Investors were left disappointed when
), a major player in the malocclusion market, announced that it
will be able to touch just the low ends of its earlier announced
top and bottom line guidance for the fourth quarter 2012. On top
of this, the news of some expected job cuts caused further
concern among stakeholders, leading to a downward rally of the
stock price since the announcement.
Notably, in October, while declaring its preliminary sales
result, the company forecast its fourth quarter guidance with net
revenue of $134.2−$137.8 million and adjusted EPS in the range of
21−23 cents. The Zacks Consensus Estimate for revenues of $135
million for the fourth quarter exceeds the latest guidance. Also,
the Zacks Consensus Estimate for EPS of 23 cents remains far
above the low end of the projected band.
Align attributed the earnings warning to its sufferings for
the past few months, due to the impact of general economic
slowdown that affected the overall dental market and led to
continued soft dental sales for Align. The dental procedures are
primarily elective in nature, which are deferred in a rising
unemployment scenario. Continued weakness in the global economy
results in a challenging environment for dental technology sales;
dentists may postpone investments in capital equipment, such as
intra-oral scanners. Also hurricane Sandy led to significant
sales disruptions, affecting Align's customer practices.
In addition, we are concerned about the recent termination of
the distribution agreement with dental manufacturer Straumann in
Europe that forced the company to go for a goodwill impairment
test. Straumann used to market the company's Cadent products
iTero intra-oral scanners in Europe and North America. We believe
this to get reflected in the fourth quarter result. Adding to our
worries, the company also declared that its vice president,
research and development Dana Cambra and vice president, North
American Sales, Dan Ellis had both left the company.
To overcome these challenges the company has adopted several
strategies including management churn and retrenchment with job
cuts to drive its bottom line. The company expects to reduce its
workforce by eliminating 25 regular employees (the company's
current full-time employee base being 3,090 globally).
The company also stated that, Greg Morrow, a marketing veteran
with past experience in
Johnson & Johnson
Procter & Gamble
), will be appointed as the vice president and general manager
for the Clear Aligner product line. In addition, Christopher
Puco, the company's existing vice president of sales strategy
will take over the position of Dan Ellis.
We are disappointed with the lower-than-expected fourth
quarter guidance for Align. The job cuts and higher management
churn, accompanied by the termination of the European
distribution contract also added to our concern. We also remain
worried about the current economic uncertainty which continues to
cast a negative impact on dental procedures. Moreover, the
company faces significant competition from players such as
). The company currently retains a Zacks #5 Rank (Strong Sell) in
the short term.
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