Dentsply Sirona, York, Pa, reported its Q3 revenues at $928.4 million, down 8% compared to the prior year. At the same time, the company announced that it is implementing a comprehensive plan to accelerate revenue growth, improve margins, and simplify the business. The plan includes a restructuring that is anticipated to achieve $200 to $225 million in net annual cost savings by 2021, through streamlining the organization and consolidating functions.
According to the company, it expects execution of this plan to result in annualized topline growth of 3% to 4%, an adjusted operating income margin of 20% by the end of 2020, and an adjusted operating income margin of 22% by 2022.
The plan anticipates a net reduction in global workforce of approximately 6% to 8%.
According to a press release from the company, technology & equipment revenues declined by 11.3% in the third quarter of 2018 as revenues were impacted by a significant amount of inventory destocking in the third quarter. This destocking, combined with a high level of inventory stocking in the third quarter of 2017, drove the revenue decline. The company states that excluding inventory stocking and destocking in both quarters, technology & equipment third quarter internal revenues would have increased as compared to the third quarter of the prior year, reflective of solid underlying retail demand, particularly in the United States. Third quarter consumable revenue growth was impacted by a short-term disruption stemming from the consolidation of its distribution infrastructure in Venlo, the Netherlands. The company has put in place a program to remediate the disruption and expects consumable revenue growth to soon return to its normal growth trajectory.
Over the last 6 months, the Dentsply Sirona management team has reportedly conducted an extensive diagnosis of the market, the company, and its performance. Based on the conclusions of this review, the board and the management team say they remain very optimistic about the underlying dental industry, the company’s unique position, and the opportunity to create sustainable value for its shareholders. To improve performance, the board and management team have developed a plan with the help of third-party advisors, designed to achieve annualized topline growth of 3% to 4% on a consistent basis, and adjusted operating income margin of 20% by the end of 2020, with continued expansion thereafter.
Dentsply Sirona’s plan will focus on establishing consistent topline growth by streamlining sales and marketing; prioritizing research and development activities across the organization to drive more substantial innovation; enhancing sales force effectiveness with proprietary segmenting, targeting and call planning analytics that will link all sales operations, direct and indirect selling activities; building on Dentsply Sirona’s clinical education programs that will include training academies, similar to Charlotte, NC, and Bensheim, Germany, and enhance its digital continuing education and major educational events; and continuing to focus on emerging markets.
In addition, the company says it will focus on aggressively improving margins while simplifying the organization. The company is working to return margins to pre-merger levels by reducing its cost structure and managing its portfolio of market leading assets. As part of the restructuring plan, the company will consolidate its Dental Strategic Business Units (SBUs) organization from 10 to 4 units to better unlock the synergies that exist within the various businesses. The company will continue to report the existing technology & equipment and consumable segments. The company will also work to optimize its corporate infrastructure to support its enhanced business model and show progress on operating expenses, with spending in 2019 lower than 2018. The company plans to reduce its global workforce by approximately 6% to 8% (net). It has set out a target of $200-$225 million in net annual cost savings by 2021.
The company’s priorities also include evaluating non-core and underperforming businesses, utilizing free cash flow generation and excess balance sheet capacity to return cash to shareholders, and reviewing additional longer-term cost savings opportunities.
Don Casey, chief executive officer of Dentsply Sirona, commented, “We fully realize that our recent performance has been unacceptable and that is why we are taking aggressive action to grow revenues, expand margins and simplify the organization. During the implementation of the program, we have prioritized maintaining the company’s revenue stream and serving our customers, including leveraging our existing infrastructure and outside resources to coordinate our activities. We are dedicated to supporting our talented teams through this important and much-needed transformation.
“Our path forward will require making difficult decisions, but nevertheless, we are confident that the steps announced today will ensure growth over the long-term, and drive significant value for our shareholders.”
The company expects to incur approximately $275 million in one-time expenditures and charges. The company announced that it will not host an Investor Day in the fourth quarter of 2018, as the management team prioritizes its efforts on executing its plan.