Derek W. Leckow - Vice President of Investor Relations Bret W. Wise - Chairman, Chief Executive Officer and Chairman of Executive Committee James G. Mosch - Chief Operating Officer and Executive Vice President Christopher T. Clark - President, Chief Financial Officer and Principal Accounting Officer.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division Nathan Allen Rich - Goldman Sachs Group Inc., Research Division Steve Beuchaw - Morgan Stanley, Research Division Erin E. Wilson - BofA Merrill Lynch, Research Division Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division Brandon Couillard.

Good day, and welcome to the DENTSPLY International Second Quarter 2014 Earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Derek Leckow, Vice President of Investor Relations. Please go ahead..

Thank you, Andrea, and good morning, everyone. And thank you for joining us to discuss DENTSPLY International's Second Quarter 2014 Results. I'm joined by Bret Wise, DENTSPLY's Chairman and Chief Executive Officer; Chris Clark, our President and Chief Financial Officer; and Jim Mosch, our Executive Vice President and Chief Operating Officer.

I hope you have a chance to review our press release issued earlier this morning. A copy of the release and a set of supplemental slides and information relating to the non-GAAP financials are available for download on the Investor Relations section of our website, www.dentsply.com, under the heading, Events and Presentations.

I'd like to remind everyone that the Safe Harbor language and the U.S. GAAP reconciliation contained in today's release also pertain to this conference call.

We may make forward-looking statements involving risks and uncertainties, and these should be considered in conjunction with the risks -- risk factors and uncertainties that are described in the release and in our SEC filings. It is possible that actual results may differ materially from the forward-looking statements that we make today.

The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. A recording of this call in its entirety will be available on our website. With that, now I like to turn the call over to Bret Wise.

Bret?.

It was down slightly, 1.3%. CIS, again, is a drag on our results and throughout the region. Rest of the region, I'd say growth is hard to find, spotty at best. x CIS, internal growth was down slightly in the region in the quarter. In Rest of World, we are negative 0.6%, and that was heavily influenced by Japan.

Overall, we had positive internal growth in the Pacific Rim, in Latin America, excluding Brazil, in Canada and in the Mideast and we are down double-digits in Japan.

Again, the increase in the VAT tax in Japan April 1 boosted our first quarter sales ahead of that tax, and I think we noted that on our first quarter call and is now depressing the second quarter result by a comparable amount.

In total, Brazil and Japan took more than 350, probably closer -- more than 300 basis points out of the Rest of world, maybe as much as 350 basis points out of the Rest of World category for us. I'll recall that we had positive internal growth of almost 9% in the first quarter in the Rest of World regions.

So in this category, we take the noise out for Japan, I think the year-to-date numbers probably make more sense to look at which is 4% internal growth year-to-date. Also important to remember Rest of World category represents both developed and emerging markets for us. Moving to earnings.

As we've noted on the last couple of calls, we're very focused on improving the long-term efficiency of the business both at the product cost level and overhead -- and also the overhead structure.

This quarter, we are faced with a very tough comparison from last year when operating margins were 19.2%, so we're very pleased to have exceeded that level in the current year, up slightly at 19.3%. Adjusted EPS was an all-time quarterly record for us and was up 4.5%, again, against a tough comp last year.

And in this sales environment, this earnings performance, we think is a pretty good achievement. Year-to-date, sales were up 2.3%. x precious metals, operating margins are up 80 basis points and adjusted EPS was up 8.5%.

So despite the lack of meaningful pickup in the growth, thus far, we remained comfortable for full year adjusted EPS guidance of $2.47 to $2.55 per diluted share. Lastly, before I turn the call over to Jim, as we've noted on prior calls, we are very focused on cash flow generation and improving the return on our investments.

We have some pretty good results in those categories this quarter and year to date, and Chris is going to comment more on those in his remarks. So let me turn the call over to Jim now for operational comments..

Thank you, Bret. I would like to provide an update on the status of previously launched products, products currently in launch, as well as the perspective on a few operational items. I'll then turn it over to Chris for the financial review.

