Patterson Companies, Inc. (PDCO) Q4 2021 Results - Earnings Call
Patterson Companies, Inc. (NASDAQ:PDCO) Q4 2021 Earnings Conference Call June 23, 2021 8:30 AM ET
Company Participants
John Wright - Vice President, Investor Relations
Mark Walchirk - President and Chief Executive Officer
Don Zurbay - Chief Financial Officer
Conference Call Participants
Michael Cherny - Bank of America
Erin Wright - Credit Suisse
Jeff Johnson - Baird
Jason Bednar - Piper Sandler
Kevin Caliendo - UBS
Nathan Rich - Goldman Sachs Group, Inc
Glen Santangelo - Guggenheim Securities
Jonathan Block - Stifel
John Kreger - William Blair
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.
I would now like to hand the conference over to Mr. John Wright, Vice President of Investor Relation. You may begin, sir.
John Wright
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's President and Chief Executive Officer, Mark Walchirk; and Patterson's Chief Financial Officer, Don Zurbay. After a review of the fiscal 2021 fourth quarter and full year result 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 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 also 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 noon Central Time for a period of one week.
Now, I'd like to hand the call over to Mark Walchirk.
Mark Walchirk
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 supports 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 in 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 increase approximately 10% over the prior year, and fiscal 21 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 am proud for our outstanding team and Patterson's fiscal 2021 results.
With that I'll briefly touch on the drivers of those results in each of our two business segments, starting with dental. Fiscal 2021 was another strong year for our dental business, particularly given the unprecedented disruption within the market. As the dental market transition 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 the 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 continue to see increasing demand for our expanding and highly profitable private label portfolio products, which once again outpaced the growth of the broader consumable category. Many of our private label products also happens to be in the infection control category, which serves as an incremental tailwind for us to continue to drive top line growth and margin improvement. Our ability to deliver strong private label growth and 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 the Strategic Initiatives 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 work together to deliver the unmatched expertise and service our customers expect from Patterson.
Our ability to support our customers throughout the entire lifecycle 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 and both core equipment and high tech categories proved 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 new services products. Patterson currently offers three comprehensive and growing practice management platforms that help our customers with everything from revenue cycle management, to practice analytics and insights to patient communication.
Looking forward, we are confident that 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, and dentists in 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, veterinarian 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 positions 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 improve the 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 enabled them to scale and improve their customer experience. For example, we leveraged our e-Pet health 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 helps 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 multi regional veterinary distributor. We completed the transaction earlier this month. We believe Miller Vet is a strong cultural fit with Patterson animal health, with complimentary 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 their 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 grow 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 market, 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 and detail and speak to the key assumptions and drivers of the financial guidance we announced this morning.
Don Zurbay
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 month 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. 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 for 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 of 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 certain infection control inventory, or prices have fallen as the impact of the pandemic is tampered 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. Taking 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 rates 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 reserves costs accelerated debt costs, discrete tax matters, investment gain or loss in goodwill impairment along with the related tax effect of these items. This compares to $41.1 million or $0.43 per share in the fourth quarter of fiscal 2020. The after tax impact from the COVID related inventory adjustments for certain infection control products, and LIFO was approximately $18.2 million or $0.19 per diluted share and impact in both reported net income and the adjusted net income for the fourth quarter of fiscal 2021.
Now let's turn to our business segment 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's sales performance for the fourth quarter of fiscal 2020 was severely impacted by the ADA recommending the 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 and 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 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 Animal Health business was 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 deliver 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 the 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 use $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 a 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 manage 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 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 dividends to our shareholders. Our Board continues to view our dividend as an important component of returning values for our shareholders and the current dividend yield provides a meaningful baseline return to shareholders as we continue focusing on our plans to drive improve 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 uncertainty still exists. 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 2020 adjusted EPS guidance, we're modeling mid single digit revenue growth and operating margin expansion for both business units and the total business.
Second, our fiscal 2021 adjusted EPS was $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. They 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. It 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 is 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 looked at fiscal 2022, we have modeled the gross profit impact from sales and 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 expectations of $1.90 to $2.05 implies 7% year-over-year growth at the midpoint, 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
Thanks Don. At the end of this unprecedented year, we can say with confidence that Patterson has emerged from the pandemic even stronger than we entered it. They're 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.
Question-and-Answer Session
Operator
[Operator Instructions]
Your first question comes from the line of Michael Cherny from BofA.
