Straumann Earnings: Strong Demand Amid China Uncertainty and Macro Pressures Carries Top Line

Narrow-moat Straumann STMN reported healthy second-quarter earnings that were in line with our expectations. Total sales were up 5.4% year over year despite unfavorable currency and global inflation effects (organic growth was 11.7%). Patient flow remains favorable in most countries, and all four regions reported solid performance. Straumann continues to win shares in certain markets and bolster its intangible assets thanks to its portfolio of market-leading brands. After updating our full-year assumptions and adjusting for the time value of money, we raise our fair value estimate to CHF 94 from CHF 90.

North America sales were up 0.6% year over year. While we believe the environment for value offerings and simple procedures remains healthy, the tepid overall growth comes from a dropoff in major treatments as economic uncertainty dissuades patients from spending a large amount on full dental cases (cases that cost north of $25,000). These large treatments make up a low-teens percentage of segment sales, and we have slightly trimmed our expectation for the full year in the region to bake in weaker customer sentiment.

Strong performance in Asia-Pacific came as a surprise, as management over the past quarters had cautioned about sales in the region and called out a number of China headwinds. Total sales were up 9.7% and showed impressive sequential improvement—up from CHF 80 million to CHF 122 million. Positive patient dynamics from a full quarter of no COVID-19 lockdowns as well as the implementation of the volume-based procurement, or VBP, process drove up demand and provided a strong tailwind to the top line. While the lower price tag of Straumann’s value implants in China due to VBP, with average selling price down 40%-45%, remains a worry, we are impressed at how much extra volume Straumann was able to win because of this new pricing dynamic.