Medical Technology

Transcription

Medical Technology

January 2, 2013
Baird Equity Research
Health Care / Life Sciences
Medical Technology
Dental 2013 Outlook - Still See Upside for Some, but Hard to Live Up to 2012
Dental nicely outperformed the S&P 500 in 2012 and has now done so on a one-, three-,
and five-year basis. For 2013, we admittedly have lower return expectations for the group,
but even so continue to recommend exposure to several names, especially HSIC and SIRO.
In this, our annual dental market recap/outlook report, we review reasons for our more
conservative 2013 expectations, review our top 10 dental themes for the New Year, and
provide updates regarding 4Q channel checks.
Prices as of 01/01/13
Ticker
Price Mkt Cap
(mil)
HSIC
$80.42 $7,206
.
PDCO
SIRO
■
■
The RW Baird dental stock index nicely outperformed the S&P 500 in 2012 (+23% vs.
broader market's +13%), with SIRO (+46%), YDNT (+33%), and HSIC (+25%) the best
performing dental stocks on our list this past year. This was the third time in five years that
dental, as a whole, outperformed the broader market, with one-, three-, and five-year
relative outperformance for the group now standing at +9.5%, +11.0% and +18.6%
respectively.
Rating
Current
Prior
O/A
XRAY
$34.23
$64.46
$39.61
$3,574
$3,636
$5,700
Target
Current
Prior
$92
$88
N/A
$36
.
$35
O/H
$70
.
$68
O/A
$46
.
$44
Sources: Bloomberg and Baird Data
Entering 2013, we see two reasons investors likely need to have more conservative
return expectations for the group this year, including:
- Valuation,
as all of our covered dental names but XRAY enter 2013 trading above
five-year average NTM P/E levels.
- Near-term
lingering fiscal cliff uncertainties, primarily what trickle-down impact
expiration of the payroll tax holiday might have on domestic dental spending this year.
■
That said, we continue to recommend exposure to HSIC, SIRO and XRAY and believe
these stocks remain well positioned to outperform the broader market in 2013 given:
- Expecations for modestly improved worldwide dental demand this year,
especially
as several macro factors correlated with dental seem to be moving in the right direction,
including nonfarm payrolls, consumer confidence (notwithstanding a December fall-off in
confidence driven by fiscal-cliff concerns), and consumer sentiment in four of the five
largest European dental markets.
- Company-specific issues could also positively impact, including solid new product
cycles (especially true for SIRO, HSIC/PDCO should also benefit) and Fx-driven EPS
tailwinds (XRAY/HSIC most likely to benefit).
- Solid
4Q-12 checks/healthy 1Q-13 equipment backlogs, which we believe should
help bolster investor confidence in the group during upcoming investor conferences/4Q
reporting season.
■
Bottom line, we see reasons to believe it will be hard for dental stock returns to live up to
what ended up being very strong 2012 performances. Even so, there seem to be reasons
low double-digit returns for several of our covered dental names remain achievable this
year, which in turn keeps our Outperform ratings on HSIC, SIRO and XRAY unchanged
today.
[
Jeff D. Johnson, O.D.,CFA
[email protected]
414.298.6027
Jason Bednar, CFA
[email protected]
414.298.6057
Rebecca R. Schlagenhauf
[email protected]
414.298.7323
Please refer to Appendix
- Important Disclosures
and Analyst Certification
]
January 2, 2013 | Medical Technology
Prices as of 01/01/13
COMPANY
TICKER - PRICE
Market Cap (mil)
DENTSPLY International Inc.
$5,700
Rating
Current
Prior
O/A
XRAY - $39.61
Target
Current
Prior
46
F2012
Current
Prior
F2013
Current
Prior
F2014
Current
Prior
2.21
2.44
2.69
44
Henry Schein, Inc.
$7,206
O/A
HSIC - $80.42
92
2.45
2.68
4.86
5.39
4.84
5.35
1.92
2.03
2.25
3.07
3.37
3.82
3.41
3.87
4.37
88
Patterson Companies, Inc.
$3,574
N/A
PDCO - $34.23
36
35
Sirona Dental Systems, Inc.
$3,636
SIRO - $64.46
O/H
70
68
2.23
Details
TABLE OF CONTENTS
Executive Summary........................................................................................................................................ 3 - 7
Top 10 Dental Themes for 2013..................................................................................................................... 8 - 22
#1: HSIC, SIRO Top 1H Ideas, but Watch Out for XRAY/Others in 2H................................................. 9
#2: Weather, Fx, Comps Point to Back-End Loaded Year..................................................................... 10
#3: N.A. Dental Consumables
#4: N. A. Dental Equipment
Modest Improvement Expected......................................................... 11
Solid 4Q-12 Demand/Healthy 1Q-13 Backlogs Encouraging............... 12 - 13
#5: Specialty Dental Consumables
Early 2013 Likely to Remain Challenging................................. 14 - 15
#6: European Outlook
Steady as She Goes, With a Potential IDS Kicker......................................... 16 - 17
#7: Emerging Markets
Double-digit Growth Expected Again............................................................ 18
#8: CAD/CAM Competition Will Heat Up This Year, Near-Term Risk to SIRO Still Low...................... 19 - 20
#9: Corporate Dental Expansion to Continue, Providing Tailwinds for HSIC..................................... 21
#10: Capital Deployment Strategies Could Shift a Bit for XRAY, SIRO, HSIC..................................... 22
Dental Stocks
2012 & Five Year Performance Review.............................................................................. 23 - 29
Dental Valuations
Strong Close to 2012, But Still See 2013 Opportunities............................................. 30 - 32
Company Specific - 4Q Checks, 2013 Outlook, Valuation............................................................................ 33 - 45
APPENDIX ....................................................................................................................................................... 46 - 56
Financial Models............................................................................................................................................. 57 - END
Robert W. Baird & Co.
2
Executive Summary
3
Executive Summary
Dental outperformed in 2012. In 2012, the RW Baird dental stock index (market cap weighted group of
five dental stocks we cover) nicely outperformed the S&P 500, gaining 23% vs. the S&P’s +13%. With
this ten points of outperformance, the group continued what’s been a good multi-year run, with our dental
index also having outperformed the broader market on a three-year (+39% vs. S&P’s +28%) and five-year
(+16% vs. S&P’s -3%) basis.
Of the dental stocks in our coverage universe, SIRO and YDNT were the top performers in 2012, rising
46% and 33%, respectively, although YDNT’s performance was helped by the early-December news of a
planned acquisition by Linden Capital Partners (shares of YDNT were up 23% ytd prior to the Linden
deal). Outside of these stocks, HSIC continued its multi-year trend of outperforming the S&P 500 (five of
the past six years) by rising 25% for the year, while shares of PDCO rose 16% and XRAY shares
returned 13% (in line with broader market).
Outside of our coverage universe, volatility for dental was notably higher in 2012, with European dental
implant manufacturers Straumann and Nobel falling 31% and 29%, respectively, after declining 39%
(STMN) and 24% (NOBN) in 2011, while shares of microcap Biolase (dental laser manufacturer) fell 27%
on company/product-specific issues. Orthodontic clear aligner manufacturer ALGN rose 17% in 2012,
and while this was ~400bp above the S&P, shares disappointed over the final three and a half months of
the year, declining 31% following the release of disappointing 3Q results. As we describe later in this
report (see page 9), we believe this underperformance for STMN and NOBN, as well as more in-line
performance for XRAY and ALGN for the year, can be largely explained by the higher consumer
discretionary exposure those stocks have relative to names such as HSIC, PDCO, and even SIRO that
we believe are more exposed to – and benefit from more consistency in -- core dental demand.
DENTAL VS. S&P 500 RELATIVE PERFORMANCE (2012)
40%
50%
SIRO
30%
YDNT
0%
46%
45%
20%
10%
1-YEAR HISTORICAL PERFORMANCE
40%
HSIC
33%
35%
ALGN
PDCO
30%
XRAY
25%
25%
-10%
23%
20%
-20%
15%
-30%
10%
NOBN
16%
15%
13%
13%
5%
-40%
STMN
-50%
0%
SIRO
Less Discretionary
YDNT
HSIC
More Discretionary
RWB
Dental
PDCO
DJUSMC S&P 500
XRAY
120%
110%
93%
103%
90%
100%
65%
70%
80%
59%
60%
50%
53%
31%
30%
39%
40%
28%
26%
22%
20%
16%
4%
10%
13%
1%
-10%
-3%
-12%
0%
SIRO
YDNT
HSIC
RWB
Dental
S&P 500 DJUSMC
PDCO
XRAY
-30%
SIRO
YDNT
HSIC
RWB
Dental
DJUSMC
PDCO
S&P 500
XRAY
Source: Factset, RWB Estimates
4
CURRENT VS. 5-YEAR AVERAGE NTM PE MULTIPLE
For 2013, we see less upside potential for
the group.
Following strong 2012 20.0x
18.4x
performance, most of our dental names are 18.0x
16.6x
16.6x
16.1x
currently trading modestly above five-year
15.7x
15.7x
16.0x
14.8x
average valuation levels. While we believe
14.1x
these valuation levels are fairly rational given a 14.0x
number of longer-term positives we see for the 12.0x
dental industry as a whole vs. other areas of 10.0x
HSIC
PDCO
SIRO
XRAY
healthcare and as end market growth (while
Current
5-year Average
still sluggish) has improved over the past 1218 months, we also believe these above- Source: FactSet
average current valuations could limit multiple expansion opportunities near term.
Macro uncertainty represents another risk to near-term dental stock returns. As a reminder, U.S.
dental demand is highly correlated with several macro factors, including consumer spending and nonfarm
payroll trends as highlighted below, as well as consumer confidence and GDP growth. As such, we
believe domestic dental demand will be highly influenced this year by what happens on the jobs front and
with consumer confidence/consumer spending trends.
The problem, however, is that several countervailing issues seem to exist that make it tough to predict
which way these macro factors may trend in 2013 and what impact they might ultimately have on dental
demand this year. On the one hand, we’re modestly encouraged by steady improvement on the jobs
front in recent months (including lower than expected continuing claims numbers last week) and believe
an improving housing market could also help bolster consumer confidence and spending trends over
coming months. We believe last night’s move by the House to pass the Senate’s watered down fiscal cliff
legislation, which preserves lower income tax rates for the vast majority of U.S. households (individuals
earning less than $400,000 annually and couples earning less than $450,000 annually), could also help
consumer confidence levels rebound off a disappointing December reading and potentially move back
towards the multi-year highs seen in October and November.
On the other hand, with Congress not blocking a January 1 expiration of the payroll tax holiday (resulting
in a 200bp higher tax on the first $113,000 earned by every household in the U.S. this year), consumer
spending trends could face incremental pressures in the near term, with several economists’ estimates in
recent days suggesting this issue could shave as much as 50bp off domestic GDP growth this year.
In our opinion, the positives laid out above should more than offset the negatives of higher payroll
taxes, and in general we believe consumer confidence and eventually consumer spending trends in 2013
can improve modestly. That’s what gives us the confidence to believe both North American dental
consumables (see page 11) and equipment (see page 12) trends improve slightly this year, while the fact
that economic sentiment in four of the five largest European dental markets also seems to have recently
bottomed and begun to move higher leads us to believe worldwide dental demand may also improve
modestly in 2013.
Given expectations for modestly improving dental end markets this year, we continue to
recommend exposure to several of our dental names at current levels. Specifically, we continue to
favor those names where we have the greatest confidence in management’s ability to execute and deliver
double digit EPS growth in 2013 even if we’re wrong and end-market growth doesn’t improve this year as
we currently expect (admittedly that says something about our conviction in improving dental end markets
this year), or in a product cycle that can power through still sluggish end-market demand. In that context,
HSIC (due to the former) and SIRO (due to the latter) remain our top dental ideas heading into 2013.
Additionally, we believe that if the U.S. can move beyond fiscal cliff and debt ceiling issues over the next
few months and consumer confidence rebounds to the point that we eventually see a recovery in the
consumer environment later this year, then investors would be even better served turning to dental stocks
with greater exposure to the high-end consumer discretionary segments of dental such as dental implants
and orthodontics. On our list, that would mean looking more aggressively at XRAY, while several other
5
dental names we don’t currently cover would also fit this description, including ALGN, NOBN, and STMN,
all of which enter 2013 trading well below five-year average multiple levels after disappointing 2012
performances.
Solid 4Q checks add to our conviction. Our conversations with investors in recent weeks suggest
notable concern about 4Q dental trends exists, including concern that the typical seasonality of stronger
growth near year-end failed to materialize in 2012 for both consumables (as patients rush to use expiring
dental benefits) and dental equipment (as dentists rush to take advantage of tax incentives and shield
practice income). Our checks, however, suggest these concerns are likely misplaced, as our
conversations with industry sources as recent as the last two weeks of December suggest dental demand
not only picked up a bit near year-end, but that backlogs heading into 1Q-13 on the equipment side are
looking strong.
Specifically, we believe North American dental consumables trends improved ~50-100bp sequentially in
4Q, and while some of this improvement might be ultimately offset by Hurricane Sandy headwinds, our
checks have consistently suggested demand for core dental consumables products was stronger over the
last 4-6 weeks of 2012 than it was throughout 2Q and 3Q-12. On the equipment side, our checks have
been even more positive and seem to suggest solid mid- to upper-single-digit growth can be expected for
the entire North American market in 4Q-12, with our checks suggesting several basic equipment lines
sold out in December for the first time in several years, that at least one major distributor is adding office
design and equipment sales reps in 2013 given the late-2012 strength, and that equipment backlogs
heading into 2013 are fairly strong (suggesting it’s not just seasonality driving the 4Q improvement).
The primary exception in our 4Q checks has been dental implants, where we’re hearing domestic
market growth remains stuck in the low- to (at best) mid-single-digit range and where Europe remained a
slightly declining market in the quarter. Orthodontics checks have also been somewhat mixed and, to be
fair, probably skewed slightly negatively (not as soft as implants, but not as positive as what we’re hearing
for core dental consumables and equipment), while overall European dental demand (including a broad
swath of consumables, equipment, specialty dental segments) remains stable but still generally flattish,
although share gains in Europe for each of our covered companies (XRAY, SIRO, HSIC) suggest
potential for low single-digit growth in this region for 4Q.
As for additional company-specific details, as noted above HSIC and SIRO remain our top dental
ideas heading into 2013, especially with our November/December checks more solid for these two
names than any others in dental in recent weeks. Additionally, we believe XRAY’s valuation remains
compelling and that the company can likely deliver low single digit U.S. organic growth in 4Q even against
a tough 7.6% year-ago comp (which will likely be better than what many investors currently expect),
giving us reason to stick with our Outperform rating on this name despite its exposure (~20% of companywide revenue) to dental implants. For PDCO, we believe low investor expectations and strong dental
equipment market checks create a favorable short-term set-up into the company’s FQ3 report, although
we remain generally cautious on the name longer-term pending tangible evidence of management’s
ability to reverse seven straight years of flat to down operating margin and declining returns.
With these solid checks, we’re slightly
raising our forward EPS estimates for
HSIC and PDCO today as highlighted in
the table below. However, for dental
manufacturers XRAY and SIRO, we’re
modestly trimming forward estimates (by
$0.01 and $0.04, respectively, for CY’13)
as our most recent checks suggest it may
be a bit more challenging than we initially
expected for dental manufacturers to pass
the 2.3% medical device tax on to end
user dentists. This seems especially true
across some of the more price-sensitive
RWB NON-GAAP EPS ESTIMATE CHANGES
HSIC
PDCO (1)
SIRO (2)
XRAY
2013
Previous
Current
$4.84
$4.86
$2.03
$2.03
$3.41
$3.37
$2.45
$2.44
2014
Previous
Current
$5.35
$5.39
$2.23
$2.25
$3.87
$3.82
$2.68
$2.69
(1) FY'13 (year-end April 2013) and FY'14 (year-end April 2014)
(2) FY'13 (year-end September 2013) and FY'14 (year-end
September 2014)
Source: RWB Estimates
6
dental consumables areas (commoditized/lower-end product categories) and across a number of higherprice dental equipment segments.
As such, we’re now assuming XRAY absorbs one-third of the medical device tax in 2013 ($0.04
incremental EPS headwind, all but $0.01 of which is offset by better Fx benefits in our updated model)
and that SIRO absorbs the entire medical device tax on its U.S. sales. Importantly, while our broad
industry conversations have suggested this approach is likely a reasonable initial assumption for 2013,
our recent conversations with both XRAY and SIRO suggest such an approach may be too conservative.
If so, we believe there could be at least several pennies upside potential to our updated CY’13 and
beyond projections for both companies.
Lastly, as we look into 2013, we continue to view dental as one of the best positioned segments
within all of healthcare and believe investors would be well served having at least some exposure to the
group. We say that primarily given our belief that as regulatory, reimbursement, and pricing pressures
remain heightened across a number of medtech sectors in 2013, dental will continue to stand out as one
of the few healthcare industry sub-segments that is largely insulated from such issues and that the group
remains a compelling way for investors to "play" healthcare without the typical healthcare-related
headaches.
Bottom line, there are admittedly several issues that could create headwinds for dental stocks early this
year and we fully acknowledge these issues could require a more cautious stance on the group at some
point this year, especially if consumer confidence and spending trends take a bigger hit than we currently
expect due higher 2013 payroll taxes in the U.S. For now, however, we believe there are enough offsetting positives to maintain our generally positive stance on the group, and believe that at the very least,
solid 4Q checks could drive near-term outperformance for most of our covered dental stocks off what are
currently heightened (and, in our opinion, misplaced) concerns over 4Q trends.
As such, we’re maintaining our Outperform ratings on HSIC, SIRO and XRAY today (PDCO and YDNT
remain Neutral-rated) and would be especially willing to add to positions on both HSIC and SIRO on nearterm pullbacks, with greater clarity on 2013 dental market trends expected over the next couple months
as we get through our January/February channel checks and have a better understanding of where
negotiations in Washington eventually wind up.
As a final comment, we’d remind investors that at some point in 1Q-13, it’s expected Linden Capital’s
planned acquisition of YDNT will be finalized, although a go-shop provision for YDNT remains in effect
through January 12.
Robert W. Baird & Co. acted exclusively as a financial advisor to Young
Innovations, which is to be acquired by an affiliate of Linden Capital Partners.
7
Top 10 Dental Themes for 2013
8
#1: HSIC, SIRO Top 1H Ideas, but Watch Out for XRAY/Others in 2H
Most of our dental names are currently trading modestly above five-year average valuation levels despite
still somewhat sluggish end market dental demand
across both the U.S. and Europe. While we
20.0x
18.4x
believe these valuation levels are fairly rational
given a number of longer-term positives we see for 18.0x
16.6x
16.6x
16.1x
15.7x
15.7x
dental vs. other areas of healthcare and as end- 16.0x
14.8x
14.1x
market growth (while still sluggish) has improved 14.0x
over the past 12-18 months, we also believe these 12.0x
above-average current valuations could limit
10.0x
multiple expansion opportunities near term,
HSIC
PDCO
SIRO
XRAY
Current
5-year Average
especially in the context of domestic consumer
uncertainty early this year brought about by higher Source: FactSet
expected 2013 payroll taxes.
In this type of set-up, we continue to favor those names where we have the greatest confidence in
management’s ability to execute and deliver double digit EPS growth, or in a product cycle that can power
through still sluggish end-market demand. In that context, HSIC and SIRO remain our top dental ideas at
present, with the former’s diversified business model and strong balance sheet key to the double-digit
EPS growth we foresee this year. As for SIRO, it’s not only the Omnicam cycle that gives us confidence
in the company’s ability to meet or exceed current Street estimates in FY’13, but the upcoming launch of
at least two new products that we believe will help drive investor sentiment and upward estimate revisions
throughout the year.
DENTAL VS. S&P 500 - 2012 RELATIVE PERFORMANCE
Looking beyond HSIC and SIRO, we believe
that if signs of a strengthening consumer were to 40%
SIRO
emerge over coming months, a strong case 30%
YDNT
could be made that those dental stocks that 20%
HSIC
have a greater exposure to deferrable and high- 10%
XRAY
ALGN
PDCO
priced/higher-end
dental
products
and
0%
procedures would likely be best positioned from
a potential returns standpoint later this year. On -10%
our list, we believe XRAY would be the name to -20%
own in such a scenario, as 47% of company- -30%
NOBN
wide revenue is currently generated through the -40%
STMN
sale of specialty dental products, including ~20% -50%
of sales that come from dental implants, which
More Discretionary
we believe represents the most deferrable single Less Discretionary
product category throughout all of dental. Other Source: FactSet, RWB Estimates
high end consumer discretionary dental names that we don’t cover but that fit this same mold, and more
importantly performed more in line with or dramatically underperformed the S&P 500 in 2012, include
ALGN (+17% absolute, +4% relative to S&P500), NOBN (-29%/-41%) and STMN (-31%/-43%).
Bottom line, in the current environment, where
the consumer outlook remains somewhat
uncertain, we continue to favor HSIC and SIRO
and believe both are well positioned to deliver
solid (albeit maybe not spectacular) 10-15%
returns this year. If, however, the consumer
environment strengthens, we could see reason to
instead more aggressively look to an XRAY or
several other non-covered dental names, where
2013 return potentials in such a scenario would
likely be even higher.
CONSUMER CONFIDENCE - 2009 TO PRESENT
80
70
60
50
40
30
20
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Source: Bloomberg
9
#2: Weather, Fx, Comps Point to Back-End Loaded Year
In looking back at 2012, it seems dental demand across Europe and most other non-U.S. markets was
fairly stable, with demand in most markets consistently growing low single digits throughout the year. The
North American dental market, however, saw a strong start to 2012, growing ~4-5% in 1Q, before
subsequently slowing to ~2-3% growth by late 2Q and over most of the rest of the year.
As we discussed early in 2012, we believe some of the 1Q-12 domestic dental market strength was the
result of unseasonably good weather throughout much of the country early last year that ultimately
resulted in fewer 1Q office closures and patient cancellations as compared to a “normal” year. Further,
as we showed on the prior page, an acute rebound in consumer confidence from late 2011 through
February 2012 also likely helped fuel 1Q-12 dental strength, with a subsequent fall-off in sentiment and
consumer spending trends in early 2Q-12 eventually creating headwinds for dental demand later in the
year.
N.A. CONSUMABLES MARKET - 2011 TO PRESENT
Entering 2013, dental is
Q1-11
Q2-11
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
therefore faced with tough 1Q
PDCO
2.0%
1.7%
2.1%
3.4%
3.5%
1.0%
0.9%
weather-induced
organic
HSIC
3.3%
3.9%
2.7%
5.2%
4.9%
1.9%
2.3%
growth
comps,
which
combined
with
consumer Market
2.7%
2.8%
2.4%
4.3%
4.2%
1.5%
1.6%
spending uncertainty caused
by higher expected payroll XRAY
1.9%
2.2%
3.2%
7.6%
7.4%
2.9%
3.9%
taxes this year, could limit
Weather, improving consumer
confidence drove short-term
U.S. dental market growth to Source: Company Reports, Robert W. Baird & Co. Estimates
acceleration
the low-single digits at the start
of the year. Once we get beyond these tough 1Q comps, however, we believe there’s still reasonably
good likelihood U.S. dental consumables market growth modestly improves later this year, especially if a
recently improving housing market and what should be stable tax rates in 2013 for the vast majority of
Americans (households earning less than $450,000) can drive better consumer confidence, which could
ultimately lead to improved consumer spending trends and increased spending on dental care.
Foreign currency is another factor that
Y/Y FX TAILWIND (HEADWIND) BY QUARTER
needs to be considered for 2013,
1Q-13
2Q-13
3Q-13
4Q-13
especially as notable strengthening of the
$0.00
$0.00
$0.00
$0.00
U.S. dollar against a number of European SIRO
currencies
early/mid-2012
and
a
XRAY
$0.00
$0.00-$0.01 $0.01-$0.02 $0.00-$0.01
weakening of the dollar against many of
$0.00
$0.00-$0.01 $0.00-$0.01
$0.00
those same currencies in late 2012 likely HSIC
means Fx translation could create modest
PDCO
$0.00
$0.00
$0.00
$0.00
EPS tailwinds later this year, most notably
in 2Q and 3Q-12 for XRAY and HSIC on Source: Company Reports, RWB Estimates
our list. Specifically, as we highlight in the
chart to the right, we currently estimate Fx could provide a $0.02-$0.04 tailwind for XRAY in 2013, with
~$0.02 of this benefit coming in 3Q, while HSIC could see a $0.02-$0.03 tailwind to EPS this year from
Fx.
Bottom line, we believe both seasonal and macro factors could hold early 2013 domestic dental
market growth rates in check, which in turn likely means ww dental growth rates for most of our
covered names could remain in the low-single-digits near term. However, as tough industry-wide
comps moderate beginning in 2Q, Fx begins to drive EPS tailwinds later in the year, and assuming macro
factors drive improved consumer confidence/spending trends, we believe organic revenue/EPS growth
rates across the group could perk up later this year, with EPS growth potentially reaching the low-doubledigits for HSIC, XRAY and maybe even PDCO (less confident in this latter point), while mid- to upperteens EPS growth over the back half of 2013 for SIRO seems reasonable, in our view.
10
#3: North American Dental Consumables – Modest Improvement Expected
We estimate the North American dental consumables market likely grew ~2.5% in 2012 (4Q details still
needed), 60bp below ~3.1% market growth in 2011, with this slowdown likely due in large part to slower
sequential PCE growth in 2012 (+3.5% ytd) vs. 2011 (+4.2%). As a reminder, we’ve shown in prior
regression work a strong correlation between dental expenditures and PCEs (see the Appendix to this
research report for a more thorough review of this relationship)
TWO-YEAR HISTORICAL PERSONAL CONSUMPTION EXPENDITURES
In recent months, however, PCE trends have
(y/y%)
stabilized, if not picked up slightly off mid- PCEs
6%
summer lows, which combined with rising 5%
property values and improving consumer 4%
confidence (consumer confidence hit multi- 3%
year highs this past October/November 2%
before falling in December on fiscal cliff- 1%
related uncertainties), leads us to believe 0% Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12
consumer spending could have a neutral to
2011
2012 YTD
Y/Y Improvement in PCEs:
4.2%
3.5%
slightly positive impact on domestic dental
Source:
Bloomberg,
FactSet,
Robert
W.
Baird
&
Co.
Estimates
consumables market growth this year. Of
course, a 200bp increase in the domestic payroll tax rate to 6.2% in 2013 is an issue that bears watching,
but in our opinion rising home values and stable personal income tax rates this year for all but the
wealthiest U.S. households should offset and help consumer confidence rebound later this year, which in
turn should help drive improved consumer spending trends, including improved spending on dental care.
At the same time, we believe improving U.S. employment trends could provide a bit of a tailwind to dental
consumables growth this year as well, as non-farm
DENTAL EXPENDITURES VS…
payroll trends over the past four months have
No Lag
One-Year Lag
Two-Year Lag
improved relative to early 2012 and continuing (correlation)
0.51
0.63
0.68
jobless claims in recent weeks have positively PCEs
Services
0.63
0.72
0.63
surprised. This is important, as similar to PCEs PCE
NFPs
0.18
0.26
0.30
and dental expenditures, our regression work also
Source: Centers for Medicare & Medicaid Services (CMS), RWB Estimates
shows a correlation between dental expenditures
and jobs.
As for presumed 2013 pricing tailwinds, our checks suggest consumables prices are likely to increase
~100bp again this year excluding the impact of the medical device tax, in line with what we’ve seen over
the last few years. However, we also expect
NA DENTAL CONSUMABLES MARKET - 2013 EXPECTED
most dental manufacturers to raise U.S. prices an
2012E
2013E
Consumer Discretionary Spending
+1.0%
+1.0 - 1.25%
incremental 200-230bp on some (but not all)
Payroll Changes
+0.5%
+1.0 - 1.25%
consumables products in 2013 to cover the cost
Pricing
+1%
+1%
of the medical device tax, driving an additional
Medical Device Tax
NA
+1.5%
100-150bp in pricing-related growth for the North NA Dental Market Growth (Inclusive
+2.5%
+4.5- 5.0%
American dental consumables market this year
of Med Device Tax)
(no impact at the EBIT line, however, as COGs NA Dental Market Growth (Ex-Med
+2.5%
+3.0 - 3.5%
Device Tax)
for products sold in the U.S. also increase 230bp
Source: Company Reports, Robert W. Baird & Co. Estimates
this year due to the tax).
Bottom line, we believe top-line growth for the North American dental consumables market could
improve to ~4-5% in 2013 including the medical device tax, or 3-3.5% excluding the device tax, a
modest improvement vs. ~2.5% market growth for 2012. While not massive acceleration, we believe
such performance should be enough to help dental stocks at least hold their current multiples, which in
turn should allow these stocks to rise at least in line with their respective EPS growth rates this year.
11
#4: North American Dental Equipment – Solid 4Q-12 Demand/Healthy 1Q-13
Backlogs Encouraging
While final numbers
aren’t yet available, we NORTH AMERICAN DENTAL EQUIPMENT MARKET - 2013 EXPECTATIONS
2012E
2013E
believe the N.A. dental
Basic Equipment
Flat to + Low-single digits
+ Low- to mid-single digits
equipment market likely
grew mid-single-digits
Digital Imaging
+ Upper-single digits
in 2012, roughly in line
CAD/CAM
+ Low-double digits
+ Low- to mid-teens
with what we believe
+4 - 6%
+5 - 8%
was ~5% growth from Net NA Equipment Market Growth:
2011 and nicely above Source: Company Reports, Robert W. Baird & Co. Estimates
flat to down growth for
the market during the 2008-2010 period. Importantly, however, it sounds as if market growth exited 2012
at a slightly faster rate (mid to upper-single-digits), with basic equipment demand picking up late in the
year and supplementing what’s been stronger demand for high-tech equipment throughout the year.
While expiring tax incentives might explain at least some of the late 2012 dental equipment improvements
suggested by our recent checks (see below), we’re encouraged to hear that C’1Q backlogs look fairly
solid and believe this could be a sign that equipment trends in 2013 could improve modestly, especially if
consumer confidence can rebound post fiscal-cliff discussions and stronger jobs trends over recent
months can drive modest patient volume improvements and eventually greater willingness on the part of
dentists to invest in their practices.
More specifically regarding our 2013 North American dental equipment market outlook:
1. For basic dental equipment, where we estimate annual sales remain 15-20% below pre-2008
levels, we believe market growth could improve from flat to up only slightly in 2012 to low to midsingle-digit growth in 2013, with our confidence again driven by recent channel checks and what
seems to be the potential for improving macro drivers this year. Even so, because basic equipment
remains the most deferrable segment of the dental equipment market, we believe investors shouldn’t
expect much more than mid-single-digit growth for this category in 2013 barring a major improvement
in the macro environment.
2. For high-tech equipment, we expect upper-single- to low-double-digit growth in 2013, as potential
3D upgrade cycles in hybrid 2D/3D combination units (especially for SIRO’s Orthophos system, but
also for other 2D stand-alone systems from Planmeca, Danaher, and others) and for SIRO’s recently
launched CEREC Omnicam system should both drive incremental demand this year. We believe
these upgrade cycles should have a
DENTAL EQUIPMENT MIX
disproportionately large benefit to
PDCO vs. HSIC this year given
HSIC
PDCO
PDCO’s exclusive North American
Softw are/
Softw
are/
High-tech
Service
Service
distribution agreement with SIRO
31%
High-tech
22%
25%
38%
(SIRO should obviously benefit nicely
in North America from these trends this
year), thus explaining the 7.2% cc
Basic
Basic
growth we project for PDCO’s North
47%
38%
American dental equipment sales in
CY’13 vs. our +5.7% projection for Source: Company Reports, RWB Estimates
HSIC.
3. Higher potential 2013 income tax rates could help equipment demand this year. While our
November and December channel checks have improved across the North American dental
equipment market and these improvements are potentially being driven, at least in part, by the fact
that Section 179 small business tax incentives that revert back to multi-year low levels beginning in
12
2013 (see chart on following page), our checks also suggest a number of dentists were being advised
late in 2012 by their accountants/practice managers that with
SECTION 179 HISTORICAL DEDUCTIBILITY
personal income tax rates likely to increase in 2013 for high
CAPS & THRESHOLDS
income earners, it may be better to shield future income
Deductibility
Deductibility
Year
streams over the next several years with capital equipment
Limit
Threshold*
2002
$24,000
$200,000
purchases made in 2013 as opposed to taking such write2003
$100,000
$400,000
offs immediately against 2012 income. As such, we believe
2004
$102,000
$410,000
that even with improved 4Q-12 trends, there could still be
2005
$105,000
$420,000
some pent-up buying demand that got pushed into 2013 by
2006
$108,000
$430,000
2007
$125,000
$500,000
dentists who waited to try and shield 2013 against higher
2008
$250,000
$800,000
potential income tax rates.
