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Why Is Dentsply (XRAY) Down 1.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Dentsply International (XRAY - Free Report) . Shares have lost about 1.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Dentsply due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

DENTSPLY SIRONA Q3 Earnings Miss Estimates, Consumables Sales Down

DENTSPLY SIRONA 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%.

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.

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

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Dentsply has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Dentsply has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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