Zacks_Analysts' Blog : DENTSPLY Outperforms, Raises View - Analyst Blog

Leading dental products maker DENTSPLY International’s (XRAY) third-quarter fiscal 2011 adjusted (excluding one-time items including acquisitions/restructuring charges, amortization of intangibles and tax related adjustments) earnings per share of 46 cents topped the Zacks Consensus Estimate of 43 cents and matched the year-ago adjusted earnings.

Profit (attributable to the company), as reported, dipped 4.8% year over year to $60.6 million (or 42 cents a share), hurt by sizable restructuring and acquisition charges which offset healthy revenue growth. Moreover, supply chain disruption (for orthodontic products) resulting from the Japan quake weighed on the bottom line. The Pennsylvania-based company once again lifted its earnings per share target for the full year.

Revenues

Net sales soared 14.4% year over year to $619.8 million, easily beating the Zacks Consensus Estimate of $587 million. Excluding the precious metal content, net sales surged 14% to $563.8 million, buoyed by the acquisition of AstraZeneca’s (AZN) dental implant unit Astra Tech, organic growth and favorable foreign exchange swings. The company closed the $1.8 billion acquisition of Astra Tech on August 31, 2011.

Margins

Gross margin fell to 48% from 50.4% a year-ago on account of higher cost of sales (up 20% year over year). Operating margin plummeted to 6.4% from 16.7% a year-ago, hit by the hefty acquisition and restructuring costs.

Balance Sheet

DENTSPLY ended the quarter with cash and cash equivalents of roughly $81.9 million, down 85% and 88% year over year and on a sequential basis, respectively. Long-term debt increased more than three-fold year over year (up 174% sequentially) to roughly $1.79 billion. DENTSPLY has financed the purchase of Astra Tech with cash, commercial paper and long-term debt, which appears to reflect the changes in its cash and debt positions.

Guidance Raised

Based on its first nine months' results, expectations for stable dental market conditions and the contributions of Astra Tech, DENTSPLY has beefed up its adjusted earnings per share target for the year to $2.01-$2.07 from $1.96-$2.04. The guidance excludes amortization of acquired intangible assets. The Zacks Consensus Estimate is $1.96.

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 company’s diverse product range, significant international presence, new product introductions and acquisition initiatives are expected to boost operating metrics moving forward. Its recent acquisition of Astra Tech represents a healthy prospect. However, the supply chain disruption associated with the Japan disaster remains a concern. We currently have an Outperform recommendation on the stock.