DENTSPLY SIRONA Inc. (XRAY) Q2 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the DENTSPLY International Q2 2012 Earnings Call. Today’s conference is being recorded. At this time I’d like to turn the conference over to Mr. Derek Leckow, Vice President of Investor Relations. Please go ahead, sir.

Thank you very much, John, and my thanks to each of you for joining us today to discuss DENTSPLY International’s Q2 2012 results. Joining us on the call today are Bret Wise, Chairman and CEO; Chris Clark, President and COO, and Bill Jellison, Senior Vice President and CFO. We will have some prepared remarks and then we’ll be happy to answer any questions that you may have. I hope you all had a chance to review our press release which we issued earlier this morning. A copy of the press release is also available for download on our website at www.DENTSPLY.com. We also provided a set of supplemental slides to accompany this call also available for download under the Investor Relations section. Before we get started it’s important to note that this call may include forward-looking statements involving risks and uncertainties. These should be considered in conjunction with the risk factors and uncertainties that are described in our SEC filings. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arrive after the date of this call. A recording of this call in its entirety will be available on our website. As you can see in the release our results this quarter include a number of nonrecurring items under non-GAAP adjustments. In an effort to provide clarity from the distortion of some of these items our comments on this call will focus on results including certain adjustments which are noted in our non-GAAP reconciliation tables contained in the release. You’ll note that our earnings guidance is also presented on an adjusted basis. With that, I would now like to turn the call over to Chairman and CEO Bret Wise. Bret?

Yeah, thank you Derek. Good morning, everyone. Thanks for joining us on the call this morning. DENTSPLY had another very strong quarter in Q2 which built on the solid start we had in Q1 this year. We had record performance in both sales and adjusted earnings. Our total growth ex-PM came in at 23.8% and that included internal growth of 3.6%. Earnings were very strong at $0.62 adjusted EPS and that was driven by numerous factors which we’ll get into in a moment; however, the most important in my mind is the operating expansion that we saw in our base business. These results exceeded our own expectations for the quarter by a couple cents per share and overall we view it as a very strong performance operationally. In a moment we’ll give more details on the performance but before we do I have a few comments on the overall dental market. I think it’s fair to say that the global dental market probably slowed at least modestly in the quarter, most noticeably in the US. Job growth in the US as you know remains weak and we’ve seen economic projections for the back half of the year come down really meaningfully at this point. Although dental is not as dependent on economic factors as other markets we’re not immune either. At present, the weak job market is clearly bearing on consumer confidence and has had a modest effect in our view on the dental consumption thus far. So although markets continue to grow it’s more modest than it was say six months ago. In Europe we believe that the market is still in positive territory in total although market dynamics vary significantly from geographic markets to country markets. As you know, the economic headlines have not really improved and may…

Thank you, Bret, and good morning, everyone. I’m going to take a few moments and provide some deeper insights into the recovery of our orthodontics business as well as a brief update on the Astra Tech integration efforts. As Bret mentioned we initiated a rolling re-launch of our orthodontics products in Q2 and actually were able to move a bit faster in some respects than we previously expected. We raised and now have eliminated allocations or limits on most product lines, allowing customers to order in desired quantities. We also have been able to reestablish supply to many of our international distributors including providing them product to replenish their previously depleted inventories. We’re moving forward with our efforts to gain back customers that we lost during the supply outage and our pace of customer recovery is in line with what we expected. We are pleased with the number of customers that have come back to us quickly now that we have consistent supply but we also recognize that a number of customers will be harder to regain given their experience with competitive offerings over the last year. We anticipate that our competition will do their best to not make it easy for us to regain these customers, and as such we anticipate an aggressive fight at the street level over the next several quarters to gather back our customer base. We continue to believe that this will be a multiyear competitive effort to recapture our lost market share but we are pleased with our initial progress thus far. We’ve also secured a revised supply agreement with our manufacturing partner that provides for continued access to the current portfolio but also provides greater latitude relative to manufacturing, sourcing and commercial approaches for both parties. In addition we’ve significantly expanded our R&D…

