Bret Wise - Chairman, Chief Executive Officer Chris Clark - President, Chief Financial Officer Jim Mosch - Executive Vice President, Chief Operating Officer Derek Leckow - Vice President, Investor Relations.

Nathan Rich - Goldman Sachs Jeff Johnson - Robert Baird Steve Beuchaw - Morgan Stanley Brandon Couillard - Jefferies John Kreger - William Blair Ethan Roth - Stifel Steven Valiquette - UBS Erin Wilson - Bank of America.

Good day, and welcome to the DENTSPLY International, Fourth Quarter Year End 2014 Earnings Call. Today’s conference is being recorded. At this time I will like to turn the conference over to Mr. Derek Leckow, Vice President of Investor Relations. Sir, you may begin. .

Thank you, Kyle. Good morning everyone and thank you for joining us to discuss DENTSPLY International’s fourth quarter and fiscal 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 had 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 non-GAAP financials are available for download in the Investor Relation’s section of our website, www.DENTSPLY.com under the heading quarterly results.

And don’t forget the Safe Harbor language and 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. These should be considered in conjunction with the 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. With that, I would now like to turn the call over to Bret Wise. Bret. .

Thank you Derek and good morning everyone and thank you for joining us again on the call this morning. I have just a few opening comments on the state of the markets, our strategic priorities, and then briefly on our results, and then I’ll turn the call over to Jim and Chris who will provide more details.

First on the markets, generally the trends that we saw earlier in the year continued in Q4. Overall, the global markets were reasonably stable with the exception of the CIS region which continued its steep decline. U.S. markets certainly is showing signs of life, probably at about the same pace as in Q3 or may be a little bit better.

The European market, ex-CIS, remained flattish with some markets growing slowly and some contracting a bit, however, I will say there is a slight bias towards improvement there. The markets that we’re growing, there are more of them and they are a little bit more robust and there are fewer markets that we are contracting.

The rest of the world was of course a mixed bag. The growth markets continued to be China, select countries in Asia; India, Middle East, and Canada, while Australia was stable and Japan and Brazil declined modestly.

Overall, I’d say the market trends are very consistent with what we saw earlier in the year, may be with a slight bias towards getting better. Moving to DENTSPLY, we entered 2014 focused on new project launches and growth, but also on improving our efficiency in terms of operating margins, asset churns, and cash flow as priorities.

We also established a target to achieve an adjusted operating margin of 20% by 2017, and that was off a 17.6% base in 2013. So, we are looking for approximately 240 basis points of improvement over that period of time.

We made some good progress on these priorities in 2014, significantly increasing our operating margins, our asset churns, and our cash flow generation.

We also are now moving several elements of the efficiency program from planning to implementation and thus we expect to see more improvements, substantially more progress over the next eight quarters or so.

It’s also important to remember that this program is not only about efficiency and cost, but it’s also about reducing fixed cost in favor of variable spending and investment in growth initiatives, in particular opportunities we see in research, clinical work, and customer facing areas of our global platform.

Overall, there are some good signs of our progress in our reports this past year and we expect to build on those as we move through 2015 and 2016. Separately, based on our cash flow in 2014, we are now in a good position to re-deploy cash to benefit shareholders.

You already began to see this in our share repurchase program in 2014, which accelerated notably from prior years, and we’ll give you more details on that this morning. Of course, acquisitions also remain a high priority for us to the extent we can find attractive returns through acquisition growth as we move forward.

Looking at the numbers, sales growth ex-PM was up 1.8% constant currency for the year, and the fourth quarter came in at a positive 2.1% constant currency with 1.9% of that being internal growth. Regionally, internal growth in Q4 was strongest in the rest of world at a positive 3.4%, followed by Europe which was up 2.0%, and U.S.

was up 0.7% in the quarter. Although retail growth was higher than that in the U.S. and you’ll hear more about that this morning from Chris and Jim. Looking at underlying demand trends, we expect to see the U.S. growth pickup as we move through 2015 at this point.

Europe was up 2% and although this is a good number in and of itself considering the economic conditions, this was still significantly depressed by the CIS region. Internal sales growth in Europe ex-CIS was up 3.8% and that’s the strongest growth we’ve seen in that region since the beginning of the recession in 2008.

This builds on a pretty strong third quarter for us as well in Europe, which is of course encouraging at this point.

However, we continue to believe that our growth there is quite a bit above the market growth, and although we see market improvement in 2015 as a distinct possibility in Europe, the risk of economic stability in the region remains very, very high.

Sales in the rest of world were led by strong growth in Asia, modest improvements in Latin America, Canada, and Australia, and we’re down in Japan and the Middle East.

On a product category basis, our healthcare and dental specialty sales growth was the strongest, while chairside consumables including small equipment were low-single digits and lab was negative low-single digits. On earnings, operating margins expanded by 50 basis points in the quarter and were up 80 basis points for the full year.

