swine market, which is expected to continue improving in the near term as our customers rebuild their herds and ramp up more significantly in the second half of the 2022 fiscal year.

Second is the general reopening of the economy, including restaurants and schools, which we anticipate will create increased demand for protein and dairy products. And finally, our differentiated value proposition and strong market position give us confidence we can return our Production Animal business to growth in fiscal ’22. To sum it up, Patterson delivered strong fiscal 2021 results marked by outstanding execution in the face of significant uncertainty and challenging end market dynamics. And I want to, again commend our teams for their sustained focus on executing our strategy and serving as the indispensable partner our customers depend on for their business success. We are confident in Patterson’s strategic positioning in each of our end markets and our ability to drive long-term value for our customers and shareholders.

And with that, I’ll turn the call over to Don to talk about our fiscal 2021 full year and fourth quarter performance in detail and speak to the key assumptions and drivers of the financial guidance we announced this morning.

Don Zurbay — Chief Financial Officer

Thank you, Mark and good morning everyone. In my prepared remarks this morning, I will first cover the financial results for both our fourth quarter of fiscal 2021, which ended on April 24, 2021 and our full fiscal year. Due to the significant impact of COVID-19, particularly in the months of March and April of our fiscal 2020, our year-over-year comparisons for our fourth quarter results may be difficult to interpret. So, I will provide some context around these comparisons. Second, I will discuss the financial guidance we issued for fiscal 2022 and provide additional context and assumptions that may be useful to you to assist in your financial models. So, let’s begin by covering the results for fiscal 2021.

Consolidated reporting sales for Patterson Companies in our fiscal 2021 fourth quarter were $1.56 billion, an increase of 21.4% versus the fourth quarter one year ago. Internal sales, which are adjusted for the effects of currency translation and changes in product selling relationships, increased 23.5% compared to the same period last year. As Mark already mentioned, we believe our performance in the fourth quarter is the result of strong sales execution and above market growth in both of our business segments. For additional context, our fiscal 2021 fourth quarter internal sales growth was 11.3% above our fourth quarter of 2019, our last fourth quarter that was not impacted by the COVID-19 pandemic.

For the full fiscal year 2021, consolidated report and sales for Patterson Companies were $5.91 billion, an increase of 7.7% versus the same period one year ago. Internal sales increased 8.2% compared to the same period last year. Our fourth quarter fiscal 2021 adjusted gross margin was 19.4%. During the period, we recorded two significant adjustments in our Dental segments that negatively impacted our gross profit. The first was $11 million of COVID-related inventory adjustments to account for higher amounts of certain infection control inventory where prices have fallen as the impact of the pandemic has tempered in recent months. The second was our year-end LIFO adjustment which negatively impacted our gross profit by $12 million in our Dental segment.

The significant LIFO adjustment was almost entirely due to the COVID-related pricing dynamics and variability in our infection control products during the year. Taken together, these adjustments negatively impacted our gross margin and operating margin by nearly 150 basis points in the fourth quarter of fiscal 2021. For the full fiscal year 2021, which included the inventory adjustments I just described, our adjusted gross margin was 20.4%. Adjusted operating expenses as a percentage of net sales for the fourth quarter of fiscal 2021 were 16.4%, as we continue to benefit from ongoing expense discipline and leveraging our cost structure over higher sales volumes.

For the full fiscal year 2021, adjusted operating expenses as a percentage of net sales were 16.1%, compared to 17.6% in fiscal 2020. As a reminder, our fiscal year 2021, operating expenses benefited by approximately $0.15 per share from salary reductions and furlough activities in the first quarter of the fiscal year. These specific pandemic-related actions favorably impacted our adjusted operating expenses as a percentage of net sales and operating profit margin for the full year by 40 basis points. In the fiscal fourth quarter, our consolidated adjusted operating margin was 3.1%. As I previously mentioned, our operating margin in the fourth quarter was negatively impacted by nearly 150 basis points, as a result of COVID-related inventory adjustments.

For the full fiscal year, our consolidated adjusted operating margin was 4.2%. We expect to drive continued operating margin improvement through our efforts on expense discipline, mix management and ongoing expense leveraging, as we continue to grow the top line. Our adjusted tax rate for the fiscal fourth quarter was 21.0% and for the full year was 22.6%. Reported net income attributable to Patterson Companies, Inc. for the fourth quarter of fiscal 2021 was $28.8 million, or $0.30 per diluted share. This compares to a reported net loss attributable to Patterson Companies, Inc. of $608.6 million, or $6.44 per diluted share in the fourth quarter of fiscal 2020.