First, in our consumables business, we're pleased with the performance of Aquasil Ultra Cordless launched in Q4 of last year. This is a unique 1-step system for impression taking which, in most cases, eliminates the need for the traction cord, which is a time-consuming step for the dentist and often unpleasant process for the patient.

We had a very successful launch in Q4, which has continued into 2014. Today, we have over 2300 offices using Aquasil Ultra Cordless and anticipate increased adoption in coming quarters. In Q1 of this year, DENTSPLY implants announced the launch of a new implant system, Astra Tech EV or evolution.

The EV system has a new drilling protocol, which reduces clinical procedure time, a flexible clinically oriented surgical tray and also provides improved initial stability upon implant placement. Early adoption has been excellent. And to date, EV already represents 20% of the previous Astra Tech implant system volume.

However, one challenge is that we have seen some inventory liquidation by current customers in anticipation of the new system. We will be expanding the launch globally in the second half of 2014 and expect continued success with the EV system.

In our preventive business in Q2, we launched an extension of the market-leading Cavitron brand with the FITGRIP Cavitron insert. FITGRIP is an advancement on DENTSPLY Cavitron's ultrasonic inserts that adds a thick comfortable grip to lessen muscle load and pinch force for improved ergonomics.

FITGRIP is been offered on the 9 most popular Cavitron inserts and has had great acceptance to date. Within our endodontic business, we launched ProTaper Gold in North America at the end of the first quarter.

Gold is an extension to our market-leading ProTaper endodontic power [ph] brand and utilizes a patented heat treatment process, which creates a gold hue. The process provides greater flexibility to negotiate canal anatomy and also significantly increases resistance to cyclical fatigue or file separation.

We are early in the launch, but customer acceptance has gone well, and we now begin to roll the product out on a global basis.

Finally, one of the more innovative new products in the endodontic portfolio is true-shape [ph], a new endodontic 3D conforming instrument, which provides traditional root canal preparation while promoting dentin preservation.

true-shape [ph] has a unique shape and a highly flexible design, which removes less dentin and maintains the integrity of the tooth structure. true-shape [ph] is the first product in our true platform, which will be a series of products focused on dentin preservation.

From an operational perspective, we announced the consolidation of our Sultan health care business based in Englewood, New Jersey to DENTSPLY professional division in York, Pennsylvania. This follows an earlier announcement of the consolidation of our RINN division in Elgin, Illinois to the professional division in Q1.

The purpose of these moves is to create a single preventive and infection control business, leverage operational R&D and SG&A resources and market the consolidated portfolio globally to our intracompany locations.

In the U.S., our Sultan sales force will remain independent, but the RINN x-ray position accessory products will be managed by our hygiene sales force, providing additional sales resources to support these brands.

Also in Q2, we completed the consolidation of our materialized dental operation, which provide implant treatment planning software and surgical guides based in Lugano [ph] , Belgium, which is been consolidated into Es Healthcare [ph] based in Hasselt, Belgium, which produces implant-retained bars and bridges.

This follows the integration of various materialized dental country organizations into the respective DENTSPLY implants location. These moves are part of a broader strategy to create a fully integrated digital implant portfolio and are consistent with our efforts to increase asset utilization and improve return on those assets.

I'd now like to turn it over to Chris Clark..

Thank you, Jim. Good morning, everyone. I'd like to provide some detail on our financial performance for the second quarter, including our efforts to improve operating margin, cash flow, and asset utilization.

For the second quarter, sales excluding precious metals grew 2.1% compared to prior year with constant currency growth of 30 basis points and favorable currency translation of 180 basis points.

Gross profit rate on an adjusted basis in the quarter was 58.5% of sales, excluding precious metals, which represents an improvement of 10 basis points over the last year's second quarter.

I would note that currency moved against us in the gross profit line in the quarter by approximately 30 basis points, so our underlying gross profit rate performance on a constant currency basis was stronger than reported.