We’ve shown a pretty consistent trend of improved operating margins throughout the year here, and I think that’s a good sign for the impact of the programs we have instituted.

Cash flow also improved significantly growing to $560 million for the year; that’s up 34% compared to the prior year, and again I think both the margins and the cash flow generation reflect well in the efficiency program and our ability to turn earnings into cash flow as we work towards our long term ROIC target of 12% to 15%.

Going forward, we are emphasizing new product innovations and launches, a strong platform that we have for clinical education and procedural selling and investment in our sales force to ensure that they are the most knowledgeable group in the field.

This combined with our efficiency program and reinvestment of our cash flows set the stage for growing shareholder value over time. Looking ahead to 2015, we are facing rather severe changes in currency exchange markets, which at the current rates will impact our results significantly.

Derek’s included a slide on currency, the change in currency exchange rates that he posted this morning on the website for you to see. We have programs in place to mute or offset some of the effects of the rate movement, however with 66% of our sales in international markets, the impact is still very substantial.

At current rates, we estimate the currency impacts net of hedging activities is approximately a $0.14 per share drag on earnings in 2015 versus 2014, and again that’s net of our hedging activities.

With this in mind and considering the market conditions and what we can achieve in our efficiency program net of the investments in that program, we are establishing initial expectations for adjusted earnings per share of 250 to 260 per share.

So before I turn this over to Jim, overall operationally we believe the underlying performance of the company is moving along the trajectory towards the goals we’ve put forth, namely operating margin expansion, improving our cash flows, and improving ROIC and we’re optimistic about market growth expectations in certain key markets for 2015 to help boost results.

Jim..

Thank you Bret. I would like to comment on operational highlights for Q4 in 2014 and provide some perspective on 2015, and I’ll then turn it over to Chris. 2014 saw lower than expected internal growth in the first half of the year and we saw improvement in Q3 and Q4. In the U.S.

we saw good retail growth of our chairside consumables in the mid-single-digit range, although wholesale growth was muted. More specifically, our resources business saw continued performance from new products such as TPH Spectra, Prime&Bond Elect, and the Class II marketing campaign, all supporting excellent growth.

In addition, our prevention hygiene businesses has leveraged new product launches such as NUPRO Varnish and Cavitron FITGRIP driving growth above consumables overall. This was somewhat offset by lab, which was negative driven by declines in traditional lab products. Outside the U.S., we saw a real acceleration in the chairside consumable categories.

In Q4, Western Europe internal growth was up mid-single digits and Asia was up double digits, which helped to counter very slow growth in Latin America and contraction in CIS.

Looking to our healthcare business, we continue to leverage previous launches of the Origo male catheter and Sense [ph] female catheter and healthcare grew nicely in the quarter in both Europe and the U.S.

Of the products launch in Q4 we have been very pleased with the success of both the Midwest E Electric handpiece and the TRUSHAPE dental retention endodontic system. The Midwest E has provided an entrance into the growing electric handpiece segment. Response has been excellent and sales were XXX expectations in Q4.

In addition, TRUSHAPE has been well received by the endodontic community and the minimally invasive and dental retention attributes has resonated with clinicians.

Turning to our implant business we’ve had excellent acceptance of the new Astra Tech EV implant system, which now represents greater than 50% of our Astra Tech implant system, all which was occurred in the first year of launch. As indicated, we had a delayed start in the U.S.

and Germany as the conversion rate exceeded demand, leading to inventory liquidation as clinicians transitioned to the new system. We forecasted recovery in the back half, which we saw in Q3. In Q4 total implant performance improves sequentially to mid single digits constant currency growth. Our implant performance was driven by growth in the U.S.

and the rest of the world and Europe was positive despite the 200 basis point headwind from Russia CIS. In 2014 we completed the integration of our digital businesses, which is Atlantis Abutments, Isus bars and bridges and materialized surgical guides. These products are now being sold by the DENTSPLY implant sales organization.

Through this effort we have seen high single digit growth of our digital portfolio and solid growth in each product group. As we discussed throughout the year, operational effectiveness was a key focus area. This came in a form of several facility consolidations in U.S. and Europe, cost reduction initiatives and networking capital improvement.

These efforts delivered cost savings, gross margin improvement, operating margin expansion throughout 2014. In Q4 we had solid networking capital improvement with the six-day inventory reduction and operating margin improved 50 basis points and we also had record cash flow. These results added to a good performance throughout the year.

Chris will discuss these in more detail. As we enter 2015 we will continue our operational initiatives and we will work to deliver operating margin expansion and networking capital improvement.

Commercially we look forward to the IDS in Cologne, German in March as in the past we will have the DENTSPLY village with all dental divisions represented, new products will be the theme and we expect to launch 12 new products at the show with some strictly important launches in our lab and endodontic businesses.

In addition to innovation, we will focus heavily on expanding and developing our sales organization and increasing our clinical education initiatives, which we believe are all directly alighted with our success in the market. I’d now like to turn it over to Chris Clark to review the financial results..

