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How Dentsply Sirona’s Profitability Metrics Looked in 1Q17

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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.

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Margins

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.

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