2009
2010
2011
2012
2013
$250,000
$500,000
$500,000
$139,000
$25,000
$800,000
$2,000,000
$2,000,000
$560,000
$200,000
4. Medtech Tax – pass-through more challenging in
equipment. While we expect manufacturers to try and pass
through most of the U.S. Government’s 2.3% medtech tax on
dental consumables to end-user dentists, our checks suggest * Amount eligible for deduction decreases dollarthis pass-through type of treatment for the tax on U.S. dental for-dollar after total equipment spending reaches
equipment sales may prove more challenging, especially the threshold
across equipment lines that are currently facing greater Source: Internal Revenue Service, Section179.org
competitive pressures, such as high-cost basic equipment lines (cabinetry, treatment units, etc.),
dental handpieces, and some imaging and CAD/CAM product lines (stand-alone 3D systems,
CEREC, etc.). As such, we believe this issue may create a bit more of an EPS drag than we initially
believed for those manufacturers most exposed to these equipment lines in the U.S. On our list,
however, that only includes SIRO, for which we’re now modeling a $0.05 EPS medtech tax drag in
FY’13 (see our estimate changes section on SIRO specifically on page 41 for additional discussion),
although others exposed to this issue would also be DHR and privately-held companies such as Adec, Planmeca, Midmark, and a host of others. As a reminder, the medtech tax is written so that it is
charged on the first cross-border transaction, meaning that for those manufacturers who sell their
dental equipment through a distributor in the U.S. such as HSIC or PDCO (the way the vast majority
of dental equipment lines are sold in the U.S.), then those manufacturers will be responsible for the
tax and for deciding if they want to raise the price of their product to try and cover the tax. For
distributors (including HSIC/PDCO), we suspect they are somewhat agnostic to the whole situation –
if a manufacturer chooses to raise price by 2.3% and HSIC or PDCO can then sell that product for a
2.3% higher price, the impact to HSIC or PDCO would be de minimis at the EBIT line and modestly
additive to top-line growth (given the higher price point charged to the dentist). If, however, dentists
react to an attempted 2.3% price increase on a specific vendor’s product by instead purchasing
product from an alternate vendor who did not raise price, then HSIC or PDCO may lose a little bit of
that top-line tailwind (given they’re not selling the product priced 2.3% higher), but should again not
realize any impact to EBIT. In trying to account for this issue for our two distributor names, we’ve
therefore decided to model no revenue tailwind from medtech tax-driven equipment price increases
this year (vs. our assumption that 2/3 of U.S. dental consumables products see a 2.3% price increase
in 2013).
Bottom line, we expect the North American dental equipment market to grow ~5-8% in 2013 (ex the
medtech tax), modestly above levels we’ve seen over each of the past two years, with any further
improvement in end-market demand likely first requiring a healthy improvement in dental consumables
demand (any such consumables improvement would likely drive dentists’ confidence higher and make
them more willing to spend on dental equipment in 2013). Further, we believe dental equipment
manufacturers could have a more challenging time trying to pass the 2.3% medical device tax through to
end user dentists this year, primarily due to more cost competitive equipment markets, putting a bit more
pressure on EPS for most dental equipment manufacturers this year. As such, we’re lowering our FY’13
and FY’14 EPS projections for SIRO today by $0.04 and $0.05 respectively, and remind investors that
XRAY has almost no exposure to this issue and that – as distributors – HSIC and PDCO are fairly
agnostic to this issue and should not see their profit (EBIT and/or EPS) impacted in any material way by
this issue in 2013 or future years.
13
#5: Specialty Dental Consumables – Early 2013 Likely to Remain Challenging
On a scale of the least to most consumer discretionary exposed parts of dental, we believe dental
implants, cosmetic/tooth whitening procedures, and orthodontics rank near the top of the list (most
exposed), with endodontics, basic restorative procedures, and preventative care products ranking closer
to the bottom. This has been proven out in our survey work over recent years, and has also been easy to
see across the dental implant market, where ww growth for the entire market has lagged most of the rest
of dental for the past few years, trending flat to down in four of the past five years.
CONSUMER SENSITIVITY SPECTRUM
Cleanings, Preventative
Procedures, other Dayto-Day Appointments
Traditional
Orthodontics
Endodontics
(Root Canals)
Implants, Veneers,
Whitening
Less Discretionary
More Discretionary
High-End Restoratives
(Crow ns, Bridges, Onlays,
Inlays)
Basic Restoratives
(Fillings)
Clear Aligners
Source: Robert W. Baird & Co. Estimates
PATIENT VISITS AND PROCEDURE TRENDS
Fall 2010
Preventative Demand
Basic Restorative Demand
Higher-end Restorative Demand
Cosmetic/Whitening Demand
Endodontic/Root Canal Demand
Orthodontic Demand
Dental Implant Demand
Spring 2011 Summer 2011
3.82
4.05
3.35
3.07
3.84
3.28
3.56
4.20
4.27
3.66
3.41
3.99
3.61
3.65
4.22
4.24
3.64
3.28
3.88
3.63
3.65
Fall 2011
Spring 2012 Summer 2012 September 2012
4.01
4.03
3.31
2.94
3.72
3.32
3.39
4.16
4.39
3.85
3.35
4.17
3.72
3.88
4.28
4.19
3.76
3.39
3.90
3.64
3.82
4.29
4.15
3.60
3.19
3.81
3.61
3.59
*Based on 1-7 scale, with 4 or better indicative of improving
Source: Dental Economics & Robert W. Baird Monthly Dental Survey
W.W. & N.A. DENTAL IMPLANT MARKET
In 2012, given continued
15%
European macro pressures
10%
and with core PCE trends
5%
in the U.S. still soft
0%
throughout much of the
-5%
-10%
year, it shouldn’t come as a
-15%
surprise, then, that those
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12
W.W. Dental Implant Market
North American Dental Implant Market
stocks with the greatest
exposure to the consumer2008
2009
2010
2011
Q4-11
Q1-12
Q2-12
Q3-12
exposed parts of dental W.W. Dental Implant Market
4.3%
-5.5%
-0.3%
2.0%
0.9%
-0.2%
-2.8%
-1.9%
performed poorest, with North American Dental Implant Market 0.3% -5.8% 0.7% 9.1% 11.0% 6.6% 3.0% 2.4%
shares of dental implant Source: Company Reports, Robert W. Baird & Co. Estimates
manufacturers
Nobel
Biocare and Straumann declining ~30% in 2012 (~40%+ underperformance vs. the S&P500) and shares
of clear dental aligner manufacturer ALGN finishing more in line with the S&P for the year.
For 2013, we don’t expect a quick rebound in
specialty dental markets, especially through
1H-13 as PCEs in the U.S. remain below prior
year levels and European economic sentiment
is (at best) only in the early stages of bottoming
(see chart on following page).
HISTORICAL PERSONAL CONSUMPTION EXPENDITURES (Y/Y % CHANGE)
10%
PCE growth
hit near-term
peak m id2011
8%
6%
4%
2%
0%
However, with domestic PCEs beginning to
show some evidence of rebounding off midsummer lows late in 2012 and economic
-2%
-4%
-6%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bloomberg
14
EU ECONOMIC SENTIMENT INDICATOR
sentiment recently ticking a
Sentiment bottomed in all five
110
bit higher in four of the five
of the largest dental m arkets
largest dental markets in
105
Europe, we believe it’s
100
reasonable
to
assume
specialty dental demand
95
could begin to stabilize in
90
1H-13
and
potentially
strengthen a bit in 2H-13,
85
especially
if
these
80
European
improvements
75
can persist and improved
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
October/November
U.S.
EU
Germany
Spain
France
Italy
UK
consumer
confidence
readings can recur in 2013 Source: Eurostat
as the real estate market
improves and the vast majority of Americans feel relieved that their personal income tax rates aren’t
moving higher this year (or in the near future) now that an agreement has been reached in Washington to
only raise taxes on the wealthiest of U.S. households this year.
From a stock-specific standpoint, our view on 2013 thus leads us to believe that those names with the
greatest exposure to high-end consumer discretionary dental could continue to face pressure in the near
term, including NOBN, STMN, and ALGN as alluded to above. On our list, XRAY represents the most
consumer discretionary exposed dental name we cover, with ~30% of the company’s revenue exposed to
either dental implants (~20% of co-wide
EXPOSURE TO DENTAL IMPLANTS &
revenue) or orthodontics (~10%).
As we
discuss elsewhere in this report, however, we
ORTHODONTICS (% OF REVS)
still see reasons shares of XRAY could
XRAY
NOBN
STMN
ALGN
HSIC*
PDCO
outperform in 2013 (recovery in non-dental
implant businesses, valuation, Astra cost- ~25-30% ~85-90% ~90% ~90-95% ~5-10%
0%
synergies), although this issue does mean that *As a % of WW Dental
there are other dental ideas (specifically HSIC
and SIRO) that rank higher on our list of near- Source: Company Reports, RWB Estimates
term preferred names.
Finally, with regards to SIRO, we can understand if some investors believe this name is also exposed to
high-end discretionary dental spending. We believe, however, that SIRO’s situation is unique in that a
number of the company’s high-tech equipment products generate a positive ROI for dental practices,
making these products appealing during difficult macroeconomic periods. More importantly, SIRO seems
to be entering its best new product cycle in some time (ever?) and should see a boost to its international
numbers from the March IDS meeting this year (biennial even last held in 2011), providing two additional
reasons we believe that even if dental equipment trends in general are pressured this year, the company
should still be able to deliver double-digit revenue growth over the next twelve months.
Bottom line, we don’t expect a quick
rebound in specialty dental markets in
2013, especially through the first half of
the year. But with valuations for those
dental stocks with the greatest consumer
discretionary
exposure
compressing
dramatically this year, consumer sentiment
in Europe showing signs of bottoming, and
reasons in the U.S. to believe consumer
confidence could improve later this year, we
believe this part of dental bears watching
and could prove interesting later this year.
35x
31.6x
30x
25x
22.9x
20.6x
20x
16.6x
18.3x
18.4x
15.7x 15.7x
15x
16.1x 16.6x
14.8x
14.1x
17.0x
15.4x
10x
HSIC
PDCO
Current
SIRO
XRAY
NOBN
STMN
ALGN
5-year Average
Source: FactSet
15
#6: European Outlook – Steady as She Goes, with a Potential IDS Kicker
Through the first three quarters of 2012, XRAY’s European organic sales grew ~2.5%, while HSIC’s
international dental sales (where Europe accounts for ~80% of total international revenue) grew ~3.5%
organically. While both companies likely took a bit of share in Europe throughout 2012, we believe these
results -- along with 2% organic growth for European dental equipment manufacturer Arseus over the first
nine months of the year and 2.5% cc growth for Swiss dental manufacturer Coltene through the first half
of 2012 – suggest general dental market demand likely grew slightly in Europe in 2012, up ~1-2% for the
year according to our checks. While below the 3-5% growth we expect for general European dental
market demand longer term, this performance was nicely above what we instead estimate was roughly a
5% decline for the European dental implant market in 2012 and also highlights that general dental
demand (ex specialty items such as implants) remains fairly defensive even in Europe, where government
funding/reimbursement often takes on a much bigger role than it does in the U.S.
Looking to 2013, there are a number of moving parts investors need to consider when it comes to
potential European dental market growth, including the general macro environment, expected or potential
reimbursement changes throughout Europe, and the potential impact IDS could have on 2013 demand.
Taking these three issues in order, we note the following:
1. General macro. Obviously the European macro economy remains challenging, but with anywhere
from ~30% to 100% of dental expenditures paid for out of pocket by patients in the top five dental
markets across Europe and consumer sentiment stable to slightly improving in recent months in four
of these five top markets, we’d be surprised if macro issues weigh incrementally on dental demand in
2013 vs. 2012. That’s not to say we believe the macro can drive a sizeable rebound in European
dental demand this year, but it does seem to us that improving consumer sentiment makes it hard to
argue for a macro-fueled worsening of dental demand this year as well (see EU Consumer Sentiment
chart on page 15).
2. Reimbursement. While patients pay for a sizeable percentage of their dental care out of pocket
across many European markets, government and private payers also account for a sizeable amount
of dental spending across Europe, meaning significant changes in nationalized healthcare budgets
and/or policies in some markets (most notably Germany, the UK, and France) can impact dental
demand in a given year. For 2013, we’re not hearing of any major changes planned for dental
funding in Germany or France, two countries that account for nearly 50% of European dental
expenditures. In the UK, which accounts for ~10% of annual European dental spending, NHS dental
budgets were frozen in 2013/2012 (fiscal year end March 2013) despite a nearly 3% increase for the
total NHS budget, while details for 2014/2013 are not yet available. With nearly two-thirds of UK
citizens receiving dental care through NHS dentists, we believe a continued lack of expansion for the
NHS dental budget could drive
EU REIMBURSEMENT OUTLOOK
increased price sensitivity on
%
of
EU Dental
the part of UK dentists and
Country
Reimbursement Outlook
Expenditures
hospitals over time (if their
~50% of dental spend is self-pay; consumer
reimbursement isn’t increasing, Germany
~35%
sentiment
improving, 2013 funding appears stable
then they may push back more
on their suppliers), which is
Italy
~19%
sentiment improving
obviously a risk that bears
~50% of dental spend is govt funded; proposed
watching. That said, our checks
€2.4B decrease in healthcare spend in 2013,
suggest dentists’ (and patient)
France
~13%
although largely focused on branded/generic
frustration
with
the
NHS
pharma price cuts - not dental
continues to grow, which could
~50% of dental spend is govt funded; flat NHS
ultimately
push
additional
UK
~10%
funding for dental in 2013 which creates modest
dentists out of the NHS system
risk to supply pricing
and into the private dental
Spain
~7%
practice setting (~25% of UK
sentiment is stable but at multi-year lows
patients are treated in private
dental facilities in the UK, where Source: RWB Estimates
16
dentists can charge their own fees and accept either cash or private dental insurance as a form of
payment). Ultimately, we believe this type of secular move could prove beneficial for a value-add
distributor such as HSIC longer term, as these private dentists would likely have greater desire to
better outfit their offices and compete more aggressively for self-pay patients, although in the short
run we believe that if dental spending growth is again under-indexed relative to the rest of NHS
spending in 2014/2013, it would be hard to look to the UK dental market for any type of growth for
industry participants such as XRAY, HSIC and SIRO in 2013.
EUROPEAN DENTAL EXPENDITURES
Country
Germany
Italy
France
UK
Spain
Approximate Annual
Dental Expenditures
19,231,902,144
10,163,676,160
7,089,480,000
5,497,520,720
3,756,912,454
Percent of European
# Dentists
Dental Expenditures* (as of 10/1/08)
~35%
~19%
~13%
~10%
~7%
83,339
54,190
40,968
35,873
24,515
% Paid by % Paid by Private
% Self-Pay
Gov't (1)
Insurance (2)
30-40%
<5%
40-50%
40-50%
0%
~20%
0%
~30%
~10%
0%
40-50%
~95%
20-30%
40-50%
100%
*5 Largest European Dental Markets Account for ~85% of European dental expenditures
(1) Gov't funds for healthcare expenditures derived from payroll deductions that vary by country
(2) In Germany, France, and the UK, patients can elect to purchase a private insurance plan to cover additional dental procedures that are
not fully covered under the gov't funded program
Source: 2009 European Global Oral Health Indicators Development, EU Manual of Dental Practice, Robert W. Baird & Co. Estimates
3. IDS. IDS is the world’s largest dental trade show and takes place in Cologne, Germany once every
two years (March of odd years), with a general trend over the years seeming to be that European
demand for dental equipment trends higher in years of IDS and lower in subsequent years, as
European dentists attend IDS and make purchase decisions, and then wait two more years until the
next IDS meeting before making their next equipment purchase. As we show below, the timing of
these benefits tends to vary between manufacturers and distributors, with consumables
manufacturers such as XRAY often seeing a small benefit from IDS in 1Q as consumables purchases
made at the show are immediately booked to the P&L and equipment manufacturers such as SIRO
tending to see 2Q and 3Q
IDS YEARS - CONSUMABLES & EQUIPMENT GROWTH
benefits as dentists attend
C'1Q
C'2Q
C'3Q
C'4Q
IDS to compare/contrast
2007
-3%
16%
22%
7%
various equipment options SIRO (Int'l cc)
2009
-6%
18%
0%
10%
2011
19%
30%
11%
14%
and
then
make
their
2007
1%
4%
7%
5%
purchase decision over the
2009
6%
4%
7%
9%
subsequent one to two HSIC (Int'l cc)*
2011
1%
3%
3%
3%
quarters. For a distributor
2013E
0%
3%
4%
4%
such as HSIC, these
2007
8%
8%
7%
6%
equipment purchases in 2Q
2009
-3%
-7%
-1%
-4%
XRAY (EU organic)**
and 3Q then tend to
2011
4%
2%
0%
3%
2013E
2%
2%
2%
2%
translate into installations
(and subsequent revenue *Prior to 2010, HSIC reported international performance inclusive of dental, vet, and medical
recognition) in 3Q and 4Q of **2011 and 2013E figures are adjusted to exclude the impact of orthodontic revenue
IDS years.
Bottom line, we believe overall European dental demand could improve slightly in 2013 off what’s
been 1-2% market growth over the last couple years, especially given our sense that the macro is
unlikely to create incremental 2013 headwinds, reimbursement/nationalized healthcare budgets look fairly
stable/unobtrusive this year, and IDS should provide modest tailwinds not seen in 2012. We believe
SIRO should especially benefit from IDS tailwinds this year as the company uses that meeting to more
broadly show off its recent CEREC Omnicam launch, while for HSIC we’d expect modest IDS-related
benefits late this year, especially given that HSIC is the largest distributor of CEREC products in Europe.
17
#7: Emerging Markets – Double-digit Growth Expected Again, but Remains More a
Manufacturer (Not Distributor) Opportunity Near Term
DENTAL SPENDING PER CAPITA - DEVELOPED ECONOMIES VS. BRICS
While macroeconomic trends have
shown signs of slowing in some
$450.00
emerging markets recently, we expect
$350.00
continued development of the middle
$250.00
class in these markets during 2013,
$150.00
which in turn should help drive solid
$50.00
double-digit growth for dental products
$3.00
and services in countries such as China,
$2.50
India, Brazil, and Russia this year. That
$2.00
said, we remind investors emerging
$1.50
$1.00
markets account for a relatively small
$0.50
percentage of the $18+ billion worldwide
$0.00
dental market (less than ~10% by our
Germany
US
Italy
UK
France
Spain
China
Brazil
Russia
India
estimates), largely due to the lower-end
nature of dental work performed in these Source: Infodent, RussianAmerican Business, Freedonia Group, Better Oral Health - European Platform,
markets, with this issue highlighted by RWB Estimates
the lower per capita spending that happens on dental care in these markets vs. the U.S. and other
established markets.
Looking to our companies and several other large dental names we don’t currently cover, we note that
emerging markets tend to account for anywhere from
DENTAL EXPOSURE TO EMERGING MARKETS
a very small percentage of company-wide revenue,
20%
~15-20% ~15-20%
up to ~15-20% of revenue at the high end. As can
18%
be seen in the chart below, those companies with the
~15%
~15%
16%
14% ~13%
highest leverage to emerging markets are the
12%
manufacturers, whereas dental distributors such as
10%
HSIC and PDCO have little to no exposure to
8%
~5%
6%
emerging markets, with PDCO’s lack of exposure
4%
<5%
due to the company’s strict focus on North American
2%
~0%
dental and structural hurdles HSIC faces in a number
0%
XRAY HSIC PDCO SIRO DHR ALGN STMN NOBN
of these markets where dental distribution is a very
low value-add proposition or where manufacturers
Source: Company Reports, RWB Estimates
instead tend to favor direct selling models.
Regarding this latter point, we note that as it currently stands, premium dental manufacturers such as
XRAY, DHR, and SIRO largely rely on direct sales models in many emerging markets, primarily due to
their need to precisely target a select group of dentists in these markets and strictly control pricing in an
effort to avoid grey-marketing of branded product back to the west. For example, XRAY only targets the
upper 5% of the Chinese dental market with its branded high-end dental products (typically at prices 1015% lower than what those same products sell for in the U.S.), while the next 15-20% highest segment of
the Chinese dental market is then targeted with three to five generation-old product sold some 30-40%
below typical U.S. price points.
Bottom line, we expect growth in emerging market dental demand to again outpace that of more
mature U.S./European markets in 2013 by a factor of 3-to-1 or more (upper-single/low doubledigits for emerging markets vs. +2-4% for combined U.S./European dental markets). More
importantly, given a more focused go to market strategy we believe dental companies in emerging
markets must currently have, we believe near-term opportunities to benefit from this higher fundamental
emerging market growth are greater for manufacturers such as XRAY and SIRO than they are for valueadd distributors as HSIC. As economies progress and the standard of dental care rises in these markets,
however, we believe demand for Westernized dental products will increase, which in turn will likely create
a more compelling need for the distribution expertise a company like HSIC provides.
18
#8: CAD/CAM Competition Will Heat Up This Year, but Near-Term Risk to SIRO
Still Looks Modest
Competition in the chair-side CAD/CAM space will almost assuredly increase this year, as rumors abound
that at least 5-7 additional chair-side scanners could launch at IDS 2013, with at least several of these
systems expected to also offer chair-side milling capabilities ala SIRO’s CEREC system and D4D
Technology’s E4D system. While we therefore expect investor questions about these systems coming
out of IDS, details are admittedly still scarce for most at this point, making it hard to quantify the
near/intermediate-term risk to SIRO that might exist with these competitive systems.
NEW CAD/CAM SYSTEMS RUMORED TO BE LAUNCHING BY 2016
Scanner/Milling Capabilities
Laserdenta
Details
Lab-based scanner and mill only, German-based Laserdenta currently manufactures lab-based scanners
(Openscan 100), software (Opencad), and lab-based milling unit
no details on potential chairside
(Openmill 400 and 500). Operates on open network (front and back end).
system.
Launched chairside scanner in
MHT's (O.U.S.) and Clon's
early 2012, no details on
(U.S.) 3D Progress IODIS
chairside milling system.
N/A
Scanner is powder-free, portable (weighs 700g), able to scan a full jaw in
<2-3 minutes, and uses real-time continuous single scan stitching that
allows for 3D acquisitions. Operates on open STL platform. Sells
through Clon in the U.S. and various distribution partners O.U.S (CMF
Marelli, PNKOM, LaStruttura, GoldQuadrat, Exocad, Edonis, Elysee,
Vatech Korea, and Crytina).
Densys's Dentsys 3D
UK-based, privately-held dental practice management software
Submitted intraoral scanner for
company. Fast (90 second full jaw scan) and one of smallest on market
FDA approval in 2009, no details
(100g). 3D models obtained by triangulation with stored image of
on chairside mill.
structure. Allows for open file architecture (ASCII file).
Glidewell's TS 150
Chairside Mill
Rumors regarding launch circulating for over a year. Glidewell acquired
Full system (TS 150 Chairside
IOS FastScan Digitial Impression System intraoral scanner in August.
Mill) rumored to be launching Scanner laser moves automatically on a track within the wand, so
acquired chairside scanner (IOS
dentist only has to hold wand in 3 positions to scan full arch. Color and
Fast Scan Digital Impression
3D scanning. Rumors include all-in pricing (scan+mill) could be well
System) and internally-developed
below that of a CEREC system ($60-80k vs. $100-$130k for CEREC).
mill unit
No clear distibution channel.
Chairside scanner (DPI/O)
undergoing prototype testing, no
details on potential chairside
milling system
Details limited, as scanner is still undergoing prototype test. DPI is
leading developer of advanced 3D measurement and shape capture
technology. Intraoral scanner is handheld, high-resolution, real-time,
high-speed, 3D, and powder-free.
a.tron3d's blueScan-I
Chairside scanner and milling
unit
Recently launched bluescan-I is real-time (8-15 frames per second),
powder-free, uses USB connection only (portable between rooms),
smallest available (less than 150g), and can complete a 3D full arch
scan in <3 minutes. Lab-based milling unit can produce a low-cost but
quality dental model in <30 minutes. Production of the milling unit was
slotted to begin in mid/late 2012, but we admittedly haven't heard
anything of the sort.
AmannGirrbach's
Ceramill
Chairside milling
Currently sells lab-based CAD/CAM systems exclusively through Benco
in U.S., milling system currently compatible with 3Shape and iTero;
2013 in-office milling system launch rumored but details limited.
DHR's Dimensional
Photonics International
DPI 3D
The Look
N/A
Our sense, however, is that regardless the capabilities of these new competitive systems, SIRO remains
well positioned to deliver low- to mid-teens+ CAD/CAM revenue growth over at least the next 18-24
months for three primary reasons, including: (1) a solid backlog of new Omnicam system orders that we
believe already exists, (2) a significant installed base of some 35,000 current CEREC users worldwide,
many of whom we expect to upgrade to Omnicam once SIRO and its distribution partners offer an official
trade-in program mid-to-late calendar 2013, and (3) the nascent nature of many markets where SIRO is
still in the early stages of launching CEREC (Brazil, Korea, Russia, and China).
More importantly, we believe there are four reasons competitive CAD/CAM systems will likely struggle to
gain traction with new users over at least the next couple years:
1. Pricing. 3M, with its True Definition scanner launch several months ago, vowed to “boldly redefine the
economics of CAD/CAM dentistry” with a $11,995 upfront system price. However, once monthly data
19
and other scan fees are included, we estimate True Definition’s stand-alone cost is basically on par
with what a dentist would pay for a CEREC Connect stand-alone system (chair-side scanning
capabilities only), while the seven-year cost of ownership of a True Definition scanner paired with an
E4D milling unit is similar to CEREC ownership costs. While other systems could obviously launch at
lower price points at IDS this year, the fact that 3M’s “bold” redefinition of CAD/CAM pricing seems
like more of a restructuring of payments over time and not a significantly lower all in cost of ownership
leads us to believe other rumors about dramatically lower price points could be exaggerated as well.
TOTAL OWNERSHIP COST OF COMMERCIALLY AVAILABLE CAD/CAM UNITS
Pricing Model
Omnicam and MC XL
Bluecam and MC XL
E4D
True Definition + E4D Mill
Acquisition Unit
$63,900
$33,900
$54,900
$11,995
Milling Unit Total Hardware Cost
$66,000
$66,000
$75,000
$78,000
$129,900
$99,900 (2)
$129,900
$89,995
Scan / Lab Fees
Other Costs/Frequency
Total Cost (1)
$0
$0
$0
$199 + $129 (4)
CEREC Club/$209 per month
Warranty Cost/~$4,000 annually (3)
Warranty Cost/$125 per month
$147,456
$117,456
$150,900
$126,547
(1) Assumes 7 Year Life of System
(2) Current promotional price for Sirona's Bluecam
(3) Two years of warranty cost included in purchase price; option to add two additional years of warranty at purchase for $7,995-$9,995. Assume annual warranty cost
~$4,000 in years 5-7.
(4) Monthly data plans for new True Definition can be "as low as $199 per month" plus $129 in-office mill fee
Source: Company Reports, Industry Sources, RWB Estimates
TOTAL OWNERSHIP COST OF COMMERCIALLY AVAILABLE DIGITIAL IMPRESSION SCANNERS
Pricing Model
Sirona Connect (Bluecam)
iTero
True Definition
E4D Solo
Acquisition Unit
$25,995
~$20,000 - $25,000
$11,995
$20,000
Milling Unit Total Hardware Cost
N/A
N/A
N/A
N/A
$25,995
~$20,000 - $25,000
$11,995
$20,000
Scan / Lab Fees
Other Costs
Total Cost (1)
$0
$15-$35/scan (2)
$199 (3)
N/A
N/A
Warranty Cost/$125 per month
N/A
$43,551
$64,500
$37,711
N/A
(1) Assumes 7 Year Life of System
(2) Assume 20 restorations per month
(3) Monthly data plans for new True Definition can be "as low as $199 per month"
Source: Company Reports, Industry Sources, RWB Estimates
2. Quality/Clinical Data. CEREC has 25+ years of data backing up the quality of restorations it
produces, both from an aesthetic and clinical standpoint, something that will be severely lacking from
any new competitive system that launches near-term. More importantly, our checks suggest that of
the “low priced” systems that truly might someday launch in the sub-$75,000 range (all-in pricing for
chairside scanner, milling unit and design software), most will likely require dentist accept
compromises, either around material compatibility and/or restorative options (ie. only posterior singleunit crowns, etc.). While some dentists may ultimately accept such compromises to save $25,000$50,000, we currently believe most dentists who truly believe in-office CAD/CAM is right for their
practice will instead choose the quality, history, and lack of compromise that comes with CEREC.
3. Distribution challenges. Even if an aggressively priced chair-side CAD/CAM system requiring few
compromises vs. CEREC were to launch this year, such a system would still have to fight a lack of
credible distribution channels, as the two largest dental distributors that control nearly 70% of the
North American dental equipment market already have established relationships with CAD/CAM
manufacturers (PDCO with SIRO, HSIC with D4D), while HSIC is the largest distributor of CEREC
outside of North America. As such, we believe manufacturers of these competitive systems would
have to pair up with smaller distributors such as Benco or Burkhardt in the U.S. (less than 10%
market share combined), or small German distributors such as American Dental, Dental Union, etc.,
which would likely severely limit the reach of these products, at least initially.
Bottom line, we fully expect competition in the chair-side CAD/CAM space to increase this year,
but believe that even with this competition, SIRO remains exceedingly well positioned to deliver midteens+ growth in ww CAD/CAM revenue over at least the next 18-24 months. More importantly, we
believe there are several reasons competitive CAD/CAM systems will likely struggle to gain traction over
the next couple years even after they launch, further mitigating the near-term risk we see to our positive
FY’13 and early FY’14 outlook for SIRO.
20
#9: Corporate Dental Expansion to Continue, Providing Tailwinds for HSIC
Over the past several years, we’ve seen significant private equity investments in the dental services
space, including most recently the November 2012 acquisition of a majority stake in Heartland Dental by
Ontario Teachers’ Pension Plan in a deal that valued Heartland at ~$1.3 billion, or 11x ttm EBITDA.
Other deals over the last couple years have included JLL Partner’s February 2012 acquisition of
American Dental Partners (8.5x ttm EBITDA), OMERS Private Equity’s October 2011 acquisition of Great
Expressions Dental Centers, and late 2010 deals for Smile Brands (Welsh Carson) and Aspen Dental
(Leonard Green & Partners).
For 2013, we wouldn’t be surprised if additional private equity money flows into dental, especially given
the consistency of cash flows seen with these businesses. That said, we also believe deal activity could
slow this year, due in part to the fact many of the biggest and best known corporate dental groups have
exchanged hands in just the past few years and also given investigations and questions Senator Grassley
and others have recently raised regarding billing strategies at Aspen Dental and pediatric Medicaid dental
practices such as Small Smiles and Kool Smiles.
Regardless, given a significant influx of capital into this space over the last few years, we expect de novo
corporate dental office openings to continue in 2013, as this tends to be the favored mode of expansion
for these corporate dental groups. In turn, we believe these de novo office openings should again provide
growth tailwinds for HSIC this year, as the company tends to be the distributor of choice for many of these
corporate dental offices.
Specifically, our checks suggest corporate dental sales account for nearly 25% of HSIC’s North American
dental consumables revenue (nearly a $600m annualized business), which compares to little to no
exposure to corporate dentistry for PDCO (we believe American Dental Partners, which operates ~300
dental offices throughout the U.S., is one of PDCO’s few corporate dental customers). Importantly, we
believe the significant number of de novo office openings that have been occurring in corporate dentistry
over the past few
NORTH AMERICAN DENTAL CONSUMABLES ORGANIC GROWTH
years and HSIC’s
exposure to this 10%
mid- to upper- 8%
6%
single digit growing 4%
HSIC
(per our checks) 2%
Avg.
PDCO
segment of the 0%
market that at least -2%
partly
explains -4%
Q1-05 Q3-05 Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12
HSIC’s ability to
2005
2006
2007
2008
2009
2010
2011 2012 - YTD
outgrow PDCO on
7.0%
7.6%
6.0%
3.0%
-1.4%
1.5%
3.1%
2.4%
the
North Calendar Year Average
PDCO
7.5%
7.8%
6.0%
1.7%
-1.4%
0.8%
2.3%
1.8%
American
dental
HSIC
6.6%
7.4%
5.9%
4.2%
-1.3%
2.1%
3.8%
3.0%
consumables front
Source: Company Reports, Rob ert W. Baird & Co. Estimates
for 17 of the past
18 quarters.
As for margin, our checks suggest HSIC’s EBIT margin associated with corporate dental sales tends to be
relatively in line with that seen across the rest of the company’s North American dental business, as lower
gross margins for this business (HSIC tends to sell consumables supplies at a low- to mid-single-digit
discount to corporate offices) are offset by lower commissions the company pays for these sales.
Bottom line, we believe HSIC’s exposure to corporate dentistry is a relative positive for the
company vs. PDCO, especially given continued de novo office openings that we expect to drive 5-10%
growth for this segment of the market in 2013 and given EBIT margins HSIC enjoys in this channel that
tends to be on par with its broader North American dental business.
21
#10: Capital Deployment Strategies Could Shift a Bit for XRAY, SIRO, HSIC
We believe three of our covered dental companies (XRAY, SIRO and HSIC) may be contemplating
marginal changes in their capital allocation strategy for 2013, with each change likely to have positive
CAPITAL DEPLOYMENT STRATEGIES AND CASH FLOW DETAILS BY COMPANY
implications for
2013E
Current Repurchase
Repurchases Debt Levels
their respective
Capital Deployment
Changes to Strategy in
FCF/FCF
Program/Amount
Implied in
(Total
Strategies
2013
stocks this year.
Yield
Remaining
Guidance
Debt/Cap)
We review those
(1) Majority to debt
More cash available for
Authorized to maintain 34.0
potential
paydown, (2) Tuck-in
repurchae activity and ~$270 million/
million in Treasury
XRAY
Offset dilution
43%
acquisitons, and (3)
tuck-ins given debt
~4.8%
Stock/13.2 million shares
changes below,
Some repurchase activity
structure
remaining
but first highlight
(1) Debt paydown and (2)
Up to $100 million through
Higher levels of share ~$150 million/
SIRO
Share repurchase to
September 2014/$32 million Offset dilution
7%
the
current
repurchases possible
~4.4%
offset dilution
remaining
capital structure
(1-2) Acqusitions and
~$507 million/ Up to $500 million/$384.3
HSIC
Dividend?