As you recall, in the fourth quarter of fiscal 2020, we booked a goodwill impairment charge related to our Animal Health segment. Adjusted net income attributable to Patterson Companies, Inc. in the fiscal fourth quarter of fiscal 2021 was $0.38 per diluted share. As a reminder, adjusted net income excludes deal amortization, integration and business restructuring expenses, legal reserve costs, accelerated debt costs, discrete tax matters, investment gain or loss and goodwill impairment, along with the related tax effect with these items. This compares to $41.1 million or $0.43 per share in the fourth quarter of fiscal 2020.

The after tax impact of the COVID-related inventory adjustments for certain infection control products and LIFO was approximately $18.2 million, or $0.19 per share — diluted share, an impact in both the reported net income and the adjusted net income for the fourth quarter of fiscal 2021. Now, let’s turn to our business segments, starting with our Dental business. In the fourth quarter of fiscal 2021, internal sales for our Dental business increased 49.1% compared to the fourth quarter of fiscal 2020. As you recall, the Dental segment sales performance for the fourth quarter of fiscal 2020 was severely impacted by the ADA recommending that dental offices shut down and perform only emergency dental care for approximately half of that quarter.

For some additional context, Dental internal sales for the fourth quarter of fiscal 2021 are up nearly 10% compared to the fourth quarter of fiscal 2019. Our fourth quarter sales performance was driven by stronger-than-forecast growth in our consumables, equipment and software and value-added service categories. For the full fiscal year, internal sales for our Dental business were up 10.4% over fiscal 2020. Fourth quarter internal sales of consumable dental supplies were up 53.1% versus the fourth quarter of the prior year. This included growth in infection control products and non-infection control products. For the full year, internal sales of consumable dental supplies were up 14.9% versus fiscal 2020.

Internal sales of equipment in the fiscal fourth quarter increased 63.0% versus the same period a year ago. For the full year, internal sales of equipment were up 7.6% versus fiscal 2020. Finally, internal sales of software and value-added services increased 12.5% in the fiscal fourth quarter compared to the fourth quarter of fiscal 2020. Adjusted operating margins in Dental were 5.0% in the fiscal fourth quarter. The COVID-related inventory adjustments that I previously outlined, negatively impacted our operating margin in the Dental segment by approximately 380 basis points in the quarter. Adjusted operating margins in Dental for the full fiscal year were 8.9%, a 20 basis point improvement over fiscal 2020.

Now let’s move on to our Animal Health segment. During the fiscal fourth quarter, internal sales for our Animal Health business were up 13.8% compared to the same period a year ago. Increased pet adoptions and the increased attention to pets have positively impacted the companion animal market and our companion animal team delivered outstanding sales growth in the fiscal fourth quarter of 2021 of 29.6% compared to the same period in fiscal 2020. For the full year, internal sales growth in our Animal Health business was up 7.7% compared to fiscal year 2020. Our Animal Health team continued to successfully drive higher sales growth with vendor partners who reward us for our value-added approach to both our companion and production animal customers.

And our team also delivered improved product mix with stronger sales of private label products, equipment and software. Adjusted operating margins in our Animal Health segment were 4.4% in the fiscal fourth quarter, a slight decrease of 10 basis points compared to the fourth quarter of the prior year. Adjusted operating margins in this segment for the full year were 3.5%. Now let me cover cash flow and balance sheet items. During the full year of fiscal 2021, we used $730.5 million in cash from operating activities. We also collected deferred purchase price receivables of $834 million during the year, which is included in the investing activities section of the cash flow statement.

To fully understand our free cash flow, the total of these two amounts represents a generation of cash for the full fiscal year of $103.5 million. Free cash flow, which we have explained and calculated in the table within our press release, decreased $148.9 million during fiscal 2021 compared to the same period one year ago. The year-over-year decrease is primarily due to elevated levels of accounts payable at the beginning of the fiscal year due to COVID-19 as we carefully managed our cash. As the economy recovered our accounts receivable, accounts payable and working capital returned to non-pandemic levels. During the fourth quarter of fiscal 2021, we generated $69.1 million of free cash flow. Turning to capital allocation, we continue to execute on our strategy to return cash to our shareholders.

In the fourth quarter of fiscal 2021, we declared a quarterly cash dividend of $0.26 per diluted share, which was then paid in the first quarter of fiscal 2022. During fiscal 2021, Patterson returned $75.2 million in cash dividend to our shareholders. Our Board continues to view our dividend as an important component of returning value to our shareholders and the current dividend yield provides a meaningful baseline return to shareholders as we continue focusing on our plans to drive improved performance in the business. Let me conclude with some comments on our outlook for fiscal 2022. This morning, we issued GAAP earnings guidance of $1.61 to $1.76 per diluted share and adjusted earnings guidance of $1.90 to $2.05 per diluted share.

This represents the first time we’ve given earnings guidance since the occurrence of the pandemic due to the uncertainty surrounding its impact on our business and end markets. While we have greater clarity on the impact of the pandemic and recovery, some uncertainties still exist. As a result, we have broadened our earnings guidance range to $0.15. For modeling purposes, let me highlight some of the factors that should be considered as you interpret our guidance. First, for our 2022 adjusted EPS guidance, we are modeling mid-single-digit revenue growth and operating margin expansion for both business units and the total business.

Second, our fiscal 2021 adjusted EPS of $1.91 benefited from approximately $0.15 of operating expense savings related to salary reductions and work furloughs during the first quarter of the fiscal year that will not repeat during the first quarter of fiscal 2022. Third, as we outlined earlier, we recorded a LIFO adjustment of approximately $0.09 per share during the fourth quarter in our Dental segment, that was almost entirely due to the COVID-related pricing dynamics and variability in our infection control products during the year. We do not expect this dynamic to repeat in fiscal 2022. Finally, here’s our perspective on how we are modeling the infection control category in fiscal 2022.

As I previously mentioned, we recorded an inventory adjustment of approximately $0.08 per share related to certain infection control products, while this negatively impacted our gross profit on these products in the fourth quarter of fiscal 2021. For the full year, we earned $0.09 per share of additional profit compared to fiscal 2020 on infection control products after accounting for the fourth quarter inventory adjustment. As we look to fiscal 2022, we have modeled the gross profit impact from sales of infection control products to be flat on a year-over-year basis as moderating sales are offset by lower inventory adjustments.

The net impact of salary savings and the LIFO adjustment represents approximately $0.06 per share that we do not expect to repeat in fiscal 2022. If you remove this one-time $0.06 per share benefit from our fiscal 2021 adjusted EPS performance, our fiscal 2022 adjusted EPS expectation of $1.90 to $2.05 implies 7% year-over-year growth at the mid-point and 11% year-over-year growth at the top of the range. This also implies a three-year compounded growth rate of 11% at the midpoint and 15% at the top end of the guidance range from our fiscal 2020 adjusted earnings per share of $1.55.

And now, I will turn the call back over to Mark for some additional comments.

Mark Walchirk — President and Chief Executive Officer

Thanks, Don. At the end of this unprecedented year, we can stay with confidence that Patterson has emerged from the pandemic even stronger than we entered it. We are optimistic about Patterson’s long-term position in each of our end markets, and have the utmost confidence in our team, our strategy and the essential role we serve for our customers and business partners. Our results reflect our strong business momentum and the meaningful progress we’ve made over the past several years in moving Patterson to a position of strength.

As fiscal 2022 gets underway and business conditions in our end markets continue to recover, we are focused on investing in the core areas of our business to accelerate our performance, return cash to our shareholders through an attractive dividend and leverage our strengthened balance sheet to evaluate opportunities for strategic investment to accelerate our growth and value creation. While the pandemic is certainly not over, we’re all encouraged and hopeful that the positive trends will continue to improve. And I can assure you the Patterson team will continue living our values and maintaining our focus on creating value for our customers, business partners and shareholders.

That concludes our prepared remarks. And Don and I will now be glad to take your questions. Operator, please open the line.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Michael Cherny from BofA. Your line is open.

Michael Cherny — BofA Securities, Inc. — Analyst

Good morning. Thanks for all the details, especially on thinking about the 2022 trajectory. If I could dive in a little bit further on that, as you think about what you’ve learned from the past year and, obviously, the moving pieces around infection prevention and some other areas. Has anything changed about how you should think through the pathway forward for segment margins in particular Dental segment margin, I know it’s important for both. But just curious given what you’ve accomplished pre-COVID some of the lead pieces dynamics and revenue demand on cost rationalization during COVID, how should we think about the medium-term trajectory for margins on a go forward basis?

Mark Walchirk — President and Chief Executive Officer

Yeah, Michael this is Mark, thank you, and I’ll make a couple comments and then turn it over Don to add any additional color. I think first of all, we’re certainly very encouraged by the continued recovery in the Dental segment. And we view the dental market as very attractive. We are at or near pre-pandemic growth rates. We certainly expect to be there during this calendar year. Dentists continue investing in their practices. We talked about infection control products, while obviously, a lot of variability in that during fiscal 2021. We see the supply chain stabilizing, and we expect that to be a positive for us going forward.

So all positive factors in terms of the end market demand rates. And in terms of margin, we continue to focus on the areas that we’ve been focused on. Our higher margin products and services in the software and technology category really bring great value through our tech service team and increasing the productivity of that group. Our focus on private label products, which I think, as we indicated continue to grow faster than our overall consumables. So a number of elements to drive that margin improvement objective that I know Don noted in his comments.

Don Zurbay — Chief Financial Officer

Yeah. And I think I would just add that with the increasing sales, we continue to get good expense leveraging as we grow in the top line. So even with some of the costs that are going to come back into the dental P&L, some of the T&E, some of the things that were lower during the pandemic. I think we still feel like we’re in a good position to expand the margins in the Dental business.

Michael Cherny — BofA Securities, Inc. — Analyst

Understood. And then I wanted to dive back into some of the comments you made around your growth relative to the market. I believe you said across Dental, you’re growing faster in consumables, growing faster than equipment. As you think about the why behind that, can you maybe parse out a bit how you’re doing in terms of your thoughts on where share gain is coming from versus the dynamics of what you’re seeing essentially on a same-store growth within your existing customer base?

Mark Walchirk — President and Chief Executive Officer

Well, I think we believe the investments that we’ve been making in the business and in our dental field sales and support organizations over the past several years have been paying off and continue to pay off. We’ve kept our full sales team in place at the onset of the pandemic. We were generating good momentum a year ago or more at this time. We continue to push hard on supporting our field sales and support teams and ultimately so they could support their customers. Our Dental team built a variety of programs and services to help our customers quickly recover from the pandemic. Our Dental customers continue to invest in their practices. And I think people see Patterson really as the partner of choice given our broad equipment lifecycle ecosystem and all the various wraparound services that we provide there. So, I think its Michael, a combination of a variety of factors that we’ve been focused on over the past several years that are helping drive that momentum and we believe the share gains in the Dental segment.

Michael Cherny — BofA Securities, Inc. — Analyst

Got it. Thanks so much.

Operator

Your next question comes from the line of Erin Wright from Credit Suisse. Your line is open.

Erin Wright — Credit Suisse Securities (USA) LLC — Analyst

Great. Thanks. My first one is on Animal Health. Can you give us a sense of what guidance now assumes across the Animal Health sector on an internal basis? And you mentioned that we should exit the pandemic at a higher underlying run rate, particularly in companion animal. What does that mean or what does that look like in terms of the long-term growth rate now for the Animal Health segment in your view?

Mark Walchirk — President and Chief Executive Officer

Yeah, Erin, thanks. I don’t think we’re going to comment specifically on the exact long-term growth rate. But let me give you a little bit of color as it relates to how we’re thinking about both the companion and the production segment throughout the course of this fiscal year, and we think in the ‘post-pandemic environment’. Certainly, the market growth change that we’ve seen in companion animal due to the increased pet adoption we expect will moderate, but still represents an overall increase in growth rates from pre-pandemic levels.

Look more pets, more visits and higher demand for companion animal products and services and we believe we’re very well-positioned to continue to take advantage of that increased demand and we believe our recent growth rates in this segment are a testament to that. As we shift to production, I think as we indicated, we are seeing the early signs of the recovery in the production Animal segment from an end market demand standpoint.

Obviously, if the economy continues to reopen, schools open, restaurants open, etc, we are seeing increased demand and expect increased demand for our beef and swine products in particular. And I think as we indicated, we expect the production animals segment to get back to pre-pandemic growth rates towards the back half of our fiscal year. So, hopefully, that provides a little bit of additional color, but we’re very encouraged by the progress that we’re seeing in both of those end markets. And obviously, also very encouraged by the work our teams are doing to drive value for our customers in those areas.

Erin Wright — Credit Suisse Securities (USA) LLC — Analyst

Okay, great. And then just one on Dental. There seem to be some continuing consolidation across the DSOs. Do you see that having a meaningful impact in 2022 or what’s embedded in your guidance on that front? And we, obviously, hear about the larger DSO dynamics, but what’s the traction you’re seeing kind of with smaller regional DSOs? And can you give us a strategy update on the DSO front? Thanks.

Mark Walchirk — President and Chief Executive Officer

Yeah, sure. Thanks Erin. We don’t obviously comment on specific customers in the space generally. We’re very pleased with the work our teams across both our dental and, frankly, our Animal Health segments are doing in terms of the DSO and corporate account arena, both at the regional and national level. This area continues to be a focus for us. We continue to invest in our teams, again, both in the Dental and Animal Health space.

And we continue to pursue the right type of customer that sees the value in the products and services that Patterson provides both at the regional and national level. And we’re focused with, again, working with those groups and those customers that really see the comprehensive value proposition. We believe we’re winning business in this space. It’s helping contribute to our growth, and we’re excited about our progress here, again, across both Dental and Animal Health.

