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DENTSPLY SIRONA (XRAY) Q3 Earnings & Revenues Miss Estimates

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DENTSPLY SIRONA Inc. (XRAY - Free Report) reported adjusted earnings per share (EPS) of 38 cents in the third quarter of 2018, missing the Zacks Consensus Estimate by 15.6%. The bottom line also deteriorated significantly by 45.7% from the prior-year quarter number.

Net revenues declined 8% year over year to $928.4 million and fell short of the Zacks Consensus Estimate of $952.8 million. At constant currency (cc), the metric declined 5.9%.

In a year’s time, this Zacks Rank #4 (Sell) stock has declined 43.9% against the industry’s 4.3% growth. The current level is also lower than the S&P 500 index’s rally of 8.5%.

Business Details

Net sales Excluding Precious Metal Content

Net sales, excluding precious metal content, came in at $920.3 million, down 7.9% year over year.

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

Per management, DENTSPLY’s Healthcare business grew by mid-single digits in the quarter under review.

DENTSPLY SIRONA Inc. Price, Consensus and EPS Surprise

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

Technology & Equipment

Per management, Technology & Equipment revenues declined 11.3% year over year  in the third quarter. Notably, revenues in the segment totaled $495 million. It was further stated that a significant amount of inventory destocking in the reported quarter led to decrease in revenues.

Consumables

DENTSPLY’s Consumable growth was impacted by a short-term disruption from its distribution infrastructure in Venlo, Netherlands. Consumable revenues declined 3.9% year over year to $433.2 million in the quarter.

Restructuring Plan

DENTSPLY announced a comprehensive plan to accelerate revenue growth, expand margins and simplify its business. The plan includes a restructuring that is anticipated to achieve $200-$225 million in net annual cost savings by 2021 through streamlining the organization and consolidating functions. Furthermore, this strategy is expected to boost the top line by 3-4% and deliver an adjusted operating income margin of 20% by the end of 2020 and 22% by 2022.

Revenues by Geography

Revenues from the United States totaled $328.7 million, which fell 9.6% year over year.

In Europe, revenues declined 9.8% on a year-over-year basis to $3.4.8 million in the third quarter. The downside can be primarily attributed to the revenue shortfall with regards to Venlo and some softness in the equipment markets in Central Europe.

Revenues from the Rest of the World (ROW) also inched down 3.1% to $250.9 million. However, the company foresees high-single digit growth opportunities in Latin America and China.

Margin Analysis

Gross profit in the reported quarter summed $476.1 million, down 14.8% on a year-over-year basis. Gross margin was 51.3%, down 410 basis points (bps).

Excluding precious metal content, gross margin came in at 51.7%, which also contracted 420 bps.

Adjusted operating income totaled $57.6 million, down significantly by 55.1% year over year.

Adjusted operating margin in the quarter was 6.2%, down 650 bps from the year-ago period.

Excluding precious metal content, adjusted operating margin came in at 6.3%, down 660 bps in the third quarter.

Financial Condition

DENTSPLY exited the third quarter with cash and cash equivalents of $233.1 million. Operating cash flow amounted to $126 million in the quarter.

Guidance

For 2018, DENTSPLY anticipates adjusted EPS at or slightly below the low end of the previously announced guided range of $2.00-$2.15 per share. The Zacks Consensus Estimate is pegged at $2.07, above the lower end of the projected range.

The 2018 revenue guidance assumes a decline of 2% at cc. The Zacks Consensus Estimate is pinned at $3.99 billion.

Conclusion

DENTSPLY ended the third quarter on a dull note, with both earnings and revenues missing the consensus mark. Both the metrics also declined on a year-over-year basis. The company’s Technology & Equipment and Consumable growth was marred by factors like inventory destocking and disruption from its distribution infrastructure in Venlo. Significant contractions in gross and operating margins also add to the woes. A lowered guidance for 2018 is worrisome.

On the flip side, DENTSPLY continues to gain from its Healthcare business. The company also announced its restructuring plan, which is expected to boost top line. In the fourth quarter, DENTSPLY expects to see normal revenue growth in Europe. Management also foresees high-single digit growth opportunities in Latin America and China.

Earnings of MedTech Majors at a Glance

Some stocks from the broader Medical space that delivered robust results this earnings season are Intuitive Surgical (ISRG - Free Report) , Stryker Corporation (SYK - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) . Notably, each of the stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1  Rank (Strong Buy) stocks here.

Intuitive Surgical reported third-quarter 2018 adjusted earnings per share of $2.83, which exceeded the Zacks Consensus Estimate of $2.65. Revenues totaled $920.9 million, which outpaced the consensus mark of $918.6 million.
Stryker posted third-quarter 2018 adjusted earnings per share of $1.69, which beat the Zacks Consensus Estimate by a penny. Operating margin was 17.8%, up 30 bps.

Merit Medical reported third-quarter 2018 adjusted earnings per share of 47 cents, which trumped the Zacks Consensus Estimate of 42 cents. Revenues of $221.6 million edged past the consensus mark of $218 million.

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