DENTSPLY SIRONA (XRAY) Q4 2014 earnings summary

Executive summary

• 2014 adjusted EPS reached a record $2.50, up 6.4% YoY; operating cash flow rose 34% to $560.4M and adjusted operating margin expanded 80 bps to 18.4%.

• Organic growth was positive in all three geographic regions, despite European market headwinds and currency pressure; efficiency initiatives supported stronger margins and cash generation.

Financial highlights

• Net sales were $2,922.6M, down 1.0% YoY; excluding precious metal content, sales rose 0.8% to $2,792.7M, including 1.2% internal growth and 0.6% acquisition growth.

• Gross profit increased 1.4% to $1,599.8M; gross margin excluding precious metal content was 57.3%, up 40 bps YoY, mainly on favorable pricing.

• Operating income was $445.6M versus $419.2M; reported operating margin rose to 15.3% from 14.2%. Adjusted operating income was $512.8M, with an 18.4% margin.

• Net income attributable to DENTSPLY International was $322.9M versus $313.2M; diluted EPS was $2.24 versus $2.16, while adjusted diluted EPS rose to $2.50 from $2.35.

• Free cash flow was $461M, up 45% YoY; operating cash flow reached $560.4M versus $417.8M.

Outlook and guidance

• Margin program targets adjusted operating margin of 20% by 2017; ROIC target is 12%–15%, following improvement to 11.6% in 2014 from 9.6% in 2013.

• Expected 2015 capital expenditures are $100M–$120M; cash, operating cash flow and available credit are expected to fund investment, debt service, repurchases and potential acquisitions.

• Long-term dental market growth assumption is 3%–6%, with a target to grow slightly ahead of the market; near-term internal growth remains uncertain amid weak European and other markets.

• Currency effects are expected to be significant in 2015, following euro weakness in late 2014 and early 2015 and Swiss franc strength in early 2015.