Erin Wright — Credit Suisse Securities (USA) LLC — Analyst

Okay. Thank you.

Operator

We have a question from Jeff Johnson from Baird. Your line is open.

Jeffrey Johnson — Robert W. Baird & Co., Inc. — Analyst

Thank you. Good morning, guys. Don, I think you mentioned the 10% dental growth in the quarter relative to two years ago, the fiscal Q4, ’19. We had consumables and maybe you could just cross-check this for me or let me know if my math is right, consumables in the Dental segment probably up about 13% versus two-year ago levels. One, is that correct? And two, within that 10% and 13% those growth rates, is there any way to give us some insight on to what the infection control products added versus the non-infection control. I think you’ve done that the last few quarters and maybe this would be the last quarter where it matters year-over-year, but any insight there would be helpful. Thanks.

Don Zurbay — Chief Financial Officer

Yeah, Jeff, your math is right on the 13%. I think we did give some color on the consumables growth for F ’21 at 9% for the year and 6% for the — for all other consumables year-over-year.

Jeffrey Johnson — Robert W. Baird & Co., Inc. — Analyst

Yeah. Is there any way to give that for the quarter or I can try to back out the past three quarters’ comments, I guess, but maybe being a little lazy. But if you could give it to us for the quarter, that would be helpful.

Don Zurbay — Chief Financial Officer

Yeah. I think if you kind of do the math on the quarter, you get to COVID-related growth in the Q4 of about 8%.

Jeffrey Johnson — Robert W. Baird & Co., Inc. — Analyst

Okay. That’s helpful. Thanks. And then, Mark, maybe I’d be interested to hear on the dental equipment side. We just started hearing in the last week or two about maybe some supply constraints, both on tech and I think even on some of the basic equipment, whether that’s due to port and shipping container issues, things like that. I don’t think the issue is significant at this point. But kind of what are you seeing on both the supply and demand side? And on that supply side, does any of that factor into your guidance at this point? Thanks.

Mark Walchirk — President and Chief Executive Officer

Yeah, Jeff, thanks. I would say, we’re seeing very modest — some constraints, excuse me, from a supply chain standpoint. I would say it’s not an acute problem as of yet. Obviously, we’re monitoring it closely. We are really pleased with our equipment performance during fiscal ’21 growth but, I believe, 8% year-over-year, which did exceed our expectations. And we talked about the Patterson equipment and technology ecosystem, which we believe is a competitive advantage for us. We do have a strong funnel of opportunities in the equipment category, and we continue to work closely with our manufacturers to stay abreast of any potential supply issues that might exist. But at this point, I would say those are certainly moderate at this point.

Jeffrey Johnson — Robert W. Baird & Co., Inc. — Analyst

Got it. Thank you.

Operator

Your next question is from Jason Bednar with Piper Sandler. Your line is open.

Jason Bednar — Piper Sandler — Analyst

Hey, good morning. Thanks for taking our questions. And Mark, I wanted to start with the guide. I know there’s a lot of cross currents out there with the market and with your business in both Dental and Animal Health. But, I guess, as we think through all those elements, I wanted to just hear how you’re thinking about the predictability of the top line in Dental and Animal Health? And then as we’re all looking at kind of maybe the risk of inflationary impacts across the cost structures of companies, just love to hear on maybe how that’s factored into your guide here for the year?

Mark Walchirk — President and Chief Executive Officer

Yes, Jason, thanks. I think in terms of the predictability of kind of the top line, I think as Don indicated, we are building in mid-single-digit top line growth across both of our business segments overall for FY ’22. I think I shared some of the end market perspective that we have across really the three categories, dental, companion and production. And while there are some unique elements within each. The dental market, we do see patient demand at or near pre-pandemic levels. We expect certainly that to continue to grow back to pre-pandemic levels during this calendar year.

Dentists are investing in their practices and both in terms of the different types of levels of acuity that goes on in the practices, we’re seeing good spending there as well. So we’re very encouraged by the recovery and we expect the full recovery of the Dental segment. Companion, obviously, the increased pet adoption has driven significant tailwinds from the demand side there. As we indicated, we do expect those to moderate. But ultimately, the long-term growth rate there in the companion animal segment, we believe, will be higher than pre-pandemic levels.

And finally the recovery, we’re encouraged in the production animal space by what we’re seeing with the reopening of the economy and the recovery and the stability of the supply chain that was very disruptive earlier this year. And so again, we’re expecting in the second half of our fiscal year to return to normal pre-pandemic growth rates in production as well. So really encouraged by the three customer segments that we serve. And frankly, the value that we bring to our customers that we expect to take advantage of both from the top line and obviously, driving bottom line results as well.