Thanks, Chris. Good morning, everyone. Just a couple of additional comments regarding our sales: the Q2 2012 geographic mix of sales without precious metal content was as follows. The US represented 33% of sales, Europe was 45% this year and the rest of the world was 22% of sales. The strengthening of the dollar compared to Q2 of last year negatively impacted our top line growth ex-precious metals by 6.2% in the quarter. The FX impact on earnings was less as we had also benefited from favorable transaction and net investment hedges in the period which helped offset a portion of the negative variance in the quarter. We currently expect about a 6% headwind from current foreign exchange rates on the top line and slightly less of an impact on the bottom line this year, with the largest negative impact occurring in Q3. As Derek mentioned, and as you can see in our earnings release, Q2 included a number of items which impacted our results. By excluding these items from our quarterly results we believe the adjusted figures provide a more comparable picture of the company’s performance. Most of the following comments exclude the impact from these items. Gross margins on an adjusted basis as a percentage of sales ex-precious metal content in Q2 2012 were 59.0% compared to 56.1% for Q2 2011. When compared to the same period last year, this rate was positively impacted by favorable product mix and price increase. Our product mix continues to be benefited by the strong gross margin rates of our recent acquisitions and by strong sales of endodontic products. FX, despite having a negative impact on sales and EPS in total had a slight favorable impact on gross margin rates. The quarter also benefited from some additional positive manufacturing variances as inventories…

Thank you. (Operator instructions.) We’ll take our first question from Robert Jones with Goldman Sachs. Robert Jones – Goldman Sachs: Thanks for the question. So it certainly does seem like things decelerated a bit – I know you guys talked about the [endo] consumables, implants, certain regions and categories. I was just wondering specifically relative to the changes in guidance it sounds like a lot of that reduction is coming from FX but I was wondering if there was any portion of the reduced outlook that is from what we’re seeing across some weakening demand out there.

Good morning, Bob, good question. I think there’s a number of factors that affect our change in our guidance for this year. Certainly the US has slowed a little bit from where the market was in Q4 and Q1. I would call that slowing modest at this point and we’ll need to see the distributor’s report to really confirm how modest it was or if it declined at all. We only have of course access to our own numbers and who else has reported thus far but it does seem like it weakened a little bit. I would say when you take all the factors into account most of the factors come out in the wash, meaning there’s lots of positive operational performance, there’s expanding margins, there’s good progress on the Astra Tech integration, there’s the ortho re-launch, there’s some slowing of markets. But if you put those all together they’re kind of coming out in the wash. The reduction in guidance is coming directly from the decline in the Euro and the impact that has on us because a large portion of our business is in Europe. Robert Jones – Goldman Sachs: That’s helpful. And then just hoping we can dig in a little bit more into the strong performance in rest of the world. I know you have shared some of the initiatives there in previous calls but I was just wondering if maybe you could share specific categories, products or countries that really helped drive that growth in the rest of the world.

Well, what I’ll say at the outset here, and then Chris might want to elaborate on this some more; but what I’ll say at the outset is we saw very strong growth in Asia – we’ve made some important investments there – and also Middle East/Africa. So those regions in particular we saw very high growth. Of course this rest of the world category is made up of both developed and developing markets so there’s a balance there but we thought 8.1% growth across all that balance of regions was pretty strong performance and was getting us back to the range we’ve kind of seen before. And Chris, do you want to…

Yeah, I would just comment, Bob, that the initiatives we spoke to I think on the last call in terms of dual branding, certainly the sales presence and some investments there, the clinical education – that seems to be really driving I think the improvement if you will in the rest of the world business, back to frankly where we’ve been but for the prior two quarters. Robert Jones – Goldman Sachs: Thanks so much, Chris. If I could actually, you did mention greater latitude and increased R&D in ortho – if I could just sneak this one in. I was wondering if you could maybe elaborate a little bit on that, the [intention] to move away from the current supplier and then maybe just any order of magnitude around the investments needed there. That would be really helpful. Thanks so much, guys.

No worries. I mean obviously no, we have a long-term partnership with our supplier and obviously that’s been a very good partnership and we have every expectation that it will continue to be. But obviously as we looked at it we believed that something that provides a little greater latitude I think for both parties particularly in light of the fact that we have the opportunity really at our end to reduce kind of our dependence on a single source of supply which I think is pretty important given what we’ve gone through in the last year. So again, I think that they’re an important supplier for us. They’ll continue to be and again, we look forward to moving forward with them albeit with a little bit more latitude for both of us.

We’ll take our next question from Steve Beuchaw with Morgan Stanley. Steve Beuchaw – Morgan Stanley: Hi, thanks everyone. Good morning and thanks for taking the questions. Bret, I wanted to revisit your comments on the slowing of the US market that you highlighted early on, particularly on economic exposure. It seemed like we were in maybe the third quarter of a volume rebound in the US after really a few years where volumes have been a little underwhelming; and what we saw was that rebound was a bit off-cycle in terms of where patient flow was relative to broader macro. So I wonder what is it you think is different now about the macro outlook? Is it Europe, is it something about the US that’s bringing us back onto cycle in terms of the macro exposure?

