DENTSPLY International Inc. (XRAY)

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DENTSPLY International Inc. (XRAY)

Q3 2009 Earnings Call

October 29, 2009 8:30 am ET


Bret W. Wise - Chairman and Chief Executive Officer

Christopher T. Clark - President and Chief Operating Officer

William R. Jellison - Senior Vice President and Chief Financial Officer


Derek Leckow - Barrington Research

Jeff Johnson - Robert W. Baird & Co.

Adam Prusard - Barclays Capital

Greg Halter - Great Lakes Review

Chris Arndt - Select Equity Group



Good day everyone, and welcome to the DENTSPLY International 2009 third quarter earnings conference call. Today’s call is being recorded. At this time, I would like to turn the call over to Mr. Bret Wise, the Chairman and Chief Executive Officer.

Bret W. Wise

Thank you for joining us on our third quarter call. This is Bret Wise, Chairman and CEO, and also with us today are Chris Clark, our President and COO, and Bill Jellison, our Senior Vice President and CFO.

I’d like to begin today’s call with some overview comments on the results and also how we see the state of the dental market. I’d ask Chris Clark to follow with some insights on our gross margin performance, and then as usual, Bill Jellison will follow with more details on the financial results. And as usual, following our formal remarks, we'll be pleased to answer any questions that you may have.

Before we get started, it is important to note that this conference call will include forward-looking statements. Those involve risks and uncertainties, and they should be considered in conjunction with the risk factors and uncertainties described in our most recent annual report on Form 10-K, and our other periodic filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. A recording this conference call in its entirety will be available on our website.

Last night we announced our financial results for the third quarter and we’re pleased to announce improved sales performance, a solid overall earnings result, and as we’ll discuss today, excellent free cash flow generation. These results continue to suggest that we may have seen the trough in the global dental market with some signs of gradual recovery as we move forward. Total sales including previous metals were up 0.2% in the quarter, and sales excluding precious metals increased 1.1% in the quarter, and that’s a significant improvement from the minus 5.6% and minus 6.2% that we experienced in the first quarters of this year.

Internal growth was minus 1.5% in Q3, and that’s also a strong improvement over the -3.8% that we had experienced June year to date. Acquisition growth was 4% in the quarter, resulting in constant currency growth of 2.5% for the period, and the currency impact while still negative at minus 1.4%, represented a significantly smaller headwind in the quarter than we had seen in the first half of the year. Further, if rates remain where they are today, currency will turn into a positive tailwind in the fourth quarter.

Our dental business delivered basically flat internal growth. It was minus 0.3% in the quarter, and that also is a significant improvement over our June year to date performance which was minus 3.0% for the dental only portion of our business. In total, these results are encouraging, indicating at least a stabilizing if not a strengthening of the underlying dental market as well as continued strong execution I think on the part of our business units.

Encouragingly, our Q3 internal growth improved across all three geographic regions. The US internal growth for the quarter was minus 2.6%, and that compares favorably to the minus 3.5% that we had seen June year to date, and that was driven by stronger consumable sales and also solid double digit implant growth in the US. Internal growth in Europe was minus 1.1%, and again that compares favorably to the minus 2.5% we had seen June year to date, and I think it’s also important to note that European growth was positive in the low single digits if you exclude CIS, and that was led by particularly strong growth in our specialty products where all three were positive on an internal growth and of course a constant currency growth basis in the quarter.

Rest of world sales also strengthened in the quarter, delivering flat internal growth in Q3, and that compares favorably to a minus 1.9% that we had seen through June. So I think these geographic results reflect meaningful improvement over what we had seen in the first half of the year providing some comfort that the stability of recovery is not limited to one region or one geography, but it’s more widespread at least at this time.

Looking at the performance of the various product areas of the business, our specialty businesses as a group again reported low single digit internal sales growth in the third quarter and mid single digit constant currency growth. This is consistent with a trend we have seen all year as our specialty business growth phases in each quarter in 2009.

In the specialty category, both orthodontics and endodontics had positive internal growth while implants were essentially flat on an internal growth basis during the period. So these were positive constant currency. I think what is interesting in this segment is that our implant business now appears to be very close or perhaps even tied to the number three global position for the implant market. You may recall that just a few years ago we were number five in the world in the implant market, and I think that’s an indicator that we’ve made substantial progress in this marketplace across a variety of geographies.

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