Jason Bednar — Piper Sandler — Analyst

Okay. And then the risk of inflationary just how that maybe is factored in guidance?

Don Zurbay — Chief Financial Officer

Yeah. So Jason, we’ve been — we’ve built a little bit of that into the numbers that we’ve laid out today. I think that, obviously, this is an area we’re watching carefully. So more to come as the year progresses.

Jason Bednar — Piper Sandler — Analyst

Okay. All right. Great. And then maybe a little bit of a bigger picture question, but on the margin side. By historical and competitive standards, it was just — it would seem like there’s still quite a bit of margin opportunity for Patterson. But I think it’s just be helpful to hear, Mark, how you and Don are envisioning maybe the next few years unfolding, not just this year?

Don Zurbay — Chief Financial Officer

Yeah, Jason. So yeah, we would agree with the general sentiment that you’re outlining, I think we feel like margin expansion is definitely a part of our story. We feel like there’s a lot of opportunity there. We wouldn’t obviously — we’ve given some guidance today that we expect it to expand during the year, year-over-year. But probably wouldn’t lay out anything further than that in terms of our expectations over the next couple of years.

Jason Bednar — Piper Sandler — Analyst

Got it. Understood. Thanks guys.

Mark Walchirk — President and Chief Executive Officer

Thank you.

Operator

We have a question from Kevin Caliendo with UBS. Your line is open.

Kevin Caliendo — UBS Securities LLC — Analyst

Hi, thanks for taking my call. So just a couple of modeling cleanup questions. First, is there any reason to think that cadence for earnings would not look like they might have pre-pandemic at this point or how are you thinking about the progression for the fiscal year? Anything first half weighted, second half weighted? Any sort of color around cadence would be really helpful.

Don Zurbay — Chief Financial Officer

Yeah. Sorry, go ahead.

Kevin Caliendo — UBS Securities LLC — Analyst

No, go ahead.

Don Zurbay — Chief Financial Officer

Yeah, I think if you look back to fiscal 2020 and kind of looked at the first half, second half split, that would probably be a good way of thinking about fiscal ’22’s cadence during the year.

Kevin Caliendo — UBS Securities LLC — Analyst

Okay. That’s really helpful. Also, in terms of your margin expectations and the growth of margins, are we looking at that on a year-over-year basis, meaning maybe not every quarter is going to grow. Obviously, the fourth margins are a lot different. So when you talk about margin expansion, is there — is it sort of, okay, at the end of fiscal 2022, we’re going to see margin expansion over the end of fiscal ’21 in both segments or how should we think about that trajectory? I know you’ve kind of been asked this question, but any more color around that would be really helpful.

Don Zurbay — Chief Financial Officer

No, I think you’re thinking about it right. It’s going to be a year-over-year story. There could be some variability in the quarters and particularly with some of the comps but on a year-over-year basis, we expect there to be margin expansion in both businesses.

Kevin Caliendo — UBS Securities LLC — Analyst

All right. And one last one really quick, if I can. Can you talk about your strategy around specialty dental, whether it’s implants or aligners or anything like that? Any exploration into those markets or expanding your capabilities in those markets?

Mark Walchirk — President and Chief Executive Officer

Yeah, Kevin, it’s Mark. I mean, as we’ve indicated over the last couple of quarters, certainly, our financial performance has created improved flexibility for us to think about those types of strategic investments that can help accelerate our growth and value creation. I think we talked about some of the categories that and the types of areas that we would focus in, whether that’s building scale in our core business, expanding our presence in more margin-accretive categories.

And certainly, enhancing or expanding the products and services that we provide, looking at adjacencies that we’re not in today, where there may be good growth opportunities, specialty would be a good example of that. So we’re looking at a broad array of different types of opportunities from a business development standpoint. And we’re obviously in a position now where we can make some investments to again accelerate that growth and value creation and those are the kinds of things that we’re looking at pursuing.

Kevin Caliendo — UBS Securities LLC — Analyst

Thanks so much.

Operator

Your next question is from Nathan Rich from Goldman Sachs. Your line is open

Nathan Rich — Goldman Sachs & Co. LLC — Analyst

Good morning. Thanks for the question. I wanted to ask around the pricing trends that you’re seeing in the PPE and infection control products. And do you feel like we’re getting closer to a point of stabilization in pricing? And then specifically related to the COVID inventory adjustment in the quarter, do you see that more as one-time in nature or is there still uncertainty in the market just given how pricing is trending?

