Dentsply Sirona Earnings: Investors Brace for a Tough Year-End as Management Pulls Guidance

No-moat Dentsply Sirona XRAY reported third-quarter earnings that were below our expectations. Total sales were flat year over year as a growth in the rest of world markets, such as China, was offset by weak performance from the U.S. and key markets in Europe. Management also pulled back its full-year guidance for top and bottom lines, as the overall trend in dentistry looks challenging. Decreasing patient flow, high cancellations, and poor consumer sentiment are all likely to take a toll on growth. After slightly trimming our forecasts for next quarter and first half of 2024, we lower our fair value estimate to $27 from $28.

High interest rates and weak consumer outlook on the health of economy pulled back spending on equipment and instruments, which was down high-single digits during the quarter. Capital-intensive machines, such as imaging equipment and treatment centers, are usually purchased by financing, and we anticipate demand for them to remain soft for the next couple of quarters as the overall economy takes time to improve.

One positive sign we saw during the quarter was a strong performance from orthodontic and implant solutions, which posted an organic sales growth of 3.7%. We regard this segment as a key catalyst for Dentsply’s future growth, so we are happy to see it perform well despite the weak outlook on other products. Clear aligners were up double digits for the fifth consecutive quarter driven by continued adoption of SureSmile and Byte. Implants were up low single digits as low sales in U.S. and Germany (Dentsply’s second-largest market) were offset by strong performance in China. Similar to other implant manufacturers in the region, Dentsply’s implants suffered a material drop in average selling price (we estimate 40%-50% decline) due to volume-based procurement policy. But winning tender through the policy, coupled with lowered cost, acted as a significant boost to volume and countered price erosion.