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Why Is Dentsply (XRAY) Up 1.7% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Dentsply International (XRAY). Shares have added about 1.7% in that time frame, underperforming the S&P 500.

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

DENTSPLY Beats on Q3 Earnings Estimates, Margins Expand

DENTSPLY reported adjusted EPS of 57 cents in the third quarter of 2019, beating the Zacks Consensus Estimate of 50 cents. The bottom line surged 51.4% from the prior-year quarter’s figure.

The company’s revenues rose 3.6% year over year to $962.1 million and outpaced the Zacks Consensus Estimate of $944.9 million. Per management, internal sales growth was 7.5%.

Business Details

Net sales Excluding Precious Metal Content

Net sales, excluding precious metal content, came in at $950.6 million. The figure increased 3.3% on a year-over-year basis.

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

Technology & Equipment

Per management, Technology & Equipment revenues rose 5.1% year over year in the third quarter to $534.5 million. Per management, growth came on the back of Digital Dentistry and Healthcare, offset partially by weakness in Equipment & Instruments sales and competitive pressures in Imaging business.

Consumables

DENTSPLY SIRONA Consumable revenues rose 1.8% year over year to $427.6 million in the reported quarter. Per management, the upside was driven by growth in sales of Restorative and Endodontics products.

Revenues by Geography

In the United States, revenues moved up 2.5% to $337 million and 4% internally. Rest of World revenues increased 5.1% year over year to $263.7 million. Revenues in the geography grew 10% on an internal sales growth basis. European revenues climbed 3.6% year on year to $361.4 million. On an internal sales growth basis, European revenues increased 8.4%.

Margin Analysis

Adjusted gross profit in the reported quarter amounted to $547.9 million, up 7% on a year-over-year basis. Adjusted gross margin was 53.6%, up 60 basis points (bps).

Adjusted operating income totaled $172.3 million, which surged 43.4% year over year. Adjusted operating margin in the quarter was 18.1% that skyrocketed 510 bps.

Financial Condition

DENTSPLY SIRONA exited the third quarter with cash and cash equivalents of $226.1 million.

Guidance

For 2019, DENTSPLY SIRONA continues to expect revenues between $3.95 billion and $4.05 billion, representing internal sales growth of 4% and 5%.

However, portfolio-shaping initiatives and continued acquisitions are expected to reduce 2019 revenues by $60 million.

The company also raised the 2019 guidance range for adjusted EPS in the range of $2.42-$2.48 from the previous expectation of $2.35-$2.45.

Adjusted operating margin is expected between 18% and 19%.

Foreign exchange is expected to negatively impact revenues by $135 million in 2019.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Dentsply has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 has been net zero. Notably, Dentsply has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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