~$150 million
19%
and typical cash
share repurchase activity
~7.1%
million remaining
(1) Tuck-in acquisitions,
flow strategies
~$188 million/
Up to 25 million shares
(2) Share repurchase
PDCO
No Change
~5.3%
through March 2016/8.4
Offset dilution
36%
used by each
activity, and (3) Debt
(FY'14)
million shares remaining
our companies
paydown
in recent years:
XRAY. For XRAY, we expect free cash flow of ~$270 million in 2013 (FCF yield ~5%), with at least a part
of this cash, plus ~$50-$70 million in FCF expected in 4Q-12, likely used to pay down $250 million in
floating rate notes that come due in August. Once this $250 million in debt is paid down, however,
XRAY’s debt to cap will fall below 40%, a level we believe management is comfortable maintaining, and
little additional debt comes due for the company prior to 2016. As such, we believe that by the middle of
this year, management will likely restart a share repurchase program that has largely been on hold since
the August 2011 Astra Tech deal. More importantly, we believe share repurchase activity could be
sizeable – and even bigger than what we’ve historically seen from the company – as management can
now more easily and cheaply repatriate European-generated cash following the Astra Tech deal, with a 12% per year reduction in share count not out of the question, in our view, over the next few years.
SIRO. From 2006-2010, SIRO’s main use of cash was to fund debt pay-down, as the company was highly
levered following its 2006 reverse merger with Schick Technologies. Over the past couple years,
however, debt has fallen to near zero ($75 million at FY’12 year-end) and annual free cash flow has
grown to ~$150 million (~4% free cash flow yield), and while management has spent a bit on deals and
repurchased a modest number of shares (a little over ~1 million shares repurchased in FY’12) during that
time, the company has primarily built cash, to the tune of $151 million on the balance sheet at the end of
FY’12. Our checks suggest outgoing CEO Jost Fischer has been the biggest advocate of building cash
and not pursuing a more aggressive share repurchase strategy, while incoming CEO Jeffrey Slovin may
be more open to such activity. We find this feedback encouraging for several reasons, including the
company’s current lack of debt, a relative paucity of deals that we believe would strategically make sense
near term, and the fact that our model currently includes assumptions for almost no such activity (we
estimate every $50 million spent on share repurchases would add ~$0.03 to our FY’13 EPS projection).
HSIC. Over the past five years, HSIC’s capital deployment strategy has been focused on acquisitions,
primarily in dental and vet, with share repurchase activity steadily increasing over the last couple years to
the point that management is currently pointing to ~$150 million in expected repurchases for 2013. Our
checks, however, suggest that management would potentially be open to paying a dividend longer term,
and while we wouldn’t expect any sizeable commitment to such a program near term, we believe a
commitment by management to even a small dividend would ultimately be a good thing for the stock as it
could open this story up to a whole new group of investors.
22
Dental Stocks –
2012 and Five-Year Performance Review
23
2012 Dental Stock Recap
In 2012, the RW Baird dental stock index (a market-cap weighted index of the five dental names we cover
including XRAY, HSIC, PDCO, SIRO, and YDNT) rose 23%, outperforming both the S&P 500, which was
up 13% for the year, and the Dow Jones Healthcare Equipment and Services Index (DJUSMC), which
rose 15% in 2012. If we exclude YDNT from the analysis (which agreed to be acquired by private equity
firm Linden Capital Partners in early December), our dental index would have still been up 23% for the
year and would have still outperformed both the S&P 500 and the DJUSMC (small-cap YDNT didn’t
significantly influence market cap-weighted index).
All in, 2012 was therefore a good year for our covered dental stocks, with the outperformance in 2012
coming after two straight years in which dental essentially treaded water relative to the broader market
(the RW Baird dental stock index outperformed the S&P 500 by 280bp in 2011, but underperformed the
S&P 500 by 230bp in 2010). More importantly, solid performance for the group last year means dental’s
streak of having outperformed the broader market on a three- and five-year basis remained intact coming
out of 2012, with the group up 39% vs. +28% for the S&P 500 over the past three years and +16% vs. a
3% decline for the S&P 500 over the past five years.
From a stock-specific standpoint, SIRO was the best performing dental stock in 2012, rising 46% for the
year, although this included a ~43% run in the back half of the year on new product cycle tailwinds that
came on the heels of only a ~2% 1H-12 increase as share performance was held in check given
European macro and company-specific margin uncertainty. YDNT and HSIC enjoyed the next greatest
relative returns during the year, up 33% and 25%, respectively, with YDNT’s upside partly driven by solid
company-specific execution and partly the result of Linden’s buyout offer on December 4 (Linden offered
a 9% premium to YDNT’s prior-day close to acquire the company), while HSIC’s performance driven was
largely driven by the company’s ongoing ability to consistently take modest share across all three of its
market verticals.
For XRAY and PDCO, performance this year was more in line with the S&P 500, with nice
outperformance early in 2012 for XRAY eventually giving way to modest 2H-12 underperformance as
dental implant market trends on a worldwide basis seemed to take another step-down beginning about
mid-year (implants account for ~20% of XRAY’s company-wide revenue following last year’s Astra Tech
acquisition). PDCO similarly struggled in the second half of CY’12 following stronger relative performance
early in the year, as management had to cut fiscal year guidance for a third consecutive year in its most
recent quarter due to ongoing issues that appear largely company-specific on both the revenue and
margin front. We review our CY’13 outlook by company, including for both XRAY and PDCO, beginning
on page 33.
DENTAL SECTOR PERFORMANCE - 1 YEAR
50%
%
46%
130
45%
Dental Group
S&P 500
125
40%
33%
35%
120
30%
25%
25%
23%
20%
115
16%
15%
15%
13%
13%
10%
110
105
5%
100
0%
SIRO
YDNT
HSIC
RWB
Dental
PDCO
DJUSMC
S&P 500
XRAY
Source: FactSet, Company Reports, Robert W. Baird & Co. Estimates
24
%
120%
103%
Dental Group
S&P 500
160
100%
150
140
80%
130
59%
60%
120
53%
110
39%
40%
28%
100
26%
22%
90
13%
20%
80
0%
SIRO
YDNT
HSIC
RWB
Dental
S&P 500
DJUSMC
PDCO
XRAY
%
110%
93%
65%
70%
50%
31%
30%
16%
4%
10%
1%
-10%
Dental Group
S&P 500
130
120
110
100
90
80
70
60
50
40
90%
-3%
-12%
-30%
SIRO
YDNT
HSIC
RWB
Dental
DJUSMC
PDCO
S&P 500
XRAY
RWB DENTAL INDEX - ANNUAL PERFORMANCE VS. S&P 500
Year
RWB Dental Index
S&P 500
RWB Dental Index
Outperformance
(Underperformance)
2008
2009
2010
2011
2012
-43.0%
47.0%
10.5%
2.8%
22.9%
-38.5%
23.5%
12.8%
0.0%
13.4%
-4.5%
23.6%
-2.3%
2.8%
9.5%
1-Year
3-Year
5-Year
9.5%
11.0%
18.6%
Dental Relative
Performance
Source: FactSet, Robert W. Baird & Co. Estimates
Taking a closer look at a slightly broader swath of dental stocks in 2012, we show below that if several
publicly traded mid-cap dental names we don’t cover are also included in our RW Baird Dental Stock
Index (namely ALGN, NOBN, and STMN), the group would have traded more in line with the S&P 500
last year, as NOBN and STMN both underperformed relative to the S&P 500 by more than 40 percentage
points (-29% and –31%, respectively, for the year) and shares of ALGN performed only modestly better
than the market (+17% vs. the S&P’s +13%) for the year. In our opinion, these stocks struggled relative
to other areas of dental in 2012 given their heavy exposure to dental implants and orthodontics, the two
parts of dental we consider most sensitive to consumer discretionary trends (to a lesser extent, this issue
also impacted XRAY in 2012, as ~30% of the company’s revenue is generated from dental implants and
orthodontics). With consumer spending trends on a declining trajectory throughout much of 2012 in the
U.S. and remaining suppressed in Europe all of last year, it’s not overly surprising (in hindsight) these
stocks had a much rougher go of it in 2012 vs. the rest of the dental group, in our view.
25
DENTAL SECTOR PERFORMANCE - 1 YEAR (INCL STMN, NOBN, & ALGN)
55%
46%
45%
%
35%
Dental Group
118
33%
116
25%
25%
S&P 500
17%
16%
15%
15%
13%
13%
114
13%
112
5%
110
-5%
108
-15%
106
-25%
104
-29% -31%
102
-35%
-45%
100
*Includes HSIC, XRAY, SIRO, PDCO, YDNT, ALGN, STMN, and NOBN
EXPOSURE TO DENTAL IMPLANTS
& ORTHO (% OF REVENUE)
DENTAL VS. S&P 500 - 2012 RELATIVE PERFORMANCE
100%
40%
YDNT
30%
20%
10%
90-95%
85-90% 90%
90%
SIRO
80%
HSIC
70%
PDCO
XRAY
ALGN
0%
60%
-10%
50%
-20%
40%
-30%
-40%
-50%
NOBN
STMN
25-30%
30%
20%
10%
5-10%
0%
0%
Less Discretionary
More Discretionary
PDCO HSIC* XRAY NOBN STMN ALGN
*As a % of WW Dental
Source: FactSet, RWB Estimates
Turning back to just our covered dental names and how they traded, as a whole, in 2012 relative to the
past couple years, we show below that the group outperformed in the early part of the year, gave up most
of its relative outperformance by the end of July, and then closed the year on a strong note, outperforming
the S&P 500 by just over 700bp in November alone (flat vs. S&P in December 2012). This general
pattern of solid outperformance relative to the broader market early in the calendar year and then modest
to complete capitulation for the group back to levels more in line with the S&P somewhere around midyear was also seen in 2011 and 2010, although the difference for dental stocks in 2012 was that the
group then rebounded sharply late in 2012 to finish the year on a strong note and near full-year relative
highs (vs. the S&P 500), as opposed to in 2011 and 2010 when the dental group sold off near mid-year
and either remained near these lower relative performance levels over the balance of the year (2010) or
continued to trend lower into year-end (2011).
26
RWB DENTAL INDEX VS. S&P - 2012 MONTHLY PERFORMANCE
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
9.1%
7.5%
4.4%
4.1%
2.6%
4.1%4.0%
3.3% 3.1%
1.4%
3.9%
2.0%
1.3%
3.9%
2.4%
0.3%
-0.7%
-2.0%
-4.0%
-3.5%
Jan
Feb
Mar
-6.7% -6.3%
May
Apr
Jun
Jul
RWB Dental Index
RWB Dental Index
S&P
Relative
Outperformance
(Underperformance)
0.5% 0.7%
Aug
Sep
Oct
Nov
Dec
S&P
Jan
9.1%
4.4%
Feb
2.6%
4.1%
Mar
3.3%
3.1%
Apr
1.4%
-0.7%
May
-6.7%
-6.3%
Jun
4.1%
4.0%
Jul
-3.5%
1.3%
Aug
3.9%
2.0%
Sep
3.9%
2.4%
Oct
-4.0%
-2.0%
Nov
7.5%
0.3%
Dec
0.5%
0.7%
4.7%
-1.5%
0.2%
2.2%
-0.5%
0.1%
-4.8%
1.9%
1.5%
-2.0%
7.2%
-0.2%
2010-2012 RWB DENTAL INDEX RELATIVE PERFORMANCE (VS. S&P)
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
Jan
Feb
Mar
Apr
May
2010
Jun
Jul
Aug
2011
Sep
Oct
Nov
Dec
2012
DENTAL STOCK SEASONALITY SINCE 2009
average dental outperformance of 10% in
first half of year since H1-09
25%
underperformance in second half of year 2009-2011,
2H-12 marked first relative outperformance for dental
10%
20.5%
20%
3.3%
5%
15%
0%
9.2%
10%
5.7%
-5%
-1.5%
5.5%
5%
-5.7%
-10%
0%
-9.4%
-15%
H1-09
H1-10
H1-11
H1-12
H2-09
H2-10
H2-11
H2-12
In trying to explain the strong close for dental in 2012 and contrast it with the softer second half
performances seen in 2011 and 2010, we believe both macro-related and company-specific factors may
have contributed. Specifically regarding the former, we believe the fact that consumer confidence
rebounded sharply in the second half of 2012 and hit multi-year highs this past October likely explain at
27
least part of dental’s late-year strength. Additionally, we’d contrast that with lower absolute consumer
confidence levels that were present late both 2010 and 2011.
As a reminder, we’ve shown many times in the past a high correlation between how our dental stocks
perform and consumer confidence (see chart below), and while there also seems to be a high correlation
between dental stock performance and both non-farm payroll trends and personal consumption
expenditures, there didn’t seem to be a notable inflection point for either jobs or PCEs in 2H-12,
suggesting these stocks reacted more to the consumer confidence improvements in late 2012 than these
other factors.
2009 TO PRESENT - DENTAL INDEX VS. CONSUMER CONFIDENCE
Dental Index
Consumer Confidence
220
80
200
70
180
60
160
50
140
40
120
100
30
Correlation = 0.82
80
20
60
10
Dental Index
Consumer Confidence
Source: FactSet, Bloomberg, Robert W. Baird & Co. Estimates
2009 TO PRESENT - DENTAL INDEX VS. M/M CHANGE IN NON-FARM PAYROLLS
Dental Index
M/M Change in NonFarm Payrolls
600
220
200
400
180
200
160
0
140
-200
120
-400
100
Correlation = 0.81
-600
80
-800
60
-1000
Dental Index
M/M Change in Non-Farm Payrolls
28
2009 TO PRESENT - DENTAL INDEX VS. Y/Y CHANGE IN PCEs
Y/Y Change in PCEs
Dental Index
220
8.0%
200
6.0%
180
4.0%
160
2.0%
140
0.0%
120
100
Correlation = 0.76
-2.0%
80
-4.0%
60
-6.0%
Dental Index
Y/Y Change in PCEs
As for stock-specific reasons as to why dental seemed to perform so well late in 2012, we’d point to
several factors, including the proposed acquisition of YDNT by Linden Capital Partners, which added nine
percentage points to YNDT’s share price since deal announcement (transaction expected to close in 1Q13), and a strong new product cycle for SIRO that we believe is still in its very early stages (see our
SIRO-specific 2013 outlook thoughts beginning on page 40). Above-expected 2012 guidance from HSIC
on its 3Q earnings call in early November also helped that stock perform well over the last two months of
the year, with shares up 9% on an absolute basis and 1% relative to the S&P 500 from November 1
through 2012 year-end.
Additionally, we believe at least some of dental’s outperformance in 2012 can be attributed to the secular
positives we’ve discussed many times in recent years with regards to the dental space in general.
Specifically, we believe dental remains a compelling way for investors to gain healthcare exposure
without having to take on many of the regulatory, reimbursement, and pricing headaches seen with many
other healthcare sub-sectors, with these benefits magnified throughout 2012 as secular pressures
continued to build in other healthcare areas and brought into even greater focus following the Supreme
Court’s June 2012 decision to uphold President Obama’s ACA and as it became increasingly evident late
last year that efforts to appeal the ACA’s 2.3% medical device tax would likely fail and most medical
device manufacturers would likely begin paying this tax at the start of 2013. For dental, we remind
investors that most of this tax will likely get passed through to the end user dentist, meaning the 2013
impact to earnings from this issue for most dental names will be de minimis, especially relative to the
impact most other device manufacturers, who don’t have pricing power and thus can’t push the tax off to
a respective end-user, will feel this year.
Given the strong close to 2012 for most dental stocks, valuation across the group has now expanded to
levels in line to slightly above five-year averages, an issue we discuss in greater detail beginning in the
next section of this report.
29
Dental Valuations –
Strong Close to 2012, but Still See 2013 Opportunities
30
Dental Group Valuation
Given the strong close to 2012 for dental stocks that we discussed over the prior few pages, the dental
group (as defined by our RW Baird dental stock index that currently includes HSIC, PDCO, SIRO, XRAY
and YDNT) enters 2013 trading at a market cap-weighted average NTM P/E multiple of 16.4x. This is
roughly a point and a half above where the group traded entering 2012 (14.8x average group multiple at
that time) and is modestly above the 15.6x average multiple at which the group has traded over the past
five years. Similarly, when looking at dental stocks relative to the S&P 500, the group currently trades at
1.31 the S&P 500 (a 31% premium to the current S&P 500 NTM P/E multiple of 12.5x), which is above
the five-year average relative premium of 1.22x (22% premium for group vs. S&P 500) and even slightly
above the ten-year average relative premium of 1.27x (27% premium for group vs. S&P 500).
RWB DENTAL INDEX AVERAGE NTM P/E
24x
22.5x
22x
20.0x
21.3x
20.7x
20.8x
21.0x
19.5x
20x
18x
16x
16.8x
15.8x
15.3x
16.0x
16.0x
16.4x
2011
2012
January
2, 2013
13.7x
14x
12x
10x
2000
2001
2002
2003
2004
2005
2006
2007
2008
5-YEAR AVERAGE
15.6x
2009
2010
10-YEAR AVERAGE
18.2x
Source: Company Reports, Robert W. Baird & Co. Estimates, FactSet
Discount to S&P
Prem ium to S&P
RWB DENTAL INDEX NTM P/E PREMIUM/DISCOUNT TO S&P 500 - 2000 TO 2012 AVERAGES
44%
40%
38%
26%
16%
31%
31%
28%
31%
2011
2012
January
2, 2013
17%
10%
0%
-5%
-35%
2000
2001
2002
2003
2004
2005
2006
2007
5-YEAR AVERAGE
22%
2008
2009
2010
10-YEAR AVERAGE
27%
Source: Company Reports, Robert W. Baird & Co. Estimates, FactSet
Given these above-average valuation levels, we find it hard to make a strong argument for meaningful
multiple expansion across the group early in 2013. That said, we believe another point or two of multiple
expansion for the group isn’t completely out of the question near term and that risk of multiple
compression over the near- to intermediate-term is likely fairly low for several reasons:
First, there is precedence for dental stocks to trade at or even above current levels. As can be
seen in the NTM P/E multiple chart above, dental stocks have traded well above current levels in the
past, most notably in the 2001-2007 time period, with the average 10-year NTM P/E multiple for the group
at 18.2x vs. the group’s current 16.4x. Further, while the 31% premium at which the group is currently
31
trading relative to the S&P 500 is above both five- and 10-year averages, dental stocks traded in line to
above this premium for a four-year period from 2005-2008.
Of course, there would have to be reason for dental stocks to trade at or above these historical levels,
which brings us to our next point:
Second, we believe North American dental trends are again showing a late-year rebound and
could be on track to improve slightly in 2013. Specifically, we believe that if consumer confidence can
rebound post-fiscal cliff discussions to levels seen just a month or two ago (consumer confidence
improved to multi-year highs in October and November), then North American dental consumables
market growth could accelerate 50-100bp this year to 3-3.5%, levels we haven’t sustainably seen in the
U.S. for several years. At the same time, we believe improved consumer confidence this year would also
drive improved dental equipment trends, as dentists tend to react very similar to other consumers,
investing in their practices when their confidence levels are higher and pulling back on investments when
they are less confidence about the overall economy.
In our opinion, there are reasons to believe such an improvement in consumer confidence occurs in 2013,
including the fact that housing values (wealth driver for many Americans) seem to be improving and now
that personal income tax rates for the vast majority of U.S. households appear likely to remain unchanged
in 2013 following Tuesday’s agreement in Washington to only raise taxes on U.S. households earning in
excess of $450,000 annually ($400,000 annually for individuals). While the offsetting factor to these
positives is that payroll taxes are expected to rise 200bp to 6.2% in 2013 (potentially pressuring near-term
consumer spending trends), we believe the potential for improving consumer confidence outweighs
payroll tax-related dental risks at this point, although this is an issue that admittedly bears watching over
the next couple months.
NA DENTAL CONSUMABLES MARKET - 2013 EXPECTED
N.A. DENTAL EQUIPMENT MARKET - 2013 EXPECTATIONS
2012E
Basic Equipment
2013E
Flat to + Low-single digits + Low- to mid-single digits
Digital Imaging
CAD/CAM
Net NA Equipment
Market Growth:
+ Low-double digits
+ Low- to mid-teens
+4 - 6%
+5 - 8%
2012E
2013E
Consumer Discretionary Spending
+1.0%
+1.0 - 1.25%
Payroll Changes
+0.5%
+1.0 - 1.25%
Pricing
+1%
+1%
Medical Device Tax
NA
+1.5%
NA Dental Market Growth (Inclusive
of Med Device Tax)
+2.5%
+4.5- 5.0%
NA Dental Market Growth (Ex-Med
Device Tax)
+2.5%
+3.0 - 3.5%
Third, we believe stable to improving dental end market fundamentals could keep investor interest
in the space heightened in 2013, especially as others healthcare sub-segments deal with bigger
medical device tax-related earnings headwinds this year. As we discussed on page 7, we believe dental
remains a compelling way for investors to gain healthcare exposure without having to take on many of the
regulatory, reimbursement, and pricing headaches seen with many other healthcare sub-sectors. More
importantly, we believe investors are increasingly understanding these benefits and are increasingly
willing to pay for the stability that comes with dental, especially as it looks increasingly likely secular
pressures in other healthcare-related areas could accelerate this year due to the Supreme Court’s June
2012 decision to uphold President Obama’s ACA and as efforts to repeal the ACA’s 2.3% medical device
tax increasingly look likely to fail.
Bottom line, for dental stocks as a whole, we recognize the group is entering 2013 trading at or above
valuation levels seen over the past few years and that macro uncertainty remains heading into the new
year. But we remain comfortable that improving end-market demand and continued relative benefits
dental provides investors relative to other healthcare areas will help these stocks at least hold multiple, if
not see another point or two of multiple expansion, this year. Even if the dental group simply holds
multiple in 2013, most stocks would likely see double-digit returns this year as we’re currently modeling
10-11% EPS growth this year for every stock in our dental coverage universe except YDNT.
As for thoughts around company-specific valuation, we cover that topic and other company-specific items
over the following pages:
32
Company Specific 4Q Checks, 2013 Outlook, Valuation
33
Dentsply (XRAY) – Outperform, $46 Price Target
DENTSPLY International (XRAY)
Rating / Risk
Outperform / Average Risk
Price (12/31/2012)
Street Says…
Trading Stats
$39.61
Buy
8
Shares Out (mil)
Price Target
$46
Hold
6
Avg Daily Volume (000s)
Mkt Cap (mil)
$5,620
Sell
3
Insider Holdings / Short Int
Non-GAAP EPS
Q4-12E
FY'13E
Robert W. Baird
$0.56
$2.44
FY'14E
$2.69
9.9%
10.3%
141.9
y/y change
11.3%
702
Street Estimate
$0.56
$2.46
$2.74
0.3% / 6.4%
y/y change
9.8%
11.3%
11.4%
Source: Robert W. Baird & Co., Bloomberg and FactSet
REVENUE MIX AND ORGANIC GROWTH PROJECTIONS
Product Mix
Specialty
Dental
48%
4.7%
4.5%
Healthcare
11%
Lab
Products
12%
NonDental
2%
RWB Growth Estimates
Geographic Mix
General
Chair-side
Cons.
27%
Europe
48%
3.9%
3.0%
2.8%
United
States
31%
3.2%
3.2%
Q3-13E
Q4-13E
2.4%
Japan
4%
Canada
3%
ROW
12%
Australia
2%
Q1-12
Q2-12
Q3-12
Q4-12E
Q1-13E
Q2-13E
4Q checks generally solid, U.S. still growing despite tough comps. Investors seem concerned that
XRAY’s U.S. organic growth could flatten out in 4Q, or even turn negative, as the company comes up
against a challenging +7.6% y/y comp and as dental consumable end market trends remain sluggish.
Our checks, however, suggest those fears are likely misplaced and that XRAY can still deliver domestic
organic growth this quarter that is in line to slightly above market, especially as new product demand
continues to grow and as end-market demand for general dental consumables picked up a bit into year
end. Additionally, our checks suggest there may have been bigger-than-normal distributor buy-ins near
quarter-end ahead of January 1 medtech tax-related price increases, helping U.S. organic sales growth
for the quarter reach +2-3% (we’re moving to +2% today vs. +1% previously). Outside of core U.S. dental
consumables demand, our checks suggest XRAY continues to capture share in a flat to low-growing
European dental market and that management continues to see good success in recapturing 35-40% of
its lost ortho business, two positives that more than offset continued sluggishness for the ww dental
implant market. Net, we believe XRAY should deliver +2-3% organic growth this quarter (+4.5-5%
including recaptured ortho sales) and EPS that’s in line to a penny or two above our consensus-matching
$0.56, with this performance likely enough to meet, if not exceed, current investor expectations.
2013 Outlook. For 2013, we believe continued new product tailwinds and modestly improving end
markets for general dental consumables should help company-wide revenue grow 3-4% on an organic
basis, with medtech tax-related price increases adding another 50bp to this performance. Additionally,
we believe 40-60bp of operating margin expansion is possible this year, despite 10-20bp of margin
headwind from the medtech tax, largely due to improving top-line growth, falling orthodontic sourcing
costs (given recent U.S. dollar strength against the Yen), and growing Astra Tech-related cost synergies.
Putting these top-line and margin assumptions together with modest expected EPS tailwinds from recent
Euro-related strength and management’s ongoing de-leveraging efforts, we believe EPS this year should
be able to grow 10-12%, with our 2013 EPS projection currently standing at $2.44 (+10% y/y; $0.02 below
Street’s current $2.46). Importantly, we believe that should consumer spending trends recover sooner
rather than later, we could see a more meaningful improvement in XRAY’s dental implant revenue growth
and margins, potentially pushing 2013 EPS growth into the low- to mid-teens. Admittedly, however, we’re
not currently seeing or hearing anything in our checks that would suggest dental implant market trends
improved over the last couple months of 2012 vs. flattish 3Q-12 levels.
Bottom line – with XRAY enjoying a solid year-end run, shares currently trade at 16x NTM EPS. While
not egregious vs. five-year averages (16.6x) and relative to the overall dental group (a touch below the
group’s 16.4x), we believe this valuation, combined with still sluggish dental implant end markets, makes
it hard to pound the table on this name at present. That said, we believe that if consumer spending
trends improve later this year – a scenario we believe possible should post-fiscal cliff tax rate stability and
improving housing market trends drive improved consumer confidence over coming months – dental
34
implant market trends could also rebound, driving potential upside to our XRAY estimates and likely
supporting more multiple expansion for XRAY than any of the other dental names on our list this year.
Valuation. We’re raising our price target on XRAY to $46 ($44 previously), largely a function of our
valuation methodology as we’re applying an unchanged 17x multiple on a forward year NTM EPS
projection that is moving one quarter forward today (17x multiple now applied to our 2014 EPS projection
of $2.69). This 17x multiple is just above the company’s five-year average 16.6x NTM P/E multiple, with
the modest premium warranted, in our view, by improving end-market conditions and what we believe is a
solid double-digit multi-year EPS growth outlook for the company as Astra Tech cost synergies and deleveraging efforts likely complement mid-single digit organic growth over coming years.
VALUATION AND PERFORMANCE - XRAY
18
27-Dec-2002 to 31-Dec-2012 (Weekly)
Price (Right)
Next 12 Months Price/Earnings Range (Left)
Average (Left)
16.1
16.6 16.4
16
28
50
26
45
24
40
14
15.8
12.6
12.1
12
10
22
35
20
30
18
8
25
6
14
20
4
12
15
2
10
10
16
'03
'04
Data Source: FactSet Estimates
'05
'06
'07
'08
'09
'10
'11
'12
©FactSet Research Systems
1.27 1.30 1.31
0
NTM P/E
Current
EV/EBITDA
5-Year Average
NTM P/E vs. S&P500
Current RWB Dental Index
Source: Factset
Risks




Leverage to specialty dental markets. XRAY generates ~20% of company-wide revenue from the
sale of dental implants and nearly 10% of sales from orthodontics, the two areas of dental we
consider most exposed to consumer discretionary spending trends and the two segments where our
checks are currently least favorable.
Ortho market share recovery likely to get tougher. Over the last couple quarters, XRAY has
clawed back ~40% of the orthodontics market share it lost following the 2011 natural disaster in
Japan that wiped out the company’s sole supplier of ortho products. Once the tailwind from these
recaptured accounts anniversary mid-2013, however, growth in this segment could slow for the
company, as end-market demand remains somewhat sluggish in general and our checks suggest
remaining (former) XRAY ortho customers are generally happy with the competing products they
adopted following XRAY’s 12-18 month market absence.
International exposure. More than half of XRAY's sales originate outside of the U.S., putting the
company at risk if international markets should weaken further and increasing the volatility of results
due to foreign currency fluctuations.
Acquisition and integration risk. Over the years, growth at XRAY has benefited from numerous
acquisitions, including the August 2011 deal for Astra Tech. Astra Tech is the largest deal in company
history, and while integration has gone well in the first 12-18 months post-deal, cost synergies from
this deal that we’ve expected in 2013 and 2014 could fail to materialize, or be less than expected, if
end markets remain stalled or other integration issues arise.
35
Estimate Changes
We highlight our XRAY estimate changes for 4Q-12, 2013 and 2014 below, but note here that two factors
are driving our 2013 revenue projections slightly higher, including the fact that we’re now include a slightly
weaker U.S. dollar assumption in our model and more accurately attempting to account for how we
believe the medical device tax will impact XRAY this year (see that explanation below). While we’re now
modeling a $0.03 drag to XRAY’s 2013 EPS from the medical device tax, we’re also assuming slightly
better orthodontic profitability this year due to recent Yen weakening (XRAY sources most of their ortho
products out of Japan), and as such our full-year EPS projection is moving only $0.01 lower today to
$2.44.
Regarding the medical device tax, while we continue to believe most dental consumables
manufacturers (including XRAY) will successfully pass this tax on to end-user dentists in the form of a
2.3% incremental price hike this year, our checks suggest such price increases may not be possible
across all product lines, especially some of the more price competitive areas (lower-end/value-based
preventative products, for example). As such, for XRAY we’re now assuming the company successfully
passes two-thirds of the tax on to dentists, but absorbs one-third of the tax, which adds 50-60bp of GM%
and OM% headwind to our model and reduces 2013 EPS by $0.03 as noted above. Admittedly this
assumption could prove conservative, but we believe this is a reasonable way for investors to be thinking
about the implications the medical device tax could have on dental consumables manufacturers this year.
Additional details regarding our 4Q-12 and 2013/2014 estimate changes are included below:
Baird Estimate Changes - XRAY
(000)
Previous
Y/Y Growth
Current
Y/Y Growth
Q4-12
Revenue
Ex PM Revenue
U.S. (1)
Europe (1)
Rest of World (1)
GM% (ex-p.m., deal amort)
OM% (ex-p.m., non-recurr, deal amort)
Organic Growth (1)
EPS (ex non-recurr, Astra amort)
$743,903
$685,237
$204,963
$316,872
$163,402
57.1%
17.2%
2.5%
$0.56
0.8%
1.1%
1.0%
2.2%
5.0%
+60bp
+120bp
NM
11.1%
$746,663
$687,997
$206,782
$319,648
$161,567
57.1%
17.2%
2.8%
$0.56
1.2%
1.5%
2.0%
2.2%
5.0%
+60bp
+120bp
NM
11.3%
2013
Revenue
Ex PM Revenue
U.S. (1)
Europe (1)
Rest of World (1)
Organic Growth (1)
EPS (ex non-recurr, deal amort)
$2,998,580
$2,781,563
$925,310
$1,234,175
$622,078
58.2%
18.1%
3.0%
$2.45
2.7%
3.2%
2.9%
2.0%
5.0%
+10bp
+60bp
NM
10.4%
$3,016,852
$2,799,834
$940,640
$1,243,962
$615,232
58.1%
17.9%
3.0%
$2.44
3.3%
3.7%
2.9%
2.0%
5.0%
flat
+40bp
NM
9.9%
2014
Revenue
Ex PM Revenue
U.S.
Europe
Rest of World
Organic Growth
EPS (ex non-recurr, Astra amort)
$3,106,108
$2,894,516
$963,190
$1,272,068
$659,258
58.4%
18.7%
4.0%
$2.68
3.6%
4.1%
4.0%
3.0%
6.0%
+20bp
+60bp
NM
9.4%
$3,124,876
$2,913,284
$979,134
$1,282,149
$652,001
58.4%
18.6%
4.0%
$2.69
3.6%
4.1%
4.0%
3.0%
6.0%
+30bp
+70bp
NM
10.3%
(1)Geographic and company-wide growth rates provided are organic, and exclude the impact of lost ortho revs
36
Henry Schein (HSIC) – Outperform, $92 Price Target
Henry Schein (HSIC)
Rating / Risk
Price (12/31/2012)
Outperform / Average Risk
Street Says…
Trading Stats
$80.42
Buy
7
Shares Out (mil)
Price Target
$92
Hold
8
Mkt Cap (mil)
$7,080
Sell
2
Non-GAAP EPS
Q4-12E
FY'13E
Robert W. Baird
$1.21
$4.86
FY'14E
$5.39
11.1%
10.8%
88.0
y/y change
5.0%
216
Street Estimate
$1.20
$4.84
$5.39
2.1% / 3.5%
y/y change
4.3%
10.8%
11.4%
Segment Mix
Geographic Mix
Global
Medical
18%
Germany
9%
United
States
61%
Global
Dental
53%
7.8%
4.6%
Other
30%
4.4%
4.4%
3.5%
4.8%
4.8%
3.7%
Global
Veterinary
26%
Global
Technology
3%
Q1-12 Q2-12 Q3-12 Q4-12E Q1-13E Q2-13E Q3-13E Q4-13E
4Q checks solid, raising numbers.
Our checks suggest HSIC enjoyed a solid close to 2012, with
North American dental equipment sales accelerating into year-end and dental consumables growth
strengthening 50-100bp sequentially despite a 50bp+/- headwind related to Hurricane Sandy.