SG&A expenses on an adjusted basis were 39.2% of sales, excluding precious metals, consistent with our SG&A rate in the second quarter of 2013. Operating margin for the quarter improved by 10 basis points to 19.3% of sales, excluding precious metals on adjusted basis. That compares to 19.2% in the second quarter of last year.

As we mentioned on our first quarter call, we knew that last year's strong operating margin rate would be a difficult baseline for us this quarter, so we're quite pleased with our operating margin performance. I would add that currency was a headwind of the operating margin rate of -- by approximately 20 basis points in the quarter as well.

In addition, we invested approximately another 20 basis points of operating margin back into the business in cost to accelerate our operating margin improvement efforts moving forward. Over the past 4 quarters, adjusted operating margins has improved by 60 basis points compared to the prior 12-month period.

So we continue to be quite pleased with our progress in this area and believe that we're on track towards our objective of reaching a 20% adjusted operating margin rate in 2017. Our reported and operating tax rates for the second quarter were both 22.4%.

As anticipated, tax represented a bit of a headwind in the quarter if the operating tax rate was 40 basis points, above our 22.0% rate in the second quarter last year. Year-to-date, our operating tax rate of 22.5% is a 60-basis-point headwind the last year's rate and that's consistent with the guidance we provided for the year.

Net income attributable to DENTSPLY International on an as-reported basis in the second quarter was $90 million or $0.62 per diluted share. That compares to $87.2 million or $0.60 per diluted share in the second quarter of 2013. These results include a number of items, which we listed in the schedules in the release.

On an adjusted basis, net earnings grew to $99.7 million from $95.8 million in the prior-year quarter, and adjusted diluted earnings per share grew 4.6% to $0.69 per diluted share, and that compares to $0.66 per diluted share in the second quarter of last year.

Despite the currency headwind to the operating margin rate in the quarter, the overall impact of currency on earnings for the quarter was neutral to slightly positive, less than $0.01 per share, due largely to the favorable impact of currency translation on both sales and earnings. Year-to-date, currency remains a slight headwind to earnings.

And while rates are pretty volatile presently, at current rates, we would anticipate the currency impact on earnings over the next 2 quarters to be minimal. Moving on to cash flow. Our operating cash flow for the quarter was $155.7 million, which represents a 60% increase over last year's $97 million.

This represents a record quarterly cash flow for the second quarter for the company. For the first half of 2014, our operating cash flow 22.2 -- I'm sorry, $220.2 million represents an increase of $88.4 million over prior year, which is a 67% increase.

We continue to focus on driving better cash management and are benefiting in particular from some of the tax strategies implemented, as well as lower investments in working capital compared to prior year. With respect to working capital, inventories now stand at 123 days, which is up 3 days compared to March and up 7 days compared to prior year.

As we mentioned on several previous earnings calls, we have strategically increased inventory in a few businesses as part of transition plans associated with anticipated operational changes. We expect inventory to now begin to decrease in the back half of 2014 and through 2015 as we gradually return to more normal levels.

Accounts receivable days were 59 days at the end of June. That's down 2 days from March and flat to prior-year June. Capital expenditures were $24 million in the quarter, while depreciation was $21 million and amortization was $13 million. Net debt improved by over $112 million in the quarter.

And our net debt-to-capitalization ratio now stands at 33.5% compared to 39.3% a year ago, and 51.3% right after the Astra Tech acquisition. In the quarter, the company also repurchased just under 300,000 shares of common stock, bringing our year-to-date total to just under 1.2 million shares.

In terms of our capital deployment approach, I want to reiterate that our attempt is to continue to support repaying debt while also balancing uses of free cash flow to support reinvesting in the business, acquisitions, share repurchases, and dividends. So really a balanced approach.

Finally, as Bret stated, based on our first half results, as well as our current view of the relevant market factors, we are maintaining our adjusted earnings per share guidance in the range of $2.47 to $2.55.

