DENTSPLY SIRONA Inc. (XRAY) Q2 2025 Earnings Summary

Executive Summary

• Q2 revenue and adjusted EPS modestly beat consensus; net sales were $936M vs S&P Global consensus $933M* and adjusted EPS was $0.52 vs $0.50*, driven by gross margin expansion and cost actions, despite U.S. weakness and OIS declines .
• Adjusted EBITDA margin expanded 360 bps YoY to 21.1% on Bite suspension and lower OpEx; GAAP EPS was a loss of ($0.22) on $214M net-of-tax impairment tied to tariffs and lower volumes in OIS and CTS .
• FY25 outlook maintained: net sales $3.60–$3.70B (down 4% to 2% constant currency) and adjusted EPS $1.80–$2.00; Q3 is expected to be seasonally lower with margin pressure as tariffs flow through P&L .
• Leadership transition: Dan Scavilla (ex-GMED) became CEO on Aug 1; preliminary Q2 was pre-announced on July 21; focus areas include customer centricity, U.S. recovery, innovation cadence, and operational discipline—potential catalysts alongside tariff mitigation progress .

What Went Well and What Went Wrong

What Went Well

• Margin expansion and EPS growth: Adjusted gross margin +60 bps YoY to 55.9% and adjusted EBITDA margin +360 bps to 21.1%; adjusted EPS up 6.6% YoY to $0.52 .
• EDS resilience and Europe stability: Essential Dental Solutions grew +2.9% reported (+1.1% cc) and Europe was roughly flat in cc (-0.4%) with Germany achieving a fourth consecutive quarter of growth; SureSmile +27% in Germany and +3.3% globally .
• Balance sheet flexibility: Completed $550M hybrid note offering and ended Q2 with $359M cash; net debt/EBITDA ~3.1x; dividend maintained at $0.16/share .

What Went Wrong

• U.S. softness and OIS decline: U.S. sales fell 18.3% (11% ex-BiTE); OIS down 18.1% reported (19.4% cc) on lab softness and premium mix transitions; Middle East volatility pressured value implants .
• Tariff escalation and impairment: Annualized tariff headwind reset to ~$80M gross (from $50M) with ~$25M P&L impact in 2H25; $214M net-of-tax goodwill/intangible impairment tied to tariffs and lower volumes .
• Cash conversion: Operating cash flow dropped to $48M (vs $208M prior year) on working capital and prior-year tax refund; adjusted FCF conversion was 15% vs 155% prior year quarter .

Financial Results

Headline metrics (oldest → newest)

Q2 actuals vs S&P Global consensus

Values retrieved from S&P Global.

Segment net sales ($M)

YoY changes (Q2): CTS (5.9% cc), EDS +1.1% cc, OIS (19.4% cc), Wellspect (2.5% cc) .

Geographic net sales ($M)

KPIs and cash flow

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO Dan Scavilla: “We will continue to improve our focus on the customer and the customer experience… We will focus on enhancing investments in innovation… as market leaders, we will need to shape the future of our markets… DS Core platform is a critical element… with 50,000 unique users now” .
• CFO Matt Garth: “Adjusted EBITDA margins expanded 360 basis points to 21.1%, benefiting from the suspension of BiTE sales and lower operating expenses… we recorded a roughly $214 million noncash after tax [impairment]… driven by… tariffs and current period volume changes” .
• Press release: “Adjusted gross margin of 55.9%, adjusted EBITDA margin of 21.1%, adjusted EPS of $0.52” and “Reaffirmed FY25 outlook” .
• On U.S. recovery priority: “We need to return the U.S. to health sustained growth… focusing on the dentist, the customers and the field” .

Q&A Highlights

• Market backdrop: Patient volumes stable but elective procedures (implants/ortho) remain soft; Germany slightly better; focus on long-term execution over short-term macro .
• Tariffs: Annualized gross headwind increased to ~$80M from ~$50M; 2025 impact ~ $25M across Q3–Q4; teams pursuing cost savings and mitigation; 2026 outlook contingent on evolving policy and mitigation plans .
• OIS detail: Premium implants down ~5% on legacy-to-new product transition; value impacted by Middle East shipping constraints (improving in 2H); labs down double-digit in U.S./EMEA; SureSmile +3.3% YoY .
• CTS actions: U.S. CTS weakness a priority; initiatives underway (details withheld for competitive reasons) .
• Channel inventories: No notable distributor stock effects YoY for imaging/CADCAM; inventories at dealers “healthy” .

Estimates Context

• Q2 beat: Revenue $936M vs $933M*, adjusted EPS $0.52 vs $0.50*, and adjusted EBITDA $197M vs $181M* .
• Q1 beat: Revenue $879M vs $854M*, adjusted EPS $0.43 vs $0.30* .
• Note: S&P Global “actual” EBITDA values may differ from company-defined adjusted EBITDA; company-reported adjusted EBITDA for Q1 was $168M .
  Values retrieved from S&P Global.

Values retrieved from S&P Global.

Key Takeaways for Investors

• Quality of earnings improved: strong margin execution offsetting volume pressure; Q2 beat on adj EPS with sustained cost discipline and Bite suspension benefits .
• U.S. remains the swing factor: CTS and OIS softness in the U.S. is the key headwind; management prioritized actions to stabilize and re-accelerate .
• Tariffs are the biggest new variable: gross headwind reset to ~$80M annualized; near-term margin pressure expected as costs roll through in 2H25; watch for mitigation updates .
• OIS trajectory: labs and premium transition remain drags near-term; value recovers as Middle East logistics normalize; SureSmile maintains growth .
• Europe/ROW resilient: Europe flattish in cc; Germany a bright spot; ROW modest growth .
• Cash priorities: renewed focus on working capital and FCF; balance sheet flexibility improved via $550M hybrid notes; dividend maintained .
• Leadership change could reset narrative: CEO Scavilla’s customer/field-centric approach and operational rigor may catalyze U.S. recovery and digital/proceduralization strategy (DS Core), a medium-term re-rating lever .

Appendix: Additional Data Points

• Non-cash impairment: $235M pre-tax in Q2 ($214M net of tax), primarily in OIS and CTS .
• Q2 cash flow bridge: OCF $48M vs $208M prior year on working capital and prior-year foreign tax refund timing .
• Geographic YoY (reported): Q2 U.S. (18.3%), Europe +4.3% (0.4% cc), ROW +0.5% .
• Segment YoY (reported): Q2 CTS (3.8%), EDS +2.9%, OIS (18.1%), Wellspect +1.2% .