Additionally, our checks suggest North American medical and vet trends remained solid into year-end
(mid-single digit+ growth for each despite upper-single digit y/y organic growth comps), with international
dental equipment the only challenged segment given tough IDS-related comps from last year. Given our
fieldwork and positive December dental survey findings in general, we’re raising our 4Q-12 revenue and
EPS projections today as outlined on the following page, with our $1.21 EPS projection for the quarter
now above the mid-point of management’s $1.18-$1.23 guidance and Street’s current $1.20.
2013 Outlook. With our checks suggesting HSIC’s 1Q-13 dental equipment backlog is solid given
accelerating demand into 2012 year-end, 4Q checks solid into year-end (November strength continued
well into December), and consumer sentiment stable to slightly improved in four of the five largest
European dental markets in recent months, we remain confident in modeling 4-5% company-wide organic
revenue growth for HSIC in 2013. We are, however, shifting a bit more of 2013 expected revenue to the
back-half of the year, due in large part to two timing related issues. Specifically, we’re trimming our 1Q
company-wide organic growth projection very slightly to +3.7% vs. +3.8% previously as we better account
for the impact of tough weather-related 1Q comps from last year and a potential drawdown of
international dental equipment purchases ahead of the March 2013 IDS meeting, although this is entirely
made up for in 2H-13 as we assume slightly better IDS-related international dental tailwinds. Net of these
changes is that our full-year 2013 company-wide organic growth projection moves 20bp higher today to
+4.4% vs. +4.2% previously, while our 2013 EPS projection increases to $4.86 vs. $4.84 previously
(Street $4.84/guidance $4.81-$4.91), with the $0.02 higher projection resulting from both recent U.S.
dollar weakness and our recently improved North American dental equipment checks.
Bottom line – With shares of HSIC up 25% in 2012 and valuation now at a slight premium to five-year
averages (see below), we’re not aggressively pounding the table on HSIC currently. That said, we would
look to add to positions on pull backs into the mid- to upper-$70s and believe this stock is well positioned
to grind higher, into the upper-$80s or even low $90s over the next few quarters, as dental market trends
remain stable to slightly improved and HSIC continues to take share across all three of its verticals.
Importantly, while not aggressive buyers at current levels, we also would not advocate selling here and,
all else equal would want to be long this stock at present, especially given our solid 4Q channel checks
and what we suspect will likely be positive early 2013 commentary from management on the company’s
4Q earnings call.
37
Valuation. We’re raising our price target to $92 today, as we roll one quarter forward in our valuation
methodology (now building a 12-month price target off our 2014 EPS projection) and apply an unchanged
~17x multiple off a now slightly higher 2014 EPS projection of $5.39 vs. $5.35 previously. This 17x
multiple we continue to use to value HSIC is in line with the company’s 10-year average valuation of
17.2x and we believe this multiple is justified by stable to slightly improving end markets, HSIC’s ongoing
ability to grow above market and capture share across its dental, vet and medical businesses, and what
we believe is a shareholder friendly capital deployment strategy in which free cash flow is expected to be
allocated evenly between acquisitions (most of which are accretive within one year) and share
repurchases over coming years.
VALUATION AND PERFORMANCE - HSIC
18
Price (Right)
Average (Left)
16
24
90
14
22
80
12
20
70
18
60
16
50
14
40
12
30
4
10
20
2
16.6
16.4
15.7
12.1
11
10
10
8
8
10
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
6
1.32 1.23 1.31
0
NTM P/E
Current
EV/EBITDA
5-Year Average
NTM P/E vs. S&P500
Source: Factset
Risks





Macro picture still somewhat uncertain. Dental spending is highly correlated with consumer
spending, consumer sentiment, and (especially in the U.S.) overall employment trends and should
any of these factors slow notably from current levels, HSIC’s dental growth could similarly slow.
Low margin acquisitions remain important growth driver. HSIC has consistently added ~500bp
to top-line growth from acquisitions over each of the past 5 years, and while we believe the 2-4 year
return profile on these deals is typically favorable (HSIC often pays 0.2x-0.5x sales for these deals
and can often double the OM% of these businesses from 1-2% to 3-4% within 18-24 months), these
deals can limit company-wide margin expansion opportunities in their first year, which remains a
sticking point with some investors.
Difficult weather-related 1Q comps. Favorable U.S. weather in 1Q-12 limited the number of office
closures and patient cancellations relative to prior years, while an unseasonably warm start to 2012
also led to an earlier start to the flea and tick season last year. Both of these factors contributed to
healthy organic growth across all three of HSIC’s verticals in 1Q-12, which could drive a modest
sequential slowing in 1Q-12 performance
International exposure. More than a third of HSIC’s sales are generated overseas and most future
acquisitions will likely materialize OUS, putting the company at risk if international markets should
weaken further and increasing the potential impact foreign currency has on HSIC’s results.
Flu vaccine – bigger bark than bite. In the early to mid-2000’s, flu vaccine distribution accounted for
some 20-25% of HSIC’s annual EPS, but with the rest of HSIC’s business growing rapidly in recent
years and the number of doses of flu vaccine that HSIC distributes annually declining, flu vaccine
accounts for no more than 2-3% of the company’s annual EPS. Even so, flu trends remain an oftdiscussed topic for some HSIC shareholders and can impact investor sentiment on the stock,
especially heading into the second half of the year each year.
38
Estimate Changes
We review a number of the changes we’re making to our 4Q-12 and 2013 projections for HSIC above and
highlight the specifics of those changes in the tables below. As noted above, we’re tweaking our 1Q-13
estimates slightly lower due to IDS-related timing issues and tough 1Q-12 weather related comps,
although our full-year 2013 revenue and EPS projections are moving slightly higher, partly due to
modestly better organic growth projections for the year (+4.4% company-wide vs. +4.2% previously) and
partly due to two other issues, including Fx (recent U.S. dollar weakness vs. euro) and the medtech tax.
Regarding the medical device tax, our checks increasingly suggest some, but not all, dental
consumables manufacturers plan to raise prices an additional 2.3% in 2013 to try and fully offset the
impact of tax. Further, our checks suggest that in some highly competitive and high priced dental
equipment segments, raising prices may not be a viable option. As such, we’re currently assuming
pricing on 2/3 of all dental consumables products HSIC sells in the U.S. increases 2.3% this year due to
the medtech tax (in turn this adds 150bp to our U.S. dental consumables growth rate projection for HSIC
this year), while we’re assuming no increase to domestic dental equipment prices due to the tax. We
believe this latter assumption is likely conservative, but remind investors that for a distributor such as
HSIC, this issue should have little impact on EPS, as any revenue benefit from higher end-user prices
would be offset fully by higher prices HSIC would have to pay to the manufacturer for those products.
Additional details regarding our 4Q-12 and 2013/2014 estimate changes are included below:
Baird Estimate Changes - HSIC
--- Previous ---
--- Current ---
(Y/Y Reported) (Y/Y Organic)
(000)
(Y/Y Reported) (Y/Y Organic)
Q4-12
Company-wide Revenue
Global Dental
Global Medical
Global Veterinary
Global Technology
Gross Margin
Operating Margin
EPS - Continuing Operations
$2,342,349
$1,285,191
$393,445
$587,632
$76,080
28.0%
7.0%
$1.20
0.1%
-4.5%
-1.1%
11.7%
7.6%
+10bp
flat
4.6%
3.3%
2.3%
4.0%
5.5%
9.0%
-
$2,354,788
$1,295,379
$393,623
$589,705
$76,080
28.0%
7.0%
$1.21
0.6%
-3.7%
-1.1%
12.1%
7.6%
+10bp
+0bp
5.0%
3.5%
2.7%
4.0%
5.5%
9.0%
-
2013
Global Dental
Global Medical
Global Veterinary
Global Technology
Gross Margin
Operating Margin
Management's EPS Guidance
$9,458,920
$4,940,610
$1,637,004
$2,579,263
$302,043
28.1%
7.0%
$4.84
$4.81-$4.91
6.6%
4.1%
5.5%
12.3%
8.6%
-10bp
flat
10.8%
+10-12%
4.2%
3.8%
5.0%
4.7%
5.0%
-
$9,512,805
$4,983,015
$1,637,666
$2,583,128
$308,996
28.1%
7.0%
$4.86
$4.81-$4.91
7.1%
4.8%
5.5%
12.3%
11.1%
-10bp
flat
11.1%
+10-12%
4.4%
3.3%
5.0%
4.5%
7.5%
-
2014
Global Dental
Global Medical
Global Veterinary
Global Technology
Gross Margin
Operating Margin
$9,878,167
$5,140,070
$1,715,426
$2,705,526
$317,145
28.3%
7.2%
$5.35
4.4%
4.0%
4.8%
4.9%
5.0%
+20bp
+20bp
10.6%
4.4%
4.0%
5.0%
4.9%
5.0%
-
$9,921,091
$5,163,310
$1,716,117
$2,709,492
$332,171
28.2%
7.2%
$5.39
4.3%
3.6%
4.8%
4.9%
7.5%
+10bp
+20bp
10.8%
4.3%
3.6%
5.0%
4.9%
7.5%
-
39
Sirona Dental Systems (SIRO) – Outperform, $70 Price Target
Sirona Dental Systems (SIRO)
Rating / Risk
Price (12/31/2012)
Outperform / Higher Risk
Street Says…
Trading Stats
$64.46
Buy
15
Shares Out (mil)
Price Target
$70
Hold
2
Mkt Cap (mil)
$3,540
Sell
0
Non-GAAP EPS
FQ1-13E
FY'13E
Robert W. Baird
$0.84
$3.37
FY'14E
$3.82
10.9%
13.6%
55.0
y/y change
-3.1%
206
Street Estimate
$0.87
$3.40
$3.82
0.7% / 1.1%
y/y change
0.0%
12.2%
12.4%
Segment Mix
Im aging
Systems
35%
23.4%
Germ any
16%
Treatment
Centers
20%
14.1%
Rest of
World
55%
Dental
CAD/CAM
34%
Geographic Mix
10.2%
11.1%
10.2%
7.0%
8.2%
9.5%
U.S.
29%
Instruments
11%
FQ1-12 FQ2-12 FQ3-12 FQ4-12 Q1-13E Q2-13E Q3-13E Q4-13E
FQ1 (C’4Q) Outlook – revenue checks positive, but lowering EPS outlook for quarter. Our checks
suggest that while CEREC Omnicam manufacturing remains modestly constrained, at least several
hundred systems have been shipped to PDCO over the past two months – not enough to keep up with
demand, but still a good number. More importantly, our checks suggest demand for Schick and
Orthophos products was strong at year end, with demand for both products in November and December
tracking above internal SIRO expectations. All of that is positive and gives us comfort in maintaining our
slightly-above Street FQ1 revenue projection of $274 million today (Street $268 million). That said, we’re
lowering our FQ1 EPS projection by $0.06 today for two primary reasons – one, we now expect CEO
separation costs of ~$4-$5 million pretax associated with Jost Fischer’s planned retirement to be
recognized this quarter. Second, our checks suggest R&D spending continues to run a bit higher earlier
this year than we initially anticipated, largely due to SIRO’s continued effort to launch at least two
additional new products (other than Omnicam) early this year. Importantly, these issues are largely of the
timing (R&D) and non-recurring (CEO costs) variety, and as such we expect the impact on full-year EPS
to be smaller (see below).
FY’13 outlook – best new product cycle we can remember should drive stock into $70s. With our
checks suggesting demand for Schick 33 imaging products ramping nicely, interest in Omnicam as high
as we’ve ever seen for an in-office CAD/CAM product, and at least two additional new products expected
to launch ahead of IDS this March, we continue to believe SIRO is in the early stages of what could be
the best new product cycle in company history. As such, we remain confident in management’s ability to
deliver double-digit organic revenue growth in FY’13 and are actually nudging our organic growth and
revenue projections for the year slightly higher today (see estimate changes section below). As for
potential FY’13 leverage, our checks suggest imaging prices are stabilizing and Omnicam ASPs are
holding in at $129,900 (i.e., selling at full list price), both of which are positives. However, as noted
above, R&D spending seems to be running a bit higher than we expected at this point, and while we
expect this issue to moderate by mid-year and potentially drive better top-line performance than
previously contemplated, the combined impact of these higher 1H-13 R&D expenses and what we now
believe could be a slight drag from the medical device tax (see estimate changes section) is driving our
full-year EPS projection for FY’13 $0.04 lower today to $3.37 (guidance $3.33-$3.43).
Bottom line, we believe SIRO is on the cusp of delivering very strong top and bottom-line performance
(mid-teens organic revenue growth, upper-teens+ EPS growth), although due to timing issues and as
Omnicam tailwinds don’t fully ramp for another quarter or two, investors are going to have to patiently wait
through a less-than-stellar FQ1 to see such impressive growth. We believe that means shares could be
set up to disappoint a bit heading into SIRO’s FQ1 report in February, but if that occurs, we’d use any
such weakness as a buying opportunity as our conviction in strong 2H-13 performance remains high.
40
Valuation. We’re raising our price target to $70 today ($68 previously) as we roll forward one quarter in
our valuation methodology and apply an unchanged 13x multiple to our forward-year EBITDA projection
(now covers FQ2-13 through FQ1-14) and an unchanged 17.5x multiple to our forward-year NTM EPS
projection of $3.98 (now covers FQ2-14 through FQ1-15). While the 13x EBITDA multiple we’re using to
value SIRO is above the company’s five-year average of ~11.5x, we believe this premium is justified
given expected tailwinds from Omnicam, at least two additional new products we expect to launch early
this year, and the March 2013 IDS meeting.
VALUATION AND PERFORMANCE - SIRO
20
Price (Right)
Next 12 Months Pri ce/Earnings Range (Left)
Average (Left)
18.4
18
40
70
35
60
16
16.4
14.1
13.7
14
11.5
12
30
50
25
8
30
6
20
4
15
10
10
5
10
40
20
12.1
1.45 1.1 1.31
2
0
0
0
'03
'04
'05
Data Source: FactS et Estimates
'06
'07
'08
'09
'10
'11
'12
©FactSet Research S ystems
NTM P/E
Current
EV/EBITDA
5-Year Average
NTM P/E vs. S&P500
Source: Factset
Risks



Growing CAD/CAM competition. At least several competing in-office CAD/CAM systems are
expected to launch in 2013 (see page 19 for additional details), potentially raising questions about
CEREC’s ability to maintain its market leading dominance longer term. At this point, we don’t expect
any of these systems to create significant risk to SIRO near-term, as they will all lack the brand
recognition, clinical history, and broad distribution channels enjoyed by CEREC. However, if one of
these systems is compelling enough (good product, few compromises on the milling and/or imaging
side vs. CEREC, etc.) and priced low enough ($75,000 all-in or lower) to make SIRO and its
distribution partners lower Omnicam pricing from its current $129,900, margin pressures for the
company could spike and put greater pressure on forward earnings.
Investor expectations high. Shares of SIRO have risen nearly 50% since August (vs. S&P 500’s
+3%) on the heels of new product launches and IDS 2013 expectations. While we believe this
optimism is warranted, it also creates risk should management not meet the lofty expectations that
seem increasingly associated with this stock.
Significant OUS exposure. Over 70% of SIRO’s revenue is generated outside the U.S., including
nearly 40% in Europe and ~30% in emerging markets, where management continues to build out the
company’s sales and service infrastructure. While this sizeable international exposure provides
diversification benefits and new growth opportunities, it also exposes the company to additional
macro-economic and foreign currency fluctuation risks.
Estimate Changes
We review many of the changes we’re making to our FQ1-13 and FY’13 projections for SIRO above and
highlight the specifics of those changes in the tables below. As noted above, we’re tweaking our FQ1-13
and FY’13 EPS projections slightly today, with tailwinds from higher revenue and lower expected 2H-13
R&D spending expected to be more than offset in FQ1 by CEO separation costs and higher expected
R&D spending and for full-year FY’13 by these FQ1 factors and a modest ($0.04) medical device taxrelated drag we’d not previously modeled. Specifically, our FQ1 EPS projection falls to $0.84 today vs.
$0.90 previously, while our full-year estimate moves $0.04 lower to $3.37, with part of the FQ1 shortfall
41
made up later in year by lower R&D spending/higher revenue growth. For the year, this $3.37 projection
is now near the mid-point of management’s $3.33-$3.43 guidance and slightly below Street’s $3.40.
Looking specifically at our updated thinking around the impact the medical device tax could have
on SIRO this year, our checks have increasingly begun to suggest that dental equipment manufacturers
might have a harder time passing the tax on to end user dentists than we initially anticipated. This seems
especially true in more cost competitive areas such as dental handpieces, high-end imaging systems, and
potentially for in-office CAD/CAM systems, with all three of these product categories accounting for the
majority of SIRO’s U.S.-based sales. Given this feedback from our sources, we’re now assuming SIRO
absorbs the 2.3% medical device tax on nearly all of its U.S. sales, which adds $0.015-$0.02 drag/quarter
to our updated model. Importantly, our checks with SIRO management in just the past few days suggest
the company still plans on attempting to pass the device tax on to dentists across most product lines,
meaning the EPS drag we’ve now modeled for this issue may prove unnecessary.
Baird Estimate Changes - SIRO
--- Previous ---
--- Current ---
Rev. (000's)
Y/Y Growth*
Rev. (000's)
Y/Y Growth*
$269,682
$86,324
$101,509
$53,559
$27,889
7.0%
5.0%
10.0%
8.0%
3.0%
$273,853
$87,537
$102,869
$0
$28,454
8.2%
5.0%
10.0%
8.0%
3.0%
$145,081
53.8%
57.1%
$67,721
25.1%
4.5%
flat
-100bp
1.7%
-70bp
$147,369
53.8%
57.1%
$63,618
23.2%
6.2%
flat
-100bp
-4.5%
-260bp
$0.76
$0.90
13.3%
3.2%
$0.70
$0.84
5.0%
-3.1%
$1,073,209
$378,760
$383,406
$204,190
$105,253
10.3%
14.3%
12.3%
4.6%
3.8%
$1,079,119
$380,581
$385,230
$205,653
$106,056
10.5%
14.3%
12.3%
4.6%
3.8%
$585,732
54.6%
57.9%
$257,012
23.9%
11.8%
+110bp
-10bp
10.0%
flat
$585,950
54.3%
57.6%
$253,605
23.5%
11.8%
+80bp
-40bp
8.5%
-40bp
EPS - GAAP
EPS - Ex Deal-Related D&A, Non-Recurring
$2.85
$3.41
20.7%
12.4%
$2.80
$3.37
18.7%
10.9%
Management's cc Revenue Growth Guidance
Management's Non-GAAP EPS Guidance
9-11% cc revenue growth
$3.33-$3.43
(000's)
FQ1-13
Revenue
Dental CAD/CAM
Imaging
Treatment Centers
Instruments
Gross Profit
Gross Margin
GM% ex Inventory Step-up/Deal-related D&A
Operating Income - Ex. Deal-related D&A
OM% - Ex. Non-Recurring/Deal-related D&A/Restruct
EPS - GAAP
FY'2013
Revenue
Dental CAD/CAM
Imaging
Treatment Centers
Instruments
Gross Profit
Gross Margin
FY'2014
Revenue
Dental CAD/CAM
Imaging
Treatment Centers
Instruments
Gross Profit
Gross Margin
9-11% cc revenue growth
$3.33-$3.43
$1,151,041
$416,636
$414,079
$210,316
$108,410
7.3%
10.0%
8.0%
3.0%
3.0%
$1,157,347
$418,639
$416,048
$211,822
$109,238
7.2%
10.0%
8.0%
3.0%
3.0%
$642,198
55.8%
58.4%
$286,877
24.9%
9.6%
+160bp
+100bp
11.6%
+100bp
$639,777
55.3%
57.9%
$283,538
24.5%
9.2%
+100bp
+30bp
11.8%
+100bp
18.1%
13.4%
$3.31
$3.82
18.4%
13.6%
EPS - GAAP
$3.36
$3.87
*Note: Y/Y revenue growth projections are on an organic basis
42
Patterson Companies (PDCO) – Neutral, $36 Price Target
Patterson Companies (PDCO)
Rating / Risk
Price (12/31/2012)
Neutral / Average Risk
Street Says…
Trading Stats
$34.23
Buy
8
Shares Out (mil)
Price Target
$36
Hold
6
Mkt Cap (mil)
$3,720
Sell
2
Insider Holdings / Short Int 22.1% / 3.2%
Non-GAAP EPS
FQ3-13E
FY'13E
Robert W. Baird
$0.53
$2.03
FY'14E
$2.25
10.6%
108.6
y/y change
6.2%
5.9%
496
Street Estimate
$0.52
$2.03
$2.25
y/y change
4.0%
5.7%
10.8%
Geographic Mix
Segment Mix
5.3%
Veterinary
20%
4.8%
4.2%
3.6%
United
States
88%
Dental
66%
3.8%
2.9%
O.U.S.
12%
1.8%
0.8%
Rehab /
Medical
14%
FQ1-13 FQ2-13 FQ3-13E FQ4-13E FQ1-14E FQ2-14EFQ3-13E FQ4-14E
FQ3 (C’4Q) Outlook – positive revenue checks encouraging. As noted above with HSIC, our checks
suggest C’4Q industry-wide dental equipment trends have been solid into year-end across both basic and
high tech equipment, while dental consumables demand remains below early 2011 levels but has
improved modestly (~50-100bp) on a sequential basis compared vs. C’2Q/3Q despite an estimated 50bp
headwind in the quarter from Hurricane Sandy. As such, and with our year-end checks for SIRO also
positive, we believe PDCO should deliver sequentially improved top-line performance in FQ3, while
operating margin trends should also improve (flattish y/y levels expected vs. 60bp of contraction through
the first half of FY’13) as higher-margin dental consumables trends firmed slightly this quarter as
described above, dental equipment prices seemingly stabilized a bit at year-end (limited signs of heavy
year-end promotional activity this year), and checks suggest relatively low-margin CEREC Bluecam
upgrades in the quarter were de minimis and replaced in large part by higher margin CEREC Omnicam
new system sales. Net, we believe FQ3 could look fairly good for PDCO, with revenue and EPS both in
line to slightly above Street (RWB $915 million and $0.53 vs. Street’s $907 million/$0.52), although we
remain generally cautious on the name longer term pending tangible evidence of management’s ability to
reverse seven straight years of flat to down operating margin and declining returns.
FY’13/14 outlook – warming, but conviction not yet there. While our calendar year-end domestic
dental market checks were slightly (consumables) to notably (equipment) improved and PDCO’s valuation
(on an NTM P/E basis) remains below that of the rest of our covered dental stocks, we remain cautious
on this name from a 12-month perspective given a declining margin/return profile and challenges we
continue to see ahead for a company that is largely confined to already-consolidated North American end
markets where its value-added go to market strategy is already near peak potential (dental) or more
difficult to implement/leverage than most investors seem to realize (vet, rehab). Even so, we believe that
if dental end market improvements that we’re hearing about for C’4Q can persist – if not accelerate – into
CY’13, shares of PDCO could do well this year. However, we’d expect similar upside from HSIC under
such a scenario for 2013 (the one point discount at which PDCO trades vs. HSIC seems about right, if not
even a bit conservative, to us given HSIC’s better worldwide positioning and improving margin/returns
profile), and would also expect other dental (XRAY) and potentially even other non-dental stocks would
be positioned for even better returns than PDCO, especially if the underlying driver of the improving
dental trends are being led by improving consumer spending and/or employment-related macro factors.
Bottom line, we’re warming to PDCO on a fundamental basis and fully acknowledge that our
improved C’4Q dental checks could help support upside for this stock early in 2013. However, we
foresee similar to better potential returns this year from the rest of our dental names and believe PDCO
remains more of a show me story with too high a multiple to try and be “early” to calling a turnaround
based upon only a couple months of improving dental end-market checks.
43
Valuation. We’re raising our price target by $1 to $36 as we believe modestly improved dental end
market checks warrant a slightly higher multiple than we were previously using to value this name.
Specifically, we’re now applying a 15.5x multiple to our forward year NTM EPS projection of $2.34 to
arrive at our $36 price target, up from 15.0x previously, and note this remains below the 17x multiple we
use to value PDCO’s closest peer, HSIC, as we remain more confident in HSIC’s ability to consistently
deliver double-digit EPS growth near term (vs. upper-single- to low double-digit EPS growth for PDCO)
and believe HSIC’s international expansion strategy provides higher secular growth potential and
margin/return enhancing opportunities over the long run vs. what’s currently available from PDCO.
VALUATION AND PERFORMANCE - PDCO
18
27-Dec-2002 to 31-Dec-2012 (Weekly )
Price (R ight)
Next 12 Months Price/Earnings Range (Lef t)
Av erage (Lef t)
16
35
55
25
12
45
10
40
8
35
6
20
30
15
16.4
14.8
14
50
30
15.7
12.1
10
9.6
4
25
20
10
15
5
10
'03
'04
'05
Data Source: FactSet Est imates
'06
'07
'08
'09
'10
'11
'12
1.25 1.15 1.31
2
0
NTM P/E
Current
EV/EBITDA
5-Year Average
NTM P/E vs. S&P500
©FactSet Research Syst ems
Source: Factset
Risks




Macro picture still somewhat uncertain. Dental spending is highly correlated with consumer
spending, consumer sentiment, and (especially in the U.S.) overall employment trends and should
any of these factors slow notably from current levels, PDCO’s dental growth could similarly slow.
Difficult weather-related C’1Q (FQ4 for PDCO) comps. Favorable U.S. weather in C’1Q last year
limited the number of office closures and patient cancellations relative to prior years, while an
unseasonably warm start to 2012 also led to an earlier start to the flea and tick season last year.
Both of these factors contributed to healthy organic growth across PDCO’s dental and vet verticals in
the company’s FQ4-12, which in turn could create risk of modest sequential slowing in the company’s
FQ4-13 performance
Declining margin/returns profile. PDCO’s operating margin has been flat to down for seven
straight years and the company’s ROIC has fallen from the low teens to ~10-11% in recent years as
dental margins have been pressured by rising dental equipment promotional activity and sluggish
growth in higher-margin consumables, while vet and rehab margins have also contracted as
management struggles to successfully replicate its value-added dental model in these verticals.
Within these latter two verticals (vet and rehab), we believe PDCO’s margin challenges could
continue, as structural end-market pricing challenges in rehab and PDCO’s relative lack of scale in
vet (North America only) both likely contribute.
Lack of acquisition targets. With PDCO’s dental and vet focus almost exclusively on the North
American market and both markets largely consolidated, acquisition opportunities capable of
significantly adding to top-line growth or providing several years of revenue/expense synergies
appear limited, while in rehab most potential acquisition targets are small and would thus have similar
issues. As such, we don’t expect acquisitions to be a meaningful driver of PDCO’s performance over
at least the near to intermediate term, leaving the company largely subject to the whim of its three
end markets, where growth has been – and currently remains – below long-term trend.
Estimate Changes
We review a number of the changes we’re making to our FQ3-13 and FY’13/FY’14 projections for PDCO
above and highlight the specifics of those changes in the tables below. In total, even with modestly
44
higher 2H-13 dental equipment growth projections, our EPS projection for the second half of FY’13
remains unchanged today, with our full-year EPS projection of $2.03 still in line with Street’s $2.03 and at
the midpoint of management’s $2.00-$2.06 guidance. For FY’14, our EPS projection is moving $0.02
higher to be in line with Street at $2.25 (+10.6% y/y; up vs. $2.23 previously), with the increase due in
large part to a full year of modestly higher dental equipment growth projections. Our organic growth
projection for next year is also moving slightly higher today, to +4.4% vs. +3.9% previously, with ~10bp of
this raise due to the higher dental equipment growth projections noted above and ~40bp of the raise
driven by the updated manner in which we now model the medical device tax for our dental distributors.
More specifically with regards to the medical device tax, our checks increasingly suggest some, but
not all, dental consumables manufacturers plan to raise prices an additional 2.3% in 2013 to try and fully
offset the impact of tax, while raising prices may not be a viable option in some highly competitive and
high priced dental equipment segments. As such, we’re currently assuming pricing on two-thirds of all
dental consumables products PDCO sells in the U.S. increases 2.3% this year due to the medtech tax (in
turn this adds ~50bp to our U.S. dental consumables growth rate projection for PDCO this year), while
we’re assuming no increase to domestic dental equipment prices due to the tax. We believe this latter
assumption is likely conservative, but remind investors that for a distributor such as PDCO, this issue
should have little impact on EPS, as any revenue benefit from higher end-user prices would be offset fully
by higher prices PDCO would have to pay to the manufacturer for those products.
Baird Estimate Changes - PDCO
--- Previous --Y/Y Reported
Y/Y Organic
(000s)
FQ3-13
Total Sales
Dental
Dental Consumables
Dental Equipment
Other Dental
Veterinary
Medical
Gross Margin
Operating Margin
EPS
--- Current --Y/Y Reported
Y/Y Organic
$911,998
$619,836
$316,095
$238,313
$65,429
$174,635
$117,527
32.2%
10.0%
$0.53
1.9%
2.4%
1.5%
3.0%
5.0%
0.0%
1.9%
-10bp
flat
6.0%
1.4%
1.9%
1.0%
2.3%
5.0%
0.0%
1.0%
-
$915,361
$623,034
$317,667
$239,938
$65,429
$174,635
$117,692
32.0%
10.0%
$0.53
2.3%
3.0%
2.0%
3.7%
5.0%
0.0%
2.0%
-30bp
flat
6.2%
1.8%
2.4%
1.0%
3.0%
5.0%
0.0%
1.0%
-
FY'2013
Total Sales
Dental
Dental Consumables
Dental Equipment
Other Dental
Veterinary
Medical
Gross Margin
Operating Margin
EPS
Management's EPS Guidance
$3,628,140
$2,357,592
$1,277,617
$814,977
$264,998
$756,725
$513,823
32.5%
9.9%
$2.03
$2.00-$2.06
2.6%
3.0%
1.1%
6.0%
3.6%
3.0%
0.1%
-40bp
-20bp
5.5%
+4-7%
2.2%
2.9%
1.0%
5.7%
3.6%
2.2%
-0.5%
-
$3,639,803
$2,368,904
$1,284,205
$819,701
$264,998
$756,725
$514,174
32.5%
9.8%
$2.03
$2.00-$2.06
2.9%
3.5%
1.6%
6.6%
3.6%
3.0%
0.2%
-40bp
-30bp
5.9%
+4-7%
4.2%
4.5%
2.3%
6.2%
5.0%
4.3%
2.8%
-
FY'2014
Total Sales
Dental
Dental Consumables
Dental Equipment
Other Dental
Veterinary
Medical
Gross Margin
Operating Margin
EPS
$3,768,054
$2,449,755
$1,308,867
$862,640
$278,248
$789,188
$529,111
32.8%
10.1%
$2.23
3.9%
3.9%
2.4%
5.8%
5.0%
4.3%
3.0%
+30bp
+20bp
10.2%
3.7%
3.7%
2.3%
5.5%
5.0%
4.3%
2.8%
-
$3,799,109
$2,480,052
$1,328,447
$873,357
$278,248
$789,188
$529,869
32.6%
10.0%
$2.25
2.9%
3.5%
1.6%
6.6%
3.6%
3.0%
0.2%
+10bp
+20bp
10.6%
4.2%
4.5%
2.3%
6.2%
5.0%
4.3%
2.8%
-
45
Appendix*
*Over the next ten pages, we provide fact sheets covering several topics that don’t necessarily fit
elsewhere in our 2013 Dental Outlook but that investors often seem to find helpful, including an
overview of the dental implant and international dental markets, as well as a fairly extensive
comparison of HSIC vs. PDCO. Further, we provide additional background data on the regression
work we’ve done over the years between dental and several macro factors (consumer spending,
nonfarm payroll trends, etc.) as it’s this work that largely underpins the conclusions we come to
throughout this year’s outlook piece.
46
Worldwide Dental Implant Market - Facts & Figures
WW DENTAL IMPLANT MARKET PERFORMANCE
3Q12
TTM
0.0%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-0.5%
-1.0%
-1.5%
-2.0%
Zimmer
BMET / 3i
Wtd. Avg.
Straumann
Nobel
Biocare
Straumann
Zimmer
Wtd. Avg.
BMET / 3i
Nobel
Biocare
N.A. DENTAL IMPLANT MARKET PERFORMANCE
TTM
3Q12
6%
12%
5%
10%
4%
8%
3%
6%
2%
4%
1%
2%
0%
0%
Straumann BMET / 3i
Zimmer
Wtd. Avg.
Nobel
Biocare
Straumann
BMET / 3i
Wtd. Avg.