It’s a good question and a hard one to answer, to be honest. Trying to take into account what’s influencing a patient into doing a procedure or not doing a procedure, particularly a discretionary procedure or a premium procedure – it’s always difficult to nail that down to one or two things. I think what we hear talking to both other people in the market as well as customers and so forth is there’ s a little bit more resistance to doing discretionary procedures that can be deferred compared to what we were seeing six months ago; and I think it’s basically driven by people’s perception of where the economy is headed more so than where the economy might be right now. But that’s just speculation on our part really. There’s no real way to confirm that’s the case. Steve Beuchaw – Morgan Stanley: Thanks, I really appreciate that and I wanted to throw in one follow-up on the European markets. I wonder if you could go into more detail on some of the core countries there, specifically what you’re seeing in Germany, France and the Benelux countries. Clearly there’s no major falloff there but relative to Q1 can you give us an update on what you’re seeing in terms of demand and patient volume trends in those particular countries? Thanks, and I’ll drop off.

Sure. I think rather than go through country-by-country I’d just rather characterize it by region. Whereas in the South we continue to see very weak conditions – in fact those markets, I believe, are still contracting; whereas in the North those markets are stable to growing slightly. So in total because the markets in the North reflect more of the aggregate market I think on balance in Europe in total – including CIS – the northern countries are able to offset the decline in the southern countries. And I’m not going to get more specific than that other than regionally we still see the split that we saw really for the last two years. Steve Beuchaw – Morgan Stanley: Great, thanks so much.

We’ll take our next question from Larry Marsh with Barclays. Larry Marsh – Barclays Capital: Thanks, good morning everyone. So my main question, Bret, I think you already answered so I won’t belabor it. I guess to reiterate what the previous questioner had asked was it seems like traditionally you’ve always said that your lagging indicator of trends in the US market, it took you longer to sort of see the downturn and longer to see the upturn; and you felt good that you were starting to see that. It seems like what you’re saying today is you’re not seeing a dramatic change – it’s just sort of a heads up. The leading indicator is what you’re saying is a little bit of difference in purchasing behavior, so it doesn’t sound like your view of internal growth US back half has changed a lot – or am I putting words in your mouth?

No, Larry, that’s a good way to describe it. I think when we look at the US market because it’s mostly driven by employment – dental insurance is mostly driven by employment. That seems to have moderated somewhat. We’re not seeing the job growth that we saw let’s say December through February which means we’re getting less people coming in to being covered again. And so sequentially I’d say there’s just a modest slowing of the market. I don’t want to overstate it because the market’s still stable; it’s still a growing market. I think there’s still good patient flow but I think just at the margins, particularly in the discretionary procedures it may have slowed down a bit. Larry Marsh – Barclays Capital: Okay. So it sounds like a slight moderation in your expectation of internal growth US but not much.

I think that’s fair. Larry Marsh – Barclays Capital: Okay. My second question really is on the quarter and on the puts and takes just to triangulate some of the things you guys are saying. I think Bret, you had said the quarter itself you felt like was $0.05 or $0.06, I don’t want to put words in your mouth, versus consensus maybe above your own internal expectations. A penny or two came from the orthodontic re-launch. You had mentioned some benefit from operational initiatives and then later I think, Bill, you talked about some benefit from inventory. So if we think about say a $0.06 upside versus [AR] number, maybe a penny or two from orthodontic, a couple of cents from operational and maybe a penny or two from inventory timing? Is that the right way to think of it?

No, I think it’s difficult to do that. I mean we’re giving you our view of how we did versus our own expectations for the quarter, and of course our quarterly phasing may be different than the street’s. Q2 is almost always the strongest quarter for us. If you just look at it historically when were the peaks in earnings it’s usually high in Q2 and then it’s low in Q3 because Europe basically disappears for six weeks in the summer – July and August. And we’re expecting that to happen again, by the way. But versus our own expectations we came in a couple cents above it. I’d say about a penny of it was due to ortho being a little earlier than we thought and maybe a penny or two pennies is just due to stronger operational performance, very strong operating margins. And Bill did comment we’ve built out inventory this quarter and that will be coming out in the back half of the year, so we probably had a little better absorption across our different operating facilities. But I think it’s hard to bridge that to the $0.06 beat versus the street consensus primarily because our phasing has always been different than the street’s was on this year. Larry Marsh – Barclays Capital: Okay, so currency really didn’t hurt you in Q2 relative to sort of what you thought back in May?

No, and I’ll comment on this and I’ll have Bill comment on it as well. Currency did hurt us this quarter, however the operating margin improvement in the base business – meaning not Astra Tech, not ortho – the base business was enough to overcome that this quarter. Bill, do you have any comments on currency?

