Can DENTSPLY (XRAY) Surprise This Earnings Season? - Analyst Blog

DENTSPLY International Inc. XRAY is set to report its first-quarter 2014 earnings results on May 6. Last quarter, the company had posted a positive surprise of 1.67%. DENTSPLY has delivered positive surprises in 3 of its last 4 quarters, but with an average miss of 0.54%.  Let's see how things are shaping up for this announcement.

Factors at Play

DENTSPLY's earnings rose 8.9% year over year to 61 cents per share in the last reported fourth quarter of 2013, and surpassed the Zacks Consensus Estimate of 60 cents by 1.67%.

In the fourth quarter, currency represented a significant headwind to the company's earnings by over 3 cents per year, due primarily to the significant weakening of the currencies in Canada, Russia, Australia, Latin America and the Asia Pacific region. As these currencies became weaker, DENTSPLY's cost of products in local currency increased. This led to gross profit headwinds as the company imported goods into these markets from the U.S. and Europe.

In the fourth quarter, DENTSPLY delivered almost flat top-line growth of 0.05% year-over-year to $753.7 million. Excluding precious metal content, revenues increased 1.5% year over year to $713.7 million, which included 80 basis points (bps) of internal growth, 30 bps of benefit from recent acquisitions and favorable currency translation of 40 bps.

Despite the negative headwind of roughly 40-50 bps from medical device tax in the U.S., DENTSPLY experienced an improvement of 20 bps in its fourth-quarter adjusted gross margin to 56.5%, excluding precious metals.

Adjusted selling, general and administrative expenses, excluding precious metals, improved 70 bps year over year in the reported quarter, reflecting the fruits of DENTSPLY's cost reduction and integration efforts. The company repurchased approximately 1 million shares in the fourth quarter at an average cost of $47.65.

DENTSPLY's management seemed impressed with the company's fourth-quarter performance. For full year 2014, DENTSPLY expects adjusted earnings per share in the range of $2.45-$2.55, representing a 4% to 9% increase over the prior-year's adjusted figure of $2.35. The Zacks Consensus Estimate of $2.52 for adjusted earnings per share lies within the company's expected range for the same.

Earnings Whispers?

Our proven model does not conclusively show that DENTSPLY is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  Expected Surprise Prediction or ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. DENTSPLY has a Zacks ESP of 0.00%.

Zacks Rank: DENTSPLY's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Myriad Genetics Inc. MYGN, earnings ESP of +10.87% and a Zacks Rank #1 (Strong Buy).

LDR Holding Corp. LDRH, earnings ESP of +26.32% and a Zacks Rank #2 (Buy).

Teva Pharmaceutical Industries Ltd. TEVA, earnings ESP of +0.82% and a Zacks Rank #2 (Buy).