Sirona Dental Q2 Earnings and Revs Beat Ests; Shares up - Analyst Blog

Sirona Dental Systems, Inc. (SIRO) posted a 6.7% rise in adjusted earnings of 80 cents per share for the second quarter of fiscal 2014 ended Mar 31, 2014 from 75 cents per share in the year-ago quarter. Adjusted earnings per share surpassed the Zacks Consensus Estimate by 2 cents.

 

Following the earnings release, shares of the company went up 1.2% to close at $74.70 on May 9.

 

Revenues

 

Revenues in the quarter grew 5.8% (or 2.9% on a constant currency basis) to $282.7 million, exceeding the Zacks Consensus Estimate of $267 million. Revenues in SIRO's CAD/CAM Systems segment rose 5.0% (or 2.5% on a constant currency basis); Imaging Systems segment revenues went up 5.0% (or 2.8% on a constant currency basis), Instruments segment sales increased 13.4% (9.3% on a constant currency basis), and Treatment Centers segment revenues grew 4.6% (up 0.8% on a constant currency basis) in the quarter.

 

Revenues in the U.S. improved 4.5% driven by continued demand for the company's Imaging and CAD/CAM products. Revenues in international markets rose 6.2% (or 2.3% in constant currency) on the back of growth in Asia Pacific, primarily in Japan.

 

Margins

 

Gross profit improved 4.7% to $151.5 million but gross margin fell 50 basis points (bps) to 53.6% in the quarter. The decline in gross margin was mainly caused by unfavorable foreign exchange rate, partially offset by general and product mix improvements.

 

Selling, general and administrative expenses (SG&A) stood at $87.2 million, up 26.9% from the prior-year quarter. Continued planned investments in sales and service infrastructure and cost of management transition, partially offset by favorable foreign exchange translation impacts led to the rise in expenses. As a percentage of sales, SG&A expenses contracted 80 bps to 30.8% from 31.6% a year ago.

 

Research and development (R&D) expenses were $16.4 million, up 8.6% year-over-year. The increase was a result of project timing and foreign currency translation. As a percentage of sales, R&D expenses expanded 20 bps to 5.8% from 5.6% in the second quarter of fiscal 2013.

 

Financial Position

 

SIRO exited the quarter with cash and cash equivalents of $255.3 million, up 5.6% from $241.7 million as of Sep 30, 2013. Total debt increased 5.6% to $79.6 million as of Mar 31, 2014, compared with $75.4 million as of Sep 30, 2013. Debt-to-capitalization ratio fell 20 bps to 5.9% as of Mar 31, 2014 from 6.1% as of Sep 30, 2013.

 

For the first six months of fiscal 2014 ended Mar 31, 2014, SIRO had cash flow from operations of $78.9 million, down 12.1% from $89.8 million in the same period last year. Capital expenditures surged by an astounding 179.0% to $61.1 million from $22.3 million in the first six months of fiscal 2013.

 

Guidance Reiterated

 

For fiscal 2014, SIRO retained its revenues and earnings guidance. The company anticipates adjusted earnings in the range of $3.60 to $3.70 per share, implying a year-over-year growth of 6–9%.  The Zacks Consensus Estimate of $3.67 lies within the guided range.

 

SIRO continues to expect revenue growth in the range of 4–6% in constant currency. The growth assumed a 20% constant currency growth in two of its major markets, the U.S. and Germany.

For fiscal 2014, reported gross margin is expected to be higher than the prior year due to decrease in amortization expenses. SG&A as a percentage of revenues is anticipated between 29 and 30% for fiscal 2014.  R&D expenses are anticipated between 5 and 6% of revenues.

 

The estimated effective tax rate for fiscal 2014 is projected in the band of 23 to 24%.

 

Zacks Rank

 

Currently, SIRO carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical instruments industry that warrant a look include RTI Surgical Inc. (RTIX), Accuray Incorporated (ARAY) and Delcath Systems, Inc. (DCTH). RTI Surgical sports a Zacks Rank #1 (Strong Buy), while both Accuray and Delcath Systems carry a Zacks Rank #2 (Buy).