Sirona Dental Systems, Inc. (SIRO) posted a 5.4% rise in adjusted earnings to $43.8 million or 78 cents per share for the fourth quarter of fiscal 2013 ended Sep 30 from $41.5 million or 74 cents in the corresponding quarter of prior fiscal year. However, earnings missed the Zacks Consensus Estimate of 80 cents per share.
Adjusted earnings exclude amortization and depreciation expense resulting from the step-up to fair values of intangible assets related to past business combinations, and gain on derivative instruments.
Revenues in the quarter grew 12.6% (8.3% on a constant currency basis) to $278.6 million, exceeding the Zacks Consensus Estimate of $266 million. Revenues in Sirona’s CAD/CAM Systems segment rose 35.2% (30.3% on a constant currency basis); Imaging Systems segment went up 5.5% (2.7% on a constant currency basis), Instruments segment increased 3.0% (2.6% on a constant currency basis), and Treatment Centers segment fell 3.6% (8.9% on a constant currency basis) in the quarter.
Revenues in the U.S. grew 2.8% in the quarter as the company benefited from the expanded partnership with Patterson Dental of Patterson Companies Inc. (PDCO) as well as delivery of CAD/CAM trade-up units. Sales in international markets rose 17.0% (10.6% in constant currency), driven by CAD/CAM and Imaging in Europe. Sales were exceptionally good in Germany due to the CAD/CAM trade-up program and rising demand for products in the segment.
Fiscal 2013 Results
Sirona’s adjusted earnings per share in the fiscal year rose 7.8% to $3.19 from $2.96 in the prior fiscal year while adjusted total earnings rose 6.8% to $179.3 million from $167.8 million a year ago.
Revenues in the year went up 12.5% (11.7% on a constant currency basis) to $1,101.5 million. Segment wise, revenues in the CAD/CAM Systems rose 22.4% (21.6% on a constant currency basis), Imaging Systems escalated 10.0% (9.5% on a constant currency basis), Treatment Centers scaled up 6.9% (5.8% on a constant currency basis), and Instruments grew 1.0% (flat on a constant currency basis) in the fiscal year.
Revenue in the U.S. rose 18.2% driven by strong demand for Imaging and CAD/CAM products, the impact of implementation of the Medical Device Tax in 2013 and anticipated changes in tax benefits in the next quarter, the delivery of Omnicam trade-ups in the third and fourth quarters, and the expanded agreement with Patterson Companies.
Revenues outside the U.S. rose 10.1% (9.1% in constant currency) driven by strong 23.4% (in constant currency) rise in sales in Germany, due to orders following the International Dental Show in Cologne in March this year (where 25 new products have been introduced by SIRO), a successful trade-up program in the CAD/CAM segment, as well as solid sales of renowned M1+ treatment center unit.
Financial Position
Sirona Dental exited the second quarter with cash and cash equivalents of $241.7 million as of Sep 30, 2013, up from $151.1 million as of Sep 30, 2012. Total debt remained nearly the same at $754.5 million as of Sep 30, 2013 compared with the same as of Sep 30, 2012.
In fiscal 2013, Sirona Dental had cash flow of $232.0 million from operations, up 15.2% from $201.4 million in the prior fiscal year. Capital expenditures (net) surged 50.2% to $70.6 million from $47.0 million in fiscal 2012.
Guidance
For fiscal 2014, SIRO expects revenue growth in the range of 4 to 6% in constant currency. The growth assumes 20% constant currency growth in its two largest markets, the U.S. and Germany.
Sirona Dental also anticipates adjusted earnings in the range of $3.60 to $3.70 per share, implying a growth of 6 to 9%. Overall, the company expects to witness solid demand for its products and generate strong bottom line leverage.
Our Take
Sirona Dental is the world’s leading provider of dental CAD/CAM systems. Despite its promising results and guidance, shares of the company dipped 3.3% to $70.19 after the market closed on Nov 22. We are also discouraged about its earnings miss in the fourth quarter.
Currently, SIRO carries a Zacks Rank #4 (Sell). While we avoid Sirona Dental, some better-ranked stocks from the medical instruments industry that worth a look include Natus Medical Inc. (BABY) with a Zacks Rank #1 (Strong Buy), and AngioDynamics Inc. (ANGO) with a Zacks Rank #2 (Buy).
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