Dentsply Sirona’s profitability
Dentsply Sirona’s (XRAY) 1Q17 earnings and revenue failed to meet analysts’ estimates. The company reported a fall in its organic revenue.
The integration initiatives and new strategies being implemented by the company have weighed down its performance in the short term.
Dentsply Sirona’s overall gross margin expanded 17.5% year-over-year (or YoY) to $492 million in 1Q17, compared to $418.9 million in 1Q16. However, the company’s gross profit excluding precious metals content fell 0.2% YoY and came in at 55.3% of its sales. Its gross profit margin was affected by -3.6% on account of a step-up in amortization and other merger-related items. Notably, these factors had a negative impact of ~5.1% on XRAY’s gross profit margin in 1Q16.
The company’s net EBITDA (earnings before intertest, tax, depreciation, and amortization) margin was significantly lower in the quarter. It contracted from 10.0% in 1Q16 to 1.1% in 1Q17.
Selling, general, and administrative costs
XRAY’s SG&A (selling, general, and administrative) expenses rose ~18.3% YoY. These expenses included R&D (research and development) costs. Tailwinds related to business combination–related cost reductions, amortization, and other factors positively impacted its margins by 3.3%.
However, equipment inventory reductions, trade shows, and other selling event costs, acquisitions, and currency headwinds largely offset these benefits. Event-related costs added ~1.4%, and inventory reductions added ~1.8% to XRAY’s margin’s contraction. Currency headwinds and acquisitions had an impact of 0.50%.
The gross profit margins for XRAY’s peers Integra Lifesciences (IART), Align Technologies (ALGN), and Zimmer Biomet Holdings (ZBH) for the quarter ended March 31, 2017, came in at ~70.2%, 75.9%, and 75.2%, respectively.
Investors interested in Dentsply Sirona can gain indirect exposure to the company by investing in the First Trust Health Care AlphaDEX ETF (FXH). XRAY accounts for ~0.87% of FXH’s total holdings.
Next, let’s look at the company’s 2017 guidance.