Yeah. So we expected currency was going to be a little bit of a drag already in Q2; it obviously got worse in the back half of that quarter. So we still ended up maybe a couple cents negative from FX in there but I think as Bret mentioned a couple of the operational-related improvements including a little bit of the inventory build as well as that ortho pull that ultimately was able to be shipped already in Q2 versus in Q3 also benefited us a couple cents. Larry Marsh – Barclays Capital: Okay, great. And then just to triangulate as best I can on the full year, the midpoint of your guidance is down $0.05 – obviously a big headwind in currency, Q3 down 13% year-over-year so that’s going to be a big drag; Q4 maybe not as much. So it sounds like in our numbers currency was a little bigger impact second half, a couple more cents than that. Is that the right way to think about it and is some of that being offset by some of this operational benefit versus your earlier guidance?

There’s more currency here than we’ve reduced the guidance for, meaning our operational performance, the improvement in margins and accretion from Astra Tech and the ortho re-launch is offsetting some of the currency decline that we would have otherwise had. In addition to that we have hedging programs in place that help moderate some of the currency effects as well. So less of the currency is going to drop through this year than the full effect on sales. Larry Marsh – Barclays Capital: Right, so the good news is some of the benefits from operations are offsetting some of the obvious drag on currency is what you’re saying.

Yes, that’s correct. Larry Marsh – Barclays Capital: Okay, and then finally I just want to make sure I heard Chris correctly on the Astra Tech integration. We’ve had some real mixed signals so far as you’ve said this quarter on implants. It sounds like you’re saying you’re growing at a slight premium to the market; last quarter your growth was slightly down. Is the message here that the volume trends there in the quarter were again not substantially different than they were in Q2; and is the message on integration and product line rollout still on track and consistent with what you had said previously?

Yeah, Larry, I would say that I think the implant market volume-wise is probably a bit directionally softer in Q2 than in Q1. At this point we’ve now got three announcements from three of the five public players and I think that’s pretty indicative of at least those three. I mean obviously we’ll listen to the last two here as they announce shortly. In terms of the integration, I mean I do basically think our results continue to be as Bret mentioned above what we estimate market growth to be; obviously that’ll be confirmed here shortly. And I think that’s a really good sign in light of the integration. I mean anytime you go through an integration certainly of this magnitude there’s a lot of distraction, a lot of disruption and I would say we went in expecting there to be some of that and I think that team is doing a very good job of managing the business through that. And I think overall, while there are some bumps we’re overall very pleased with the progress and certainly very pleased with the attitude, the mood and really kind of the energy from the organization which I think is really the main thing that we want to keep an eye on. Larry Marsh – Barclays Capital: Okay, very good. Thanks.

We’ll take our next question from Brandon Couillard with Jefferies. Brandon Couillard – Jefferies & Co.: Hi, good morning. Bill, any chance you can give us a sense of how you see the core revenue trends by geography developing in the second half? What have you embedded in your formal outlook for the ortho Japan rebound given the faster than expected recovery? Should we expect something a little bit better than flattish in terms of the revenue impact year-over-year?

Well, I think there are two points there. First off we really don’t give any projections on our expected geographic growth moving forward but I think that with what you’ve seen here we’re seeing improvements in some areas but obviously the economic changes that are affecting the broader economy are still a big question. But we’re still looking at the back half of the year pretty consistent with kind of what we were looking at in the first half broadly. From an ortho perspective, we pulled forward a little bit of the initial international dealer rebuilding of inventories in Q2 but from an overall perspective in ortho at this point we still would expect that we would definitely see year-over-year sales improvements in both Q3 and Q4; and we would also see earnings improvements in ortho in both Q3 and Q4 of this year. And for the full year I think that we still have an expectation that we should be at least neutral if not slightly positive from an overall year-over-year comparison on earnings for ortho. Brandon Couillard – Jefferies & Co.: Okay, that’s helpful. And then the revised EPS outlook appears to contemplate a little stiffer FX headwind than I would have anticipated. Are you assuming that the Euro deteriorates further from here? And then can you give us a sense of why the relatively wide range for the currency impact on revenue for the year?

Well, I don’t think the currency range that we gave is all that big for currency in general. But we stated in the guidance that that is really reflecting kind of a 121 to 123 range on the Euro for the back half of the year, which is in essence consistent with where it’s currently been running the last few days. From an overall perspective for the year we’re expecting that currency is going to probably be in the 5%, maybe 6% impact on the top line. As Bret mentioned and as it was mentioned on the call, as far as the Euro is concerned – the Euro itself is probably closer to 12% to 14% worse when you look at it compared to Q3 last year. Keep in mind that’s only one currency for us and also keep in mind that that’s the full move of it and we’re only 60%, 65% international. So you’ve got to bring that down to that level. But instead of 6.2% negative currency impact that we had on the top line in Q2 we’d expect something probably a little bit higher than that in Q3 and probably a little bit lower than that in Q4 at current rates. Brandon Couillard – Jefferies & Co.: Thanks. And then lastly, with respect to the med device tax should we expect that you’d take the incremental pricing in September in line with your typical annual pricing? Have you finalized your plans there yet?