MichaelCherny
Good morning and thanks for all the details, especially on thinking about the 2022 trajectory. If I can 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 or how you should think through the pathway forward for segment margins and particularly dental segment margin. I know it's important for both but just curious, given what you've accomplished pre COVID, some of the moving 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?
MarkWalchirk
Yes, Michael, this is Mark. Thank you. And I'll make a couple of comments and then turn it over to 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, well, obviously a lot of variability in that during fiscal '21. We see the supply chain stabilizing, and we expect that to be a positive force 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 and the software and technology category, really bringing great value through our tech service team and increasing the productivity of that group. Our focused 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.
DonZurbay
Yes, 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 in the --during the pandemic, I think we still feel like we're in a good position to expand the margins in the dental business.
MichaelCherny
Understood and then want to dive back in to some of the comments you made around your growth relative to rest of the market, I believe you said across dental, you're going faster in -- consumables going faster and 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 being it's coming from versus the dynamics of what you're seeing essentially on a same store growth within their existing customer base?
MarkWalchirk
Well, I think we believe that 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 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 that they could support their customers. Our dental team builds 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, it's 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.
Operator
Your next question comes from the line of Erin Wright from Credit Suisse.
ErinWright
Great and thanks. My first one is on animal health. Can you give us a sense of what guidance now assumes the cost to animal health sector on an internal basis? And can you mention 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 right now for the animal health segment in your view?
MarkWalchirk
Yes, 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 quote, unquote, 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 shifted production, I think, as we indicated, now we are seeing early signs of the recovery in the production animal segment from an end market demand standpoint, obviously, as the economy continues to reopen, schools, open restaurants open et cetera, 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 that production animal 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.
ErinWright
Okay, great and then just one on dental and that does seem to take some continued consolidation across the DSOs? Do you see that having a meaningful impact in 2022? Or what's embedded in your guidance on that front end? We obviously hear about the larger DSO dynamics, but what's the attraction you're seeing kind of a smaller regional DSOs and can you give us a strategy update on the DSO front? Thanks.
MarkWalchirk
Yes, 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 mission progress here again across both dental and animal health.
Operator
We have a question from Jeff Johnson from Baird.
JeffJohnson
Thank you. Good morning, guys. Don, I think you mentioned the 10% dental growth in the quarter relative to two years ago to 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 under 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.
DonZurbay
Yes, Jeff, your math is right on the 13%. I think we did give some color on the consumables growth F'21 at 9% for the year and 6% for all other consumables year-over-year.
JeffJohnson
Yes. Is there any way to give that for the quarter? Or I can try to back out the past three quarters comment, I guess, maybe being a little lazy. But if you could give it to us for the quarter that would be helpful.
DonZurbay
Yes, I think if you kind of do the math on the quarter, you get to COVID, COVID way to growth in the Q4 of about 8%.
JeffJohnson
Okay, that's helpful. Thanks. And then, Mark, maybe I'd be interested to hear on the dental equipment side. We've 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 issues are 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 factored into your guidance at this point? Thanks.
MarkWalchirk
Yes, Jeff thanks. I would say we're seeing very modest, some constraint 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.
Operator
Your next question is from Jason Bednar with Piper Sandler.
JasonBednar
Good morning and thanks for taking our questions. Mark, I wanted to start with the guide. I know there's a lot of crosscurrents out there with the market with your business and both dental and animal health. But I guess as we think through all those elements, I'd love 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 maybe how that's factored into your guide here for the year.
MarkWalchirk
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 FY22. 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 year in 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 are -- 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 tailwind 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 are 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 a bottom line results as well.
JasonBednar
Okay, and then the risk and inflationary impacts just how that may be factored in guidance?
MarkWalchirk
Yes. 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.
JasonBednar
Okay. All right. Great. And then maybe a little bit bigger picture question but on the margin side, by historical and competitive standards of just it would seem like there's still quite a bit of margin opportunity for Patterson but I think it'd be helpful to hear, Mark and how you and Don are envisioning maybe the next few years unfolding, not just this year.
MarkWalchirk
Yes. Jason. So yes, 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 expected to expand during the year-over-year, but probably wouldn't lay out, anything further than that in terms of our expectations over the next couple of years.
Operator
We have a question from Kevin Caliendo with UBS.
KevinCaliendo
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?
MarkWalchirk
Yes. Sorry. Go ahead.
