DENTSPLY Shy by a Penny

Leading dental product maker DENTSPLY International (XRAY) reported tepid second-quarter fiscal 2010 results with adjusted earnings per share of 50 cents coming in a penny below the Zacks Consensus Estimate and a cent above the year-ago adjusted earnings. Adjusted earnings exclude one-time items such as restructuring charges and tax-related adjustments. Net income edged up 3% year-over-year to $72.4 million (or 49 cents a share).

Revenues

Net sales increased 2.2% year-over-year to $565.1 million, but trailed the Zacks Consensus Estimate of $568 million. Sales were supported by the resurgent global dental market with several product segments and geographies showing signs of growth. Not being a life-sustaining product, the dental market was badly affected in the height of the economic downturn, which resulted in patients deferring their adoption.

Excluding the precious metal content, net sales increased 1.5% to $519.3 million. Growth ebbed due to unfavorable foreign exchange translation (stemming from a stronger U.S. dollar compared to other currencies).

Margins & Expenses

Gross margin fell to 50.9% from 51.7% a year-ago on account of higher cost of sales (up 4%). Operating margin improved to 18.6% from 17.9% a year-ago, helped by higher sales and lower restructuring and other expenses. Selling, general and administrative expenses dipped marginally to $182.4 million.

Financial Condition

The company exited the first-half fiscal 2010 with cash and cash equivalents of $340.3 million, up 35% year-over-year. However, long-term debt increased more than three-fold year-over-year to roughly $463 million.

Outlook

Factoring in the currency exchange headwinds, DENTSPLY has trimmed its earnings guidance for fiscal 2010. The company now expects adjusted earnings in the range of $1.86 to $1.94, down from the earlier view of $1.90 to $2.00.

DENTSPLY's diverse product range, significant international presence, new product introductions and acquisition initiatives are expected to boost operating metrics over the forthcoming quarters. However, the company's international operations are exposed to foreign exchange translation risk. We currently have a Neutral recommendation on the stock.

Read the full analyst report on XRAY