Leading dental products maker DENTSPLY International (XRAY) posted first-quarter fiscal 2011 adjusted (excluding one-time items) earnings per share of 49 cents, beating the Zacks Consensus Estimate by a penny while surpassing the year-ago adjusted earnings of 44 cents.
Net income (attributable to the company) for the quarter soared 11.7% year over year to $69.1 million (or 48 cents a share) on the back of higher sales and lower restructuring costs.
Net sales rose 4.5% year over year to $570.5 million, also ahead of the Zacks Consensus Estimate of $556 million. Excluding the precious metal content, net sales climbed 6% to $527 million. The growth was driven by higher revenues from dental consumable and specialty products, backed by a recovery in the global dental market and new product launches.
Margins & Expenses
Gross margin for the quarter improved to 52.6% from 51.7% a year-ago owing to higher sales. Operating margin increased to 17.3% from 16.4% a year-ago, benefiting from lower restructuring costs which fell 86.5% year over year to roughly $0.6 million.
Financial Condition
The company exited the quarter with cash and cash equivalents of roughly $575.3 million, up 42% year over year. However, long-term debt increased 42.5% year over year to roughly $652.3 million.
Outlook
DENTSPLY, in March 2011, withdrew its earnings forecast for fiscal 2011, triggered by the uncertainties of the impact of the Japan quake and Tsunami, on its business. The company also noted that one of its key suppliers was located in the evacuation zone.
DENTSPLY, during the first quarter call, stated that it has taken appropriate actions in response to the supply chain disruption which it expects to sustain for some time. The company envisions the impact of the Japan disaster to unfavorably affect its fiscal 2011 earnings by 12-17 cents a share.
Factoring in the negative Japan quake impact, DENTSPLY expects earnings per share of between $1.86 and $1.98 for fiscal 2011 – below the current Zacks Consensus Estimate of $2.02. In its fourth quarter earnings call in February 2011, the Pennsylvania-based company projected earnings per share in a band of $2.00 to $2.08 for the year.
DENTSPLY’s products are used in over 120 countries enabling it to leverage the changing dental practice across North America and Western Europe, which emphasizes preventive care and cosmetic dentistry. One of the company’s major customers is Henry Schein Inc (HSIC), a dental products distributor.
DENTSPLY’s diverse product range, significant international presence, new product introductions and acquisition initiatives are expected to boost operating metrics over the forthcoming quarters. However, the company’s international operations are exposed to foreign exchange translation risk.
On the other hand, DENTSPLY’s domestic market still remains challenged due to the slow economic recovery and competitive pressure. We are currently Neutral on the stock.
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