This reflects a number of pluses and minuses that we've outlined this morning, including a somewhat tempered view of market conditions as Bret noted, as well as more challenging prior-year earnings growth comparison in the second half than what we ran against in the first half.

We are also factoring in the momentum, we believe, we are creating relative to our efforts to improve operating efficiency and to drive better leverage of our cost and asset basis. That concludes our prepared remarks. We appreciate your support, and we'd now be glad to answer any questions you might have..

[Operator Instructions] We'll go first to Jeff Johnson at Baird..

Bret, just wanted to start with you on some of your market comments, and I think the way you're seeing the market is very similar to what we've been seeing the market here in our checks and survey work over the last month or 2 of maybe a little bit of incremental softness in June and what have you.

But as the GDP number comes out 4% for the second quarter. Employment seems to be picking up, maybe you've been seeing some wage inflation here picking up a little bit, which would be helpful probably from a spending standpoint.

What do you think is causing kind of this sluggishness at this dental market level versus what seems to be at least in the domestic, trends a little bit strengthening on the macro side?.

Thanks, Jeff. And that is an important question. We did see the GDP report yesterday, which was quite encouraging for the second quarter. And obviously, dental's a trailing indicators, so if we see strong GDP growth, generally speaking, history would tell us that dental will be picked up on a couple of quarter lag behind that.

Year-to-date GDP is not so great. It's only up 0.9%. I think through the middle of the year, and obviously, was depressed in the first quarter for all the comments -- the reasons we know about weather, et cetera. But seemed to pick up in the second quarter. And if so, then again, I would expect to see dental improve. It just hasn't improved yet.

On the employment numbers, at the surface, those are also very encouraging. I mean, we saw 288,000 jobs added in June. When you peel that back one layer, the truth is they added -- we added about 800,000 part-time jobs and lost 500,000 full-time jobs. And, of course, the full-time jobs generally have benefits and the part-time don't.

So I think we have to watch those numbers a little more carefully and understand what the nature of the jobs are. And generally speaking, if you track white-collar job growth, it tracks pretty close to dental growth. And so that's the factor we're trying to watch.

So I didn't mean to be entirely negative on the growth outlook, because we still believe -- or I still believe that the dental markets are going to start pickup particularly if we see some economic growth like we saw in the second quarter. If that continues to play out, I think we'll see an improvement over the next couple of quarters..

Yes, understood. Helpful. And then as I look at the organic growth number this quarter, I compared to maybe one of your larger competitors on the manufacture side. They don't give exact details, but it sounds like their consumables business is up low-single-digits in the quarter. We haven't heard yet from the distributors.

My sense is their consumables numbers might be just to touch stronger than your organic growth was not by much, but maybe some.

Talk to me maybe a little bit about your share and kind of how you feel like DENTSPLY is competing here against some of the others out there?.

Okay. Well, the data points we have so far is one competitor came out with 2% dental, but said equipment was the growth factor and consumables were less than that. I don't think they gave the exact number, but I implied it was flat. Their consumable number must have been flat based on what they said.

We have the industry data through May, which would tell us and chair-side consumables were actually gaining share. And we do have a drag from lab. We've got -- that's a business that's under repair, we have work to do there. If asked directly, are we losing share in lab, I'd say, yes. The rest of businesses are mixed.

We have some very good performance in the everyday dentistry products, some very good product launches. Jim mentioned a few of those. I think we have some upside there. In the specialty business, implants in particular, I think could be an upside with this new product launch. We have to watch that closely. And so overall, I think it is a mixed bag.

I don't think we're beating the market by a lot, but I don't think the market is really robust right now either. And the data points you mentioned we need. We need to see what the dealer report for Q2, and then we'll know more firmly what the market is..

Yes. Understood. Last question and then just, Jim, any chance you could quantify some of the liquidation you were seeing -- you mentioned on the inventory side with the EV launch? Where is that happening in U.S.

versus Europe? If you could quantify it at all, maybe what that implicate might imply for the second half of the year, if some channel inventory has to get rebuilt, things like that?.

