We reiterate our Neutral recommendation on
DENTSPLY International Inc.
). Its second quarter 2012 adjusted earnings per share of 62
cents beat the Zacks Consensus Estimate of 56 cents per
ASTRAZENECA PLC (AZN): Free Stock Analysis
SIRONA DENTAL (SIRO): Free Stock Analysis
DENTSPLY INTL (XRAY): Free Stock Analysis
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Revenues increased 25.2% year over year to $763.0 million,
surpassing the Zacks Consensus Estimate of $747 million. Growth was
backed by acquisitions and strong internal sales in the U.S. as
well as in the overseas market. Reported profit grew 8.8% year over
year to $80.8 million (or 56 cents a share) in the quarter led by
the Astra Tech acquisition as well as operating margin expansion.
Pennsylvania-based DENTSPLY International's overall growth strategy
rests on product innovation. Despite challenging macroeconomic
headwinds, the company posted solid internal growth on the back of
innovative new products and persistent strength in the performance
of its dental specialties and lab business.
DENTSPLY acquired Astra Tech, the dental implant division of
multinational drug major
), in 2011 . The acquisition of Astra Tech has reinforced the
company's leadership in the global dental market and broadened its
Currently, the company is investing in the combined digital
solution platform, which includes the Atlantis customized deposit
platform. It believes that this will be a very powerful growth
driver for the combined business. The company opened two combined
dental implant organizations in North America and Iberia and also
proposed to launch more such organizations in different countries
in the near term.
The company has also started rolling out its orthodontics products
line in the second quarter, following the Japanese supply outage,
and is already ahead of plan to replenish its international
distributors with its products. However, the impact of the outage
is expected to continue to drag on the bottom line.
Further, DENTSPLY has a strong international presence. The
company's products are used in over 120 countries. This enables
DENTSPLY to leverage the changing dental practice in North America
and Western Europe, which emphasizes preventive care and cosmetic
dentistry. Emerging markets (such as Asia-Pacific, Middle
East/Africa and Latin America) offer healthy growth opportunities
on a long-term basis as they remain vastly untapped with low
However, the significant currency fluctuation in international
markets has compelled the company to reduce its guidance. A
strengthening U.S. dollar especially against the Euro has led
DENTSPLY to lower its 2012 earnings guidance from $2.22-$2.30 to
$2.18-$2.24 per share.
In addition, although DENTSPLY's domestic U.S. market, of late, has
shown signs of recovery, demand for dental products is slow mainly
due to the troubled U.S. labor market, currency fluctuation and the
overall economic uncertainty in the region. Austerity measures in
southern Europe due to geopolitical uncertainties also remain a
Moreover, after the Astra Tech acquisition, DENTSPLY's long-term
debt has increased considerably. In the last reported quarter,
long-term debt more than doubled from the year ago period to
$1,482.8 million. The company needs to focus on strengthening its
cash balance so that it can make strategic investments for future
DENTSPLY operates in highly competitive markets and hence we remain
cautious about the aggressive competition from players like
Sirona Dental Systems
). We currently have a Neutral recommendation on DENTSPLY, which
carries a short-term Zacks #3 Rank (Hold).