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DENTSPLY (XRAY) Beats on Q2 Earnings, Lowers 2018 Guidance

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DENTSPLY SIRONA Inc. (XRAY - Free Report) reported adjusted earnings per share (EPS) of 60 cents in the second quarter of 2018, beating the Zacks Consensus Estimate by a penny. However, earnings deteriorated 7.7% from the prior-year quarter.

Notably, DENTSPLY incurred a goodwill and intangible impairment charge of $1.27 billion, which impacted results considerably.

Net sales increased 5% year over year to $1.04 billion. The figure marginally surpassed the Zacks Consensus Estimate of $1.03 billion. At constant currency (cc), revenues grew 1.3%.

The stock carries a Zacks Rank #4 (Sell).

DENTSPLY’s price movement has been unfavorable over the past year. The stock has lost 21.1% comparing unfavorably with the industry's rise of 11.5%.

Business Details

Net sales Excluding Precious Metal Content

Net sales, excluding precious metal content, came in at $1.03 billion, up 5.1% year over year.

For investors’ notice, DENTSPLY’s precious-metal dental alloy products, which are used by third parties to construct crown and bridge materials, are subject to certain risks of price fluctuations.

Impairment Charges

Per management, the goodwill and intangible impairment charges in the Technologies and Equipment unit was $1.2 billion.

The Consumable segment had a $69 million of impairment, reflecting lower-than-anticipated growth for DENTSPLY’s legacy orthodontic business.

DENTSPLY SIRONA Inc. Price, Consensus and EPS Surprise

 

DENTSPLY SIRONA Inc. Price, Consensus and EPS Surprise | DENTSPLY SIRONA Inc. Quote

Revenue by Geography

DENTSPLY’s U.S. revenues grossed $338.4 million in the second quarter, up 2.1% on a year-over-year basis.

In Europe sales totaled $426.7 million, up 6.1% from the year-ago quarter.

Sales from the rest of the world came in at $277 million, up 7% year over year.

Margin Analysis

Gross profit in the reported quarter totaled $552.8 million, up 1.6% from the year-ago quarter. Gross margin was 53%, down 180 basis points (bps).

Excluding precious metal content, gross margin came in at 53.5%, which also fell 190 bps.

In the reported quarter, DENTSPLY incurred an operating loss of $1.15 billion which widened from the year-ago quarter’s operating loss of $1.05 billion.

Financial Condition

Cash flow from operations was $117 million, compared with $126 million in the prior-year quarter.

Guidance Lowered

DENTSPLY expects adjusted EPS for 2018 in the range of $2 to $2.15 per share, down from the earlier guided range of $2.55 to $2.65. The Zacks Consensus Estimate is pegged at $2.57, above the projected range. It reflects increased margin pressure for the rest of 2018.

Revenues for 2018 are expected to decline 2% at cc in 2018, down from the previous expectation of 2% growth at cc. The Zacks Consensus Estimate is pinned at $4.17 billion.

Stock Repurchase Update

DENTSPLY repurchased 5.4 million shares for a total of $250 million during the second quarter.

In Conclusion

DENTSPLY saw a solid second quarter. However, the company incurred a huge goodwill and intangible impairment charge in the quarter, which reflected on the results. Impairment charges in the Technologies and Equipment and Consumable units proved to be unfavorable. A year-over-year decline in adjusted earnings is also a negative. Moreover, the company saw lower-than-anticipated revenues and margin at the Imaging, CAD CAM businesses. Orthodontic product platforms also saw deterioration in the quarter. A lowered guidance for 2018 is discouraging. Dented margins and surging operating losses are likely to impeded growth. The company also has a high level of long-term debt which adds to the woes.

However, the year-over-year improvement in revenues is a positive. Also, rising sales in Europe and rest of the world buoy optimism. The company’s agreement with MedTech bigwig Patterson Companies in Canada are likely to drive sales.

Q2 Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season, are Stryker Corporation (SYK - Free Report) , Intuitive Surgical, Inc (ISRG - Free Report) and Illumina, Inc (ILMN - Free Report) .

While Intuitive Surgical and Illumina sport a Zacks Rank #1 (Strong Buy), Stryker carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported adjusted earnings of $2.76 per share in the second quarter of 2018, which beat the Zacks Consensus Estimate of $2.48. Adjusted earnings improved 38% year over year.

Stryker reported second-quarter 2018 adjusted earnings per share of $1.76, beating the Zacks Consensus Estimate by 1.7%.

Illumina reported adjusted earnings of $1.43 per share, beating the consensus mark of $1.11.

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