Dentsply Withdraws Guidance After Japan Disaster

| About: DENTSPLY International (XRAY)

Leading dental products maker DENTSPLY International (NASDAQ:XRAY) has withdrawn its earnings forecast for fiscal 2011, triggered by the uncertainties over the impact of the dire situation in Japan, following the ravaging quake and subsequent Tsunami, on the company’s business. In its fourth quarter earnings call in February 2011, the Pennsylvania-based company projected earnings per share in a band of $2.00 to $2.08 for 2011.

DENTSPLY is among the medical technology firms that were badly hit by the negative investor sentiment on Tuesday emanating from the concerns over the crisis in Japan and its impact on the sector. The company’s shares were down $1.55 (or 4.2%) to close at $35.63 on March 15 ($34.96 Wednesday).

Separately, DENTSPLY informed that all of its associates and supplier’s employees in Japan are safe following the disaster and its main facilities in Tokyo and Nasu did not sustain major damage.

However, the company noted that one of its key suppliers, providing a product comprising roughly 9% of its 2010 sales, is located in the evacuation zone. Hence, it is uncertain, at this moment, when the supplier will resume production and product supply. Japan is among the markets that have the highest level of expenditures for dental care.

DENTSPLY’s products are used in over 120 countries enabling it to leverage the changing dental practice across North America and Western Europe, which emphasizes preventive care and cosmetic dentistry. One of the company’s major customers is Henry Schein Inc (NASDAQ:HSIC), a dental products distributor.

While DENTSPLY is assessing the impact of the Japan crisis on its business, it remains confident about meeting its target for fiscal 2011. The company is optimistic that the positive internal growth, achieved in the fourth quarter, to continue in 2011.

We believe that DENTSPLY's diverse product range, significant international presence, new product introductions and acquisition initiatives are expected to boost operating metrics over the forthcoming quarters. However, the company’s international operations are exposed to foreign exchange translation risk given the devaluation of the euro against the U.S. dollar.

On the other hand, DENTSPLY's domestic market, which has shown some improvements lately (with positive internal growth), still remains challenged due to a slow economic recovery and competitive pressure. We are currently Neutral on DENTSPLY, backed by a short-term Zacks #3 Rank (Hold).