DENTSPLY International Inc.’s (XRAY) first-quarter 2013 adjusted earnings per share of 52 cents (flat year over year) missed the Zacks Consensus Estimate of 56 cents. Adjusted earnings exclude one-time items such as acquisition, restructuring, amortization and income tax-related expenses as well as Orthodontics business continuity costs.

However, reported profit attributable to DENTSPLY jumped 34.5% year over year to $71.7 million (or 49 cents a share).

Revenues

Revenues grew 2.2% year over year to $732.1 million, slightly missing the Zacks Consensus Estimate of $733 million. Excluding precious metal content, net sales increased 1.1% (up 1.7% in constant currency) to $703.5 million against a strong comparable year-ago period. Growth was backed by healthy internal sales across all regions.

Margins

Gross margin in the reported quarter decreased to 53.0% from 54.8% a year ago. Gross margin, excluding precious metal content, was 57.7% versus 59.0% in the previous-year quarter. Selling, general and administrative expenses (as a percentage of sales) declined 240 basis points year over year to 40.1%.

Operating margin increased to 12.8% from 12.2% a year ago. Adjusted operating margin (as a percentage of net sales, excluding precious metal content) was 14.0% compared with 13.1% in the prior-year quarter.

Balance Sheet

DENTSPLY ended the first quarter with cash and cash equivalents of $56.2 million, down 16.5% year over year. Long-term debt decreased 18.5% to $1,207.7 million.

Guidance

Based on the current global dental market trends along with the impact of currency rates, DENTSPLY lowered its adjusted earnings per share expectation to the band of $2.33 and $2.43 (earlier $2.38 and $2.48) for 2013. The Zacks Consensus Estimate for 2013 earnings is pegged at $2.42.

Our Take

We remain unimpressed by DENTSPLY’s flat bottom-line and declining gross margin in the first quarter. Difficult global dental market trends have led to the soft results as well as reduced guidance for 2013.

However, the record revenues demonstrate that the company is poised to grow its share in the dental consumable market, driven by a strong product base and significant investment in product/technology innovation.

DENTSPLY currently has a Zacks Rank #3 (Hold). Medical/Dental Supplies companies worth a look are Becton, Dickinson and Company (BDX), The Cooper Companies Inc. (COO) and Steris Corp. (STE). All the stocks carry a Zacks Rank #2 (Buy).

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