Dentsply EPS Better Than Expected

Dentsply reported first-quarter non-GAAP EPS on Tuesday morning of $0.59, which beat our expectations by $0.04 and consensus by $0.03. Slightly better revenue and much stronger operating margin were the drivers of outperformance. Despite slow market conditions in certain regions, revenue growth slightly beat our expectations (excluding precious metals). Guidance suggests the margin upside this quarter will be offset by higher investment spending over the balance of the year, which will temper the increase to our full-year expectations. Guidance now calls for EPS between $2.47 and $2.55 (up 5%-9%) compared with $2.45 to $2.55 previously.

Following the quarterly results, we expect to increase our full year 2014 EPS estimate by a penny or two, but we will refine our model after this morning’s 7:30 a.m. CT conference call. Given the outlook for a second year of midsingle-digit earnings growth, we maintain our Market Perform rating. Key Points Revenue. Total revenue (including precious metals) of $730.1 million was $15 million below our estimate and $16 million below consensus.

Revenue growth excluding precious metals was up 2.5% on an as-reported basis, which was slightly above our 1.9% estimate but below the consensus of 2.9%. Commentary suggested that growth was slow in certain regions, and was strongest in the rest of world region. We look for additional detail on constant-currency growth by region on today’s call, but suspect growth in Europe remains tepid, while growth in the United States is still below historical norms but is beginning to improve.

Margins Below Expectations. First-quarter non-GAAP operating margin (excluding precious metals) of 17.7% was 115 basis points above our target and 122 basis points higher year-over-year. Commentary suggested the company is accelerating efforts to leverage its global platform. In the near term, commentary implies some investment spending that may dampen operating margin improvement over the balance of the year. These investments will likely offset the outperformance this quarter and prevent us from raising our full-year estimate by the entire amount of