Zimmer
Nobel
Biocare
$3.5 BILLION WW DENTAL IMPLANT MARKET
BY COMPANY
Nobel
Biocare
20%
BY GEOGRAPHY
North
Am erica
25%
Biom et/3i
10%
XRAY/Astra
Tech
18%
Asia Pacific
18%
Straum ann
21%
Zim mer
Dental
8%
Others
20%
Biohorizons
3%
Europe
49%
Rest of
World
8%
47
W.W. & N.A. DENTAL IMPLANT MARKET
15%
10%
5%
0%
-5%
Ex Japan, ww implant
growth would have been
~200bp higher
-10%
-15%
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12
2008
2009
2010
2011
Q4-11
Q1-12
Q2-12
Q3-12
4.3%
0.3%
-5.5%
-5.8%
-0.3%
0.7%
2.0%
9.1%
0.9%
11.0%
-0.2%
6.6%
-2.8%
3.0%
-1.9%
2.4%
IMPLANT PENETRATION PER 10,000 POPULATION (2011)
10-YEAR VALUATION AND PERFORMANCE - NOBEL BIOCARE
250
Price (Right)
Average (Left)
200
150
45
100
40
90
35
80
70
30
100
60
25
50
20
40
15
50
30
10
20
5
10
0
0
0
'03
'04
'05
'06
'07
'08
'09
'10
10-YEAR VALUATION AND PERFORMANCE - STRAUMANN
35
Price (Right)
A verage (Left)
400
28
50
350
26
45
24
40
300
30
'12
10-YEAR VALUATION AND PERFORMANCE - DENTSPLY
Price (Right)
Average (Lef t)
40
'11
22
250
25
35
20
30
200
20
150
15
100
10
50
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
18
25
16
14
20
12
15
10
10
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Source: Company Reports, Factset
48
International Dental Markets – Facts & Figures
$18B+ WW DENTAL MARKET - BY GEOGRAPHY
Europe
36%
Asia ex-Japan
23%
Australia
8%
Latin America
15%
Rest of World
26%
Africa &
Middle East
12%
North America
38%
Japan
42%
GEOGRAPHIC EXPOSURE BY COMPANY
Dental Market
HSIC (1)
PDCO (2)
SIRO
XRAY
North America
39%
64%
88%
29%
33%
Europe
Germany (as % of European rev)
Germany (as % of co-wide rev)
Spain, Italy, Greece (as % of European rev)
Spain, Italy, Greece (as % co-wide rev)
36%
35%
NA
25%
NA
27%
33%
9%
20%
5%
12%
NA
NA
NA
NA
41%
39%
16%
13%
5%
45%
35%
16%
13%
6%
Rest of World (3)
25%
9%
0%
30%
22%
(1) HSIC's International exposure (including Europe and ROW) is made up of ~80% dental and 20% Medical/Vet
(2) PDCO's Internation exposure (including Europe and a small Asian market presence) is entirely through its medical/rehabilitation
supply business, which is largely focused on France and the UK
(3) Excludes Europe and North America
EUROPEAN DENTAL EXPENDITURES
Country
Germany
Italy
France
UK
Spain
Approximate Annual
Dental Expenditures
19,231,902,144
10,163,676,160
7,089,480,000
5,497,520,720
3,756,912,454
Percent of European
# Dentists
Dental Expenditures* (as of 10/1/08)
~35%
~19%
~13%
~10%
~7%
83,339
54,190
40,968
35,873
24,515
% Paid by % Paid by Private
% Self-Pay
Gov't (1)
Insurance (2)
30-40%
<5%
40-50%
40-50%
0%
~20%
0%
~30%
~10%
0%
40-50%
~95%
20-30%
40-50%
100%
*5 Largest European Dental Markets Account for ~85% of European dental expenditures
(1) Gov't funds for healthcare expenditures derived from payroll deductions that vary by country
(2) In Germany, France, and the UK, patients can elect to purchase a private insurance plan to cover additional dental procedures that are
not fully covered under the gov't funded program
Source: 2009 European Global Oral Health Indicators Development, EU Manual of Dental Practice, Robert W. Baird & Co. Estimates
49
EMERGING MARKET COMMENTARY BY COMPANY
HSIC
XRAY
● Emerging markets continue to be priority for HSIC. Brazil, India, and China are higher priorities than Russia.
● Continue to invest in Asia (put together Asian team 4-5 years ago). Currently largest distributor in Hong Kong, entered Thai dental
market with deal below, and continue to roll out Chinese strategy (received license to sell in China in 2010).
● Acquired Thailand-based Accord during 2012 ($16 million annual sales), marking the company's first forray into the Thai dental
market.
● Currently $10-12 million sales in China with ~20% growth per year. China is a very large (~$1B) and fragmented market. China
remains a high priority for HSIC. Making progress (building out infrastructure through hospitals currently) and getting feet on the
street, but challenges remain (hard to find suitable distribution partners, lack of oral heath awareness, etc.).
● Emerging markets currently represent ~13% of company-wide revenues, goal is to get emerging market revenues to ~20% in the
next few years.
● Uses dual pricing strategy in emerging markets; 1st (highest) pricing band is with latest generation branded products known
worldwide, but sold at 10-15% discount vs. established markets (if discounts any higher, XRAY has to worry about grey marketing
of product back into U.S./Europe); 2nd pricing band is with 3-5 generation old products that are no longer sold in U.S./Europe
and/or were never available in U.S. Europe – these products sold at 30-40% discount to products similar to those still available in
U.S./Europe (different brand name and/or lack of FDA approval/CE Mark on these products limits grey market risk).
● Targets top 5% of an emerging market population with Tier 1 dental products and next 25-35% of population with Tier 2 products;
net, targets (for now) only ~1/3 to slightly greater of emerging market population, even with highly discounted product.
DHR
● Focus on 9 key emerging markets. Emerging markets are $340 million business.
● "Joint efforts (go to market strategy for both consumables and equipment) in China is a model for the dental businesses globally
as we accelerate their emerging market penetration"
● China continues to perform well with solid double-digit growth (35% growth ytd in 2012)
SIRO
● ~10-15% of company-wide revenues from emerging market countries. Emerging market growth in solid double-digit range.
● In China, growing in the "strong double-digit range" for three years now, but also had to invest in sales force. No dealer to help
sell, so hired over 200 people in 11 cities to make up the sales and service infrastructure in China. Largest player in China,
significantly higher market share than ROW.
● "Heavy lifting" of emerging market investments seems to be done at this point (has been margin headwind over past few years)
but still spending to build out sales and service infrastructure in some emerging markets.
Souce: Company Reports
EMERGING MARKET PROFILE BY COUNTRY
Size of Dental
Market
5-year
CAGR
Estimated
Market
Growth Rate
# of Dentists
# of Dentists/
Population
# of Dentists
Graduating/ Reimbursed?
Year
USA
Dental market is
~$6B
3%
4-6%
135,000
1:2,200
~5,000
50%
insurance,
50% self-pay
N/A
China
Dental market is
$400-600M; equipment market is
$150M
28%
10-15%
60,000
1:23,000
10,000
85% paid for
by patients
Very fragmented distribution
market
India
Dental care
services market is
$600M; Dental
equipment market
is $90M
7-year
CAGR of
~10%
20%
40,000, with
1,000
implantologists
and 1,500 in CMF
1:10,000 in
urban areas,
1:250,000 in
rural areas
19,000
N/A
80% of population never been to
dentist; 20% of population is
middle class and can afford USlike care (~220M)
Turkey
Dental market is
$126M
N/A
10-12%
20,000
1:4,000
1,500
N/A
Population increased by ~6%
over last 5 years, while dental
students increased by ~65%
Thailand
Dental market is
~$100M
N/A
20%
9,000
1:8,000
N/A
Brazil
Dental Market is
$500M
0-5%
N/A
174,000
1:1,200
10,000
Other
Out-of-pocket,
Thai gov't requires local contact
no private
address for applicants looking for
dental
device registration
insurance
N/A
N/A
Source; Infodent International, RWB Estimates
50
HSIC vs. PDCO – Facts & Figures
REVENUE MIX
PRODUCT MIX
HSIC (2012E)
GEOGRAPHIC MIX
100%
PDCO (FY'12)
90%
Global
Dental
Equipm ent
74.6%
Global
Medical
17.5%
Global
Dental
53.5%
80%
Consumables
55.2%
Vet
20.8%
70%
Dental
64.7%
60%
50%
40%
30%
20%
Global Dental
Consumables
25.4%
Global Vet
25.9%
Global
Technology
3.1%
Equipm ent/
Other
Products & Softw are
33.6%
Services
11.2%
Medical/
Rehab
14.5%
10%
0%
North Europe
America
HSIC
ROW
PDCO
Source: Company Reports
MARKET SHARES / HISTORICAL PERFORMANCE TRENDS
$7.3 BILLION NORTH AMERICAN DENTAL DISTRIBUTION MARKET
50%
45%
40%
35%
30%
25%
40%
34%
26%
40%
34%
40%
32%
29%
26%
40%
30%
30%
41%
38%
30%
33%
37%
33%
29%
29%
30%
34%
33%
35%
37%
34% 34%
31%
29%
40%
34%
26%
39%
39%
32%
32%
30%
28%
41%
32%
27%
20%
43%
43%
32%
32%
25%
25%
15%
10%
5%
0%
1996
PDCO
1998
1999
HSIC
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
Other
NORTH AMERICAN DENTAL CONSUMABLES ORGANIC GROWTH
10%
8%
6%
4%
2%
0%
-2%
-4%
HSIC
Avg.
PDCO
Calendar Year Average
PDCO
HSIC
2005
7.0%
7.5%
6.6%
2006
7.6%
7.8%
7.4%
2007
6.0%
6.0%
5.9%
2008
3.0%
1.7%
4.2%
2009
-1.4%
-1.4%
-1.3%
2010
1.5%
0.8%
2.1%
2011
3.1%
2.3%
3.8%
2012 - YTD
2.4%
1.8%
3.0%
51
NORTH AMERICAN DENTAL EQUIPMENT ORGANIC GROWTH
30%
20%
10%
HSIC
Avg.
PDCO
0%
-10%
-20%
2005
10.9%
7.1%
15.6%
Calendar Year Average
PDCO
HSIC
2006
8.5%
2.3%
17.7%
2007
12.5%
4.8%
22.0%
2008
2.6%
0.1%
3.9%
2009
-8.4%
-5.8%
-11.1%
2010
1.5%
0.5%
2.5%
2011
4.6%
7.8%
1.4%
2012 - YTD
1.1%
-3.3%
5.6%
Mark et rate computed as the weighted average of PDCO's and HSIC's North American Organic Dental Equipment Growth
FINANCIAL METRICS
ORGANIC REVENUE GROWTH
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
OPERATING MARGIN (%)
8.4%
7.3% 7.3%
6.1%
5.4%
5.0%
4.5%4.3%
4.6%
3.1%
2.0%
1.7%
2.6%
0.9%
0.4% 0.4%
2005
2006
2007
2008
HSIC
2009
2010
2011
2012E
13%
12%
11%
10%
9%
8%
7%
6%
5%
4%
2005
2006
2007
2008
2009
HSIC
PDCO
ROIC (%)
2010
2011
2012E
PDCO
FREE CASH FLOW ($)
(000s)
16%
$600,000
14%
$500,000
12%
$400,000
10%
$300,000
8%
$200,000
6%
$100,000
4%
$0
2005
2006
2007
2008
HSIC
2009
2010
PDCO
2011
2012E
2005
2006
2007
2008
HSIC
2009
2010
2011
2012E
PDCO
*Fiscal years for PDCO set to match with HSIC (i.e. FY'13E for PDCO and 2012E for HSIC shown as 2012E)
52
VALUATION
10-YEAR VALUATION AND PERFORMANCE - HSIC
10-YEAR VALUATION AND PERFORMANCE - PDCO
Price (Right)
Average (Left)
Price (Right)
Average (Left)
24
90
22
80
20
70
18
60
16
50
14
40
12
30
10
20
8
10
35
55
50
30
45
25
40
35
20
30
'03
'04
'05
'06
'07
'08
'09
'10
'11
15
25
20
10
15
5
'12
10
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Source: Factset
VALUATION - HSIC VS. PDCO
HSIC Multiple Prem
(Disc)
3.0
NTM P/E
22
2.5
18
2.0
1.5
14
1.0
0.5
10
0.0
(0.5)
6
(1.0)
Multiple Premium / Discount
HSIC
PDCO
Source: Factset
OTHER METRICS
WORLDWIDE FIELD SALES FORCE
3,500
2,500
1,895
1,854
1,165
2,000 1,540
1,250
1,550
3,100
2,775
2,600
2,425
3,000
2,750
1,965
1,865
1,500
Millions of
Sales Acquired
$450
$400
1,965
1,400
1,330
1,502
DENTAL ACQUISITIONS
3,200
2,010
1,500
1,500
1,500
$350
$300
$250
$200
1,000
N/A
N/A
500
$150
$100
$50
0
2006
2007
2008
2009
2010
2011
$0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
PDCO - N.A. Dental
HSIC - N.A. Dental
PDCO - Total
HSIC - Total
PDCO
HSIC
Fiscal Years
53
Dental vs. Macro (PCEs and Jobs)
DENTAL VS. CONSUMER SPENDING
We’ve discussed many times over the years a strong link between dental trends and both personal
consumption expenditures and non-farm payroll trends. Regarding the former (dental expenditures vs.
PCEs), we highlight below that when regressing 50 years of national dental expenditure data (an annual
figure provided by CMS on a two-year lagged basis) against personal consumption expenditures (PCEs),
there is a correlation 0.50 on a coincident basis, but an even higher correlation on a one-year lagged
(0.64) and two-year lagged basis (0.68). What’s more, dental spending appears to be even more
correlated to the services component of PCEs, and again more so on a lagged basis (0.63 coincident,
0.72 one-year).
When looking at PCEs relative to the non-weighted average North American dental consumables growth
reported by HSIC and PDCO over the past ten years, we find an even higher correlation of 0.85.
Interestingly, the correlation between PCEs and HSIC/PDCO’s North American dental consumables
growth is lower on a one- and two-year lagged basis, suggesting to us that real-time consumables sales
(product sales into dental offices) may react on more of a contemporaneous basis with PCEs as opposed
to the stronger correlation seen on a lagged basis between PCEs and national dental expenditures (a
measure of patient spending on dental care).
Bottom line, when comparing PCEs to either 50 years of CMS-provided national dental expenditure data
or 10 years of North American dental consumables market growth (using HSIC and PDCO as a proxy for
the market), we see high correlations, with some evidence that the relationship between general spending
by the consumer and spending by the consumer on dental care may be higher on a one- or even two year
lagged basis. Given the stronger contemporaneous correlation over the past decade, however, between
North American dental consumables market growth and PCEs, and the fact that with our stocks we’re
ultimately more concerned with consumables sales growth rates and not levels of patient spending, we
continue to believe PCEs are a good, reliable predictor of real-time North American dental market health.
NATIONAL DENTAL EXPENDITURES VS. PERSONAL CONSUMPTION EXPENDITURES
20%
Dental Expenditures y/y %
PCEs y/y %
15%
10%
5%
0%
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
-5%
Correlation
No Lag
One-Year Lag
Tw o-Year Lag
0.50
0.64
0.68
54
NATIONAL DENTAL EXPENDITURES VS. PERSONAL CONSUMPTION EXPENDITURES (SERVICES)
20%
PCE Services y/y %
15%
10%
5%
0%
1961
1965
1969
1973
Correlation
1977
1981
1985
1989
1993
1997
No Lag
One-Year Lag
Tw o-Year Lag
0.63
0.72
0.63
2001
2005
2009
DENTAL CONSUMABLES GROWTH VS. PERSONAL CONSUMPTION EXPENDITURES
10%
8%
Correlation = 0.85
6%
4%
2%
0%
-2%
-4%
-6%
N.A. Dental Consumables Y/Y Growth
Average Quarterly PCE Y/Y Growth
*Quarterly PCE calculated as 3-month average y/y change during respective quarters
Source: Bloomberg, Robert W. Baird & Co. Estimates
DENTAL VS. NON-FARM PAYROLLS
When we look at NFPs vs. national dental expenditures (CMS data) over the past 50 years, we’ve found
that the correlation is again higher on a lagged basis, with a coincident correlation of 0.18, one-year
lagged correlation of 0.26, and two-year lagged correlation of 0.30. While each of these correlations are
lower than that of PCEs (see above for discussion), this makes sense to us as dental insurance wasn’t
routinely offered by employers in the U.S. until the 1970s and 1980s. Further, and as shown in the
second chart below, it really wasn’t until the mid-to-late 1980s that private dental insurance (largely
delivered through employers in the U.S.) began to approach ~half of the total dental expenditures in the
U.S. This is really when the correlation between jobs and dental spending became more meaningful. To
that end, when we zero in on dental expenditures vs. NFPs since this point in the mid-1980s (1985, 25
years of data), we see the coincident correlation increase to 0.43 (vs. 50-year coincident correlation of
0.18). The relationship between jobs and dental spending became even more telling as employers
continued to increasingly offer dental insurance, with the 15 year correlation (since 1995) the highest of
any at 0.43 on a coincident basis, 0.51 on a one-year lagged basis, and 0.40 on a two-year lagged basis.
Intuitively, the higher correlation between jobs and dental spending on a lagged basis (relationship holds
for both 50 years and 15 years of data) makes sense to us as it may be 6-12+ months after a worker
loses his job that he misses his next dental visit, and conversely it might be 6-12+ months after starting a
new job that a newly employed worker visits the dental office. Specifically regarding the latter, our sense
is that the delay in visiting the dental office after hiring is likely a result of (1) coverage not kicking in
immediately, and (2) hesitancy on the part of newly employed to take time off from the new job.
55
Bottom line, the relationship between NFPs and 50 years of national dental expenditures is evident and
higher on a lagged basis, with the relationship between the two becoming even more apparent in recent
years as employer-provided dental coverage became the norm in the U.S. As such, we continue to look
to NFPs as a gauge for 6-12 month future domestic dental consumables performance.
NATIONAL DENTAL EXPENDITURES VS. NONFARM PAYROLLS
20%
NFPs y/y %
15%
10%
5%
0%
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
-5%
Correlations
No Lag
One-Year Lag
Tw o-Year Lag
50 years
0.18
0.26
0.30
25 years
0.43
0.40
0.35
15 years
0.43
0.51
0.40
PERCENT OF TOTAL US DENTAL EXPENDITURES BY SOURCE (1960-2010)
100%
90%
Federal
80%
State and Local
70%
60%
Private Health Insurance
50%
40%
30%
20%
Out of Pocket
10%
0%
1960
1965
Out of Pocket
1970
1975
Private Health Insurance
1980
Federal
1985
1990
1995
2000
2005
2010
State and Local
Source: CMS, Robert W. Baird & Co. Estimates
56
BAIRD 777 EAST WISCONSIN AVENUE, MILWAUKEE, WI 53202
Jeffrey D. Johnson, O.D., CFA (414) 298-6027; [email protected]
Jason M. Bednar, CFA (414) 298-6057; [email protected]
Rebecca R. Schlagenhauf, (414) 298-7323; [email protected]
DENTSPLY INTERNATIONAL
(XRAY - NASDAQ)
(XRAY - NASDAQ)
12/31/2012
Year ends Dec.
(000)
Net Sales
Sales (ex pm)
% of Rev.
Precious Metal Content
% of Rev.
Cost of Sales
Gross Profit
Gross Profit (ex Astra Tech amort/inv step-up)
Gross Margin
Gross Margin (ex pm)
Gross Margin (ex pm/amort/inv step up)
Q1-12
Q2-12
Q3-12
Q4-12E
Q1-13E
Q2-13E
Q3-13E
Q4-13E
Q1-14E
Q2-14E
Q3-14E
Q4-14E
yr-11E
yr-12E
yr-13E
yr-14E
716,413
665,625
92.9%
50,788
7.1%
323,663
392,750
396,084
54.8%
59.0%
59.5%
762,994
698,480
91.5%
64,514
8.5%
355,525
407,469
411,905
53.4%
58.3%
59.0%
695,734
647,120
93.0%
48,614
7.0%
331,619
364,115
368,311
52.3%
56.3%
56.9%
746,663
687,997
92.1%
58,666
7.9%
356,811
389,852
392,902
52.2%
56.7%
57.1%
734,026
684,508
93.3%
49,518
6.7%
330,942
403,083
406,133
54.9%
58.9%
59.3%
789,328
726,427
92.0%
62,901
8.0%
365,046
424,282
427,332
53.8%
58.4%
58.8%
723,880
676,481
93.5%
47,399
6.5%
342,327
381,553
384,603
52.7%
56.4%
56.9%
769,618
712,419
92.6%
57,199
7.4%
365,043
404,575
407,625
52.6%
56.8%
57.2%
760,241
711,960
93.6%
48,280
6.4%
338,962
421,278
424,328
55.4%
59.2%
59.6%
817,182
755,853
92.5%
61,329
7.5%
376,546
440,636
443,686
53.9%
58.3%
58.7%
750,239
704,026
93.8%
46,214
6.2%
349,179
401,061
404,111
53.5%
57.0%
57.4%
797,214
741,445
93.0%
55,769
7.0%
372,450
424,764
427,814
53.3%
57.3%
57.7%
2,537,718
2,332,589
91.9%
205,129
8.1%
1,264,278
1,273,440
1,317,028
50.2%
54.6%
56.5%
2,921,804
2,699,222
92.4%
222,582
7.6%
1,367,618
1,554,186
1,569,202
53.2%
57.6%
58.1%
3,016,852
2,799,834
92.8%
217,017
7.2%
1,403,359
1,613,493
1,625,693
53.5%
57.6%
58.1%
3,124,876
2,913,284
93.2%
211,592
6.8%
1,437,137
1,687,739
1,699,939
54.0%
57.9%
58.4%
SG&A Expense
SG&A Exp ex amortization
% of Revenue
% of Revenue (ex pm)
% of Revenue (ex pm, amort)
304,353
292,304
42.5%
45.7%
43.9%
296,034
287,782
38.8%
42.4%
41.2%
260,352
255,235
37.4%
40.2%
39.4%
280,344
274,644
37.5%
40.7%
39.9%
293,438
287,738
40.0%
42.9%
42.0%
295,383
289,683
37.4%
40.7%
39.9%
271,364
265,664
37.5%
40.1%
39.3%
285,841
280,141
37.1%
40.1%
39.3%
302,954
297,254
39.8%
42.6%
41.8%
305,606
299,906
37.4%
40.4%
39.7%
279,537
273,837
37.3%
39.7%
38.9%
292,697
286,997
36.7%
39.5%
38.7%
936,847
926,567
36.9%
40.2%
39.7%
1,141,083
1,109,965
39.1%
42.3%
41.1%
1,146,026
1,123,226
38.0%
40.9%
40.1%
1,180,794
1,157,994
37.8%
40.5%
39.7%
Acquisition-Related Activities
8,644
5,629
(1,423)
-
-
-
-
-
-
-
-
-
59,158
12,850
-
Restructuring Costs & Other One Time Charges
1,237
2,528
15,097
-
-
-
-
-
-
-
-
-
35,865
18,862
-
300,728
359,887
413,755
12.9%
15.4%
17.7%
394,241
425,953
472,087
14.6%
15.8%
17.5%
Operating Income (GAAP)
Operating Income (ex non-recurring)
Operating Income (ex non-recurring/Astra amort)
Operating Margin (ex pm) - GAAP
OM% (ex pm, non-recurring)
OM% (ex pm/non-recurring/Astra amort)
87,160
97,041
112,424
13.1%
14.6%
16.9%
108,906
117,063
129,751
15.6%
16.8%
18.6%
88,666
102,340
111,653
13.7%
15.8%
17.3%
109,509
109,509
118,259
15.9%
15.9%
17.2%
109,645
109,645
118,395
16.0%
16.0%
17.3%
Interest and Other, Net
(13,969)
(13,321)
(12,885)
(12,698)
73,191
10.2%
14,715
20.1%
95,585
12.5%
14,875
15.6%
75,781
10.9%
18,960
25.0%
96,811
13.0%
22,267
23.0%
Pretax Income
Pretax Margin
Taxes
Tax Rate
118,734
118,734
127,484
16.7%
16.7%
17.9%
118,324
118,324
127,074
16.6%
16.6%
17.8%
135,030
135,030
143,780
17.9%
17.9%
19.0%
121,523
121,523
130,273
17.3%
17.3%
18.5%
132,067
132,067
140,817
17.8%
17.8%
19.0%
-
128,899
128,899
137,649
17.7%
17.7%
18.9%
110,189
110,189
118,939
16.3%
16.3%
17.6%
(12,323)
(11,948)
(11,573)
(11,198)
(11,198)
(11,198)
(11,198)
(11,198)
(44,617)
(52,873)
(47,040)
(44,790)
97,323
13.3%
22,384
23.0%
116,951
14.8%
26,899
23.0%
98,616
13.6%
22,682
23.0%
107,537
14.0%
24,733
23.0%
107,127
14.1%
24,639
23.0%
123,833
15.2%
28,481
23.0%
110,326
14.7%
25,375
23.0%
120,869
15.2%
27,800
23.0%
256,111
10.1%
11,016
4.3%
341,369
11.7%
70,817
20.7%
420,427
13.9%
96,698
23.0%
462,154
14.8%
106,296
23.0%
(4,248)
(944)
1,329
(1,276)
(2,529)
(928)
-
-
-
-
-
-
-
-
-
Net Income
Net Margin
53,284
7.4%
80,763
10.6%
53,364
7.7%
74,545
10.0%
74,939
10.2%
90,052
11.4%
75,934
10.5%
82,803
10.8%
82,488
10.9%
95,351
11.7%
84,951
11.3%
93,069
11.7%
$0.37
$0.45
$0.52
$0.56
$0.55
$0.62
$0.37
$0.37
$0.51
$0.52
$0.52
$0.56
$0.52
$0.52
$0.57
$0.63
$0.63
$0.67
$0.53
$0.53
$0.57
$0.58
$0.58
$0.62
$0.58
$0.58
$0.62
$0.67
$0.67
$0.72
$0.60
$0.60
$0.65
$0.66
$0.66
$0.71
$1.70
$1.93
$2.03
$1.82
$1.92
$2.22
$2.25
$2.25
$2.44
$2.50
$2.50
$2.69
143,984
143,863
143,884
143,884
143,884
143,884
143,884
143,884
143,284
142,684
142,084
141,484
143,553
143,904
143,884
142,384
Ave. Shares (000)
% Changes
Net Sales
Sales (ex pm)
Cost of Sales
Gross Profit
SG&A Expense
25.6%
26.3%
16.8%
19.6%
30.9%
25.2%
23.8%
41.9%
20.7%
29.4%
12.3%
14.8%
-13.2%
3.0%
22.3%
1.2%
1.5%
-2.5%
-5.4%
8.0%
2.5%
2.8%
-2.5%
2.2%
2.6%
3.5%
4.0%
-2.5%
2.7%
4.1%
4.0%
4.5%
-2.5%
3.2%
4.8%
3.1%
3.5%
-2.5%
2.3%
3.8%
3.6%
4.0%
-2.5%
2.4%
4.5%
3.5%
4.1%
-2.5%
3.2%
3.9%
3.6%
4.1%
-2.5%
2.0%
5.1%
3.6%
4.1%
-2.5%
2.0%
5.0%
(5,448)
(3,148)
261,956
9.0%
14.3%
14.8%
8.5%
15.9%
12.7%
15.1%
15.7%
8.5%
8.2%
22.0%
0
0
506,944
506,944
541,944
17.4%
17.4%
18.6%
Equity in Affiliates
Minority Interest
EPS (Reported)
EPS (ex non-recurring)
EPS (ex non-recur/Astra Tech amort)
2,351
(2,926)
244,520
9.6%
467,467
467,467
502,467
16.7%
16.7%
17.9%
323,729
10.7%
0
0
355,859
11.4%
3.3%
3.7%
-2.5%
2.6%
3.8%
3.6%
4.1%
-2.5%
2.4%
4.6%
51.6%
40.3%
12.5%
-4.5%
-3.6%
-0.2%
4.2%
2.0%
3.2%
3.5%
3.0%
2.4%
26.8%
21.8%
0.4%
3.0%
Operating Income - GAAP
Operating Income - Adjusted
-11.6%
-2.2%
12.3%
12.0%
122.8%
36.2%
67.6%
35.2%
25.8%
13.0%
18.4%
10.1%
24.3%
7.7%
8.4%
8.4%
7.9%
7.9%
4.8%
4.8%
10.3%
10.3%
11.2%
11.2%
-20.7%
-8.6%
31.1%
18.4%
18.6%
9.7%
8.4%
8.4%
Pretax Income
-22.1%
3.4%
299.3%
90.9%
33.0%
22.4%
30.1%
11.1%
10.1%
5.9%
11.9%
12.4%
-28.4%
33.3%
23.2%
9.9%
Net Income
-22.9%
8.8%
-11.9%
83.6%
40.6%
11.5%
42.3%
11.1%
10.1%
5.9%
11.9%
12.4%
-8.0%
7.1%
23.6%
9.9%
EPS (Reported)
EPS (Ex. Non-recurring)
EPS (ex. Non-recur/ex Astra-Tech amort)
-22.8%
-8.9%
4.5%
8.4%
1.0%
11.5%
-12.2%
-14.7%
11.5%
83.2%
14.4%
11.7%
40.7%
16.7%
8.6%
11.5%
13.2%
9.3%
42.3%
42.3%
11.6%
11.1%
11.1%
10.2%
10.5%
10.5%
9.7%
6.8%
6.8%
6.4%
13.3%
13.3%
12.3%
14.3%
14.3%
13.4%
-6.4%
1.1%
4.2%
6.9%
-0.1%
9.4%
23.6%
16.9%
9.9%
11.1%
11.1%
10.3%
0.0%
0.3%
0.3%
0.2%
-0.1%
0.0%
0.0%
0.0%
-0.4%
-0.8%
-1.3%
-1.7%
-1.7%
0.2%
0.0%
-1.0%
1.1%
27.2%
-2.0%
-0.7%
3.6%
26.4%
-6.2%
1.3%
4.7%
15.4%
-5.3%
-2.5%
3.9%
0.0%
-2.4%
-0.3%
3.7%
0.0%
-0.8%
-0.4%
3.8%
0.0%
0.2%
-0.5%
3.3%
0.0%
1.2%
-0.5%
3.5%
0.0%
0.0%
-0.5%
4.0%
0.0%
0.0%
-0.4%
4.1%
0.0%
0.0%
-0.5%
4.1%
0.0%
0.0%
-0.4%
4.1%
0.0%
0.0%
-0.5%
0.4%
10.8%
3.6%
-0.5%
3.3%
16.3%
-3.9%
-0.6%
3.8%
0.0%
0.1%
-0.5%
4.1%
0.0%
0.0%
-0.5%
Ave. Shares (000)
Internal Growth
Acquisition Growth
Foreign Currency Impact
Precious Metal Impact
Please refer to "Appendix - Important Disclosures" and Analyst Certification.
Source: Company
Source:
Reports
Company
and RWB
Reports
Estimates
and RWB Estimates
57
DENTSPLY INTERNATIONAL INC
XRAY—NASDAQ
Date Printed:
Fiscal Year Ends:
12/31/12
December
(000)
Balance Sheet
ASSETS
Cash & Equivalents
Receivables
Inventory
Other
Total Current
Fixed Assets
Other Assets
Total Assets
2006
65,143
290,791
232,441
129,816
718,191
2007
316,323
307,622
258,032
100,045
982,022
2008
2009
2010
2011
Interim
9/30/2012
204,249
450,385
540,038
77,128
319,260
348,684
344,796
427,709
306,125
291,640
308,738
361,762
120,228
127,087
121,473
146,304
949,862 1,217,796 1,315,045 1,012,903
56,075
467,296
415,922
189,685
1,128,978
329,616
371,409
432,276
439,619
423,105
591,445
1,133,543 1,322,138 1,448,262 1,430,517 1,519,801 3,160,569
2,181,350 2,675,569 2,830,400 3,087,932 3,257,951 4,764,917
602,670
3,245,774
4,977,422
LIABILITIES & EQUITY
Current Debt
Payables
Other
Total Current
2,995
79,951
228,488
311,433
1,244
82,321
228,846
312,411
25,795
104,329
229,838
359,962
82,174
100,847
261,535
444,556
7,754
114,479
237,858
360,091
276,701
149,117
298,255
724,073
411,840
137,669
391,211
940,720
LT Debt & Lease
Deferred Taxes
Other Liabilities
367,161
53,191
175,507
482,063
60,547
304,146
423,679
69,049
318,297
387,151
72,524
276,743
604,015 1,490,010
72,489
249,822
311,444
407,342
1,237,244
319,834
318,757
1,274,058 1,516,402 1,659,413 1,906,958 1,909,912 1,893,670
2,181,350 2,675,569 2,830,400 3,087,932 3,257,951 4,764,917
2,160,867
4,977,422
Common Equity
Total
Balance Sheet Analysis
LT Debt / Equity
LT Debt / Total Capital
Total Debt / Total Capital
Net Debt / Total Capital
Current Ratio
EBIT / Interest
Working Capital Days
Days Sales Outstanding
Days Payable Outstanding
Days Inventory on Hand
Inventory Turnover
ROIC
2006
29%
22%
23%
19%
2.3
29.9
112.6
55.0
33.6
91.2
4.0
13.0%
2007
32%
24%
24%
8%
3.1
17.4
116.1
54.3
30.6
92.4
4.0
15.1%
2008
26%
20%
21%
12%
2.6
11.7
118.3
52.2
32.7
98.8
3.7
15.1%
2009
20%
17%
20%
1%
2.7
17.4
124.5
56.5
35.6
103.6
3.5
13.0%
*Reported Net Income
2010
32%
24%
24%
3%
3.7
15.1
121.4
57.0
36.0
100.4
3.6
11.6%
2011
79%
44%
48%
46%
1.4
NA
114.3
55.6
38.1
96.8
3.8
7.9%
Interim
9/30/2012
57%
36%
43%
42%
1.2
6.8
129.7
59.1
35.6
106.2
3.4
7.1%
(000)
Cash Flow Statement
Net Income
plus Dep. & Amortization
Deferred Taxes
Change in Working Capital
Other
Cash Flow from Operations
y/y growth - CFO
Per Share
Capital Expenditures
Dividends
Excess Cash Flow
Per share
Du Pont Formula
Net Margins - LTM (NI/S)
Assets Turnover (S/A)
Leverage
(A/E)
Return on Equity
Valuation Measures
Historical P/E High (cal. year)
Historical P/E Low (cal. year)
Historical P/CF High
Historical P/CF Low
9 Mos. Ended
9/30/2012
190,561
96,798
(2,702)
(106,918)
24,326
202,065
-20.7%
1.40
2006
223,719
47,434
53,700
(74,293)
21,296
271,856
16.8%
1.72
2007
259,654
50,289
25,568
46,746
5,440
387,697
42.6%
2.51
2008
283,870
56,929
13,371
(28,512)
10,324
335,981
-13.3%
2.22
2009
274,412
65,175
195
20,214
2,493
362,489
7.9%
2.41
2010
267,335
66,340
15,119
5,151
23,516
377,461
4.1%
2.59
2011
247,446
93,058
(88,402)
95,989
45,378
393,469
4.2%
2.74
2012E
261,956
95,000
5,000
(60,000)
7,500
309,456
-21.4%
2.15
2013E
323,729
110,000
5,000
(30,000)
7,500
416,229
34.5%
2.89
2014E
355,859
120,000
5,000
(10,000)
7,500
478,359
14.9%
3.36
50,616
21,863
64,163
25,134
76,440
26,952
56,481
29,836
44,236
29,077
71,186
28,632
90,000
31,659
115,000
31,654
120,000
31,324
64,859
23,561
199,377
1.26
298,400
1.93
232,589
1.53
276,172
1.84
304,148
2.08
293,651
2.05
187,797
1.31
269,574
1.87
327,034
2.30
113,645
0.79
2006
12.4%
0.8
1.8
17.7%
2007
12.9%
0.8
1.7
18.6%
2008
12.9%
0.8
1.7
17.9%
2009
12.7%
0.7
1.7
15.4%
2010
12.0%
0.7
1.7
13.9%
2011
9.6%
0.6
2.1
12.9%
2012E
9.0%
0.6
2.4
13.0%
2013E
10.7%
0.6
2.2
14.3%
2014E As of 6/30/2012
11.4%
8.0%
0.6
0.6
2.0
2.4
13.8%
11.3%
2006
24
18
20
15
2007
28
18
18
12
2008
25
12
21
10
2009
20
12
15
9
2010
18
16
13
12
2011
21
15
15
11
2012E
2013E
2014E
Current
21
15
Current Price
12/31/12:
$39.61
Debt Adjusted Market Value
Market Value
4,724,360 6,963,592 4,283,415 5,279,087 4,988,307 5,022,919 5,700,028 5,699,245 5,639,830
5,699,245
ST+LT Debt
Other Liabilities
Cash & Equivalents
Total DAMV
EBITDA
370,156
483,307
449,474
469,325
611,769 1,766,711 1,588,500 1,358,500 1,183,500
175,507
304,146
318,297
276,743
311,444
407,342
425,000
435,000
435,000
65,143
316,323
204,249
450,385
540,038
77,128
166,022
193,095
317,631
5,204,880 7,434,722 4,846,937 5,574,770 5,371,482 7,119,844 7,547,505 7,299,650 6,940,699
370,037
415,707
469,706
457,442
460,284
452,945
520,953
577,467
626,944
1,649,084
318,757
56,075
7,611,011
476,038
DAMV / EBITDA
14.1
17.9
10.3
12.2
11.7
15.7
14.5
12.6
11.1
16.0
Source: Company reports, RWB estimates
58
Year ends Oct.
