DENTSPLY SIRONA (XRAY) Q4 2018 earnings summary

Executive summary

• FY18 results were disappointing: internal sales declined, operating margins contracted, and adjusted EPS fell to $2.01 from $2.66 YoY; a November restructuring plan targets growth, margin recovery, and simpler operations.

• Strategic reset centers on customer-focused selling, more prioritized R&D, clinical education, global supply-chain integration, and organizational accountability.

Financial highlights

• FY18 net sales were $3,986.3M, down 0.2% reported; sales excluding precious-metal content were $3,949.1M, down 0.1%, or down 1.3% at constant currency.

• GAAP net loss attributable to shareholders was $1,011.0M, or $(4.51) diluted EPS, versus a $1,550.0M loss and $(6.76) EPS in FY17.

• Adjusted net income was $454.5M and adjusted diluted EPS $2.01, down 26.5% and 24.3% YoY, respectively; FY17 adjusted EPS was $2.66.

• Gross profit was $2,067.8M, down 5.5%; reported operating loss was $958.1M, including $1,085.8M goodwill impairment and $221.0M restructuring and other costs.

• Operating cash flow was $499.8M vs. $601.9M in FY17; lower working-capital use partially offset lower cash generation.

Outlook and guidance

• Restructuring targets annualized top-line growth of 3%–4%, adjusted operating margin of 20% by end-2020 and 22% by 2022, and approximately $225M annual net savings by 2021.

• Approximately $275M of one-time restructuring expenditures and charges are expected through 2021; net workforce reduction target is 6%–8%.

• FY19 capital expenditures are expected at $165M–$175M; announced divestitures of nonstrategic lines are expected to reduce FY19 reported sales by approximately $70M.

• FY19 cash payments for the restructuring plan are estimated at $115M–$125M.