Mark Walchirk — President and Chief Executive Officer

Yeah, Nathan, I’ll take the first part, Don can take the second. I think to your question, we are seeing pricing much more stable, certainly than it was a couple of quarters ago. I wouldn’t say the supply chain is completely stable or back to pre-pandemic levels of stability around infection control products, but certainly stabilizing, and we expect that to continue, obviously, assuming the current trends around the pandemic can continue in the positive direction as well.

So we do expect pricing to continue to stabilize the supply chain and product availability to continue to stabilize, and obviously, our customers really determining what their go-forward approach is with regard to infection control and their practices. But certainly, as we indicated, we do expect that to be a positive part of the growth opportunity going forward. And we continue to ensure that we have the highest quality of infection control products for our customers as well. And so this has been a challenging period in that area, but certainly, we’re seeing it much more stable and expect that to continue.

Don Zurbay — Chief Financial Officer

Yeah, Nathan. And I think adding on to Mark’s comments, the stability in the pricing and the market really has put us in a position where I do believe that the inventory adjustments we recorded in the fourth quarter really one-time in nature, and we’re not going to be repeating that as we go forward.

Nathan Rich — Goldman Sachs & Co. LLC — Analyst

Okay, great. And then just a quick follow-up, Don, on the cadence of Dental revenue that we should expect in fiscal 2022, I think you said mid-single-digit revenue growth for the full year. There’s still an easy comparison in 1Q kind of comparing to the pandemic last year. I guess the mid-single-digit revenue guidance would imply flat to maybe low single-digit growth over the second to fourth quarters of next year. Obviously, there’s a lot of moving pieces because the PPE and infection control business is also factored into that. So just any more details on how you’re thinking about sales in the Dental segment over the course of fiscal 2022?

Don Zurbay — Chief Financial Officer

Yeah. And the guidance really was mid-single digits for the entire company. And you’re right, there’s a bit of a bolus here in Q1 in terms of growth rate. But we’d expect it to be relatively consistent throughout the rest of the year in terms of growth rates for the company as a whole.

Nathan Rich — Goldman Sachs & Co. LLC — Analyst

That’s helpful. Thank you.

Operator

Your next question is from Glen Santangelo from Guggenheim. Your line is open.

Glen Santangelo — Guggenheim Securities LLC — Analyst

Yeah. Thanks for taking my question. Hey, Don, just to follow-up on some of the guidance you gave, or some of the details around the guidance. I think you kind of suggested in your prepared remarks that the $1.90 to $2.05 was about 7% to 11% growth off of what you’re considering to be sort of the base fiscal 2021 number. And so I’m just trying to reconcile kind of what you reported on an adjusted basis for the year to get to that base number, which seems like it’s somewhere between $1.75 and $1.80. And I know there was the salary expense savings that was going to repeat. And there was, I think, $0.09 of infection control that wasn’t going to repeat. Is there anything else kind of reconciling those adjusted earnings this year back to this sort of base fiscal 2021 number that you think is the good jump-off point for fiscal ’22?

Don Zurbay — Chief Financial Officer

Yeah. No, Glen, you have it right. So we finished at $1.91 of adjusted EPS. And then the net of the two items you mentioned is a $0.06 headwind this year. So that really would translate to a jumping off point, if you will, of $1.85. And my comments were that the guidance implies 7% growth at the midpoint, and 11% growth at the top end from the $1.85. And then I think an important data point that I outlined at the end was just that guidance also implies 11% CAGR at the midpoint and 15% CAGR at the top end from the F ’20 EPS of $1.55.

Glen Santangelo — Guggenheim Securities LLC — Analyst

Right. Okay. All right. That’s super helpful. Sorry, I didn’t hear that correctly then. And so when we’re sort of modeling fiscal ’22, I mean, not to put words in your mouth, but it kind of sounds like we should see continued organic growth in both segments, perhaps decelerating to more normalized levels in the back half of the year and sort of steady sort of margin expansion in both segments year-over-year throughout the four quarters of fiscal ’22. I’m just not sure I have all those pieces correct.

Don Zurbay — Chief Financial Officer

No, that’s a fair characterization of how we look at it.

Glen Santangelo — Guggenheim Securities LLC — Analyst

Okay. Thanks very much. Appreciate it.

Operator

And your next question is from Jon Block with Stifel. Your line is open.

Jonathan Block — Stifel, Nicolaus & Co., Inc. — Analyst

Thanks guys. Good morning. A couple of quick ones, both maybe model related. But the Animal Health growth in the quarter was really strong. It was up 14% [Phonetic]. I think you said companion animal was up 30%. So the higher-margin division is arguably growing 2 times. And then Mark, I even think you called that positive mix shift within some of the line items. But the OMs were flat to down, actually think they were down 10 bps. Can we just sort of lay out for us why you’re seeing some of that very slight but still margin compression off of a — arguably a mid-teens internal number?

Don Zurbay — Chief Financial Officer

And then you’re talking in the Animal Health space?

Jonathan Block — Stifel, Nicolaus & Co., Inc. — Analyst

That question was all specific to Animal Health.

Don Zurbay — Chief Financial Officer

Yeah. Yeah, I think if you look just over the course of the year, margins were relatively consistent. I think the year-over-year piece is a little hard to calibrate just given the Q4 over Q4 dynamics. But we believe that — and just some of the pandemic-related impacts that happened during fiscal ’20 and then throughout part of fiscal ’21. I think the important point on the Animal Health space is that we think going forward, in particular with this kind of growth that we have a good opportunity to continue leveraging that Op profit into fiscal ’22.

Jonathan Block — Stifel, Nicolaus & Co., Inc. — Analyst

Okay. Got it. And then it sort of follows up in a couple of recent questions, but the mid-single-digit growth in both end markets, 7% at the midpoint, I sort of got to go with the midpoint. So I’m not sure of the tax rate, it seems to imply very slight Op margin expansion. Maybe a couple of questions, is the formula to get there ongoing gross margin compressions and then some of the opex leverage that we’ve seen that you guys have done a very good job with. And if that’s the case, I mean, maybe the follow-up would be the 5% and the 7% rev versus EPS at the midpoint, why not a little bit more leverage, Don. I thought previously you talked about your ability to add a lot of the call it additional revenue without onboarding incremental investments post pandemic? Thanks guys.

Don Zurbay — Chief Financial Officer

Yeah. And that’s true I think that, what we want to start the year in a position where, like I said, we’re viewing this as 7% midpoint growth 11% at the top-end, I think, you want to probably focus your eyes on that, and just the — the mid — mid-single-digit sales growth with good margin expansion. I think the formula, we don’t believe there’s a lot of gross margin compression. We think some of the things that we’ve outlined, really show up in the gross margin. And so as we move forward, it’s really a combination of stable to improving gross margin and continued opex leverage as we expand the sales.

Jonathan Block — Stifel, Nicolaus & Co., Inc. — Analyst

Perfect. Thanks for your time guys.

Mark Walchirk — President and Chief Executive Officer

We have time for one more question. Yeah. Thank you.

Operator

And your last question is from John Kreger from William Blair. Your line is open.

John Kreger — William Blair & Co. LLC — Analyst

Livestock to return to growth as fiscal 2022 plays out. And that makes.

Mark Walchirk — President and Chief Executive Officer

Hey, John.

John Kreger — William Blair & Co. LLC — Analyst

Yeah.

Mark Walchirk — President and Chief Executive Officer

Hey, I’m sorry to interrupt. We missed the first part of your question. So I apologize for the interruption. Can you repeat it, please?

John Kreger — William Blair & Co. LLC — Analyst

Yeah. Just, can you expand a little bit about what you see as the — kind of, longer term normalized growth outlook for your Livestock business? I get that it should recover as we move through fiscal ’22, but once we’re, sort of, fully beyond that, curious what you think that business can do longer term.

Mark Walchirk — President and Chief Executive Officer

Yeah. John, I think, we believe back to pre-pandemic levels that’s a low single-digit growth business going forward. That’s where we view it at this point. Certainly continued good strong demand, global protein. But again, I would say, low single digits.

John Kreger — William Blair & Co. LLC — Analyst

Great. Thanks. And then, one last one; you talked, I think, about dentists sort of investing in their practice as being one of the things that you expect will drive ’22, can you just elaborate on that? Where are they investing? What sort of equipment demand are you seeing to be particularly good?

Mark Walchirk — President and Chief Executive Officer

Yeah. I think the — we were certainly pleasantly surprised, I think, a year ago at this time. We did not expect our equipment business to do as well as it did, frankly, and we did not expect dentists to make the type of investments during the pandemic that they did. And I think that just speaks to, really, the strength of the end market and our customers really believing in the continued opportunity for them to drive great patient care and for them to drive success in their practices. So we’re seeing the investments really across the board in the core equipment categories, digital, software, e-services. And again, I think, really just speaks to the strength that we see from the dental market and the industry overall in investing for a long term success and we feel like we’re very well positioned to take advantage of that.

Well, I think — sorry, operator. This is Mark. Thank you, again, everyone, for your time today, your continued interest and we look forward to speaking with you again soon. Thank you.

Operator

[Operator Closing Remarks]