Sure. I mean at this point in time we generally do a lot of our price increase already beginning at the end of Q4 but this tax doesn’t go into effect until January. So at this stage the way that we’re planning on addressing it is probably in a two-tiered pricing increase level. We’ll have normal price increases that take place but then for any locations or products that are impacted by the med tech tax here in the US we’ll be doing an additional price increase effective as of the beginning of next year. Brandon Couillard – Jefferies & Co.: Great, thank you.

We’ll take our next question from John Kreger with William Blair. John Kreger – William Blair & Co.: Thanks very much. You guys mentioned inventory build a few times on the call. Can you just expand a bit on that? Was that all driven by the re-launch of ortho internationally or was there more to it than that?

I’ll take a stab at that, John, and see if anyone else has something to add but there’s a couple factors there. One is the ortho re-launch as you’ve noted, we’ve built up inventory so we can do full customer service and we would expect that to probably trend down over the back half of the year. We’re also in the mist of the Astra Tech integration so we’re consolidating inventory points at different locations in the world and thus we ramped up inventory a little bit because we need to stock the new location before we deplete the old location – so that’s having an effect. And then there’s some other kind of one-off issues in other businesses that we are raising inventories temporarily in which will come back out in either the back half of the year or the first half of next year. But we do view this level of inventory as a little bit above the normal range we would expect to have to carry for he business and we expect to get that cash flow back over the next let’s say six to nine months. John Kreger – William Blair & Co.: Great. And just to clarify your comments on inventory reflect your inventory that you’re carrying as opposed to inventory in the channel – is that right?

Yes, it’s inventory on our balance sheet, right. John Kreger – William Blair & Co.: Great, thanks. Jut stepping back thinking about your adjusted geographic [growth steps] that you gave, it seems like the US had a notable slowing versus what you said in Q1 but rest of the world is noticeably better. If you look at those two big changes, in your view were they driven more by your specialty businesses or by your preventive and restorative lines?

Okay, just a couple comments here. One is the pace we had in Q4 and Q1, we were in the mid-7’s both quarters – it was a blistering pace. We were probably growing at least 2x market at that point and that was driven by what we’ve been talking about for 18 months which is the new products that we launched in 2011 and to a lesser degree here in 2012. We had said at the time that that’s not sustainable, that’s going to have to come down although we think we can continue to grow above market which I think we’re doing right now despite having to overcome those product launches now that are in the baseline. We do believe on top of that that the market probably did slow or moderate a little bit. I think it’s still growing nicely but maybe not at the pace we had for Q4 last year and Q1 this year which is kind of consistent with the comments we made earlier on the question. And then lastly affecting in particular our Q1 growth was we did see lower small equipment sales in the US, in part due to product launches last year where we’re coming up against the base now and in part because we think that may be the element of the market that’s slowing or has slowed or moderate the most. Certainly that part of our business is deferrable. A dentist doesn’t have to buy that equipment; they can make do with their own equipment a while longer if they need to. So in our mind that’s what’s happened. We think we’re still probably growing 1.5x market, something like that, not quite the pace we were before but still good growth compared to the overall market. John Kreger – William Blair & Co.: Great, thanks. And one last question: if you think about the various puts and takes of your ortho business, do you think longer term that can be as profitable as it was before for you, more or less? I’m thinking on the one hand I’m assuming there’s going to have to be some more aggressive pricing strategies to retake share but on the other hand it sounds like you’ve got a new, more flexible manufacturing agreement.

Well, I think there are a few important dynamics there. We’re entering, basically reentering the market which is a competitive market already and we’re going to be taking market share from our competitors who aren’t going to want to give it up. And we fully believe that people will be aggressive in the marketplace and we’re going to have to respond. Longer term we’ve historically only had a distribution margin in this business. Longer term through our own innovation and other arrangements we expect we’ll be able to pick up a little bit more margin, so longer term I would think this would be a more profitable business than it has been in the past. John Kreger – William Blair & Co.: Great, thank you.

We’ll take our next question from Jeff Johnson with Robert Baird. Jeff Johnson – Robert W. Baird: Thank you, good morning guys. Bret, I was wondering, not to harp on this but if we can focus on second half guidance here again. With FX maybe incrementally a $0.05 hit or so and you’re trimming guidance by $0.05 – it all seems to make sense. What I can’t get straight in my mind is the gating of guidance with this quarter’s upside versus the second half now, where that’s being guided. As I think about things you guys did $0.97 in the second half last year; you’re guiding to about a midpoint of $1.07 this year in the second half that has maybe $0.05, $0.06 of year-over-year currency headwind. But you’re also picking up about $0.10 or so from ortho coming back; you should have some accretion in there from Astra Tech yet that core guidance looks like it’s only about $0.05 or 5% once you adjust for those factors. So what am I missing there in the second half guidance?

