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DENTSPLY Beats, Alters Outlook

Zacks Equity Research

Dental and healthcare products company DENTSPLY International Inc. (XRAY) reported its second quarter 2012 adjusted earnings of 62 cents per share, beating the Zacks Consensus Estimate of 56 cents per share.

Reported profit rose 8.8% year over year to $80.8 million (or 56 cents a share) in the quarter.

Revenues

Revenues increased 25.2% year over year to $763.0 million, surpassing the Zacks Consensus Estimate of $747 million. Excluding precious metal content, net sales soared 23.8% (up 30.0% in constant currency) to $698.5 million. Growth was backed by acquisitions and strong internal sales in the U.S. as well as in the overseas market.

Margins

Gross margin in the reported quarter increased to 53.4% from 51.7% a year ago. Selling, general and administrative expenses (as a percentage of sales) were higher at 38.8% versus the 34.6% of the prior-year quarter. Operating margin declined to 14.3% from 15.9% a year ago.

Balance Sheet

DENTSPLY ended the second quarter with cash and cash equivalents of $53.2 million, a decline of 92.1% year over year. Long-term debt more than doubled from the year-ago period to $1,482.8 million.

Guidance

Based on the trading range of the euro, the company expects to generate adjusted earnings per share in the band of $2.18 and $2.24 for 2012 compared with the earlier band of $2.22 to $2.30.

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).

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

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