Yes, Jeff. So I think the -- what we've seen is that -- the 2 markets we went into, we went into the United States, Canada and then select European markets. And one of the phenomena as you see when you launch a new implant system is obviously the customer has to go a transition process. They are -- they need to buy a new surgical kit.

They're being judicious about their implant purchases based on what they think they might place going forward. Where they are fairly aggressive is in their abutment stocks. And they recognize that they're not going to be producing these -- they are not going to be placing these going forward.

So they significantly reduce their abutment inventories, and we've definitely seen that. I think one of the other -- I think maybe it's a positive phenomena, which is that transition to a new implant system is not insignificant for a surgeon.

And we would expect that if 4 to -- if we contact 10 oral surgeons, 4 out of 5 would want to make a conversion immediately. And in fact, I think the success of this system is it's more or like 8 out of 10. So that's kind of put some additional pressure on both the capacity standpoint, as well as the inventory impact.

We have addressed that issue, and we are prepared for full launch in the back half of the year, particularly in the United States. And we expect growth from that..

We'll go next to Robert Jones with Goldman Sachs..

This is actually Nathan Rich on for Bob, today. First, I just wanted to dive into little bit more detail on what you saw in Europe in the quarter. I think internal growth was pretty consistent with the first quarter.

But was wondering if you could comment on Western Europe specifically and how that perform relative to the first quarter? And just any update on your expectation for what you expect in Europe in the back half of the year?.

Okay. Yes, this is Bret. Like I mentioned, we are down 1.3%, I think, in Europe in the quarter, which is kind of, as you know, is kind of consistent what we would have been seeing. CIF continued to be a drag there, but it was a little bit less than a drag than it was in the first quarter.

For Western Europe, we were still down slightly, less than 1%, obviously, in the quarter and it's a mixed bag. We've got some countries in the south that are growing, some that are stable, some that are slightly contracting. Even in North is a mixed bag at this point. U.K. is a growth market.

And as I mentioned it looks good, whereas France was pretty weak, et cetera. Germany was kind of flattish. So I don't really have a lot more colors on that other than to say overall, the trends don't seem to be changing much. They seem to be consistent with what we've seen before.

There are moves in individual countries, but overall the region is performing about as it has been..

That's helpful. And then also just -- very impressive SG&A control in the quarter. And it sounds like you're planning to kind of accelerate your efforts in terms of achieving your long-term operating margin goal. I'm just wondering if you could go into a little bit more detail on how you're able to control expenses in the quarter.

Maybe any specific initiatives that you're exceeding plan on? And then how should we think about how the cost savings ramp not only in the back half of this year but also into 2015?.

Okay. I'm going to take a stab at that. And then Chris may have some additional comments. One of the things we commented on is that we've been building inventory ahead of some operational initiatives. Jim commented on several of those in his prepared remarks today. Those are evidence of the types of moves that we have been making and will be making.

I don't know that I would describe it as that we're accelerating the efforts. The plan we have is a very balanced plan, well-thought-out plan. And the idea is to reduce the fixed cost structure burden on the businesses, so they have more variable spent to invest in growth, and that's what we've been doing.

So like I said, it's not that we are going faster than we were thinking we are going to go. We are going at about the rate we thought we would go, and this is a multiyear long-term initiative to improve the profitability of the business and the return on assets. Now, Chris, I said a lot.

Is there anything you'd like to add to that?.

No, I think that's accurate. I mean, again, I think you'll continue to see us provide some insights in terms of the specific actions and strategies as we take them. And obviously, we'll continue to provide those insights on the call. And I would say that this quarter is pretty consistent with what we've been doing.

We're very focused on driving SG&A leverage. We're very focused on driving better asset utilization across our plants, having our teams work far more closely together. And that drives the benefits that we're seeing.

So again, we're pleased with the performance, but it's -- we'll continue to execute those strategies and as we have larger events or notable events our strategies that are central to that, we'll provide comments on those as we implement those..

We'll go next to Steve Beuchaw with Morgan Stanley..

