Leading dental products maker DENTSPLY International (XRAY) posted third-quarter fiscal 2010 adjusted earnings per share of 45 cents, in line with the Zacks Consensus Estimate and a penny above the year-ago adjusted earnings.

Adjusted earnings exclude one-time items such as restructuring and acquisition-related charges as well as tax-related adjustments. Net income fell 5.7% year-over-year to $63.7 million (or 44 cents a share) on account of higher costs.

Revenues

Net sales increased 2% year-over-year to $541.8 million, ahead of the Zacks Consensus Estimate of $531 million. Sales were supported by a resurgent global dental market. Excluding the precious metal content, net sales edged up 0.1% to $494.3 million. Growth ebbed due to an unfavorable foreign exchange translation.

Margins & Expenses

Gross margin fell to 50.4% from 51.2% a year-ago on account of higher cost of sales (up 3.7%). Operating margin dipped to 16.7% from 17.5% a year-ago, impacted by lower gross margin and higher selling, general and administrative expenses (up 2.5%).

Financial Condition

The company exited the quarter with cash and cash equivalents of $534.2 million, up 60% year-over-year. However, long-term debt increased nearly fourfold year-over-year to roughly $592.4 million.

Outlook

Factoring in the currency exchange headwinds and investments associated with expansion initiatives, DENTSPLY has trimmed its earnings guidance for fiscal 2010. The company now expects adjusted earnings in the range of $1.86 to $1.91, down from the prior projection of $1.86 to $1.94. The current Zacks Consensus Estimate is $1.90.

DENTSPLY’s diverse product range, significant international presence, new product introductions and acquisition initiatives are expected to boost operating metrics over the forthcoming quarters.

Moreover, DENTSPLY is poised to grow its share of the dental implant market, driven by a strong product base and significant investment on product/technology innovation and sales/marketing infrastructure. However, the company’s international operations are exposed to foreign exchange translation risk. We currently have a Neutral recommendation on the stock, which is supported by a short-term Zacks #3 Rank (Hold).

 
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