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Dentsply Sirona Idea Proposal (XRAY)

Dentsply Sirona Idea Proposal (XRAY)
 

Will Dentsply Sirona’s new U.S. and Canadian distribution agreements accelerate digital dentistry adoption and reverse its recent sales decline?

 

Report Available: October 11, 2017

 

Blueshift’s initial research found XRAY’s sales in decline as dentists wait on purchasing high margin equipment until after the new expanded distribution program starts September 1. XRAY anticipates that its new sales effort, which includes two of the leading U.S. dental suppliers, will speed the adoption of digital dentistry and lead to 13% to 21% growth in Q3 and Q4, resulting in 5% to 7% full year growth. It remains to be seen if the strategy will produce the desired growth and combat the competitive forces in the market.

 

Observations

  1. XRAY posted a Q2 loss of $1.05 billion on a sales decline of 2.9%compared to a profit in Q2 2016. Adjusted EPS of $0.65 missed the Street’s expectation of $0.66, while revenue of $992.7 million also missed analysts’ forecast of $1 billion.  Management attributed the poor quarter to transition challenges at PDCO, its exclusive distributor.
  2. In a strategic growth initiative designed to accelerate adoption of digital dentistry and drive growth, XRAY has entered into a three-year distribution agreement with HSIC in North America. Beginning September 1, HSIC will be able to distribute XRAY’s full product line. In the past, PDCO had exclusive distribution rights on a portion of XRAY’s products. As the two largest dental supply distributors in the U.S., HSIC and PDCO will now both have access to all of XRAY’s products, providing an expected boost in the digital and single-visit dentistry market.
  3. Challenges that XRAY faces in returning to growth include aggressive and low-cost competition even in its specialty product segment where margins are high, the continued commodification of dental supplies and choppy macroeconomic trends, and there is a risk that its new distribution process could lead to price deterioration.
  4. Blueshift’s Sept. 15, 2016 and Nov. 1, 2016 reports revealed that XRAY’s CEREC system would experience steady adoption in a fluctuating but steadily improving dental market, according to 14 of 18 dentists, dental lab professionals, competitors, and industry specialists. Digital and chairside dentistry overall will experience steady rather than rapid growth as older dentists are replaced by younger, more tech-savvy colleagues and as the systems become cheaper and easier to use.

 

Will XRAY’s new North American distribution agreement lead to faster adoption of digital dentistry? Will the new distribution program jump start sales and return XRAY to growth? Is there any competitive offering that can challenge the CEREC system? What is the overall health of the dental industry? How is spending trending? How are office visits trending? Will the Q2 sales slowdown persist for the rest of 2017? To gain insight into XRAY, CEREC, and the overall dental equipment and supply market, Blueshift will gather data and issue a market research report from independent sources in the following areas: Dentists and dental practice professionals, Dental lab professionals, Dental equipment and supply sales channel, and Industry specialists.

 

Companies: Dentsply Sirona (XRAY),Align Technology (ALGN), Henry Schein (HSIC), Patterson Companies (PDCO), Integra Lifesciences (IART), 3M (MMM), Danaher (SWX:DHR), Straumann Holding (SWX:STMN), Zimmer Biomet Holdings (ZBH)

 

Research Begins: September 25, 2017