A couple of businesses that we didn't spend much time on in the prepared remarks. I'm wondering if you could help us out a bit on, number one is implants. Could you give us a sense of how the growth there tracked? Any perspective on the market and regional trends would be really helpful..

Yes, Steve. As far as our implant business, growth in Q2 was up low-single-digits. On a constant currency basis, we were slightly negative. We continue to see growth in North America. Europe did contract, and Rest of World was up in spite of a pretty big pullback in Japan that we saw in Q2.

I did mention in my prepared remarks we have seen some impacts as it relates to the inventory liquidation. That was particularly true in North America. We've only had 2 companies report thus far, they're between minus 1%, plus 2%.

We feel we're in that range, and quite frankly, our focus now is really on the launch of EV which we think will support as [ph] well in second half of the year. Our digital business continues to perform very well..

I am sorry if I missed, but did you attempt to quantify the liquidation impact on the quarter? It sounds like relative to the market, order of magnitude may be a point?.

That's kind of difficult to do. I mean, it's across a lot of customers. So your -- we don't have obviously access to inventory at the customer levels. So it's really difficult to measure that magnitude..

Got it. And then I wonder if you could spend a minute on the health care business, the non-dental piece of the business? As I reflect that on your comments, Bret, about the performance of dental in North America. I was hoping that you could give us a little color there to help us put together the rest of the puzzle for the full U.S.

line?.

Just for clarity, Steve, you want more color on the non-dental piece or on the dental piece?.

The non-dental, sorry..

Okay, non-dental is, for us, is made up of our Wellspect HealthCare business, which performed quite well in the quarter. But also some, let's call them legacy industrial lines dating back -- in this case, dating back anywhere from 15 to 30 years. Acquisitions, we've done over very long period of time.

There's not a wide variety of products in that category anymore. Those kind of have slowly been faced out of the portfolio, but in this case, we had one particular product that was produced, generally speaking, for just one customer as a raw material for them to go into their product line.

And it hadn't been in a product line that had been growing or investing in. But that customer decided to in source that product line. And so it's basically gone now from our portfolio or will be phased out over the next couple of quarters. So I -- this is a non-core issue. I don't think we need to spend a lot of time on it.

But this is just one of those small items that were sitting in the portfolio that now is going to be gone..

And the legacy Astra health care business?.

The legacy Astra health care business is the Wellspect business that I mentioned that performed very well during the quarter and continues to be a really bright spot in the portfolio, so it's a business we like a lot..

We'll go next to Erin Wilson with Bank of America..

On capital deployment, do you anticipate any sort of change in strategy on the M&A front specifically in light of Nobel [ph] on the block more recently? And broadly speaking, I guess 5 years down the road, what businesses really make sense for you?.

Thanks Erin. I am going to take a stab at that and Chris may have some color to add as well. Our strategy is to find technologies or companies or brands that improves the portfolio of the company and make those investments. We are a, I would call us an aggressive acquirer where there is value to be had from strategic standpoint.

Most likely in dental, that's going to be smaller tuck-under acquisitions. We've made a lifetime career out of doing small tuck-under acquisitions, we think we're pretty good at it. Timing is always a problem or always an issue, because these are primarily health companies, et cetera.

With respect to larger targets, I don't want to comment on any one target in particular, but as you know, we've considered larger targets before and actually have transacted larger targets for the right strategic reasons.

From a capital deployment strategy standpoint, our first priority is to reinvest in the business and innovation in sales and marketing, clinical education, all those sort of things, which can grow the business organically. Our second priority is the balance between continued debt reduction, which you've seen is to recently pretty well I think.

Share buyback -- or acquisitions where we can do it would be the next priority followed by share buybacks and dividends. I don't think those priorities have changed. We'd still probably put acquisitions at a higher priority than share buybacks. Although we're committed to holding the share count neutral or decreasing it each year as we move forward.

So particularly given where our debt structured is today. Chris, do you have..

Nothing. You hit it..

Okay. So that's where we stand on capital deployment strategy..