(000)
Net Sales
% of Revenue
Sales (ex. P.M.)
% of Revenue
Reported Sales Growth
Ex. P.M. Content
Internal Growth
Acquisition-Related Growth
Foreign Currency Impact
Precious Metal Impact
Revenue by Geography (ex P.M.)
U.S.
% of Revenue (ex P.M.)
Europe
Rest of World
Organic Growth by Geography (ex P.M.)
U.S.
U.S. ex Japan/ortho
Europe
Europe ex Japan/ortho
Rest of World
Rest of World ex Japan/ortho
Q1-12
Q4-14E
yr-11
yr-12E
yr-13E
yr-14E
$716,413 $762,994 $695,734 $746,663 $734,026 $789,328 $723,880 $769,618 $760,241 $817,182 $750,239 $797,214
$50,788 $64,514 $48,614 $58,666
$49,518 $62,901 $47,399 $57,199
$48,280 $61,329 $46,214 $55,769
7.1%
8.5%
7.0%
7.9%
6.7%
8.0%
6.5%
7.4%
6.4%
7.5%
6.2%
7.0%
$665,625 $698,480 $647,120 $687,997 $684,508 $726,427 $676,481 $712,419 $711,960 $755,853 $704,026 $741,445
92.9%
91.5%
93.0%
92.1%
93.3%
92.0%
93.5%
92.6%
93.6%
92.5%
93.8%
93.0%
$2,537,718
$205,129
8.1%
$2,332,589
91.9%
$2,921,804
$222,582
7.6%
$2,699,222
92.4%
$3,016,852
$217,017
7.2%
$2,799,834
92.8%
$3,124,876
$211,592
6.8%
$2,913,284
93.2%
3.6%
4.1%
4.1%
0.0%
0.0%
-0.5%
14.3%
14.8%
0.4%
10.8%
3.6%
-0.5%
15.1%
15.7%
3.3%
16.3%
-3.9%
-0.6%
3.3%
3.7%
3.8%
0.0%
0.1%
-0.5%
3.6%
4.1%
4.1%
0.0%
0.0%
-0.5%
246,596 252,996 253,827 225,714
34.6%
33.5%
36.1%
30.4%
318,487 333,290 294,321 336,051
44.7%
44.1%
41.8%
45.3%
146,878 169,567 155,877 179,679
20.6%
22.4%
22.1%
24.2%
785,589
33.7%
1,011,191
43.4%
535,809
23.0%
896,556
33.2%
1,211,942
44.9%
590,724
21.9%
940,640
33.6%
1,243,962
44.4%
615,232
22.0%
979,134
33.6%
1,282,149
44.0%
652,001
22.4%
-0.4%
3.6%
-0.4%
2.2%
3.0%
7.8%
5.0%
N/A
2.6%
N/A
5.3%
N/A
4.9%
2.9%
2.2%
2.0%
5.1%
5.0%
4.1%
4.0%
3.1%
3.0%
6.0%
6.0%
25.6%
26.3%
1.1%
27.2%
-2.0%
-0.7%
Q2-12
25.2%
23.8%
3.6%
26.4%
-6.2%
1.3%
Q3-12
12.3%
14.8%
4.7%
15.4%
-5.3%
-2.5%
Q4-12E
1.2%
1.5%
3.9%
0.0%
-2.4%
-0.3%
226,313 230,498 232,963 206,782
34.0%
33.0%
36.0%
30.1%
306,188 314,316 271,790 319,648
46.0%
45.0%
42.0%
46.5%
133,125 153,666 142,366 161,567
20.0%
22.0%
22.0%
23.5%
3.5%
7.4%
-1.1%
2.2%
1.3%
4.4%
1.0%
2.9%
2.8%
2.6%
8.6%
8.1%
3.9%
N/A
5.2%
N/A
5.1%
N/A
(XRAY - NASDAQ)
(XRAY - NASDAQ)
5.2%
2.0%
3.2%
2.2%
5.6%
5.0%
Q1-13E
2.5%
2.8%
3.9%
0.0%
-0.8%
-0.4%
Q2-13E
3.5%
4.0%
4.0%
0.0%
0.2%
-0.5%
Q3-13E
4.0%
4.5%
3.6%
0.0%
1.2%
-0.5%
Q4-13E
3.1%
3.5%
3.5%
0.0%
0.0%
-0.5%
236,907 243,054 243,856 216,824
34.6%
33.5%
36.0%
30.4%
309,003 323,369 285,538 326,052
45.1%
44.5%
42.2%
45.8%
138,597 160,004 147,088 169,543
20.2%
22.0%
21.7%
23.8%
4.7%
1.5%
2.6%
2.0%
5.4%
5.0%
5.4%
3.0%
2.4%
2.0%
5.2%
5.0%
4.7%
3.5%
1.9%
2.0%
4.9%
5.0%
4.9%
3.5%
2.0%
2.0%
4.9%
5.0%
Q1-14E
3.6%
4.0%
4.0%
0.0%
0.0%
-0.4%
4.1%
4.0%
3.1%
3.0%
6.0%
6.0%
Q2-14E
3.5%
4.1%
4.1%
0.0%
0.0%
-0.5%
4.1%
4.0%
3.1%
3.0%
6.0%
6.0%
Q3-14E
3.6%
4.1%
4.1%
0.0%
0.0%
-0.4%
4.1%
4.0%
3.1%
3.0%
6.0%
6.0%
4.1%
4.0%
3.1%
3.0%
6.0%
6.0%
Source: Company
Source:
Reports
Company
and RWB
Reports
Estimates
and RWB Estimates
59
BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202
12/31/2012
Year ends Dec.
Q1-12
Q2-12
Henry Schein, Inc.
(HSIC - NASDAQ)
Q4-14E
YR-11
YR-12E
YR-13E
YR-14E
Net Sales (000)
Global Dental
% Total Sales
Global Medical
% Total Sales
Global Veterinary
% Total Sales
Global Technology
% Total Sales
2,099,019 2,201,452 2,231,058 2,354,788
1,155,666 1,185,919 1,119,430 1,295,379
55.1%
53.9%
50.2%
55.0%
354,826
361,122
442,538
393,623
16.9%
16.4%
19.8%
16.7%
525,590
586,258
598,124
589,705
25.0%
26.6%
26.8%
25.0%
62,937
68,153
70,966
76,080
3.0%
3.1%
3.2%
3.2%
Q3-12
Q4-12E
2,268,699 2,382,906 2,378,360 2,482,840
1,195,449 1,247,776 1,185,527 1,354,263
52.7%
52.4%
49.8%
54.5%
377,617
384,745
462,563
412,741
16.6%
16.1%
19.4%
16.6%
623,975
674,121
650,982
634,050
27.5%
28.3%
27.4%
25.5%
71,657
76,264
79,288
81,786
3.2%
3.2%
3.3%
3.3%
Q1-13E
Q2-13E
Q3-13E
Q4-13E
2,365,583 2,485,628 2,480,187 2,589,692
1,237,678 1,292,435 1,229,027 1,404,169
52.3%
52.0%
49.6%
54.2%
396,386
403,881
483,042
432,809
16.8%
16.2%
19.5%
16.7%
654,487
707,328
682,883
664,794
27.7%
28.5%
27.5%
25.7%
77,032
81,984
85,235
87,920
3.3%
3.3%
3.4%
3.4%
Q1-14E
Q2-14E
Q3-14E
8,530,243
4,764,898
55.9%
1,504,454
17.6%
2,010,270
23.6%
250,621
2.9%
8,886,317
4,756,394
53.5%
1,552,110
17.5%
2,299,677
25.9%
278,136
3.1%
9,512,805
4,983,015
52.4%
1,637,666
17.2%
2,583,128
27.2%
308,996
3.2%
9,921,091
5,163,310
52.0%
1,716,117
17.3%
2,709,492
27.3%
332,171
3.3%
Cost of Sales
Gross Profit
Gross Margin
1,488,440 1,577,057 1,622,014 1,696,167
610,579
624,395
609,044
658,621
29.1%
28.4%
27.3%
28.0%
1,613,008 1,710,725 1,725,555 1,787,971
655,691
672,181
652,805
694,869
28.9%
28.2%
27.4%
28.0%
1,680,581 1,782,752 1,796,859 1,861,678
685,002
702,876
683,329
728,014
29.0%
28.3%
27.6%
28.1%
6,112,187 6,383,678 6,837,259 7,121,870
2,418,056 2,502,638 2,675,547 2,799,221
28.3%
28.2%
28.1%
28.2%
SG&A Expense
% of Revenue
465,452
22.2%
466,333
21.2%
459,422
20.6%
492,840
20.9%
507,286
22.4%
500,410
21.0%
488,857
20.6%
513,299
20.7%
526,106
22.2%
519,496
20.9%
506,818
20.4%
533,477
20.6%
1,835,906
21.5%
1,884,047
21.2%
2,009,852
21.1%
2,085,897
21.0%
Operating Income
Operating Margin
145,127
6.9%
158,062
7.2%
149,622
6.7%
165,780
7.0%
148,406
6.5%
171,771
7.2%
163,948
6.9%
181,570
7.3%
158,896
6.7%
183,380
7.4%
176,510
7.1%
194,538
7.5%
582,150
6.8%
618,591
7.0%
665,694
7.0%
713,324
7.2%
Restructuring/One-time costs
Net Int. & Other
Pretax Income
Pretax Margin
Taxes
Tax Rate
11,832
3,360
0
15,192
0
0
(3,785)
129,510
6.2%
41,840
32.3%
(3,272)
151,430
6.9%
47,201
31.2%
(3,037)
146,585
6.6%
44,709
30.5%
(3,037)
162,743
6.9%
49,637
30.5%
(3,037)
145,369
6.4%
44,628
30.7%
(3,037)
168,734
7.1%
51,801
30.7%
(3,037)
160,911
6.8%
49,400
30.7%
(3,037)
178,533
7.2%
54,810
30.7%
(2,787)
156,109
6.6%
47,926
30.7%
(2,537)
180,843
7.3%
55,519
30.7%
(2,287)
174,223
7.0%
53,487
30.7%
(2,037)
192,501
7.4%
59,098
30.7%
(12,842)
569,308
6.7%
180,212
31.7%
(13,131)
590,268
6.6%
183,387
31.1%
(12,148)
653,546
6.9%
200,639
30.7%
(9,648)
703,676
7.1%
216,029
30.7%
(9,585)
3,380
(8,881)
3,777
(11,331)
5,738
(8,641)
1,683
(9,585)
3,718
(8,881)
4,155
(11,331)
6,311
(36,995)
15,561
(36,960)
13,114
(38,438)
14,425
(38,438)
15,868
Minority Interest
Equity in Earnings
of Affiliates
Income from Cont. Ops.
(8,309)
1,391
(9,216)
3,073
(8,539)
3,434
(10,896)
5,216
(8,641)
1,530
80,752
98,086
96,771
107,427
93,629
110,728
106,408
118,129
101,225
119,458
116,011
128,383
367,662
383,036
428,895
465,077
Net Income
Net Margin
80,752
3.8%
98,086
4.5%
96,771
4.3%
107,427
4.6%
93,629
4.1%
110,728
4.6%
106,408
4.5%
118,129
4.8%
101,225
4.3%
119,458
4.8%
116,011
4.7%
128,383
5.0%
367,662
4.3%
383,036
4.3%
428,895
4.5%
465,077
4.7%
$0.89
$0.98
$1.08
$1.11
$1.08
$1.08
$1.21
$1.21
$1.05
$1.05
$1.25
$1.25
$1.21
$1.21
$1.35
$1.35
$1.16
$1.16
$1.38
$1.38
$1.35
$1.35
$1.50
$1.50
$3.97
$3.97
$4.26
$4.37
$4.86
$4.86
$5.39
$5.39
90,666
90,553
89,647
89,147
89,147
88,547
87,947
87,347
86,947
86,547
86,147
85,747
92,620
90,003
88,247
86,347
EPS Reported
EPS (ex. non-recurring/cont. ops)
Average Shares (000)
% Changes
Net Sales
Global Dental
Global Medical
Global Veterinary
Global Technology
Cost of Sales
Gross Profit
SG&A Expense
Operating Income
Pretax Income
Net Income
EPS Reported
EPS (ex. non-recurring/cont. ops)
7.8%
5.5%
4.0%
15.3%
13.1%
7.7%
7.9%
5.4%
16.8%
7.5%
5.6%
8.5%
19.6%
3.3%
-1.3%
5.9%
11.4%
9.8%
3.9%
2.0%
1.2%
4.5%
2.1%
3.8%
7.1%
9.6%
5.7%
-0.3%
4.2%
19.2%
14.1%
6.4%
3.7%
3.4%
4.4%
4.3%
5.2%
9.0%
9.0%
0.6%
-3.7%
-1.1%
12.1%
7.6%
0.5%
0.9%
0.7%
1.5%
1.7%
2.6%
5.0%
5.0%
8.1%
3.4%
6.4%
18.7%
13.9%
8.4%
7.4%
9.0%
2.3%
12.2%
15.9%
17.9%
6.9%
8.2%
5.2%
6.5%
15.0%
11.9%
8.5%
7.7%
7.3%
8.7%
11.4%
12.9%
15.4%
12.9%
6.6%
5.9%
4.5%
8.8%
11.7%
6.4%
7.2%
6.4%
9.6%
9.8%
10.0%
12.1%
12.1%
5.4%
4.5%
4.9%
7.5%
7.5%
5.4%
5.5%
4.2%
9.5%
9.7%
10.0%
12.2%
12.2%
4.3%
3.5%
5.0%
4.9%
7.5%
4.2%
4.5%
3.7%
7.1%
7.4%
8.1%
10.8%
10.8%
4.3%
3.6%
5.0%
4.9%
7.5%
4.2%
4.6%
3.8%
6.8%
7.2%
7.9%
10.4%
10.4%
4.3%
3.7%
4.4%
4.9%
7.5%
4.1%
4.7%
3.7%
7.7%
8.3%
9.0%
11.3%
11.3%
4.3%
3.7%
4.9%
4.8%
7.5%
4.1%
4.8%
3.9%
7.1%
7.8%
8.7%
10.7%
10.7%
13.3%
7.9%
9.5%
30.8%
25.3%
14.1%
11.4%
12.1%
9.1%
13.4%
12.9%
13.6%
10.8%
4.2%
-0.2%
3.2%
14.4%
11.0%
4.4%
3.5%
2.6%
6.3%
3.7%
4.2%
7.2%
10.2%
7.1%
4.8%
5.5%
12.3%
11.1%
7.1%
6.9%
6.7%
7.6%
10.7%
12.0%
14.2%
11.1%
4.3%
3.6%
4.8%
4.9%
7.5%
4.2%
4.6%
3.8%
7.2%
7.7%
8.4%
10.8%
10.8%
Average Shares (000)
-2.7%
-3.1%
-3.5%
-2.3%
-1.7%
-2.2%
-1.9%
-2.0%
-2.5%
-2.3%
-2.0%
-1.8%
-0.7%
-2.8%
-2.0%
-2.2%
4.8%
1.0%
0.8%
4.8%
0.0%
0.6%
4.3%
0.0%
0.0%
4.3%
0.0%
0.0%
4.3%
0.0%
0.0%
4.3%
0.0%
0.0%
4.5%
2.4%
6.4%
5.0%
-2.0%
1.3%
4.4%
0.2%
2.4%
4.3%
0.0%
0.0%
Internal Growth
7.8%
4.6%
4.4%
3.5%
3.7%
4.4%
Foreign Currency
-0.6%
-3.2%
-3.2%
-1.1%
-0.5%
0.4%
Net Acquistion/Chg Selling Period
0.6%
1.9%
4.5%
-1.7%
4.9%
3.5%
Please refer to "Appendix - Important Disclosures" and Analyst Certification. Source: Company Reports and RWB Estimates
60
HENRY SCHEIN INC
HSIC (NASDAQ)
Date Printed:
Fiscal Year:
($ 000s)
Balance Sheet
ASSETS
Cash & Equivalents
Receivables
Inventory
Other
Total Current
296,646
248,587
610,020
708,307
584,103
666,786
154,079
225,119
1,644,848 1,848,799
369,570
471,154
150,348
147,284
89,336
734,027
725,397
885,784
888,248 1,035,529
731,654
775,199
870,206
947,849 1,070,854
230,815
231,783
262,964
289,127
316,460
2,066,066 2,203,533 2,169,302 2,272,508 2,512,179
Fixed Assets
Other Assets
Total Assets
225,038
247,671
1,011,260 1,217,514
2,881,146 3,313,984
247,835
259,576
252,573
262,088
258,683
1,285,309 1,372,876 2,125,596 2,205,548 2,340,670
3,599,210 3,835,985 4,547,471 4,740,144 5,111,532
2006
2007
Current Debt
Payables
Other
Total Current
43,564
414,062
352,462
810,088
33,296
474,009
433,334
940,639
LT Debt & Lease
Deferred Taxes
Other Liabilities
455,806
62,334
60,209
423,274
80,260
53,906
Redeemable noncontrolling interests
Common Equity
1,470,963 1,779,982
Total
2,881,146 3,313,984
LT Debt / Equity
Current Ratio
EBIT / Interest
Days Inventory on Hand
Inventory Turnover
ROIC
Net Income is recorded as Reported
2006
31%
23%
25%
10%
2.0
11.0
58.6
43.1
40.1
55.6
6.6
9.8%
2007
23%
19%
20%
9%
2.0
15.3
56.4
40.7
38.6
54.4
6.7
11.0%
2008
2009
2010
Interim
2011 9/29/2012
161,341
24,492
45,995
77,833
172,958
554,773
521,079
590,029
621,468
707,641
467,551
530,683
532,063
572,339
568,359
1,183,665 1,076,254 1,168,087 1,271,640 1,448,958
256,648
95,399
58,109
243,373
100,976
75,304
395,309
190,225
76,753
363,524
188,739
80,568
436,426
180,977
96,402
233,035
178,570
304,140
402,050
375,661
1,772,354 2,161,508 2,412,957 2,433,623 2,573,108
3,599,210 3,835,985 4,547,471 4,740,144 5,111,532
2008
14%
13%
19%
2%
1.7
15.1
56.2
41.2
41.7
56.6
6.4
12.1%
2009
11%
10%
11%
NM
2.0
20.0
57.8
40.7
42.5
59.5
6.1
14.2%
2010
16%
14%
15%
10%
1.9
15.9
57.3
39.1
37.9
56.1
6.5
13.2%
Interim
2011 9/29/2012
15%
17%
13%
14%
15%
19%
10%
16%
1.8
1.7
19.2
20.4
56.1
61.3
38.0
41.5
36.2
37.3
54.3
57.1
6.7
6.4
13.6%
13.1%
12/31/2012
DEC
Cash Flow Statement
Net Income
Deferred Taxes
Other
Per Share
% y-o-y growth
Dividends
2006
163,759
64,930
2,872
(45,122)
48,878
235,317
2.62
-7%
67,000
0
2007
215,173
73,936
(7,404)
(82,532)
71,038
270,211
2.96
15%
56,821
0
2008
243,143
78,127
(4,083)
5,602
61,860
384,649
4.22
42%
50,870
0
2009
333,157
81,493
(26,214)
(28,256)
36,710
396,890
4.38
3%
51,627
0
2010
352,131
101,214
(6,051)
(97,159)
38,739
388,874
4.17
-2%
39,000
0
2011
404,656
115,896
(19,319)
(1,168)
54,560
554,625
5.99
43%
45,176
0
2012E
383,036
133,280
(5,000)
(140,000)
20,000
391,316
4.35
-29%
45,000
0
2013E
428,895
146,608
(5,000)
(30,000)
20,000
560,504
6.35
43%
53,000
0
2014E
465,077
161,269
(5,000)
(25,000)
20,000
616,347
7.14
10%
55,000
0
Excess Cash Flow
Per share
168,317
1.87
213,390
2.34
333,779
3.66
345,263
3.81
349,874
3.75
509,449
5.50
346,316
3.85
507,504
5.75
561,347
6.50
Du Pont Formula
Net Margins (N/S)
Leverage
(A/E)
Return on Equity
Valuation Measures
Historical P/CF High
Historical P/CF Low
9 mos. Ended
9/29/2012
301,673
91,989
(8,478)
(223,838)
47,092
208,438
2.33
-25%
32,934
0
175,504
1.96
2006
3.2%
1.8
2.0
12.1%
2007
3.6%
1.9
1.9
13.2%
2008
3.9%
1.8
1.9
14.0%
2009
4.8%
1.8
1.9
15.8%
2010
4.3%
1.8
1.8
14.2%
2011
4.3%
1.8
1.9
15.2%
2012E
4.3%
1.8
1.9
14.6%
2013E
4.5%
1.8
1.8
14.1%
2014E As of 9/292012
4.7%
4.3%
1.7
1.8
1.7
1.9
13.4%
14.9%
2006
27
21
21
16
2007
24
18
21
16
2008
22
11
15
8
2009
18
11
13
8
2010
14
17
12
15
2011
19
15
13
10
2012E
2013E
2014E As of 9/29/2012
13
17
Current Price
12/31/2012:
$80.42
Market Value
ST+LT Debt
Other Liabilities
Cash & Equivalents
Total DAMV
EBITDA
DAMV / EBITDA
4,399,384 5,656,664 3,346,898 4,763,246 5,725,723 5,967,507 7,238,061 7,096,824 6,944,026
499,370
456,570
417,989
267,865
441,304
441,357
460,000
445,000
445,000
60,209
53,906
58,109
75,304
76,753
80,568
85,000
85,000
85,000
296,646
248,587
369,570
471,154
150,348
147,284
363,600
726,104 1,187,450
4,662,317 5,918,553 3,453,426 4,635,261 6,093,432 6,342,148 7,419,461 6,900,720 6,286,575
369,065
460,650
521,627
548,598
634,628
698,046
751,871
812,303
874,593
7,209,412
609,384
96,402
89,336
7,825,862
738,031
12.6
12.8
6.6
8.4
9.6
9.1
9.9
8.5
7.2
10.6
61
12/31/2012
Year ends Dec.
Q1-12
Henry Schein, Inc.
