XRAY

DENTSPLY International Inc. (XRAY)

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DENTSPLY International Inc. (XRAY)

Q4 2009 Earnings Call Transcript

February 11, 2010 8:30 am ET

Executives

Bret Wise – Chairman and CEO

Chris Clark – President and COO

Bill Jellison – SVP and CFO

Analysts

Derek Leckow – Barrington Research

Jeff Johnson – Robert W. Baird & Co.

Natalie Nadler – William Blair

Larry Marsh – Barclays Capital

Scott Green – Bank of America

Jason Rodgers – Great Lakes Review

Presentation

Operator

Good day and welcome to the DENTSPLY International 2009 fourth quarter earnings conference call. Today’s call is being recorded. At this time I’d like to turn the call over to Mr. Bret Wise, the Chairman and Chief Executive Officer. Please go ahead, sir.

Bret Wise

Thank you, Missy, and good morning everyone. Thank you for joining us on our fourth quarter call. This is Bret Wise, Chairman and Chief Executive Officer, and also with us today are Chris Clark, our President and Chief Operating Officer; and Bill Jellison, our Senior Vice President and Chief Financial Officer.

Each of the three of us some prepared remarks today, we are going to comment on the state of the market in late 2009 and how we see it going into 2010. And of course, we're going to cover in some detail our fourth quarter 2009 performance as well as full year 2009 performance. And as usual following our formal remarks, we'll be pleased to answer any questions you may have.

Before we get started, it is important to note that this conference call will in fact include forward-looking statements involving risks and uncertainties, and those should be considered in conjunction with the risk factors and the uncertainties described in the company’s most recent annual report on Form 10-K and our quarterly filings on Form 10-Q as well as our press releases and other filings with the SEC.

It’s important to note that 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. And as usual a recording this conference call in its entirety will be available on our website.

Last evening we were pleased to announce fourth quarter and full year earnings. Our 2009 performance I think illustrates DENTSPLY’s ability to deliver consistent performance throughout economic cycle. We achieved solid results in a very challenging market largely due to efforts to balance our continued investment in growth prospects, but also a rapid reduction in our non-essential discretionary expenses. On balance, I think we did a good job of controlling cost, taking market share in select markets and improving cash flows.

Our fourth quarter results show some signs of market stabilizing and also even improving in certain markets. In total, the fourth quarter sales were up 11.3% ex precious metals and that was driven by constant currency growth of 5.7%, and a currency benefit of 5.6%. The constant currency growth of 5.7 included internal growth of a positive 0.6% and acquisition growth of 5.1%. Looking at just the dental business excluding our non-dental businesses, the internal growth would have been 1.3%.

I think it’s important to note that this is the first positive internal growth we have seen since Q3 of 2008, and although we are -- need your confident the fourth quarter we nevertheless view the positive growth as reflective or perhaps a modest improvement in select markets and summary terms of the growth. The dental internal growth was driven by positive growth in our consumable lines and our specialty products in total, which were both positive during the quarter. The prosthetics business continues to lag and had negative internal growth in the quarter.

I think there are a couple of important messages here. One is that, consumable growth appears to be coming back the fastest in the market, and while we recognize there is a low base here comparison for consumables particularly in the US, this growth is a good indicator that everyday dentistry has been performed at a slightly higher pace, and I think it’s probably also an indicator that we are taking share in some of these broad categories. The specialties which we continue to experience positive internal growth in implants and orthodontics and just slightly negative internal growth in endodontics has held up pretty well throughout the recession. I think it’s important to note that our specialty business in the aggregate have reported positive internal growth in all four quarters of 2009.

And although they are not really growing rapidly at this point, they appear to be holding their own in a slow growth pattern, and given the growth that we’ve experienced in these categories, we believe that we continue to outperform the market and take share. The prosthetics market that, that’s the product that are sold primarily to the dental lab continues to be the most economically sensitive as these procedures generally come at a high cost, they are somewhat discretionary and deferrable. This market continues to contract and we don’t see any meaningful signs of recovery in either the US or Europe at this point.

Our geographic growth was much improved in the US with internal growth of 3.0% in total and 4.2% for the dental business, while Europe was a negative 3.5% in total and rest of the world was positive 4.9%. Couple of observations, the US dental growth reflects chair-side consumable internal growth in the double-digits, and that was aided by an easier comp from the prior, adjusting for our best guess that what really changes in dealer inventory this year versus last, and also for anesthetic product outage last year. We think we probably grew 1% to 2% in consumables in the quarter, and we believe that’s probably more reflective of market growth or perhaps just above market.

Our specialty products in the US continue to grow in the 2% to 3% range this quarter, which is a slight pickup. There also was off at lower comp in the prior year quarter but probably also above market. And lastly the prosthetics business in the US experienced a double-digit decline in the quarter where in the prior year it was essentially flat, and actually reflects probably unfavorable changes in dealer inventories this year compared to last year.

After [ph] the changes in the dealer inventory we believe the prosthetics business would have been down probably mid single digit. Europe also showed growth in consumables and implants in the quarter but to the extent we have seen in the US, well lab results were negative in Europe. Just a reminder that Europe was still growing in the 3% to 4% range in the fourth quarter of last year’s, so this a region where we are actually up against tougher comps in the prior year.

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