Okay. Great.

And how much would you say new product launches are contributing year-to-date? And should we expect more meaningful contribution from new product launches in 2015?.

New product launches are, as they always do, contribute. There's always amount of cannibalization because we're generally launching, for the most part, in categories where we already have some product lines. We are just trying to improve the practice of dentistry in that product line.

I don't have a great -- I don't really have a good quantified estimate for you for the impact on new product launches. We did have several key products that launched in the last 6 months. Jim noted those. We have a pipeline going forward that looks like it could be a little heavy on the back half than it was in the first half.

But product launches and new products is a fundamental part of our strategy that's important to the internal growth to continue growth of the company. Sorry I don't have a better quantification for you at this time. But I just don't have that at hand..

[Operator Instructions] We'll go next to Matt Baxo [ph] with William Blair..

So, I guess my question is to get your 20% operating margin by 2017, how much is that predicated on the market actually growing? Or can you basically get there from current growth rates on the top line?.

Well, that's a tough question. It will be a lot easier if the market's growing, that's for sure. The plans that we've laid out would allow us to get to that number, not totally irrespective of market growth, but including a period when market growth was lower than historical norms.

So I don't want to say we can get every 0 market growth, because I think that would be tough.

But the plan is laid out for -- as such that we can get there without the market returning to the 4% to 6% growth the we had enjoyed pre-recession, and the fundamentals of the plan are that it would allow the business to really enjoy some prosperity if in fact -- with these actions if in fact the market did return to that level..

Okay. And also I know you guys have mentioned earlier in the year that you were closing a few plants to increase utilization capacity and stuff like that.

How far along are you in that process and when do you expect that to end?.

That's a long-term program. The comments that Jim made today were the ones that we've taken, thus far. I think there are 3 actions that's been taken so thus far. There'll be more of that, because we need to do some consolidation. We need to increase capacity utilization and become more effective on the cost side.

But that's going to be a multiyear program where we improve efficiency of the business. It's not a quick rifle shot..

Yes, Matt [ph] , it's Chris. I think again, the same comment earlier holds as we take those actions, we'll provide perspective on those obviously as we move forward. And the perspective of that point as well in terms of what we should need for us..

And next we'll go to Jon Block with Stifel..

Maybe first one, Bret. We've been speaking with the threat of value or generic implants for a while and it's always tough to give numbers but one of your competitors at a recent Analyst Day gave out sort of high, maybe a mid-teen growth rate for their value offerings.

We've seen some of your premium competitors sort of repositioned themselves to at least have a hand in value from an equity state [ph]. Can you talk big picture how you see the implant market is sort of shaping out of the high-end and to the low end of the next 2 to 3 years.

And do you guys need to do anything to reposition yourselves to capture growth?.

John, a couple comments. There certainly is a lower price, or I think you used the word, "generic" implant market. It's not our focus. We're more focused on advancing the science. This is a very risky part of dentistry. I just actually had a dental implant done 2 months ago, and I now know personally that it's quite an event.

So our focus is on advancing the science and advancing the practice of dentistry. We're just launching a new premium implant that comes at a price premium. The market acceptance has been tremendous and so we can see that the clinicians and the patients are willing to pay for value.

On the other hand, we don't dismiss the fact that there is this lower-priced generic segment. We think it's much -- could be as much as $1.5 billion market now. So it's not one to be dismissed. We're tracking very closely what's happening in that market.

We think that profitability is generally low for most companies that are participating in that segment. Not all companies, but most companies. We've tracked over the last, I think, 3 or 4 years, 28 companies in that market, 19 of which have now gone out of business. And so there's been others that have come into that market.

So we are very in-tuned to what's happening in that part of the market. We did make a small investment 4, 5 years ago in a low-cost implant player in South Korea. We're considering our options there. But we have nothing really else to communicate to the market at this time..

Okay. Very helpful and maybe just a follow up.

