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Dentsply - >>> Dental-supply company Dentsply’s stock closes at five-year low


By Ciara Linnane

Aug 9, 2018


https://www.marketwatch.com/story/dental-supply-company-dentsplys-stock-is-barreling-toward-a-5-year-low-2018-08-07?siteid=bigcharts&dist=bigcharts


Dentsply slashed guidance and announced a restructuring after its two main dealers cut their inventory by more than expected


Shares of Dentsply Sirona Inc. tumbled 18.7% Tuesday to close at a 5½-year low, after the dental-products maker slashed its full-year outlook and announced a restructuring program after its two main clients cut their inventories by more than expected.

The news overshadowed better-than-expected second-quarter profit and sales.

“We are very disappointed in the results we provided today,” Chief Executive Don Casey told analysts on the company’s XRAY, +0.70% earnings call, according to a FactSet transcript. “We take full accountability for them, and will outline the steps we are taking today to better position this company for sustainable growth going forward.”

York, Pa.–based Dentsply makes and distributes a range of dental products, from consumables — supplies and small equipment that are used in dental offices, such as root-canal instruments and materials, dental anesthetics, prophylaxis paste, dental sealants, impression materials, restorative materials, tooth whiteners and topical fluoride.

The company also makes high-tech equipment, such as imaging equipment and computer-aided design and machining, known by the acronym CAD/CAM, along with dental implants, scanning equipment, orthodontic appliances and dental chairs.

Dentsply said its net loss widened to $1.12 billion, or $4.98 a share, in the period, from $1.05 billion, or $4.58 a share, in the same period a year ago. Excluding nonrecurring items, such as a $1.27 billion goodwill and intangible impairment charge, adjusted earnings per share came to 60 cents, above the FactSet consensus of 59 cents.

Sales rose to $1.04 billion from $992.7 billion, above the FactSet consensus of $1.02 billion.

But the company cut its 2018 adjusted EPS guidance range to $2.00 to $2.15 from $2.55 to $2.65, which now assumes that constant-currency revenue declines about 2% compared with previous expectations of 2% growth.

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The planned restructuring will better align the company with its marketplace, said Casey. Dentsply is currently built around 10 dental business units, each of which is responsible for R&D, manufacturing and marketing.

“This structure has served us well in the past but does not reflect today’s customer or competitive marketplace,” said Casey, who has been in the CEO role for six months. “It led to complexity and does not help us to present one face to the customer, leverage cross-selling opportunities, and has significant cost implications.”

In the U.S. alone, the company has more than 15 selling organizations that are all targeting the same customer, he said. The setup also complicates the supply chain, which comprises more than 40 manufacturing facilities and 80 distribution sites, he said. “That just does not allow us to create scale in procurement and demand planning and logistics,” he said.

Chief Financial Officer Nick Williams Alexos said the company’s main dealers, Henry Schein Inc. HSIC, +0.16% and Patterson Dental, part of Patterson Cos. PDCO, +1.61% were expected to reduce inventories by $40 million this year, but are now expected to cut by $100 million to $110 million. Combined with expected revenue declines in technology and equipment, the destocking will weigh through the year, he said.

The company is expecting margins to remain under pressure, as it adjusts to lower sales levels, while continuing to absorb the high costs of sales, general and administrative as well as research and development.

“In addition, the margins reflect certain FX transactional rates, pricing, and promotions, and one-time operating expenses that we will incur to effect the organizational changes,” said Williams.

Stifel analysts said it’s obvious that Dentsply needs to streamline operations and create a more effective selling organization.

“While it is perplexing that the Dentsply Sirona deal closed 2.5 years ago and there is still so much work that needs to be done, we believe the revolving door with management (3 CEOs, 3 COOs) has played a role in hindering the integration,” they wrote in a note.

But they are hopeful the plans for the supply chain will help the company take advantage of cross-selling opportunities.

“Executing on the potential revenue/cost synergies will play a critical role in the stock’s ability to sustainably bounce off the current lows over the next 12 months,” they wrote. Stifel is sticking with a buy rating on the stock, although “frustration remains.”

Henry Schein, meanwhile, on Monday reported better-than-expected earnings and raised its earnings outlook, while also announcing restructuring actions that include job cuts and plant closures.

Leerink raised its price target to $100 from $80 on the news and highlighted its performance in the dental market.

“We were impressed by another strong quarter for the dental segment amid commentary from management of a “very stable” market in which management believes HSIC has been taking share,” analyst David Larson wrote in a note, reiterating his outperform rating. Patterson Cos. is scheduled to report its fiscal first-quarter earnings on Aug. 23.

Henry Schein shares were down 3.6% on Tuesday, while Patterson shares were down 9.6%.

Other stocks of companies engaged in the dental market were also lower. Align Technology Inc. ALGN, -2.23% was down 1%, Procter & Gamble Co. PG, -0.48% was down 0.5%, Kimberly-Clark Corp. KMB, -1.38% was off 17% and Colgate-Palmolive Co. CL, -0.69% was off 0.5%.

Dentsply has lost 40% of its value in 2018, while the S&P 500 SPX, -0.48% has gained 6.9% and the Dow Jones Industrial Average DJIA, -0.35% has gained 3.8%.

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