Mixed 3Q for Dentsply, Outlook Up

Dental and healthcare products company DENTSPLY International Inc.’s (XRAY - Analyst Report), third-quarter 2012 adjusted earnings of 51 cents per share surpassed the Zacks Consensus Estimate of 50 cents per share as well as exceeded the year-ago adjusted earnings of 46 cents (up 10.9%).

Adjusted earnings exclude one-time items such as restructuring, amortization, income tax-related and acquisition-related expenses as well as loss on fair value adjustments and Orthodontics business continuity costs.

However, reported profit attributable to DENTSPLY dropped 11.9% year over year to $53.4 million (or 37 cents a share) in the quarter.

Revenues

Revenues soared 12.3% year over year to $695.7 million, but fell short of the Zacks Consensus Estimate of $712 million. Excluding precious metal content, net sales climbed up 14.8% (up 20.1% in constant currency) to $647.1 million. Growth was backed by acquisitions and strong internal sales in the U.S., Europe as well as Rest of World categories.

Margins

Gross margin in the reported quarter increased to 52.3% from 48.0% a year ago. Selling, general and administrative expenses (as a percentage of sales) remained flat year over year at 37.4%.

Operating margin jumped up to 12.7% from 6.4% a year ago. Adjusted operating margin (as a percentage of net sales, excluding precious metal content) was 17.3% versus 17.2% in the prior-year quarter.

Balance Sheet

DENTSPLY ended the third quarter with cash and cash equivalents of $56.1 million, a decline of 31.5% year over year. Long-term debt decreased 31% to $1,237.2 million.

Guidance

Based on the prevailing macroeconomic scenario and the company’s performance, DENTSPLY expects to generate adjusted earnings per share in the band of $2.19 and $2.24 for 2012, compared with the earlier band of $2.18 to $2.24.

DENTSPLY is poised to grow its share in the dental implant market, driven by a strong product base and significant investment on product/technology innovation and sales/marketing infrastructure. The acquisition of Astra Tech has reinforced the company’s leadership in the global dental market and broadened its product range.

The company’s diverse product range, significant international presence, new product introductions and acquisition initiatives are expected to boost operating metrics moving forward. However, DENTSPLY faces significant competition from Sirona Dental Systems (SIRO - Snapshot Report).

We currently have a Neutral recommendation on DENTSPLY. The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.