Well, a couple things I’d keep in mind here and Bill, you might have some additional comments on this. But keep in mind that our phasing of the quarters was not what the street’s phasing was. Q2 is almost always our strongest quarter so we had more income in our base model in Q2 and less in Q3 than the street had and I think that’s confusing this issue a bit. The other thing to keep in mind is that Astra Tech is hitting our targets, it’s doing very well but we had Astra Tech in the baseline for four months last year; and in the back half the months that we didn’t have are July and August which aren’t typically robust months for sales in Europe. So Astra Tech is proceeding fine, it’s going to be accretive, it’s hitting our targets, etc., etc. but it’s in the baseline now for the last four months of the year. The ortho recovery is as you said – we did pull a little bit of it into Q2 but we’re going to have more earnings growth from orthodontics in the back half of the year. And the currency hit that you described is actually greater than you’ve said; it’s just that we’re going to be able to mitigate part of that currency hit through the hedges and through better operational performance. Bill, did I miss any key points?

Just one point of clarification, Jeff. What did you actually think or say about ortho in the back half? Jeff Johnson – Robert W. Baird: Well, if you’re saying it should be flat to accretive for the year and you’ve lost about $0.03 or so this year so far year-to-date on it – or you’re about flat or down a penny or two year-to-date, so I guess flat or up a penny in the second half. But last year it was what, I think a $0.10 drag in Q3 and Q4 combined? So a $0.10 drag last year versus flat this year seems like that should be adding quite a bit.

No, no, no. What you’ve got to think of is the improvement we’re talking about is off of last year, right? So if we were down roughly $0.04 to $0.05 in ortho each quarter last year we’ll be improving off of that level to offset kind of the slight negative that we had in the first half of this year. But we aren’t offsetting that and being flat. We aren’t making all that back up in the second half of the year. So think of it that we should be improving by a few cents per quarter in ortho but we’re still going to be down in comparison to where we were in 2010 in the back half of the year. Jeff Johnson – Robert W. Baird: That’s helpful and maybe we can follow up on currency offline, Bill. And the two last questions for me: any updates on either lithium disilicate product for launch anytime in the upcoming quarters and the mill-able cobalt chrome material?

Yes, I’ll just comment loosely on the lab side, Jeff, in terms of new products. Those are two obviously pretty attractive areas in the lab business. They’re areas obviously that we’re interested in. We’ve got a pretty aggressive new product portfolio on the lab side that we would look forward to showing at some point here in the next few quarters. But I’m not going to comment on those two more specifically or specific timing. Jeff Johnson – Robert W. Baird: Alright, thanks Chris. And the last question then: Bret, you had mentioned that your inventory levels went up on your balance sheet – that wasn’t a distributor comment. I think the last couple quarters though you felt like distributors were maybe carrying a bit less inventory than they had historically. Did that change at all this quarter or do you still feel like they’re a little under the historical range, or any insight there?

Yeah, I think certainly we didn’t build inventory in the channel this quarter. We might have depleted a little bit of inventory in the channel but I don’t think there’s any dramatic change. Chris is a little bit closer.

Yeah, I would say, Jeff, I absolutely agree with that. I don’t think we built in aggregate by any stretch. I do think that some of these distributors are becoming increasingly sophisticated in terms of how to operate with a bit less so you know, I don’t know that I would say there’s necessarily pent-up demand if you will for additional inventories at a dealer level. I think they’ve come down a little bit and they’re going to remain generally at that level, and I think our shipments are in aggregate pretty reflective of what we assume aggregate consumption to be. Obviously there’s puts and takes in any individual business but I think in aggregate it’s pretty consistent. Jeff Johnson – Robert W. Baird: Fair enough, thanks guys.

And I would add to that, Jeff, that that comment excludes the orthodontics business because certainly we added inventory to the channel in orthodontics outside the US. Jeff Johnson – Robert W. Baird: Fair enough, got it.

We’ll take the next question from [Eden Ling] with Deutsche Bank. [Eden Ling] – Deutsche Bank: I’ve got a few questions on the dental implant business. Would it be fair to say from your comments that globally the dental implant business slowed by about 2%, 3% versus last quarter? And if so, if you could give us some sense of how that developed in the key regions and to what extent those numbers are being impacted by the disruptions in the Astra Tech integration. And then hopefully if you have a crystal ball what would your expectations be for this business for the rest of the year? We did see comps ease in the back half of last year particularly in Europe so any comments there would be great. Thank you.

