It's a small world in the publicly traded market for dental companies. In the big leagues, you've got Dentsply (NASDAQ:XRAY), far and away the largest manufacturer, 3M (NYSE:MMM), SybronDental (NYSE:SYD), and Danaher (NYSE:DHR). After that, it's a sharp drop-off in size (if not necessarily quality) to the likes of Align Technology (NASDAQ:ALGN), Schick Technologies (NASDAQ:SCHK), and National Dentex (NASDAQ:NADX).
Having looked before at Dentsply, and looking now at Sybron's first-quarter earnings, the two biggest pure-plays both seem to have challenges with their growth. Sybron did better on the top line, reporting revenue growth of 6% and internal organic growth of 6.8%, but that was still a little softer than analysts expected -- due partly to underperformance in dental implants, it seems.
Comparisons on profitability get a little confusing because of the impacts of stock compensation expense, amortization, and foreign exchange losses. At worst, you can see that net income dipped about 4% from last year. If you take a more optimistic assessment and look just at the operating line, you'll see double-digit growth. I take a middle road, adding back the amortization but leaving the stock compensation expense, but that's just one Fool's way of doing things.
This quarter's performance wasn't great, and guidance wasn't terribly enthusiastic, either. Still, I turn to cash flow and see that free cash flow was significantly higher than last year. Yes, I know quarter-to-quarter cash flow analysis is fraught with misleading data, but I think the rise in cash flow supports the idea that business isn't too bad after all.
All in all, there's a lot to like about Sybron. They have a premiere orthodontic franchise and market-leading positions in products like brackets, wires, and curing lights. What's more, they do spend on R&D, and they seem to be trying to run not only a cash-rich consumables business, but also a potentially faster-growing specialty business.
Sybron generally has better financial "measurables" than Dentsply -- including better return on assets, equity, and capital. Still, the shares don't look like that much of a bargain to me. I'm a fan of well-run companies in neglected (and fragmented) industries, but I'd rather wait for a better price before opening up and saying "ahh" for Sybron.
For more dental discourse:
3M is a Motley Fool Inside Value recommendation.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