(HSIC - NASDAQ)
Q2-12
Q3-12
Q4-12E
Q1-13E
Q2-13E
Q3-13E
Q4-13E
Q1-14E
Q2-14E
Q3-14E
Q4-14E
YR-11
YR-12E
YR-13E
YR-14E
Net Sales
2,099,019
2,201,452
2,231,058
2,354,788
2,268,699
2,382,906
2,378,360
2,482,840
2,365,583
2,485,628
2,480,187
2,589,692
8,530,243
8,886,317
9,512,805
9,921,091
Global Dental
1,155,666
55.1%
905,611
78.4%
250,055
21.6%
699,619
60.5%
569,976
81.5%
129,644
18.5%
456,047
39.5%
335,635
73.6%
120,411
26.4%
1,185,919
53.9%
899,333
75.8%
286,586
24.2%
740,725
62.5%
571,031
77.1%
169,694
22.9%
445,194
37.5%
328,302
73.7%
116,891
26.3%
1,119,430
50.2%
842,901
75.3%
276,529
24.7%
714,781
63.9%
554,445
77.6%
160,336
22.4%
404,649
36.1%
288,456
71.3%
116,193
28.7%
1,295,379
55.0%
896,990
69.2%
398,389
30.8%
795,436
61.4%
548,277
68.9%
247,159
31.1%
499,943
38.6%
348,713
69.8%
151,230
30.2%
1,195,449
52.7%
942,232
78.8%
253,217
21.2%
740,900
62.0%
601,392
81.2%
139,508
18.8%
454,549
38.0%
340,840
75.0%
113,709
25.0%
1,247,776
52.4%
946,175
75.8%
301,600
24.2%
783,226
62.8%
603,011
77.0%
180,215
23.0%
464,549
37.2%
343,164
73.9%
121,385
26.1%
1,185,527
49.8%
887,180
74.8%
298,347
25.2%
751,680
63.4%
581,637
77.4%
170,043
22.6%
433,847
36.6%
305,543
70.4%
128,304
29.6%
1,354,263
54.5%
933,903
69.0%
420,359
31.0%
832,656
61.5%
574,869
69.0%
257,787
31.0%
521,607
38.5%
359,035
68.8%
162,572
31.2%
1,237,678
52.3%
973,506
78.7%
264,172
21.3%
768,925
62.1%
622,441
80.9%
146,484
19.1%
468,754
37.9%
351,065
74.9%
117,688
25.1%
1,292,435
52.0%
977,576
75.6%
314,859
24.4%
813,342
62.9%
624,117
76.7%
189,225
23.3%
479,093
37.1%
353,459
73.8%
125,634
26.2%
1,229,027
49.6%
919,612
74.8%
309,416
25.2%
783,448
63.7%
604,902
77.2%
178,545
22.8%
445,580
36.3%
314,709
70.6%
130,870
29.4%
1,404,169
54.2%
967,669
68.9%
436,500
31.1%
868,540
61.9%
597,864
68.8%
270,676
31.2%
535,630
38.1%
369,806
69.0%
165,824
31.0%
4,764,898
55.9%
3,519,166
73.9%
1,245,732
26.1%
2,884,257
60.5%
2,197,290
76.2%
686,967
23.8%
1,880,641
39.5%
1,321,876
70.3%
558,765
29.7%
4,756,394
53.5%
3,544,836
74.5%
1,211,558
25.5%
2,950,562
62.0%
2,243,729
76.0%
706,832
24.0%
1,805,832
38.0%
1,301,107
72.1%
504,726
27.9%
4,983,015
52.4%
3,709,491
74.4%
1,273,524
25.6%
3,108,462
62.4%
2,360,909
76.0%
747,553
24.0%
1,874,553
37.6%
1,348,582
71.9%
525,971
28.1%
5,163,310
52.0%
3,838,363
74.3%
1,324,947
25.7%
3,234,254
62.6%
2,449,324
75.7%
784,931
24.3%
1,929,056
37.4%
1,389,039
72.0%
540,017
28.0%
354,826
16.9%
333,039
93.9%
21,787
6.1%
361,122
16.4%
341,796
94.6%
19,327
5.4%
442,538
19.8%
424,065
95.8%
18,473
4.2%
393,623
16.7%
370,863
94.2%
22,761
5.8%
377,617
16.6%
355,191
94.1%
22,426
5.9%
384,745
16.1%
364,385
94.7%
20,360
5.3%
462,563
19.4%
442,718
95.7%
19,844
4.3%
412,741
16.6%
388,956
94.2%
23,785
5.8%
396,386
16.8%
372,951
94.1%
23,435
5.9%
403,881
16.2%
382,605
94.7%
21,276
5.3%
483,042
19.5%
462,304
95.7%
20,737
4.3%
432,809
16.7%
407,954
94.3%
24,855
5.7%
1,504,454
17.6%
1,417,071
94.2%
87,383
5.8%
1,552,110
17.5%
1,469,763
94.7%
82,348
5.3%
1,637,666
17.2%
1,551,251
94.7%
86,415
5.3%
1,716,117
17.3%
1,625,813
94.7%
90,304
5.3%
525,590
25.0%
266,953
50.8%
258,637
49.2%
586,258
26.6%
297,229
50.7%
289,029
49.3%
598,124
26.8%
276,536
46.2%
321,588
53.8%
589,705
25.0%
253,870
43.1%
335,835
56.9%
623,975
27.5%
277,631
44.5%
346,344
55.5%
674,121
28.3%
312,090
46.3%
362,031
53.7%
650,982
27.4%
293,129
45.0%
357,853
55.0%
634,050
25.5%
269,102
42.4%
364,948
57.6%
654,487
27.7%
294,289
45.0%
360,198
55.0%
707,328
28.5%
330,816
46.8%
376,512
53.2%
682,883
27.5%
310,716
45.5%
372,167
54.5%
664,794
25.7%
285,248
42.9%
379,546
57.1%
2,010,270
23.6%
993,183
49.4%
1,017,087
50.6%
2,299,677
25.9%
1,094,588
47.6%
1,205,089
52.4%
2,583,128
27.2%
1,151,952
44.6%
1,431,176
55.4%
2,709,492
27.3%
1,221,069
45.1%
1,488,423
54.9%
62,937
3.0%
68,153
3.1%
70,966
3.2%
76,080
3.2%
71,657
3.2%
76,264
3.2%
79,288
3.3%
81,786
3.3%
77,032
3.3%
81,984
3.3%
85,235
3.4%
87,920
3.4%
250,621
2.9%
278,136
3.1%
308,996
3.2%
332,171
3.3%
Q1-12
Q2-12
Q3-12E
Q4-12E
Q1-13E
Q2-13E
Q3-13E
Q4-13E
Q1-14E
Q2-14E
Q3-14E
Q4-14E
YR-11
YR-12E
YR-13E
YR-14E
7.8%
7.8%
-0.6%
0.6%
3.3%
4.6%
-3.2%
1.9%
5.7%
4.4%
-3.2%
4.5%
0.6%
3.5%
-1.1%
-1.7%
8.1%
3.7%
-0.5%
4.9%
8.2%
4.4%
0.4%
3.5%
6.6%
4.8%
1.0%
0.8%
5.4%
4.8%
0.0%
0.6%
4.3%
4.3%
0.0%
0.0%
4.3%
4.3%
0.0%
0.0%
4.3%
4.3%
0.0%
0.0%
4.3%
4.3%
0.0%
0.0%
13.3%
4.5%
2.4%
6.4%
4.2%
5.0%
-2.0%
1.3%
7.1%
4.4%
0.2%
2.4%
4.3%
4.3%
0.0%
0.0%
5.5%
6.2%
-1.3%
2.1%
-0.3%
2.3%
-3.7%
2.7%
3.4%
2.6%
5.2%
3.3%
5.9%
4.2%
4.5%
4.0%
3.5%
3.5%
3.6%
3.6%
3.7%
3.7%
3.7%
3.7%
7.9%
3.0%
-0.2%
3.3%
4.8%
3.5%
3.6%
3.6%
7.6%
8.2%
-1.3%
-0.2%
-0.7%
1.9%
-3.0%
7.9%
0.2%
2.7%
-1.9%
1.4%
-3.6%
2.3%
-4.0%
3.7%
4.0%
2.6%
1.3%
2.3%
5.2%
2.8%
5.2%
4.8%
5.3%
3.3%
7.9%
6.6%
4.1%
3.3%
5.5%
5.5%
3.3%
3.3%
4.3%
4.3%
3.3%
3.3%
4.4%
4.4%
3.7%
3.7%
3.7%
3.7%
3.6%
3.6%
3.8%
3.9%
8.4%
4.1%
6.5%
-0.1%
0.7%
3.7%
-2.7%
3.4%
4.6%
3.0%
5.1%
5.0%
3.5%
3.5%
4.0%
4.1%
4.6%
4.5%
7.2%
7.1%
-5.5%
-5.6%
3.6%
3.2%
2.3%
1.9%
8.5%
7.9%
4.0%
3.1%
3.0%
2.3%
7.6%
5.6%
-2.2%
4.0%
-3.6%
2.4%
1.1%
9.0%
5.9%
4.9%
5.5%
3.0%
7.6%
7.5%
5.7%
4.7%
5.6%
3.0%
6.2%
6.0%
5.2%
5.1%
4.9%
3.5%
6.1%
6.0%
4.7%
4.7%
4.9%
3.5%
4.3%
4.3%
3.8%
3.8%
3.5%
3.5%
5.0%
5.0%
3.8%
3.8%
3.5%
3.5%
5.0%
5.0%
4.2%
4.2%
4.0%
4.0%
5.0%
5.0%
4.3%
4.3%
4.0%
4.0%
5.0%
5.0%
6.6%
3.1%
6.9%
3.8%
5.8%
0.8%
2.3%
3.8%
2.1%
3.5%
2.9%
5.3%
5.4%
4.9%
5.2%
3.2%
5.8%
5.7%
4.0%
4.0%
3.7%
3.7%
5.0%
5.0%
6.9%
8.9%
-8.5%
0.5%
-7.1%
1.0%
-6.0%
-0.3%
-0.3%
0.4%
4.3%
2.7%
7.2%
4.3%
4.3%
4.3%
3.1%
3.1%
3.1%
3.1%
2.7%
2.7%
2.7%
2.7%
9.9%
2.8%
-4.0%
2.2%
3.8%
2.9%
2.9%
2.9%
8.2%
10.0%
3.6%
6.0%
-5.5%
3.4%
-15.9%
-6.5%
-4.7%
3.4%
-12.6%
-4.5%
-3.5%
2.0%
-11.3%
-5.0%
1.6%
2.0%
-5.6%
-4.0%
4.5%
2.5%
3.8%
3.0%
5.9%
3.0%
10.4%
7.5%
3.0%
3.0%
7.5%
7.5%
3.0%
3.0%
3.5%
3.5%
3.0%
3.0%
3.5%
3.5%
3.0%
3.0%
2.0%
2.0%
3.0%
3.0%
2.0%
2.0%
11.0%
4.6%
7.3%
-1.3%
-1.6%
4.6%
-9.7%
-3.0%
3.6%
2.6%
4.2%
3.7%
3.0%
3.0%
2.7%
2.7%
Global Medical Reported Growth
Global Medical Internal Growth
4.0%
3.6%
5.9%
6.6%
4.2%
3.5%
-1.1%
4.0%
6.4%
5.0%
6.5%
5.0%
4.5%
5.0%
4.9%
5.0%
5.0%
5.0%
5.0%
5.0%
4.4%
5.0%
4.9%
5.0%
9.5%
6.3%
3.2%
4.4%
5.5%
5.0%
4.8%
5.0%
North American Medical
Reported Growth
Internal Growth (incl flu/other)
Internal Growth (ex flu/other)
4.0%
3.4%
3.4%
7.2%
7.2%
7.2%
5.1%
3.8%
8.2%
-1.0%
3.9%
5.1%
6.7%
5.0%
5.0%
6.6%
5.0%
5.0%
4.4%
5.0%
5.0%
4.9%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
4.4%
5.0%
5.0%
4.9%
5.0%
5.0%
9.8%
6.7%
8.0%
3.7%
4.5%
6.1%
5.5%
5.0%
5.0%
4.8%
5.0%
5.0%
International Medical
Reported Growth
Internal Growth
3.9%
7.4%
-11.7%
-2.2%
-13.2%
-2.1%
-2.1%
4.5%
2.9%
4.5%
5.3%
4.5%
7.4%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
5.4%
-0.8%
-5.8%
1.9%
4.9%
4.5%
4.5%
4.5%
Global Vet Reported Growth
Global Vet Internal Growth
15.3%
14.8%
11.4%
8.7%
19.2%
9.1%
12.1%
5.5%
18.7%
3.4%
15.0%
4.5%
8.8%
4.9%
7.5%
5.1%
4.9%
4.9%
4.9%
4.9%
4.9%
4.9%
4.8%
4.9%
30.8%
6.7%
14.4%
9.3%
12.3%
4.5%
4.9%
4.9%
North American Vet
Reported Growth
Internal Growth
15.8%
15.8%
14.2%
14.2%
12.2%
12.2%
-0.8%
7.5%
4.0%
4.0%
5.0%
5.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
11.7%
8.8%
10.2%
12.5%
5.2%
5.2%
6.0%
6.0%
International Vet
Reported Growth
Internal Growth
14.9%
13.7%
8.6%
3.4%
25.9%
6.2%
24.2%
4.0%
33.9%
3.0%
25.3%
4.0%
11.3%
4.0%
8.7%
4.5%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
56.9%
3.7%
18.5%
6.5%
18.8%
3.9%
4.0%
4.0%
13.1%
9.0%
9.8%
8.6%
14.1%
11.2%
7.6%
9.0%
13.9%
7.5%
11.9%
7.5%
11.7%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
25.3%
9.6%
11.0%
9.3%
11.1%
7.5%
7.5%
7.5%
% of Company-wide sales
Global Dental Consumables
% of Dental Sales
Global Dental Equipment
% of Dental Sales
North American Dental
% of Dental Sales
NA Dental Consumables
% of NA Dental Sales
NA Dental Equipment
% of NA Dental Sales
International Dental
% of Dental Sales
International Dental Consumables
% of International Dental Sales
International Dental Equipment
% of International Dental Sales
Global Medical
North American Medical
% of Medical Sales
International Medical
% of Medical Sales
Global Vet
North American Vet
% of Vet Sales
International Vet
% of Vet Sales
Global Technology
% Company-wide sales
Y/Y % Change
Net Sales
Reported Growth
Internal Growth
Fx Impact
Acquisition Growth/Chg in Selling Period
Global Dental
Global Dental Reported Growth
Global Dental Internal Growth
Global Dental Consumables Reported Growth
Global Dental Consumables Internal Growth
Global Dental Equipment Reported Growth
Global Dental Equipment Internal Growth
North American Dental
Reported Growth
Internal Growth
NA Dental Consumables Reported Growth
NA Dental Consumables Internal Growth
NA Dental Equipment Reported Growth
NA Dental Equipment Internal Growth
International Dental
Reported Growth
Internal Growth
International Dental Consumables Reported Growth
International Dental Consumables Internal Growth
International Dental Equipment Reported Growth
International Dental Equipment Internal Growth
Global Medical
Global Vet
Global Technology
Global Technology Reported Growth
Global Technology Internal Growth
62
Jeffrey D. Johnson O.D., CFA (414) 298-6027; [email protected]
(SIRO - NASDAQ)
12/31/2012
Year ends September
($ Mil)
Net Sales
CAD/CAM
% of total sales
Imaging Systems
% of total sales
Treatment Centers
% of total sales
Instruments
% of total sales
Q1-12
258,116
Q2-12
231,864
Q3-12
242,007
Q4-12
247,364
Q1-13E
273,853
Q2-13E
253,606
Q3-13E
Q4-13E
Q1-14E
Q2-14E
Q3-14E
Q4-14E
YR-11
YR-12
276,832
274,828
293,328
272,113
297,034
294,872
913,866
979,351
YR-13E
1,079,119
YR-14E
1,157,347
84,226
32.6%
94,435
36.6%
51,259
19.9%
28,033
10.9%
85,561
36.9%
74,844
32.3%
46,442
20.0%
24,684
10.6%
85,415
35.3%
82,120
33.9%
48,773
20.2%
25,204
10.4%
79,337
32.1%
92,129
37.2%
50,670
20.5%
24,550
9.9%
87,537
32.0%
102,869
37.6%
54,593
19.9%
28,454
10.4%
94,612
37.3%
85,755
33.8%
47,561
18.8%
25,279
10.0%
102,605
37.1%
94,541
34.2%
52,273
18.9%
27,013
9.8%
95,827
34.9%
102,064
37.1%
51,226
18.6%
25,311
9.2%
96,291
32.8%
111,099
37.9%
56,230
19.2%
29,308
10.0%
104,073
38.2%
92,615
34.0%
48,988
18.0%
26,037
9.6%
112,866
38.0%
102,104
34.4%
53,841
18.1%
27,823
9.4%
105,409
35.7%
110,230
37.4%
52,763
17.9%
26,070
8.8%
306,743
33.6%
319,774
35.0%
183,879
20.1%
102,275
11.2%
334,539
34.2%
343,528
35.1%
197,144
20.1%
102,471
10.5%
380,581
35.3%
385,230
35.7%
205,653
19.1%
106,056
9.8%
418,639
36.2%
416,048
35.9%
211,822
18.3%
109,238
9.4%
119,333
138,783
53.8%
58.1%
107,215
124,649
53.8%
58.5%
113,567
128,440
53.1%
57.6%
115,285
132,079
53.4%
57.7%
126,484
147,369
53.8%
57.1%
116,306
137,300
54.1%
57.7%
126,103
150,729
54.4%
57.7%
124,275
150,553
54.8%
58.1%
133,302
160,026
54.6%
57.1%
121,515
150,598
55.3%
58.1%
131,724
165,310
55.7%
58.2%
131,028
163,844
55.6%
58.1%
430,214
483,652
52.9%
58.5%
455,400
523,951
53.5%
58.0%
493,169
585,950
54.3%
57.6%
517,570
639,777
55.3%
57.9%
73,646
28.5%
13,286
5.1%
39
0.0%
(2,500)
-1.0%
72,667
31.3%
13,638
5.9%
728
0.3%
(2,500)
-1.1%
72,434
29.9%
13,092
5.4%
(504)
-0.2%
(2,500)
-1.0%
76,912
31.1%
12,606
5.1%
(338)
-0.1%
(2,500)
-1.0%
81,623
29.8%
15,062
5.5%
(338)
-0.1%
(2,500)
-0.9%
80,770
31.8%
14,202
5.6%
(338)
-0.1%
(2,500)
-1.0%
80,859
29.2%
14,793
5.3%
(338)
-0.1%
(2,500)
-0.9%
83,431
30.4%
14,691
5.3%
(338)
-0.1%
(2,500)
-0.9%
82,186
28.0%
15,928
5.4%
(338)
-0.1%
(2,500)
-0.9%
84,120
30.9%
15,369
5.6%
(338)
-0.1%
(2,500)
-0.9%
85,259
28.7%
17,012
5.7%
(338)
-0.1%
(2,500)
-0.8%
88,203
29.9%
16,598
5.6%
(338)
-0.1%
(2,500)
-0.8%
270,456
29.6%
55,530
6.1%
96
0.0%
(10,000)
-1.1%
295,659
30.2%
52,622
5.4%
(75)
0.0%
(10,000)
-1.0%
326,683
30.3%
58,749
5.4%
(1,352)
-0.1%
(10,000)
-0.9%
339,768
29.4%
64,907
5.6%
(1,352)
-0.1%
(10,000)
-0.9%
Total Operating Expenses
% of Revenue
84,471
32.7%
84,533
36.5%
82,522
34.1%
86,680
35.0%
93,847
34.3%
92,134
36.3%
92,814
33.5%
95,285
34.7%
95,276
32.5%
96,651
35.5%
99,433
33.5%
101,963
34.6%
316,082
34.6%
338,206
34.5%
374,080
34.7%
393,323
34.0%
Operating Income
Operating Income ex non-recurring/deal related D&A/restructuring
Operating Margin - GAAP
Operating Margin ex non-recurring/deal related D&A/restructuring
54,312
66,609
21.0%
25.8%
40,116
52,156
17.3%
22.5%
45,918
57,787
19.0%
23.9%
45,399
57,142
18.4%
23.1%
53,522
63,618
19.5%
23.2%
45,166
55,262
17.8%
21.8%
57,915
68,686
20.9%
24.8%
55,268
66,039
20.1%
24.0%
64,750
74,021
22.1%
25.2%
53,947
63,218
19.8%
23.2%
65,877
75,148
22.2%
25.3%
61,881
71,152
21.0%
24.1%
167,570
222,537
18.3%
24.4%
185,745
233,694
19.0%
23.9%
211,871
253,605
19.6%
23.5%
246,454
283,538
21.3%
24.5%
2,230
436
903
262
1,350
(2,936)
1,014
228
2,675
2,686
866
(218)
(382)
(2,147)
984
(529)
(5,668)
3,302
3,883
(101)
5,873
(1,961)
3,767
(257)
50,481
19.6%
11,611
23.0%
40,460
17.4%
9,305
23.0%
39,909
16.5%
9,180
23.0%
47,473
19.2%
12,622
26.6%
159,529
17.5%
35,744
22.4%
178,323
18.2%
42,718
24.0%
Cost of Goods
Gross Profit
Gross Margin
GM ex Inventory Step-up/ex deal-related D&A
SG&A Expense
% of Sales
R&D Expense
% of Sales
Provision for Doubtful Accounts/Notes
% of Sales
Net Other
% of Sales
Foreign Currency Transaction loss (gain)
(Gain) loss on derivative instruments
Interest Expense, net
Other Expense (Income)
Pretax Income
Pretax Margin
Provision for Taxes
Tax Rate
Minority Interest
Net Income
Net Margin
593
634
431
115
884
52,638
19.2%
12,633
24.0%
400
784
44,382
17.5%
10,652
24.0%
400
684
57,231
20.7%
13,735
24.0%
400
584
54,684
19.9%
13,124
24.0%
400
584
64,166
21.9%
15,400
24.0%
400
584
53,363
19.6%
12,807
24.0%
400
584
65,293
22.0%
15,670
24.0%
400
584
61,297
20.8%
14,711
24.0%
400
1,992
1,773
244,118
21.1%
58,588
24.0%
1,600
157,190
14.6%
1,600
30,521
13.2%
30,298
12.5%
34,736
14.0%
39,605
14.5%
33,330
13.1%
43,095
15.6%
41,160
15.0%
48,366
16.5%
40,156
14.8%
49,223
16.6%
46,186
15.7%
Diluted EPS - GAAP
$0.67
$0.54
$0.53
$0.62
$0.70
$0.59
$0.77
$0.74
$0.87
$0.72
$0.89
$0.84
$2.13
$2.36
$2.80
$3.31
After-tax Foreign Currency Transactions
After-tax Amortization - MDP/Exchange
After-tax Gain/Loss on Derivatives
1,717
9,208
336
1,040
9,014
(2,261)
2,060
8,883
2,068
(470)
8,327
(1,576)
-
-
-
-
-
-
-
-
1,992
42,040
2,633
4,347
35,432
(1,433)
-
-
Diluted Ave. Shares (000)
133,832
13.7%
208,935
19.4%
50,144
24.0%
2,336
-
38,277
14.8%
Adjusted EPS (ex non-recurring/deal related D&A/restructuring) (1)
121,793
13.3%
2,936
-
183,930
15.9%
$0.87
$0.67
$0.76
$0.73
$0.84
$0.73
$0.91
$0.88
$0.99
$0.85
$1.02
$0.96
$2.94
$3.03
$3.37
$3.82
57,122
56,916
56,718
56,388
56,288
56,188
56,088
55,988
55,788
55,588
55,388
55,188
57,293
56,755
56,138
55,488
% Changes
Net Sales
CAD/CAM
Imaging
Treatment Centers
Instruments
9.5%
1.0%
23.8%
3.0%
7.5%
8.0%
11.1%
3.5%
12.7%
3.3%
-1.1%
2.7%
-3.4%
1.3%
-10.0%
13.1%
25.6%
6.9%
13.2%
1.0%
6.1%
3.9%
8.9%
6.5%
1.5%
9.4%
10.6%
14.6%
2.4%
2.4%
14.4%
20.1%
15.1%
7.2%
7.2%
11.1%
20.8%
10.8%
1.1%
3.1%
7.1%
10.0%
8.0%
3.0%
3.0%
7.3%
10.0%
8.0%
3.0%
3.0%
7.3%
10.0%
8.0%
3.0%
3.0%
7.3%
10.0%
8.0%
3.0%
3.0%
18.6%
17.8%
26.6%
13.3%
8.5%
7.2%
9.1%
7.4%
7.2%
0.2%
10.2%
13.8%
12.1%
4.3%
3.5%
7.2%
10.0%
8.0%
3.0%
3.0%
Cost of Sales
Gross Profit
13.4%
6.4%
8.2%
7.7%
-3.6%
1.3%
6.7%
19.3%
6.0%
6.2%
8.5%
10.1%
11.0%
17.4%
7.8%
14.0%
5.4%
8.6%
4.5%
9.7%
4.5%
9.7%
5.4%
8.8%
15.9%
21.2%
5.9%
8.3%
8.3%
11.8%
4.9%
9.2%
SG&A Expense
R&D Expense
16.3%
-1.7%
3.0%
-3.6%
5.7%
-9.0%
13.1%
-6.5%
10.8%
13.4%
11.2%
4.1%
11.6%
13.0%
8.5%
16.5%
0.7%
5.8%
4.1%
8.2%
5.4%
15.0%
5.7%
13.0%
14.6%
19.8%
9.3%
-5.2%
10.5%
11.6%
4.0%
10.5%
Operating Income
Operating Income ex non-recurring/deal related D&A
Operating Income ex non-recurring/deal related D&A/ex FAS123
-3.0%
-4.2%
19.7%
10.9%
-1.0%
-4.4%
81.4%
25.4%
-1.5%
-4.5%
12.6%
6.0%
26.1%
18.9%
21.7%
15.6%
21.0%
16.4%
19.4%
14.4%
13.7%
9.4%
12.0%
7.7%
32.5%
17.8%
13.6%
10.8%
5.0%
5.3%
14.1%
8.5%
8.6%
16.3%
11.8%
11.6%
Interest (Exp.)
Pretax Income
-4.9%
-8.3%
9.1%
6.1%
-12.0%
-15.8%
-3.5%
150.3%
-2.1%
4.3%
-22.7%
9.7%
-21.0%
43.4%
-40.7%
15.2%
-33.9%
21.9%
-25.5%
20.2%
-14.6%
14.1%
0.0%
12.1%
-64.8%
38.4%
-3.0%
11.8%
-22.1%
17.2%
-20.4%
16.8%
-9.7%
4.1%
-16.6%
152.5%
3.5%
9.2%
42.2%
18.5%
22.1%
20.5%
14.2%
12.2%
35.3%
9.9%
17.5%
17.0%
-10.1%
-7.5%
4.7%
10.0%
-15.3%
-2.7%
157.3%
19.6%
5.0%
-3.1%
10.6%
8.4%
43.8%
19.7%
19.3%
21.2%
23.2%
18.3%
21.8%
16.4%
15.7%
11.1%
13.8%
9.4%
33.7%
14.8%
10.9%
3.2%
18.7%
10.9%
18.4%
13.6%
Net Income
EPS - Diluted (GAAP)
Adjusted EPS (ex non-recurring/deal related D&A) (1)
Ave. Shares (000)
Internal Growth:
Foreign Currency Impact:
0.5%
10.2%
-0.7%
-0.5%
11.1%
-3.1%
-1.5%
7.0%
-8.1%
-1.9%
23.4%
-10.3%
-1.5%
8.2%
-2.1%
-1.3%
10.2%
-0.8%
-1.1%
14.1%
0.3%
-0.7%
9.5%
1.6%
-0.9%
7.1%
0.0%
-1.1%
7.3%
0.0%
-1.2%
7.3%
0.0%
-1.4%
7.3%
0.0%
1.2%
16.4%
2.2%
-0.9%
12.6%
-5.4%
-1.1%
10.5%
-0.3%
-1.2%
7.2%
0.0%
NOTE: In late FY’12, SIRO changed its definition of non-GAAP EPS to exclude the impact Fx has on the revaluation of short- and long-term balance sheet assets and liabilities. This change had no impact to our forward estimates, but did change
historical non-GAAP EPS numbers. We’ve restated FY’11 and FY’12 quarterly and annual EPS numbers to match management’s new definition of non-GAAP EPS, meaning a comparison of FY’11 to FY’10 EPS is no longer valid.
Please refer to "Appendix - Important Disclosures" and Analyst Certification. Source: Company reports, RWB estimates
63
SIRO — NASDAQ
Fiscal Year Ends September
Balance Sheet
ASSETS
Cash & Equivalents
Restricted Cash/Short-Term Investments
Receivables
Inventory
Prepayments & Other Current Assets
Deferred Income Taxes
Total Current
2006
2007
2008
2009
2010
2011
2012
80,560
953
66,090
57,303
16,074
4,671
225,651
99,842
908
87,074
74,834
22,559
9,040
294,257
149,663
934
80,319
77,733
33,912
12,199
354,760
181,098
902
98,277
74,525
24,195
16,483
395,480
251,767
703
82,952
74,027
27,672
20,570
457,691
345,859
0
97,853
93,028
19,670
25,014
581,424
151,088
0
132,569
81,007
19,835
24,781
409,280
61,042
618,993
613,549
3,649
18,120
1,541,004
80,523
597,302
677,506
2,494
5,661
1,657,743
100,134
514,601
683,075
1,190
5,245
1,659,005
102,775
447,946
696,355
943
4,576
1,648,075
102,686
362,722
656,465
8,827
4,546
1,592,937
131,044
346,442
653,799
7,427
5,992
1,726,128
143,351
288,556
631,077
12,888
9,382
1,494,534
30,303
14,738
10,434
3,208
65,203
123,886
46,190
23,041
5,543
3,264
84,348
162,386
39,803
9,093
4,544
1,650
85,309
140,399
38,463
4,688
5,191
466
95,602
144,410
42,737
2,935
7,748
1,456
105,209
160,085
48,697
368,403
6,811
1,108
110,207
535,226
51,961
478
14,906
817
118,075
186,237
LT Debt
Deferred Tax Liabilities
Pension Related Provisions
Deferred Income
Other
Total Liabilities
518,634
243,491
48,167
100,589
18,128
1,052,895
540,143
192,808
49,450
90,000
13,406
1,048,193
544,350
174,420
47,378
80,000
11,489
998,036
470,224
159,659
50,328
70,000
8,699
903,320
367,801
138,190
52,672
60,000
6,556
785,304
0
138,327
49,677
50,000
16,978
790,208
75,000
122,441
61,629
40,000
16,852
502,159
Minority Interest
Common Stock
Additional Paid-In Capital
Other
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
263
484
546
548
582,447
603,570
(95,147)
4,948
487,846
609,066
1,541,004 1,657,743
626
549
620,732
39,062
660,343
1,659,005
1,317
550
637,264
105,624
743,438
1,648,075
2,222
553
652,698
152,160
805,411
1,592,937
3,644
563
685,617
246,096
932,276
1,726,128
3,017
566
699,279
289,513
992,375
1,494,534
Property & Equipment, Net
Intangible Assets, Net
Goodwill, Net
Deferred Income Taxes
Other Assets
Total Assets
Payables
Current Maturity of LTD
Income Taxes Payable
Deferred Tax Liabilities
Accrued Liabilities/Deferred Income
Total Current Liabilities
2006(1)
2007
2008
2009
LT Debt / Equity
106%
89%
82%
63%
52%
47%
45%
39%
52%
48%
46%
39%
44%
40%
33%
24%
Current Ratio
1.8
1.8
2.5
2.7
EBIT / Interest*
2.2
5.2
6.4
8.0
Days Sales Outstanding*
39.9
42.4
40.3
45.7
Inventory Turnover*
5.3
5.4
5.4
4.8
ROIC*
5.8%
12.3%
4.2%
6.0%
*Interim ROIC uses adjusted Net Income to exclude select non-recurring items
2010
46%
31%
31%
10%
2.9
18.3
42.9
5.0
8.2%
2011
0%
0%
28%
2%
1.1
59.3
36.1
5.2
10.1%
2012
8%
7%
7%
NM
2.2
64.3
42.9
5.2
11.5%
Cash Flow Statement
Net Income
Deferred Taxes
(Gains)/loss on derivatives
Fx transaction losses
Write-off, IPR&D
Other
2006
755
62,931
(12,340)
(719)
(9,873)
6,000
25,519
24,441
2007
56,469
96,378
(72,683)
169
(16,794)
0
(37,456)
53,092
2008
29,439
106,042
(23,561)
6,660
(8,935)
0
(27,667)
12,707
2009
53,355
90,732
(21,862)
151
(1,248)
0
(18,954)
17,725
2010
91,446
82,723
(21,463)
(6,102)
7,160
0
7,271
14,633
2011
123,785
81,173
(17,173)
3,302
(5,668)
0
(21,382)
14,816
2012
135,605
77,749
(17,274)
(1,961)
5,873
0
(7,786)
9,163
2013E
157,190
71,000
(15,000)
0
0
0
(15,000)
10,000
2014E
183,930
66,000
(15,000)
0
0
0
(15,000)
10,000
Growth - y/y
Per Share
96,714
-50%
$1.76
79,175
-18%
$1.44
94,685
20%
$1.71
119,899
27%
$2.16
175,668
47%
$3.10
178,853
2%
$3.12
201,369
13%
$3.55
208,190
3%
$3.71
229,930
10%
$4.14
20,950
0
26,878
0
36,074
0
20,974
0
23,963
0
56,958
0
47,131
0
59,352
0
63,654
0
75,764
-57%
1.38
52,297
-31%
0.95
58,611
12%
1.06
98,925
69%
1.78
151,705
53%
2.68
121,895
-20%
2.13
154,238
27%
2.72
148,839
-4%
2.65
166,276
12%
3.00
Du Pont Formula
2006*
2007
2008
2009
2010
2011
2012
Net Margins - LTM (NI/S)*
8.3%
9.4%
12.8%
16.1%
18.8%
18.1%
17.7%
0.3
0.4
0.5
0.4
0.5
0.5
0.7
Leverage
(A/E)
3.2
2.7
2.5
2.2
2.0
1.9
1.5
Return on Equity
8.8%
10.2%
14.6%
15.4%
18.0%
17.8%
17.5%
*Post 2006 Adjusted Net Income to exclude D&A related to MDP & the Exchange and other select non-recurring
items
2013E
14.6%
0.6
1.5
13.8%
2014E
15.9%
0.6
1.4
13.9%
Valuation Measures
2013E
2014E
Dividends
Excess Cash Flow
Growth - y/y
Per share
2006
2007
2008
2009
2010
2011
2012
Current Price
12/31/2012
$64.46
Market Value
1,805,986 1,963,100 1,287,466 1,649,907 2,858,091 2,429,796 3,658,453 3,618,673
3,576,774
ST+LT Debt
Other Liabilities
Cash & Equivalents
Total DAMV
EBITDA
Adjusted EBITDA (2)
533,372
563,184
553,443
474,912
370,736
368,403
75,478
78,000
66,295
62,856
58,867
59,027
59,228
66,655
78,481
80,000
81,513
100,750
150,597
182,000
252,470
345,859
151,088
299,927
2,324,140 2,488,390 1,749,179 2,001,846 3,035,585 2,518,995 3,661,324 3,476,746
129,244
143,397
169,803
184,088
209,165
248,743
263,494
282,871
128,537
157,211
169,803
184,088
209,165
248,743
263,494
284,221
78,000
82,000
466,203
3,270,571
312,454
315,154
DAMV / EBITDA
DAMV/Adjusted EBITDA
18.0
18.1
17.4
15.8
10.3
10.3
10.9
10.9
14.5
14.5
10.1
10.1
13.9
13.9
12.3
12.2
10.5
10.4
64
Jeffrey D. Johnson O.D., CFA (414) 298-6027; [email protected]
Year ends September
(SIRO - NASDAQ)
Q1-12
Q2-12
Q3-12
Q4-12
Q1-13E
Q2-13E
Q3-13E
Q4-13E
Q1-14E
Q2-14E
Q3-14E
Q4-14E
2011
2012
2013E
2014E
$258,116
$119,333
$138,783
$150,051
53.8%
58.1%
$231,864
$107,215
$124,649
$135,672
53.8%
58.5%
$242,007
$113,567
$128,440
$139,301
53.1%
57.6%
$247,364
$115,197
$132,167
$142,814
53.4%
57.7%
$273,853
$126,484
$147,369
$156,369
53.8%
57.1%
$253,606
$116,306
$137,300
$146,300
54.1%
57.7%
$276,832
$126,103
$150,729
$159,729
54.4%
57.7%
$274,828
$124,275
$150,553
$159,553
54.8%
58.1%
$293,328
$133,302
$160,026
$167,526
54.6%
57.1%
$272,113
$121,515
$150,598
$158,098
55.3%
58.1%
$297,034
$131,724
$165,310
$172,810
55.7%
58.2%
$294,872
$131,028
$163,844
$171,344
55.6%
58.1%
$913,866
$430,214
$483,652
$534,183
52.9%
58.5%
$979,351
$455,312
$524,039
$567,838
53.5%
58.0%
$1,079,119 $1,157,347
$493,169
$519,586
$585,950
$637,761
$621,950
$667,761
54.3%
55.1%
57.6%
57.7%
$257,953
$147,769
57.3%
$231,531
$133,336
57.6%
$241,512
$137,676
57.0%
$246,686
$141,165
57.2%
$273,453
$153,953
56.3%
$253,206
$143,884
56.8%
$276,432
$157,313
56.9%
$274,428
$157,137
57.3%
$292,928
$165,110
56.4%
$271,713
$155,682
57.3%
$296,634
$170,394
57.4%
$294,472
$168,928
57.4%
$912,671
$524,286
57.4%
$977,682
$559,946
57.3%
$1,077,519 $1,155,747
$612,286
$660,113
56.8%
57.1%
$84,226
1.0%
1.5%
$24,484
$59,742
70.9%
$85,561
11.1%
13.7%
$25,691
$59,870
70.0%
$85,415
2.7%
9.5%
$25,885
$59,530
69.7%
$79,337
25.6%
36.5%
$24,650
$54,687
68.9%
$87,537
3.9%
5.0%
$28,012
$59,525
68.0%
$94,612
10.6%
11.0%
$30,215
$64,397
68.1%
$102,605
20.1%
20.0%
$32,255
$70,350
68.6%
$95,827
20.8%
20.0%
$30,412
$65,415
68.3%
$96,291
10.0%
10.0%
$30,559
$65,732
68.3%
$104,073
10.0%
10.0%
$32,783
$71,290
68.5%
$112,866
10.0%
10.0%
$34,988
$77,877
69.0%
$105,409
10.0%
10.0%
$32,677
$72,732
69.0%
$306,743
17.8%
15.9%
$92,610
$214,133
69.8%
$334,539
9.1%
13.9%
$100,710
$233,829
69.9%
$380,581
13.8%
14.3%
$120,894
$259,687
68.2%
$418,639
10.0%
10.0%
$131,007
$287,632
68.7%
$94,435
23.8%
24.3%
$40,363
$54,072
57.3%
$74,844
3.5%
6.0%
$32,243
$42,601
56.9%
$82,120
-3.4%
2.8%
$34,274
$47,846
58.3%
$92,129
6.9%
14.0%
$37,122
$55,007
59.7%
$102,869
8.9%
10.0%
$43,925
$58,944
57.3%
$85,755
14.6%
15.0%
$37,664
$48,091
56.1%
$94,541
15.1%
15.0%
$40,199
$54,342
57.5%
$102,064
10.8%
10.0%
$42,479
$59,585
58.4%
$111,099
8.0%
8.0%
$48,572
$62,526
56.3%
$92,615
8.0%
8.0%
$40,565
$52,050
56.2%
$102,104
8.0%
8.0%
$43,905
$58,200
57.0%
$110,230
8.0%
8.0%
$47,399
$62,831
57.0%
$319,774
26.6%
24.8%
$132,399
$187,375
58.6%
$343,528
7.4%
11.5%
$144,002
$199,526
58.1%
$385,230
12.1%
12.3%
$164,267
$220,963
57.4%
$416,048
8.0%
8.0%
$180,441
$235,606
56.6%
$51,259
3.0%
3.8%
$30,707
$20,552
40.1%
$46,442
12.7%
17.5%
$27,623
$18,819
40.5%
$48,773
1.3%
13.3%
$28,839
$19,934
40.9%
$50,670
13.2%
28.0%
$30,350
$20,320
40.1%
$54,593
6.5%
8.0%
$32,483
$22,110
40.5%
$47,561
2.4%
3.0%
$28,299
$19,262
40.5%
$52,273
7.2%
7.0%
$30,998
$21,275
40.7%
$51,226
1.1%
0.0%
$30,480
$20,747
40.5%
$56,230
3.0%
3.0%
$33,153
$23,077
41.0%
$48,988
3.0%
3.0%
$28,883
$20,105
41.0%
$53,841
3.0%
3.0%
$31,766
$22,075
41.0%
$52,763
3.0%
3.0%
$31,130
$21,633
41.0%
$183,879
13.3%
10.2%
$110,700
$73,179
39.8%
$197,144
7.2%
15.1%
$117,519
$79,625
40.4%
$205,653
4.3%
4.6%
$122,259
$83,394
40.6%
$211,822
3.0%
3.0%
$124,933
$86,889
41.0%
$28,033
7.5%
8.4%
$14,630
$13,403
47.8%
$24,684
3.3%
7.7%
$12,638
$12,046
48.8%
$25,204
-10.0%
0.6%
$14,838
$10,366
41.1%
$24,550
1.0%
14.0%
$13,399
$11,151
45.4%
$28,454
1.5%
3.0%
$15,081
$13,374
47.0%
$25,279
2.4%
3.0%
$13,145
$12,134
48.0%
$27,013
7.2%
7.0%
$15,667
$11,345
42.0%
$25,311
3.1%
2.0%
$13,921
$11,390
45.0%
$29,308
3.0%
3.0%
$15,533
$13,775
47.0%
$26,037
3.0%
3.0%
$13,800
$12,237
47.0%
$27,823
3.0%
3.0%
$15,581
$12,242
44.0%
$26,070
3.0%
3.0%
$14,338
$11,731
45.0%
$102,275
8.5%
5.6%
$52,676
$49,599
48.5%
$102,471
0.2%
7.5%
$55,505
$46,966
45.8%
$106,056
3.5%
3.8%
$57,814
$48,242
45.5%
$109,238
3.0%
3.0%
$59,252
$49,986
45.8%
COMPANY-WIDE
Company-wide Revenue - GAAP
COGS - GAAP
Gross Profit - GAAP
Gross Profit - Non-GAAP
Gross Margin - GAAP
Gross Margin - Non-GAAP
SEGMENT TOTAL
Segment Revenue
Segment Gross Profit
Segment Gross Margin
CAD/CAM
Revenue
Reported
Constant Currency
COGS
Gross Profit
Gross Margin
IMAGING SYSTEMS
Revenue
Reported
Constant Currency
COGS
Gross Profit
Gross Margin
TREATMENT CENTERS
Revenue
Reported
Constant Currency
COGS
Gross Profit
Gross Margin
INSTRUMENTS
Revenue
Reported
Constant Currency
COGS
Gross Profit
Gross Margin
65
PATTERSON COMPANIES INC
(PDCO - NASDAQ)
12/31/12
Year Ends April
(000)
NET SALES
Consumable Dental Supplies
% of REV.
