Dentsply Sirona (XRAY)

Dental products company Dentsply Sirona (NASDAQ:XRAY) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 7.8% year on year to $879 million. The company’s full-year revenue guidance of $3.65 billion at the midpoint came in 2.2% above analysts’ estimates. Its non-GAAP profit of $0.43 per share was 43.3% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1877 when it introduced the first dental electric drill, Dentsply Sirona (NASDAQ:XRAY) manufactures and sells professional dental equipment, technologies, and consumable products used by dentists and specialists worldwide.

The dental equipment and technology industry encompasses companies that manufacture orthodontic products, dental implants, imaging systems, and digital tools for dental professionals. These companies benefit from recurring revenue streams tied to consumables, ongoing maintenance, and growing demand for aesthetic and restorative dentistry. However, high R&D costs, significant capital investment requirements, and reliance on discretionary spending make them vulnerable to economic cycles. Over the next few years, tailwinds for the sector include innovation in digital workflows, such as 3D printing and AI-driven diagnostics, which enhance the efficiency and precision of dental care. However, headwinds include economic uncertainty, which could reduce patient spending on elective procedures, regulatory challenges, and potential pricing pressures from consolidated dental service organizations (DSOs).

Dentsply Sirona's competitors include Align Technology (NASDAQ:ALGN) in the clear aligner space, Envista Holdings (NYSE:NVST) for dental equipment and consumables, and Straumann Holding (SWX:STMN) in the dental implant market. The company also competes with 3M (NYSE:MMM) and Henry Schein's (NASDAQ:HSIC) private label products in various dental categories.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $3.72 billion in revenue over the past 12 months, Dentsply Sirona has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Dentsply Sirona struggled to consistently generate demand over the last five years as its sales dropped at a 1.3% annual rate. This was below our standards and is a sign of poor business quality.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Dentsply Sirona’s recent performance shows its demand remained suppressed as its revenue has declined by 2.7% annually over the last two years.

We can dig further into the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 1.8% year-on-year declines. Because this number aligns with its normal revenue growth, we can see that Dentsply Sirona has properly hedged its foreign currency exposure.

This quarter, Dentsply Sirona’s revenue fell by 7.8% year on year to $879 million but beat Wall Street’s estimates by 3.2%.

Looking ahead, sell-side analysts expect revenue to decline by 3.6% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not accelerate its top-line performance yet.

Although Dentsply Sirona was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 5.8% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, Dentsply Sirona’s operating margin decreased by 30.6 percentage points over the last five years, but it rose by 3.3 percentage points on a two-year basis. Still, shareholders will want to see Dentsply Sirona become more profitable in the future.

In Q1, Dentsply Sirona generated an operating profit margin of 7.2%, up 2.8 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Dentsply Sirona, its EPS declined by 7% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Diving into the nuances of Dentsply Sirona’s earnings can give us a better understanding of its performance. As we mentioned earlier, Dentsply Sirona’s operating margin improved this quarter but declined by 30.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Dentsply Sirona reported EPS at $0.43, up from $0.42 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Dentsply Sirona’s full-year EPS of $1.68 to grow 12.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Dentsply Sirona has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.3% over the last five years, better than the broader healthcare sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Dentsply Sirona’s margin dropped by 10.2 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Dentsply Sirona burned through $12 million of cash in Q1, equivalent to a negative 1.4% margin. The company’s cash burn was similar to its $9 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Dentsply Sirona’s five-year average ROIC was negative 7.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Dentsply Sirona’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Dentsply Sirona reported $398 million of cash and $2.42 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $639 million of EBITDA over the last 12 months, we view Dentsply Sirona’s 3.2× net-debt-to-EBITDA ratio as safe. We also see its $32 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Dentsply Sirona blew past analysts’ constant currency revenue expectations this quarter. We were also excited its EPS outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 5.9% to $14.50 immediately after reporting.

Updated: May 22, 2025 at 11:47 PM EDT

Are you wondering whether to buy Dentsply Sirona or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Dentsply Sirona falls short of our quality standards. First off, its revenue has declined over the last five years, and analysts don’t see anything changing over the next 12 months. And while its operating margins are in line with the overall healthcare sector, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Dentsply Sirona’s P/E ratio based on the next 12 months is 8.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $18.14 on the company (compared to the current share price of $16).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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