KevinCaliendo
No, go ahead.
MarkWalchirk
Yes, 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 2022's cadence during the year.
KevinCaliendo
Okay. That's really helpful. Also, in terms of your margin expectations, in 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 quarter margin is a lot different. So when you talk about margin expansion, is there -- is it sort of, okay, at the end of fiscal '22, 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 on that would be really helpful.
MarkWalchirk
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 this was some of the comps. But on a year-over-year basis, we expect there to be margin expansion in both businesses.
KevinCaliendo
And one last thing 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?
MarkWalchirk
Yes, Kevin is 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 on 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.
Operator
Your next question is from Nathan Rich from Goldman Sachs.
NathanRich
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?
MarkWalchirk
Yes, 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 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.
DonZurbay
Yes, Nathan, I think, adding on to Mark's comments, the stability in pricing and the market really has put us in a position where I do believe that the inventory adjustments, we recorded the fourth quarter really one time in nature, and we're not going to be repeating that as we go forward.
NathanRich
Okay, great. And then just a quick follow up down on the cadence of dental revenue that we should expect in fiscal '22. 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 a low single digit growth, over the second to fourth quarters in the 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 '22.
MarkWalchirk
Yes, and then the guidance really were 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.
Operator
Your next question is from Glen Santangelo from Guggenheim.
GlenSantangelo
Hi, thanks for taking my question. Hey, Don, and just a 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 at the $1.90 to $2.05 there's about 7% to 11% growth off of what you're considering to be sort of the base fiscal '21 number. And so I'm just trying to reconcile kind of what you reported on an adjusted basis for the year to kind of get to that base number, which seems like it's somewhere between a $1.75 and $1.80. And I know there was -- the salary expense savings that was -- isn't going to repeat nosy I think $0.09 of infection control that wasn't going to repeat. Is there anything else when reconciling those adjusted earnings this year back to this sort of base fiscal '21 number that you think is the good jump off of point for fiscal '22?
DonZurbay
Yes, 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 F20 EPS of $1.55.
GlenSantangelo
Okay, 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. So I just want to make sure I have all of those pieces correct.
DonZurbay
No, that's a fair characterization of how we look at it.
Operator
Your next question is from Jon Block from Stifel.
JonathanBlock
Thanks guys. Good morning. A couple quick ones. Both maybe model related, but the animal health growth in the quarter was really strong and up 40%, I think you said companion animal was up 30%. So the higher margin division is arguably growing 2x. And then, Mark, I even think he called that positive mixture within some of the line items, but the O&M were flat to down actually, they're down 10 bps. Can you just sort of lay out for us why you're seeing some very slight, but still margin compression of the -- are a mid teens internal number.
MarkWalchirk
And you're talking in the animal health space.
JonathanBlock
That question yes, was all specific to animal.
MarkWalchirk
Yes. I think if you just sort of 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 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 animal health space is that we think going forward, particularly with this kind of growth, that we have a good opportunity to continue leveraging that our profit into fiscal '22.
JonathanBlock
Okay, got it. And then it sort of follows up with a couple of recent questions, but the mid single digit growth in both end markets 7% at the midpoint it sort of got to go with the midpoint. So I'm not sure if the tax rate, it seems to imply a very slight op margin expansion, maybe a couple 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% to 7%, rev versus EPS at the midpoint, why not a little bit more leveraged on, 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.
MarkWalchirk
Yes, 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 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.
JonathanBlock
And your last question is from John Kreger from William Blair.
JohnKreger
High stock to return to growth is fiscal '22 plays out. And that makes sense?
MarkWalchirk
Hey, John?
JohnKreger
Yes.
JohnKreger
Sorry to interrupt. We missed the first part of your question. So can you repeat it, please?
JohnKreger
Yes, 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?
MarkWalchirk
Yes, John, I think we believe back to pre pandemic levels it's a low single digit growth business going forward. That's where we viewed at this point, certainly continued good strong demand global protein. But again, I would say low single digits.
JohnKreger
Great. Thanks. And then one last one. You talked I think about dentists sort of investing in their practice, being one of the things that you expect will drive '22. He is to elaborate on that, where are they investing? What sort of equipment demand are you seeing to be particularly good?
MarkWalchirk
Yes, I think the -- we're 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, eservices, and again, I think really just speaks to the strength that we see from the dental market in 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
This concludes today's conference call. Thank you for joining. You may now disconnect.
