Investors reacted to Sybron Dental's (NYSE:SYD) fourth-quarter earnings announcement with about as much excitement as a Novocain-free root canal. Perhaps concerned with the pace of internal growth, fleeing shareholders sent shares down by more than 8% in midday trading on Tuesday.
Reported sales climbed 17%, while internal organic growth was pegged at about 12%. Sales were pretty well balanced, with the professional dental segment growing almost 13% on strong sales of cement and infection-prevention products and specialty-product sales climbing more than 10%, helped along by good sales in Damon self-ligating brackets.
Below the sales line, things get a bit foggier. Gross margin improved a bit, but the operating margin fell. Even if you exclude a $2 million asset impairment charge, the company still saw a decline in the operating margin from last year. An abnormally low tax rate helped compensate, though, and reported earnings per share rose 30% for the quarter.
On a brighter note, investors can take some solace in the cash flow picture. Free cash flow rose better than 27% for the entire fiscal year. Moreover, the company finished the year with a free cash flow yield of more than 12% -- a respectable mark by most normal standards. Last but not least, a low-to-mid-teens return on invested capital for the fiscal year is nothing to get depressed about.
There's a lot to like about Sybron. It has a nice consumables business and so doesn't seem quite as vulnerable to the vagaries of quarter-to-quarter spending decisions as does PattersonDental (NASDAQ:PDCO). What's more, there's the thought that dental care is relatively economically insensitive -- people get their teeth fixed in good times and bad.
I actually question that latter point, though. Dental care can be expensive, and many companies have curtailed or cut back dental coverage as part of cost-cutting measures. In addition, tough economic times can mean more people without work and no dental coverage at all. So while I respect the notion that health care in general can be a bulwark against bad times, I'm not sure that thesis is quite all that it's cracked up to be.
In all, Sybron is a well-run company and seems a bit more appealing than the likes of Patterson, Henry Schein (NASDAQ:HSIC), or Dentsply (NASDAQ:XRAY). And while I'm not terribly concerned about near-term growth prospects, I still don't see the stock as being within my preferred buy range just yet.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