Okay, this is Bret. I’ll take a stab at a few of these and if Chris or Bill want to add in they can. Your first question was whether our implant business slowed by two to three percentage points in the quarter – the answer is no, it was a little less than that. In Q1 we were mid-single digits but we said we were at the lower end of the range of mid-single digits, and in this quarter we slipped to what we call low-single digits. But the impact, the change wasn’t in the 3% category; it was much lower than that. How did it develop from Q1 to Q2? I think there has been some slowing of the market from the result of the two other implant companies that have reported. I would say the slowing has been most notable in the US, although the regional growth rates kind of remain what they were and that is the rest of the world category is the highest growth rates, the US is next and Europe seems to be flat to down and that continued in Q2. So I think that the European market in total is contracting although it varies widely by country or by geographic region with the southern part of Europe being most impacted. As far as how this was impacted by the Astra Tech integration, it’s hard to say. We had our reps out in the field doing training; we had changes in territories, some changes in customer relationships – that’s always very, very difficult although we go about it in a very thoughtful way I think in how we do these integrations. We don’t rush to judgment on how it’s going to be done but really work through the details before we implement. So I think it does have an impact but we think we’ve managed our way through it pretty well. And your last question was what are our expectations. At this point I would expect the US market to continue to grow, if I had to guess kind of mid-single digits for the balance of the year. I think Europe in total is probably going to continue to contract slightly for the rest of the year, and outside of those two regions in the rest of the world category I think we’ll see some continued pretty strong growth. That was a lot to go through, did I- [Eden Ling] – Deutsche Bank: I appreciate it; you covered everything. So just a clarification on the US expectations for [integrating] mid-single digit. Is that how it ended in Q2 or will that indicate a further slowdown from where we were in Q2?

If I had to guess, I mean I’ll know more when we see Nobel and [Strawman] report but if I had to guess I would say that the US market today is growing somewhere between let’s say 4% and 7%. And I’m kind of expecting that to continue. [Eden Ling] – Deutsche Bank: Okay, and then a question on the non-dental part of the Astra Tech business. How did that business do in the quarter and do you expect to release any new products at the upcoming [ICECOF] conference in September in London?

Okay, that business is doing very well. It continues to perform very well and meet our expectations. We do like that market. It’s a very stable growth market, good consumable products, many of them single-use and so we do find that attractive. I’m not going to comment on new product launches. We tend to not do that for our dental business or this new business in advance of them being shown and launched at shows because we’d just as soon wait for that so I’m not going to comment on that. But this is a mid-single digit growth business. It would have been accretive to our growth rate if it had been in internal growth for this quarter and it continues to perform very well. [Eden Ling] – Deutsche Bank: Okay, thank you very much.

We’ll take our next question from Scott Green with Bank of America Merrill Lynch. Scott Green – Bank of America Merrill Lynch: Hi, thanks for the questions. Operating margins came in ahead of what we were estimating. Could you estimate some attribution for how much of the operating margin expansion year-over-year was due to some of the main factors you highlighted such as strong execution in the base business versus temporary inventory absorption or FX or Astra or however you’d like to outline it?

Well I think we’ve said the Astra Tech mix is definitely a positive but even excluding the Astra Tech mix we were nicely positive for both our base business which includes both a slight benefit from the FX impact – FX was probably in the 20, 30 basis points improvement in that rate or so. But keep in mind that that’s a positive on gross margin rate but it’s a negative on the bottom line because of the translation impact. But apart from that the base business still performed very nicely and I’d say that that probably falls into two parts: both because of some additional favorable mix with some of the businesses that performed well in the period but also because as we talked about some of the additional overhead absorption that’s taken place because of the inventory build also benefited that rate a little bit. And that piece of it we would expect to kind of fall back out in the back half of the year.

Just to clarify, I think the ET was probably diluted. It was diluted in terms of the mix impact on operating margins but accretive on the gross profit line, just to clarify.

All those comments that I just made were gross profit-related. Scott Green – Bank of America Merrill Lynch: Yeah, okay. Can you make some of the same comments on operating margins? So remind us on how you reported what the improvement was year-over-year in operating margin and then if you could give some sort of attribution as best you could on that line item?

Sure. The operating margin was actually down year-over-year by about 30 basis points. Virtually all of that and then some was because of the mix from Astra Tech. The broader based base business also performed better at the operating margin rate, and we also as Bret mentioned had a nice operating margin rate improvement sequentially between Q1 and Q2. Scott Green – Bank of America Merrill Lynch: Okay, and then how do you see that trending moving forward?

