The Dentsply Sirona (XRAY) Implosion

A negative earnings revision and CEO ouster led to a 15% decline- there were warning signs in the 4Q numbers

“One of the things I’ve learned in my zillion years of selling short is that probably the number one sign of impending problems is mass executive departures.”

- Jim Chanos

Dentsply-Sirona (XRAY) shocked investors last week by announcing on Monday, (4/18) that earnings for the upcoming March quarter would miss expectations by a wide margin. The company revised its sales forecast down to $965 million from the previous outlook for $1.02 billion while announcing a new expected range for first-quarter EPS of $0.48-$0.52 versus the previous estimate of $0.67. The company also announced that CEO Don Casey had been terminated after the CFO had already departed on April 11th to pursue other opportunities.

Just a few weeks earlier, the company had claimed that even though supply chain and chip shortages would negatively impact the first two quarters of 2022, it still expected to achieve 4%-5% organic sales growth in 2022 and log EPS of $3.05-$3.25 representing 6%-13% growth over 2021.

So, what happened? XRAY is set to report earnings on May 5th and we probably won’t get any more insight into the cause of the sudden downturn in the outlook for growth until then. However, we have highlighted several red flags for our institutional clients in recent quarters which we now speculate may have been masking growing problems with its 2020 Byte acquisition. We also can’t help but note that the company (with a different management team) has a very recent history of a major acquisition blowing up which also featured high-level executive departures.

We will examine the evidence below.