Dental Equipment & Software
% of REV.
Other Products & Services
% of REV.
Webster (Vet)
% of REV.
Patterson Medical
% of REV.
Q1-12
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13E
Q4-13E
Q1-14E
Q2-14E
847,422
308,869
36.4%
161,027
19.0%
63,471
7.5%
179,603
21.2%
134,452
15.9%
856,875
312,236
36.4%
174,913
20.4%
63,456
7.4%
172,700
20.2%
133,570
15.6%
895,030
311,356
34.8%
231,372
25.9%
62,313
7.0%
174,643
19.5%
115,346
12.9%
936,334
331,054
35.4%
201,321
21.5%
66,487
7.1%
207,500
22.2%
129,972
13.9%
889,225
310,156
34.9%
191,939
21.6%
65,297
7.3%
191,090
21.5%
130,743
14.7%
867,193
315,377
36.4%
169,311
19.5%
64,461
7.4%
184,375
21.3%
133,669
15.4%
915,361
317,667
34.7%
239,938
26.2%
65,429
7.1%
174,635
19.1%
117,692
12.9%
968,024
341,005
35.2%
218,513
22.6%
69,811
7.2%
206,625
21.3%
132,070
13.6%
925,250
322,730
34.9%
201,843
21.8%
68,562
7.4%
197,017
21.3%
135,099
14.6%
914,757
327,322
35.8%
190,141
20.8%
67,684
7.4%
191,848
21.0%
137,762
15.1%
953,963 1,005,139
328,865
349,530
34.5%
34.8%
251,935
229,439
26.4%
22.8%
68,700
73,302
7.2%
7.3%
183,366
216,956
19.2%
21.6%
121,096
135,912
12.7%
13.5%
3,415,670 3,535,661 3,639,803 3,799,109
1,253,224 1,263,515 1,284,205 1,328,447
36.7%
35.7%
35.3%
35.0%
734,749
768,633
819,701
873,357
21.5%
21.7%
22.5%
23.0%
248,083
255,727
264,998
278,248
7.3%
7.2%
7.3%
7.3%
674,880
734,446
756,725
789,188
19.8%
20.8%
20.8%
20.8%
504,734
513,340
514,174
529,869
14.8%
14.5%
14.1%
13.9%
COST OF SALES
GROSS PROFIT
GROSS MARGIN
569,146
278,276
32.8%
575,892
280,983
32.8%
605,496
289,534
32.3%
622,613
313,721
33.5%
603,525
285,700
32.1%
586,594
280,599
32.4%
622,030
293,331
32.0%
646,363
321,662
33.2%
626,976
298,274
32.2%
616,269
298,489
32.6%
648,760
305,202
32.0%
669,423
335,717
33.4%
2,271,445 2,373,147 2,458,511 2,561,428
1,144,225 1,162,514 1,181,292 1,237,681
33.5%
32.9%
32.5%
32.6%
SG&A EXPENSE
% OF REVENUE
196,283
23.2%
197,724
23.1%
199,628
22.3%
210,870
22.5%
203,108
22.8%
202,730
23.4%
201,929
22.1%
215,385
22.3%
210,957
22.8%
213,138
23.3%
208,918
21.9%
223,141
22.2%
768,217
22.5%
804,505
22.8%
823,152
22.6%
856,154
22.5%
OPERATING INC.
OPERATING MARGIN
81,993
9.7%
83,259
9.7%
89,906
10.0%
102,851
11.0%
82,592
9.3%
77,869
9.0%
91,402
10.0%
106,276
11.0%
87,317
9.4%
85,350
9.3%
96,284
10.1%
112,576
11.2%
376,008
11.0%
358,009
10.1%
358,140
9.8%
381,527
10.0%
OTHER INCOME, NET
INTEREST EXPENSE
1,218
6,353
(46)
6,169
315
8,358
315
9,119
604
9,495
675
9,127
675
8,827
675
8,827
825
8,227
825
8,227
825
8,227
5,719
25,840
1,802
29,999
2,629
36,276
3,300
32,908
PRETAX INCOME
PRETAX MARGIN
76,858
9.1%
77,044
9.0%
81,863
9.1%
94,047
10.0%
73,701
8.3%
69,417
8.0%
83,250
9.1%
98,124
10.1%
79,915
8.6%
77,948
8.5%
88,882
9.3%
105,174
10.5%
355,887
10.4%
329,812
9.3%
324,493
8.9%
351,919
9.3%
TAXES
TAX RATE
28,248
36.8%
28,090
36.5%
28,755
35.1%
31,904
33.9%
26,163
35.5%
23,875
34.4%
28,638
34.4%
33,755
34.4%
27,970
35.0%
27,282
35.0%
31,109
35.0%
36,811
35.0%
130,502
36.7%
116,997
35.5%
112,431
34.6%
123,172
35.0%
NET INCOME
NET MARGIN
48,610
5.7%
48,954
5.7%
53,108
5.9%
62,143
6.6%
47,538
5.3%
45,542
5.3%
54,612
6.0%
64,369
6.6%
51,944
5.6%
50,666
5.5%
57,774
6.1%
68,363
6.8%
225,385
6.6%
212,815
6.0%
212,062
5.8%
228,747
6.0%
EPS
AVE. SHARES (000)
Q3-14E
Q4-14E
825
8,227
YR-11
YR-12
YR-13E
YR-14E
$0.42
$0.43
$0.50
$0.58
$0.45
$0.44
$0.53
$0.62
$0.51
$0.50
$0.57
$0.68
$1.89
$1.92
$2.03
$2.25
116,285
113,186
107,206
106,708
105,783
104,415
103,815
103,215
102,615
102,015
101,415
100,815
119,066
110,846
104,307
101,715
% Changes
NET SALES
Webster
Patterson Medical
-0.3%
-5.3%
4.2%
2.2%
0.0%
5.5%
-0.1%
2.4%
-12.5%
9.0%
6.9%
0.7%
8.5%
3.2%
21.4%
-3.8%
16.6%
-2.1%
5.9%
3.3%
6.2%
5.6%
12.8%
2.5%
4.9%
0.4%
19.2%
2.9%
6.4%
-2.8%
1.2%
1.0%
-3.2%
1.6%
6.8%
0.1%
2.3%
2.0%
3.7%
5.0%
0.0%
2.0%
3.4%
3.0%
8.5%
5.0%
-0.4%
1.6%
4.1%
4.1%
5.2%
5.0%
3.1%
3.3%
5.5%
3.8%
12.3%
5.0%
4.1%
3.1%
4.2%
3.5%
5.0%
5.0%
5.0%
2.9%
3.8%
2.5%
5.0%
5.0%
5.0%
2.9%
5.5%
3.2%
3.6%
2.0%
4.9%
18.4%
3.5%
0.8%
4.6%
3.1%
8.8%
1.7%
2.9%
1.6%
6.6%
3.6%
3.0%
0.2%
4.4%
3.4%
6.5%
5.0%
4.3%
3.1%
COST OF SALES
GROSS PROFIT
-0.1%
-0.7%
-0.4%
0.6%
11.4%
3.1%
7.4%
3.2%
6.0%
2.7%
1.9%
-0.1%
2.7%
1.3%
3.8%
2.5%
3.9%
4.4%
5.1%
6.4%
4.3%
4.0%
3.6%
4.4%
5.7%
5.0%
4.5%
1.6%
3.6%
1.6%
4.2%
4.8%
SG&A EXPENSE
2.7%
4.6%
6.1%
5.5%
3.5%
2.5%
1.2%
2.1%
3.9%
5.1%
3.5%
3.6%
4.6%
4.7%
2.3%
4.0%
-7.9%
-10.4%
-7.6%
-9.7%
-3.0%
-5.1%
-1.2%
-4.5%
0.7%
-4.1%
-6.5%
-9.9%
1.7%
1.7%
3.3%
4.3%
5.7%
8.4%
9.6%
12.3%
5.3%
6.8%
5.9%
7.2%
5.8%
5.0%
-4.8%
-7.3%
0.0%
-1.6%
6.5%
8.5%
NET INCOME
-9.9%
-8.3%
-4.1%
-0.9%
-2.2%
-7.0%
2.8%
3.6%
9.3%
11.3%
5.8%
6.2%
6.2%
-5.6%
-0.4%
7.9%
EPS
-7.1%
-3.2%
6.3%
9.8%
7.5%
0.8%
6.2%
7.1%
12.6%
13.9%
8.3%
8.7%
6.3%
1.4%
5.9%
10.6%
8.5%
8.2%
0.4%
5.9%
5.7%
0.2%
4.9%
4.8%
0.2%
1.2%
0.8%
0.4%
2.3%
1.8%
0.5%
3.4%
2.9%
0.5%
4.1%
3.6%
0.4%
5.5%
5.3%
0.2%
4.2%
4.2%
0.0%
3.8%
3.8%
0.0%
OPERATING INC.
PRETAX INC.
Reported Revenue Growth
-0.3%
-0.1%
4.3%
-0.9%
Acq. / Fx / Selling Period Changes
-4.6%
0.8%
Organic Revenue Growth
Robert
W. Baird & Co.
5.5%
3.5%
2.9%
4.4%
2.0%
4.3%
2.6%
4.2%
66
3.5%
-0.8%
0.4%
0.2%
Source: Company Reports and RWB Estimates
(PDCO - NASDAQ)
12/31/2012
(000)
Balance Sheet
ASSETS
Cash & Equivalents
Receivables
Inventory
Other
Total Current
Interim
2012 10/27/2012
2007
2008
2009
2010
2011
241,791
361,401
250,207
33,091
886,490
308,164
364,050
281,238
30,326
983,778
158,065
476,156
269,934
33,440
937,595
340,591
452,746
288,725
51,696
1,133,758
388,665
465,170
336,094
40,780
1,230,709
573,781
500,374
464,869
407,835
319,952
330,953
44,911
37,861
1,403,513 1,277,023
131,952
921,878
1,940,320
148,932
942,400
2,075,110
166,500
1,029,525
2,133,620
169,598
1,119,613
2,422,969
189,583
1,144,676
2,564,968
195,465
192,354
1,140,390 1,150,863
2,739,368 2,620,240
Current Debt
Payables
Other
Total Current
50,014
182,761
144,694
377,469
130,010
194,405
141,652
466,067
22,000
180,933
131,367
334,300
0
193,626
154,725
348,351
0
210,033
157,398
367,431
125,000
207,915
196,733
529,648
50,000
223,035
159,679
432,714
LT Debt & Lease
Deferred Taxes
Other Liabilities
130,010
53,627
0
525,024
79,232
0
525,000
88,000
0
525,000
108,107
0
525,000
111,997
0
725,000
109,518
0
725,000
105,780
0
0
1,379,214
1,940,320
0
1,004,787
2,075,110
0
1,186,320
2,133,620
0
1,441,511
2,422,969
0
1,560,540
2,564,968
Fixed Assets
Other Assets
Total Assets
Preferred Stock
Common Equity
Total
2007
2008
2009
LT Debt / Equity
9.4%
52.3%
44.3%
8.6%
34.3%
30.7%
11.5%
39.5%
31.6%
NM
20.9%
22.4%
Current Ratio
2.3
2.1
2.8
EBIT / Interest
24
28
11
60.2
58.5
65.2
46.4
44.2
49.6
35.6
35.0
33.4
Days Inventory Outstanding
49.4
49.3
49.1
Inventory Turnover
7.4
7.4
7.4
ROIC
14.0%
14.5%
12.9%
*Net Income stated as reported
2010
36.4%
26.7%
26.7%
9.4%
3.3
14
68.0
52.4
31.8
47.5
7.7
12.3%
2011
33.6%
25.2%
25.2%
6.5%
3.3
15
66.8
49.0
32.4
50.2
7.3
11.9%
0
0
1,375,202 1,356,746
2,739,368 2,620,240
Interim
2012 10/27/2012
52.7%
53.4%
34.5%
34.8%
38.2%
36.4%
12.4%
12.9%
2.6
3.0
12
9.8
66.3
61.0
48.0
44.4
32.1
32.5
50.5
49.1
7.2
7.4
10.8%
10.6%
Cash Flow Statement
2007
Net Income
208,336
25,501
Change in Working Capital 1,911
Other
7,757
243,505
Per Share
1.77
% y/y growth
49%
Dividends
Excess Cash Flow
Per share
2008
2009
224,858
199,635
26,280
30,346
6,518 (113,706)
7,723
7,730
265,379
124,005
2.00
1.05
9%
-53%
2010
212,254
39,474
4,931
8,826
265,485
2.23
114%
2011
225,385
41,339
(14,593)
10,481
262,612
2.21
-1%
2012
212,815
42,209
52,763
13,371
321,158
2.90
22%
2013E
212,062
44,000
(8,000)
10,000
258,062
2.47
-20%
2014E
228,747
46,000
(10,000)
10,000
274,747
2.70
6%
6 mos ended
10/27/2012
93,080
21,906
(642)
18,856
133,200
1.28
12%
19,507
0
35,991
0
32,318
0
29,804
11,886
36,822
49,992
29,650
54,741
25,000
58,412
29,000
56,960
8,765
29,346
223,998
1.63
229,388
1.73
91,687
0.77
223,795
1.88
175,798
1.48
236,767
2.14
174,650
1.67
188,787
1.86
95,089
0.91
Du Pont Formula
Net Margins (N/S)
Leverage
(A/E)
Return on Equity
2007
7.4%
1.5
1.5
15.9%
2008
7.5%
1.5
1.7
18.9%
2009
6.5%
1.5
1.9
18.2%
2010
6.6%
1.4
1.7
16.2%
2011
6.6%
1.4
1.7
15.0%
2012
6.0%
1.3
1.8
14.5%
2013E
5.8%
1.3
1.9
14.3%
2014E As of 10/2712
6.0%
5.8%
1.3
1.3
1.7
2.0
13.4%
15.3%
Valuation Measures
Historical P/CF High (cal year)
Historical P/CF Low (cal year)
2007
25
18
23
16
2008
22
9
19
8
2009
16
9
27
16
2010
17
13
15
11
2011
20
14
17
12
2012
18
13
12
9
2013E
2014E As of 10/27/12
Current Price
12/31/2012
$34.23
Market Value
4,967,941 4,545,505 2,422,469 3,907,466 4,132,772 3,686,746 3,570,429 3,481,704
3,574,125
ST+LT Debt
Other Liabilities
Cash & Equivalents
Total DAMV
EBITDA
775,000
159,679
500,374
4,008,430
397,352
DAMV / EBITDA
180,024
655,034
547,000
525,000
525,000
850,000
725,000
725,000
144,694
141,652
131,367
154,725
157,398
196,733
163,000
169,000
241,791
308,164
158,065
340,591
388,665
573,781
637,019
768,845
5,050,868 5,034,027 2,942,771 4,246,600 4,426,505 4,159,698 3,821,410 3,606,859
361,191
385,483
376,572
394,765
417,347
400,218
402,140
427,527
14.0
13.1
7.8
10.8
10.6
10.4
9.5
8.4
10.1
67
(PDCO - NASDAQ)
12/31/2012
Year ends April.
(000)
Q1-12
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13E
Q4-13E
Q1-14E
Q2-14E
$847,422
$574,962
67.8%
$199,651
23.6%
$72,809
8.6%
$856,875
$569,972
66.5%
$214,025
25.0%
$72,878
8.5%
$895,030
$550,888
61.5%
$273,573
30.6%
$70,569
7.9%
$936,334
$616,487
65.8%
$243,352
26.0%
$76,495
8.2%
$889,225
$587,558
66.1%
$227,042
25.5%
$74,625
8.4%
$867,193
$586,757
67.7%
$206,920
23.9%
$73,516
8.5%
$915,361
$559,259
61.1%
$282,004
30.8%
$74,097
8.1%
$968,024
$626,192
64.7%
$261,513
27.0%
$80,320
8.3%
$925,250
$608,035
65.7%
$238,858
25.8%
$78,356
8.5%
$914,757
$607,860
66.5%
$229,705
25.1%
$77,192
8.4%
$953,963 $1,005,139
$580,056 $646,215
60.8%
64.3%
$296,105 $274,589
31.0%
27.3%
$77,802
$84,336
8.2%
8.4%
$3,415,670 $3,535,661 $3,639,803 $3,799,109
$2,232,876 $2,312,309 $2,359,766 $2,442,166
65.4%
65.4%
64.8%
64.3%
$900,846
$930,601
$977,479 $1,039,257
26.4%
26.3%
26.9%
27.4%
$281,948
$292,751
$302,558
$317,686
8.3%
8.3%
8.3%
8.4%
Patterson Dental
% of Company-wide Revenue
% of Dental
% of Dental
% of Dental
$533,367
62.9%
$308,869
57.9%
$161,027
30.2%
$63,471
11.9%
$550,605
64.3%
$312,236
56.7%
$174,913
31.8%
$63,456
11.5%
$605,041
67.6%
$311,356
51.5%
$231,372
38.2%
$62,313
10.3%
$598,862
64.0%
$331,054
55.3%
$201,321
33.6%
$66,487
11.1%
$567,392
63.8%
$310,156
54.7%
$191,939
33.8%
$65,297
11.5%
$549,149
63.3%
$315,377
57.4%
$169,311
30.8%
$64,461
11.7%
$623,034
68.1%
$317,667
51.0%
$239,938
38.5%
$65,429
10.5%
$629,330
65.0%
$341,005
54.2%
$218,513
34.7%
$69,811
11.1%
$593,134
64.1%
$322,730
54.4%
$201,843
34.0%
$68,562
11.6%
$585,147
64.0%
$327,322
55.9%
$190,141
32.5%
$67,684
11.6%
$649,500
68.1%
$328,865
50.6%
$251,935
38.8%
$68,700
10.6%
$652,271
64.9%
$349,530
53.6%
$229,439
35.2%
$73,302
11.2%
$2,236,056 $2,287,875 $2,368,904 $2,480,052
65.5%
64.7%
65.1%
65.3%
$1,253,224 $1,263,515 $1,284,205 $1,328,447
56.0%
55.2%
54.2%
53.6%
$734,749
$768,633
$819,701
$873,357
32.9%
33.6%
34.6%
35.2%
$248,083
$255,727
$264,998
$278,248
11.1%
11.2%
11.2%
11.2%
Webster - Vet
Veterinary Consumables
% of Webster/Vet
Veterinary Equipment
% of Webster/Vet
Other
% of Webster/Vet
$179,603
21.2%
$169,377
94.3%
$7,567
4.2%
$2,659
1.5%
$172,700
20.2%
$162,727
94.2%
$7,410
4.3%
$2,563
1.5%
$174,643
19.5%
$159,022
91.1%
$13,418
7.7%
$2,203
1.3%
$207,500
22.2%
$194,664
93.8%
$9,924
4.8%
$2,912
1.4%
$191,090
21.5%
$181,375
94.9%
$7,214
3.8%
$2,501
1.3%
$184,375
21.3%
$174,589
94.7%
$7,164
3.9%
$2,622
1.4%
$174,635
19.1%
$158,904
91.0%
$13,418
7.7%
$2,313
1.3%
$206,625
21.3%
$193,147
93.5%
$10,420
5.0%
$3,058
1.5%
$197,017
21.3%
$186,816
94.8%
$7,575
3.8%
$2,626
1.3%
$191,848
21.0%
$181,573
94.6%
$7,522
3.9%
$2,753
1.4%
$183,366
19.2%
$166,849
91.0%
$14,089
7.7%
$2,429
1.3%
$216,956
21.6%
$202,805
93.5%
$10,941
5.0%
$3,210
1.5%
$674,880
19.8%
$631,011
93.5%
$34,321
5.1%
$9,548
1.4%
$734,446
20.8%
$685,790
93.4%
$38,319
5.2%
$10,337
1.4%
$756,725
20.8%
$708,015
93.6%
$38,216
5.1%
$10,494
1.4%
$789,188
20.8%
$738,042
93.5%
$40,127
5.1%
$11,018
1.4%
Patterson Medical - Rehab
Rehab Consumables
% of Patterson Medical
Rehab Equipment
Other
$134,452
15.9%
$96,716
71.9%
$31,057
23.1%
$6,679
5.0%
$133,570
15.6%
$95,009
71.1%
$31,702
23.7%
$6,859
5.1%
$115,346
12.9%
$80,510
69.8%
$28,783
25.0%
$6,053
5.2%
$129,972
13.9%
$90,769
69.8%
$32,107
24.7%
$7,096
5.5%
$130,743
14.7%
$96,027
73.4%
$27,889
21.3%
$6,827
5.2%
$133,669
15.4%
$96,791
72.4%
$30,445
22.8%
$6,433
4.8%
$117,692
12.9%
$82,688
70.3%
$28,648
24.3%
$6,356
5.4%
$132,070
13.6%
$92,039
69.7%
$32,580
24.7%
$7,451
5.6%
$135,099
14.6%
$98,489
72.9%
$29,441
21.8%
$7,168
5.3%
$137,762
15.1%
$98,965
71.8%
$32,042
23.3%
$6,755
4.9%
$121,096
12.7%
$84,342
69.6%
$30,081
24.8%
$6,673
5.5%
$135,912
13.5%
$93,880
69.1%
$34,208
25.2%
$7,823
5.8%
$504,734
14.8%
$348,641
69.1%
$131,776
26.1%
$24,317
4.8%
$513,340
14.5%
$363,004
70.7%
$123,649
24.1%
$26,687
5.2%
$514,174
14.1%
$367,546
71.5%
$119,562
23.3%
$27,066
5.3%
$529,869
13.9%
$375,677
70.9%
$125,772
23.7%
$28,420
5.4%
-0.3%
4.3%
-4.6%
-0.1%
-0.9%
0.8%
8.5%
8.2%
0.4%
5.9%
5.7%
0.2%
4.9%
4.8%
0.2%
1.2%
0.8%
0.4%
2.3%
1.8%
0.5%
3.4%
2.9%
0.5%
4.1%
3.6%
0.4%
5.5%
5.3%
0.2%
4.2%
4.2%
0.0%
3.8%
3.8%
0.0%
5.5%
2.0%
3.5%
3.5%
4.3%
-0.8%
2.9%
2.6%
0.4%
4.4%
4.2%
0.2%
-2.0%
3.9%
2.6%
4.1%
-12.1%
9.5%
5.9%
17.6%
-2.0%
6.5%
4.7%
5.6%
2.2%
13.7%
2.5%
2.9%
-3.3%
0.9%
1.5%
3.1%
5.0%
1.6%
7.5%
5.0%
3.5%
5.2%
5.0%
3.6%
11.0%
5.0%
3.7%
5.0%
5.0%
3.2%
5.0%
5.0%
5.1%
7.3%
3.1%
3.6%
3.3%
3.8%
2.1%
5.0%
3.4%
3.5%
6.3%
5.0%
-1.7%
4.1%
0.2%
0.0%
-6.0%
-2.2%
-2.5%
0.3%
0.0%
0.0%
8.6%
8.8%
-0.2%
0.0%
0.0%
4.5%
4.7%
-0.2%
0.0%
0.0%
6.4%
7.0%
-0.6%
0.0%
0.0%
-0.3%
-0.4%
-0.1%
0.2%
0.0%
3.0%
2.4%
0.0%
0.5%
0.0%
5.1%
4.5%
0.0%
0.5%
0.0%
4.5%
4.0%
0.0%
0.6%
0.0%
6.6%
6.3%
0.0%
0.3%
0.0%
4.2%
4.2%
0.0%
0.0%
0.0%
3.6%
3.6%
0.0%
0.0%
0.0%
3.2%
1.7%
0.3%
0.1%
1.1%
2.3%
3.8%
0.0%
0.0%
-1.5%
3.5%
3.4%
-0.2%
0.3%
0.0%
4.7%
4.5%
0.0%
0.2%
0.0%
Dental Consumables & Printed Office Products
Reported Growth
Internal Growth
FX Impact
Acquisition-related Growth
Change in Selling Period/Med Device Tax
-5.3%
1.7%
0.2%
0.0%
-7.2%
2.4%
2.1%
0.3%
0.0%
0.0%
3.2%
3.4%
-0.2%
0.0%
0.0%
3.3%
3.5%
-0.2%
0.0%
0.0%
0.4%
1.0%
-0.6%
0.0%
0.0%
1.0%
0.9%
-0.1%
0.2%
0.0%
2.0%
1.0%
0.0%
0.5%
0.5%
3.0%
1.0%
0.0%
0.5%
1.5%
4.1%
2.0%
0.0%
0.5%
1.5%
3.8%
2.0%
0.0%
0.3%
1.5%
3.5%
2.5%
0.0%
0.0%
1.0%
2.5%
2.5%
0.0%
0.0%
0.0%
3.2%
1.2%
0.4%
0.1%
1.5%
0.8%
2.7%
0.0%
0.0%
-1.9%
1.6%
1.0%
-0.2%
0.3%
0.5%
3.4%
2.3%
0.0%
0.2%
1.0%
Reported Growth
Internal Growth
FX Impact
Change in Selling Period
4.2%
7.0%
0.2%
0.0%
-3.0%
-12.5%
-12.8%
0.3%
0.0%
0.0%
21.4%
21.6%
-0.2%
0.0%
0.0%
6.2%
6.4%
-0.2%
0.0%
0.0%
19.2%
19.8%
-0.6%
0.0%
0.0%
-3.2%
-3.3%
-0.1%
0.2%
0.0%
3.7%
3.0%
0.0%
0.7%
0.0%
8.5%
7.7%
0.0%
0.8%
0.0%
5.2%
4.3%
0.0%
0.8%
0.0%
12.3%
11.8%
0.0%
0.5%
0.0%
5.0%
5.0%
0.0%
0.0%
0.0%
5.0%
5.0%
0.0%
0.0%
0.0%
3.6%
2.5%
0.3%
0.1%
0.6%
4.6%
5.2%
0.0%
0.0%
-0.6%
6.6%
6.3%
-0.1%
0.5%
0.0%
6.5%
6.2%
0.0%
0.3%
0.0%
2.2%
9.0%
-3.8%
5.6%
2.9%
1.6%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
2.0%
3.1%
3.6%
5.0%
Webster-Vet Sales:
Reported Growth
0.0%
Internal / Pro forma Growth
7.5%
Acquisition-related Growth / Change in Selling Period -7.5%
6.9%
4.4%
2.5%
16.6%
13.6%
3.0%
12.8%
10.8%
2.0%
6.4%
3.9%
2.5%
6.8%
5.9%
0.9%
0.0%
0.0%
0.0%
-0.4%
-0.4%
0.0%
3.1%
3.1%
0.0%
4.1%
4.1%
0.0%
5.0%
5.0%
0.0%
5.0%
5.0%
0.0%
4.9%
3.3%
1.6%
8.8%
9.0%
-0.2%
3.0%
2.2%
0.8%
4.3%
4.3%
0.0%
Company-wide Sales
Consumables & Printed Products
Equipment & Software
Other
Q3-14E
Q4-14E
YR-11
YR-12
YR-13E
YR-14E
Revenue Growth Break-down by Business
Company-wide Sales:
Reported Growth
Internal Growth
Acq./FX/Change in Selling Period
Consumables & Printed Products - Reported
Equipment &Software - Reported
Other - Reported
Dental Sales:
Reported Growth
Internal Growth
FX Impact
Change in Selling Period
Dental Other
Reported Growth
Veterinary Consumables - Reported Growth
Veterinary Equipment - Reported Growth
Veterinary Other - Reported Growth
-0.2%
4.0%
-0.6%
7.0%
1.2%
16.6%
15.1%
35.2%
33.6%
13.8%
1.2%
-3.7%
7.1%
-4.7%
-5.9%
7.3%
-3.3%
2.3%
-0.1%
0.0%
5.0%
-0.8%
5.0%
5.0%
3.0%
5.0%
5.0%
4.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
4.0%
16.8%
27.6%
8.7%
11.6%
8.3%
3.2%
-0.3%
1.5%
4.2%
5.0%
5.0%
Patterson Medical - Rehab Sales:
Reported Growth
Internal / Pro forma Growth
FX Impact
Acquisition-related, Change in Selling Period Growth
5.5%
1.0%
2.5%
2.0%
0.7%
-0.4%
1.1%
0.0%
-2.1%
-1.8%
-0.3%
0.0%
2.5%
3.0%
-0.9%
0.4%
-2.8%
-2.9%
-1.8%
1.9%
0.1%
-0.8%
-0.2%
1.1%
2.0%
1.0%
-0.5%
1.5%
1.6%
0.8%
-0.5%
1.3%
3.3%
2.8%
0.6%
0.0%
3.1%
2.8%
0.2%
0.0%
2.9%
2.9%
0.0%
0.0%
2.9%
2.9%
0.0%
0.0%
18.4%
1.9%
-0.2%
16.7%
1.7%
0.5%
0.6%
0.6%
0.2%
-0.5%
-0.8%
1.5%
3.1%
2.8%
0.2%
0.0%
6.4%
2.2%
8.2%
5.3%
-12.6%
12.3%
0.4%
-10.3%
8.0%
4.0%
-2.8%
10.3%
-0.7%
-10.2%
2.2%
1.9%
-4.0%
-6.2%
2.7%
-0.5%
5.0%
1.4%
1.5%
5.0%
2.6%
5.6%
5.0%
2.2%
5.2%
5.0%
2.0%
5.0%
5.0%
2.0%
5.0%
5.0%
15.0%
31.0%
7.3%
4.1%
-6.2%
9.7%
1.3%
-3.3%
1.4%
2.2%
5.2%
5.0%
Rehab Consumables - Reported Growth
Rehab Equipment - Reported Growth
Rehab Other - Reported Growth
68
Appendix - Important Disclosures and Analyst Certification
Covered Companies Mentioned
All stock prices below are the January 1, 2013 closing price.
Young Innovations Inc. (YDNT - $39.41 - Neutral)
(See recent research reports for more information)
Rating and Price Target History for: DENTSPLY International Inc. (XRAY) as of 01-01-2013
01/04/10
O:$40
02/12/10
O:$39
04/30/10
O:$42
05/27/10
O:$41
07/21/10
O:$37
07/30/10
O:$35
10/29/10
O:$36
01/03/11
O:$39
02/10/11
O:$41
06/23/11
O:$45
10/19/11
O:$42
45
40
35
30
25
Q3
Q1
Q2
Q3
2010
10/28/11
O:$45
Q1
Q2
Q3
2011
05/02/12
O:$48
07/09/12
O:$47
Q1
Q2
Q3
2012
20
2013
08/01/12
O:$44
Created by BlueMatrix
Rating and Price Target History for: Patterson Companies, Inc. (PDCO) as of 01-01-2013
01/04/10
O:$35
02/22/11
N:$35
05/23/11
N:$38
05/27/11
N:$37
08/26/11
N:$34
10/19/11
N:$33
02/24/12
N:$34
05/25/12
N:$37
08/24/12
N:$36
11/21/12
N:$35
40
36
32
28
24
Q3
Q1
2010
Q2
Q3
Q1
2011
Q2
Q3
Q1
2012
Q2
Q3
20
2013
69
Rating and Price Target History for: Sirona Dental Systems, Inc. (SIRO) as of 01-01-2013
02/09/10
O:$40
04/27/10
O:$47
08/04/10
O:$44
09/22/10
N:$41
01/03/11
N:$44
02/07/11
N:$54
05/09/11
N:$56
10/19/11
N:$54
11/21/11
N:$48
02/06/12
N:$51
05/07/12
N:$53
70
60
50
40
30
Q3
Q1
Q2
Q3
2010
07/09/12
O:$53
Q1
Q2
Q3
2011
08/06/12
O:$59
10/19/12
O:$63
Q1
Q2
Q3
2012
20
2013
11/19/12
O:$68
Rating and Price Target History for: Henry Schein, Inc. (HSIC) as of 01-01-2013
01/04/10
O:$66
05/05/10
O:$69
08/03/10
O:$65
01/03/11
O:$72
02/23/11
O:$73
04/25/11
O:$81
10/19/11
O:$77
05/09/12
O:$84
11/08/12
O:$88
90
80
70
60
50
Q3
Q1
Q2
Q3
2010
Q1
Q2
Q3
2011
Q1
Q2
Q3
2012
40
2013
Rating and Price Target History for: Young Innovations Inc. (YDNT) as of 01-01-2013
01/04/10
O:$31
07/06/10
N:$31
07/21/10
N:$30
10/21/10
O:$34
01/03/11
O:$37
10/19/11
O:$36
07/09/12
N:$36
12/04/12
N:$39
48
40
32
24
Q3
Q1
2010
Q2
Q3
Q1
2011
Q2
Q3
Q1
2012
Q2
Q3
16
2013
1 Robert W. Baird & Co. Incorporated makes a market in the securities of XRAY, PDCO, SIRO, HSIC and YDNT.
70
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Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market
over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months.
Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12
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71
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