Well, we obviously don’t make projections on kind of what we see moving forward associated with that but I’d say a couple comments that we did make. One is that on the gross margin rate you should still see a favorable mix obviously occurring in Q3 because the Astra Tech acquisition will then be fully integrated into both base periods where Q4 will then show year-over-year comps that are equivalent to each other. But then we would also expect that from a broader based operating margin rate that you’re probably still going to see an operating margin rate drag in Q3 again because of some of the comps on both the ortho business and also the Astra Tech business; but then beginning in Q4 you should begin to see some year-over-year improvements again.

This is Bret. I’ll add to that because this is an important point. With the large business in Europe or a large complement of our business in Europe, historically what we’ve seen is operating margins will decline sequentially from Q2 to Q3 because you have less sales and you’ve got the same fixed costs. And we would expect that to happen again this year. We would expect operating margins sequentially to moderate a little bit in Q3 and then go back up in Q4. Scott Green – Bank of America Merrill Lynch: Okay, that’s really helpful. And then the last quarter or two you mentioned in rest of world that dealer inventories were a bit higher and you were working on lowering those inventories by raising prices. I was hoping you could give us an update on where you believe inventories in those couple regions stand, and if you believe that the rest of world growth this quarter is kind of a true run rate number that we should think about going forward?

Scott, it’s Chris. I think it’s pretty indicative. We again, it’s such a broad geographic area that you’ve got some puts and takes but I would say in aggregate we believe that the channel inventories in the quarter ended the quarter about where they started and you know, from that standpoint I think that growth rate is pretty indicative of what we think the sell through in aggregate was. Again, in individual countries there may be a little give and take due to some promotional timing. But by and large I think that’s pretty indicative.

And Scott, I’d add to that that we did have those two countries in Q4 we said we were bringing inventory down; and then in Q1 this year we had one of those countries still liquidating inventory in this channel. But I think that’s run its course now.

Yeah, I think one other point to just make there is that as Chris and Bret mentioned before you know, no real change in inventory levels within the quarter in comparison to a year ago and the changes that were made in that same quarter. And the second point is that inventory in the channel is definitely noticeably lower at the end of Q2 2012 than it was at the end of Q2 2011. Scott Green – Bank of America Merrill Lynch: Okay, thank you very much.

And we’ll take our next question from Glen Santangelo with Credit Suisse. Glen Santangelo – Credit Suisse: Yeah, maybe if I can just elaborate a little bit more on some of the comments you made on Europe. I mean you gave us a fair amount of detail on the US market but can you elaborate a little bit more on Europe in terms of what you’re seeing in the growth rate there this quarter versus last quarter? I mean clearly there’s a lot of government sponsored healthcare over there but are you seeing anything in terms of austerity measures, anything that makes you incrementally more cautious or more optimistic as we approach the second half?

That’s a great question, Glen, and almost unexpectedly we don’t see a lot of difference. If you look at where our growth rates were kind of by category – it was mid-single digits in the specialties, it was mid-single digits in the consumables and it was slightly negative in lab but that was because the alloy market continues to contract, and without alloys we were positive in lab and continue to be. I think it’s important to probably point out that if you go back and look at the comps in Europe they were a lot tougher in the first half of the year, the period we now have behind us, and they’ll get easier in the back half of the year. So although we’re not really encouraged that they’re sorting out the economic problems there we view our own business as pretty stable. We know it’s growing well above market and we look to continue to take market share in the back half of this year. Glen Santangelo – Credit Suisse: And then maybe if I can just ask one follow-up: I mean a lot of questions on the Astra Tech acquisition. Now that you’ve almost anniversaries that announcement, a year ago you kind of gave us the initial guidance that it would be about $0.12 to $0.17 accretive. Have you pretty much been right in line with your original expectations? Has it been a little bit better, a little bit worse? How would you sort of characterize it almost a year in?

I would characterize it overall we’re in line with all the expectations that we put forth for the business. Operationally we’re doing very well. The integration is going well and we’re moving along there. Certainly one negative I would say is I would say the implant market is probably not growing as fast as we had anticipated at the time of launch. We’ve got some levers we can pull to kind of offset that, and the synergy potential here is high and perhaps higher than we thought originally. So on balance we view the acquisition very positively. It’s delivering value. We’re always at some point at the whims of the market here and would feel a lot better if the dental implant market was growing double digits but it’s simply not growing double digits right now so we have to manage within that environment. And I think that we’re doing reasonably well. Glen Santangelo – Credit Suisse: Okay, thanks for the comments.

At this time I’d like to turn the call back over to our speakers for any additional or closing remarks.

Well thank you everyone for the good questions. That concludes our conference call today. Thanks for your interest in DENTSPLY and if you have any additional questions I’m around to take your calls. Thank you, bye.

That concludes today’s conference. Thank you for your participation.