Sirona Dental Systems Inc. (SIRO) reported adjusted earnings per share (EPS) of 96 cents in the first quarter of fiscal 2015, which beat the Zacks Consensus Estimate by 2 cents. However, adjusted EPS remained flat on a year-over-year basis.
Following the earnings release, shares of this Long Island City, NY-based dental technology company dropped nearly 3.4% to close at $90.25 till the last trading session.
Quarter Details
Revenues in the first quarter declined 1.9% year over year to $293 million but exceeded the Zacks Consensus Estimate by $2 million. On a constant currency (cc) basis, revenues were up 3.8% year over year, driven by expanded global sales and services infrastructure.
Revenues in the U.S. increased 1.6% driven by strong demand for the company’s imaging products, but faced a difficult year-over-year comparison owing to last year’s high deliveries of Omnicam trade-up units.
International revenues decreased 3.7% year over year. However, revenues increased 4.9% at cc, primarily driven by healthy performance across the Asia-Pacific region.
Revenues in the CAD/CAM Systems segment declined 7.2% (2.1% at cc) to $98.2 million. The decline was primarily owing to the company’s extensive trade-up program initiated last year, partly offset by robust new user demand.
Imaging Systems segment revenues improved 2.1% (5.5% at cc) to $108 million driven by increasing demand for the company’s intraoral and 3D products, particularly in the U.S. and Europe.
Instruments revenues improved 0.3% (9.2% at cc) to $32.8 million, mainly supported by strong demand for the company’s high-end handpieces and hygiene products in the international markets.
Treatment Centers’ revenues stood at $54 million, down 0.7% year over year but up 8.5% at cc. Treatment Centers benefited from strong demand especially in Europe as well as the rollout of Sirona’s new economy product – INTEGO – which continues to gain traction.
Gross margin expanded 110 basis points (bps) on a year-over-year basis to 55.6%. The increase was mainly led by favorable foreign exchange impact in the Imaging segment due to weakening of the Euro. The expansion was also driven by reduced amortization and depreciation expenses resulting from the step-up to fair values of tangible and intangible assets.
Selling, general and administrative (SG&A) expenses, as a percentage of revenues, increased 50 bps to 30% year over year, driven by continued investments in the company’s sales and service infrastructure.
Research and development (R&D) expenses, as a percentage of revenues, remained flat year over year at 5.1%.
Operating margin expanded 60 bps year over year to 21.4% on the back of gross margin expansion.
Financial Position
Cash and cash equivalents, as of Dec 31, 2014, were $368.1 million compared with $$382.8 million in the previous quarter. Total debt stood at $79.5 million, in line with the figure reported in the preceding quarter.
Net cash provided by operating activities was $4.2 million in the first quarter, compared with $11.3 million in the prior-year quarter.
Guidance
Sirona Dental reiterated fiscal 2015 revenue growth projection at 6–8% in local currency. Adjusted EPS is expected in the range of $3.95–$4.05, reflecting growth of 8–10%.
For fiscal 2015, SG&A expenses, as a percentage of sales, are projected between 28.5% and 29.5%, almost in line with the earlier expectation of around 29%. R&D expenses, as percentage of sales, are forecasted between 4.5% and 5.5%, as compared with the earlier projection of around 5%–6%.
Management believes that the improvement in infrastructure will prove accretive to earnings going forward. Moreover, the company is planning to introduce a number of innovative products, including the new CEREC Ortho software, in the International Dental Show to be held in March. These products are expected to drive significant growth in the second half of fiscal 2015.
Our Take
Sirona Dental posted a decent first quarter, wherein both revenues and earnings beat our expectations. We are particularly encouraged with the company’s innovative pipeline which is expected to open up new avenues for growth.
Meanwhile, the company’s extended relationship with Henry Schein (HSIC) in France is expected to enhance its presence in Europe. Moreover, the distribution partnership with Patterson Companies (PDCO) in the U.S. should also generate additional opportunities for Sirona Dental.
However, the company has significant exposure to foreign currencies, particularly the Euro. With 43% of its fiscal 2014 revenues denominated in Euros, we feel that the recent weakening of the Euro against the U.S. dollar will negatively impact its top line.
Furthermore, as Sirona Dental continues to make planned investments in its sales and product management infrastructure, we believe this will hurt the bottom line in the near term.
Zacks Rank
Currently, Sirona Dental carries a Zacks Rank #3 (Hold).
A better-ranked stock worth considering in the medical instruments industry is Abiomed (ABMD) with a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment