Not Much to Smile About in Dentsply's Second Quarter; Pandemic Takes a Bite Out of Demand

No-moat Dentsply Sirona reported second-quarter revenue of $491 million, a more than 50% year-over-year decline. The weak top line was largely attributable to the widespread government and voluntary dental office closures with the coronavirus pandemic. Although management saw positive trends emerge at the beginning of June and full recovery into July, they were not confident enough to extrapolate and instead pulled guidance in light of the volatility. Additionally, Dentsply’s operating margin was down $104 million, or 21% of sales, a stark contrast to the $68 million or 6.7% margin last year. We had baked in a substantial negative impact from the pandemic before the update and maintain our current fair value estimate of $40 with a high uncertainty rating with the undetermined timing of the rollback of mandatory and voluntary closures and the execution of the company’s aggressive restructuring plan.