Morningstar | Dentsply Sirona's 1Q Results Show Restructuring Efforts Are Paying Off
Dentsply Sirona's first-quarter results mostly met our expectations. We anticipate a minor increase in our fair value estimate, as we think Dentsply's restructuring efforts are starting to materially bear fruit, and we are reiterating our no-moat rating. Dentsply reiterated its full-year outlook while narrowing its adjusted 2019 EPS guidance range to $2.30-$2.40 (from $2.25-$2.40), which still encompasses our previous $2.32 estimate. Although the overall gross profit margin dropped 20 basis points year over year, we think the 340-basis-point sequential improvement testifies to the company's renewed focus. While we think Dentsply's portfolio restructuring should enable meaningful improvements, we still would not be surprised to see hiccups along the way.Dentsply's segment performance was mixed during the period. The company experienced robust demand for its newly launched Primescan digital scanner, which helped lift technology operating margins by 40 basis points versus the year-ago period. We think it is likely that Dentsply has finally moved past its equipment inventory destocking issues in the U.S. region, as exemplified by strong U.S. technology growth during the period. Meanwhile, Dentsply's consumable internal revenue declined 0.6% due to one selling day fewer in the period. Consumable operating margins fell 80 basis points compared with the prior year, which management attributed to higher supply chain costs. We think consumable pricing pressure is unlikely to abate, and we anticipate segment improvement will depend on cost reduction and corporate structure optimization. Separately, management asserted that its supply chain centralization efforts will aid in its dental service organization engagements. While we think the company is wise to position itself to serve this customer segment for the long term, we expect intensifying competition for DSO contracts will keep short-term gains in check.
DENTSPLY SIRONA is a manufacturer of dental products and technologies. The company's Consumables segment is responsible for the design, manufacture, sales and distribution of the company's dental consumable products which include preventive, restorative, endodontic, and dental laboratory products. The company's Technologies and Equipment segment includes responsibility for the design, manufacture, sales and distribution of the company's dental technology and equipment products and healthcare consumable products, including dental implants, computer-aided design/computer-aided manufacturing systems, orthodontic clear aligner products, imaging systems, treatment centers, instruments, and consumable medical device products.
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