Dentsply Beats Squarely, Profit Up

Zacks

Dental and healthcare products company DENTSPLY International Inc.’s (XRAY) fourth-quarter 2012 adjusted earnings of 56 cents per share surpassed the Zacks Consensus Estimate by a penny and exceeded the year-ago adjusted earnings of 51 cents (up 9.8%).

Adjusted earnings excluded one-time items such as restructuring, amortization, income tax-related and acquisition-related expenses as well as Orthodontics business continuity costs. 
 
However, reported profit attributable to DENTSPLY jumped more than three fold year over year to $126.8 million (or 88 cents a share). The company received an income taxes benefit of $39.6 million in the quarter.
 
For the full year, adjusted earnings of $2.22 beat the Zacks Consensus Estimate by a penny and transcended the year-ago earnings of $2.03 (up 9.4%). Profit (attributable to the company) surged 28.5% year over year to $314.2 million (or $2.18 a share).
 
Revenues
 
Revenues grew 2.1% year over year to $753.3 million and beat the Zacks Consensus Estimate of $747 million. Excluding precious metal content, net sales increased 3.8% (up 5.9% in constant currency) to $703.5 million. Growth was backed by strong internal sales, particularly in the emerging markets.
 
For the fiscal year, sales soared 15.4% year over year to $2,928 million, marginally surpassing the Zacks Consensus Estimate of $2,921 million. Excluding the precious metal content, revenues jumped 16.4% to $2,714 million. Acquisitions and strong internal growth led to the increase in sales in 2012.
 
Margins
 
Gross margin in the reported quarter increased to 52.0% from 48.9% a year ago. Selling, general and administrative expenses (as a percentage of sales) declined 150 basis points year over year to 38.2%.
 
Operating margin jumped up to 12.9% from 8.9% a year ago. Adjusted operating margin (as a percentage of net sales, excluding precious metal content) was 17.1% versus 16.0% in the prior-year quarter.
 
Balance Sheet
 
DENTSPLY ended the fourth quarter with cash and cash equivalents of $80.1 million, up 3.9% year over year. Long-term debt decreased 18% to $1,222.0 million.
 
Guidance
 
Based on the improving global dental market trends along with the impact of currency rates, DENTSPLY expects to generate adjusted earnings per share in the band of $2.38 and $2.48 for 2013. The Zacks Consensus Estimate for 2013 earnings is pegged at $2.45.
 
Our Take
 
DENTSPLY is poised to grow its share in the dental consumable market, driven by a strong product base and significant investment in product/technology innovation and sales/marketing infrastructure. Management has reduced its debt level significantly in 2012.
 
The company plans to invest in accretive acquisitions along with share repurchase programs and dividends in 2013, which we believe is a good step to leverage investor confidence. However, DENTSPLY faces stiff competition in the dental market from other large-cap players.
 
DENTSPLY currently has a Zacks Rank #3 (Hold). Medical/Dental Supplies companies worth a look are Medical Action Industries Inc. (MDCI), Steris Corp. (STE) and The Cooper Companies Inc. (COO). Medical Action carries a Zacks Rank #1 (Strong Buy), while the other two companies carry a Zacks Rank #2 (Buy).
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Read the Full Research Report on MDCI

Read the Full Research Report on STE

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