In terms of who may or may not for sale there, can you speak to may be, Bret, how it could impact you guys if you were to go to this rumored sale to a player that's currently one of the top 1, 3, 4, excuse me, #1 players out there or private equity? I guess where I'm going with this is, when you guys did Astra Tech, do you see a chance -- a greater chance to pick up share as one of the leaders were to make a move for the company that's for sale versus it just going to private equity?.

That's hard to answer obviously, because we're speculating on who could be involved in any single transaction. I think that acquisitions cause disruption and disruption sometimes creates opportunity for competitors. And we just went through that. So we're watching it very closely.

We do know that out of the top 5, 2 of those are merging now or have plans to merge, which will cause some disruption. And the latest rumors about another top player in the market could further cause disruption.

But it's hard for me to speculate about the nature of the disruption and how we would react without knowing exactly what transactions were going to transpire..

Okay. And lastly for me real quick. Chris, I think when we started off the year, you mentioned FX headwinds of about $0.04.

Is that where we are? Are we closer to $0.02 or $0.03? Can you just -- I guess clean that up as we sit here today?.

Yes, I mean, obviously we're bouncing around the fair amount, so we're going to -- it's tough to pin it down to specific number. The building blocks we give you was we were about $0.02 negative in the first quarter. We're neutral to slightly positive. You should think less than $0.01 or share in the second quarter.

And if rates stay where they are right now, then it's going to be pretty well neutral for the last 2 quarters, pretty much a nonevent. Now that said, there's a lot of pluses and minuses within that.

We'll get some help from the euro, the second-tier basket of currencies are still really -- they're down 7.5% compared to a year ago on a year-to-date basis. So again, there's a lot of movement at this stage of the game. But if you take a look at a snapshot, it would be the best perspective I could give you..

And we have time for one more question. We'll go next to Brandon Couillard from Jefferies..

Bret, could you speak to the endo and ortho businesses? Any changes or developments that you've seen in those markets globally or regionally?.

Sure, Brandon. First on ortho, I think we've commented on that, please from our perspective, that's probably the most competitive market in dentistry right now. I mean, there's excess capacity that's been added that market. There's price pressure.

We're still focused on technology and bringing new products to market, and recovering from the product supply outage that we had a couple of years ago. So there's a lot of pressure in that market and ortho is not a growth market for us at this point. Endo, on the other hand, we're a leader in endo in technology.

We're -- we continue to grow nicely in that category. We're bringing new products to market. Jim commented on some of those this morning. So endo remains a bright spot for us in our overall portfolio..

Chris, on the cash flow front, any chance you could quantify the magnitude of the inventory opportunity or wind down in the back half of the year? And should we think absolute inventory levels being declining on a dollar basis in '15?.

Yes. So again, I think, Brandon, we -- the word I'd give you would be "gradual" in terms of the movement. I'm not going to put an inventory target out there for this fiscal year for us. But of course, I would say that I would be disappointed if we don't continue to gradually improve here. There may be a quarter up or quarter down.

But in short, we should be gradually moving this. So as we look at our inventory levels right now, 123 days compared to historically where we were if you go back in 2, 3 years ago. The fact is, they're up a number of days. And again our objective is to gradually bring these down. We expect to make some progress by yearend.

We expect to make more progress through '15. And then obviously, we think we'd probably still have some room to grow after that. And again, this is a longer term focus area. There's -- we'll be burning down some of the transitional stock that we built.

But we think that beyond that, there's some movements we can take, actions we can take to continue to improve, frankly, the overall inventory efficiency and asset efficiency in the inventory line for us..

And Brandon, this is Bret. I'd just add to that, that there's lot -- I would say more focus on this issue internally than we've had in sometime in a number of years. So this is an area that, strategically, we want to get at..

And that does conclude the question-and-answer session. At this time, I'll turn the conference back over to management for any closing remarks..

Okay. Thank you all very much for your interest in DENTSPLY. That concludes our conference call. If you have more questions, I'm available today for follow-up. Goodbye..

And again, that does conclude today's conference. Thank you for your participation..