Thank you Jim. Good morning everyone. I’d like to provide some detail on both our fourth quarter and our full year results by reviewing key elements of our income statement and also providing some additional color on our balance sheet and cash flow.

The fourth quarter sales excluding precious metals decline 3.2% compared to the prior year, as internal growth of 190 basis points and net impact from acquisitions of 20 basis points were more than fully offset by unfavorable currency translation of 530 basis points. Internal growth was 0.7% in the U.S.

and was negatively impacted by the headwind from channel inventory contractions associated with purchasing ahead of our October price increase that we mentioned on our third quarter call, as well as the 180 basis point headwind from lower small equipment sales compared to a very strong prior year base that included a major new product launch.

From a retail standpoint our growth in the U.S. was much better than this and we expect this to continue as we move into 2015. European internal growth was 2.0% in the quarter including 3.8% excluding Russia CIS, which continues to contract well into double digits as a result of the economic and political situation there.

For the quarter Russia CIS was a headwind to our global internal growth figure by approximately 80 basis points. Our rest of the world internal growth of 3.4% in the quarter was led by particularly strong performances in the Pacific Rim as Bret mentioned.

Gross profit on an adjusted basis in the fourth quarter was 57.4% of sales excluding precious metals, which was an improvement of 90 basis points over prior year and reflects the favorable impact of price, mix, FX and some of our recent operational improvement efforts, partially offset by lower absorption as we took out inventory in the period.

SG&A expenses on an adjusted basis were 39.6% of sales excluding precious metals. That’s up 30 basis points compared to our rate in the fourth quarter 2013 and includes some heavier spending associated with our operational improvement initiatives, consistent with our comments on the third quarter call.

Operating margin for the quarter improved by 50 basis points to 17.7% of sales excluding precious metals on an adjusted basis, and that compares to 17.2% in the fourth quarter last year and reflects the gross margin SG&A impact that I just described.

Currency represented a headwind of earnings in the quarter of between $0.02 and $0.03 per share and that was approximately three quarters of $0.001 worse than what we anticipated on the third quarter earnings call, and the U.S. dollar strengthens subsequent to that call and drove an incremental unfavorable translation headwind.

Our reported tax rate for the fourth quarter was 11.9%, while our operating tax rate was 22.1%, which was 130 basis points above our fourth quarter rate last year.

You will recall that we mentioned on our third quarter call that we anticipated an unfavorable comparison to prior year quarter in the tax line, primarily as a result of unfavorable geographic mix.

Net income attributable to DENTSPLY International on an as reported basis in the fourth quarter was $84.7 million or $0.59 per diluted share and that compares to $74.4 million or $0.51 per diluted share in the fourth quarter of 2013. These results include a number of items which we’ve listed in the schedules in the release.

On an adjusted basis net earnings were $86.6 million in the quarter, down slightly from $87.9 million in the prior year quarter. Adjusted diluted EPS was $0.50 per share, down from $0.61 for last year.

Our results include the headwinds that we anticipated on our third quarter call including currency, tax, incremental investments to support our operating and margin improvements and our modest contraction of channel inventories as a result of purchases ahead of the October price increase.

Although the net impact of these items was probably a bit worse than what we anticipated. Transitioning now to the full year results for 2014.

Sales excluding precious metals were 0.8% compared to the prior year, including 120 basis points of internal growth, 60 basis points from net acquisitions and negative currency translation impact of 100 basis points.

The headwinds in CIS had a negative impact on the internal growth of 70 basis points on our global number for the year and after providing a pretty nice benefit to the internal growth in 2013. For the year the U.S. comprised 34% of our global sales, while Europe represented 45% and the rest of the world region represented 21%.

Operating margin for the year improved 80 basis points to 18.4% of sales excluding precious metals on an adjusted basis. That compares to 17.6% last year. We are pleased with this improvement in operating leverage, particularly given the slower than ideal market conditions we face during much of the year particularly in Europe.

On an adjusted basis net earnings for the year increased to $361 million from $341.2 million in 2013 and adjusted earnings per share grew 6% to $2.50 per diluted share from $2.35 per diluted share in 2013.

Our results for the year include a negative impact from currency of approximately $0.04 per share, which is generally in line with what we anticipated in our initial guidance for the year. Based on current rates, currency is a much larger headwinds for us in 2015 and I’ll describe that in more detail in a moment.

Moving on to cash flow, our operating cash flow for the year was a record $560.4 million. That’s up 34% from $417.8 million last year. While free cash flow, which we define as operating cash flow less capital expenditures grew 45% to $461 million from $318 million a year ago.

This improvement reflects earnings growth and the improved working capital performance and also continued tax benefits associated with recent acquisitions. As a result, our free cash flow conversion was strong at 143% of reported net income for the year, while our trailing 12-month free cash flow yield now stands north of 6%.

Our cash flow performance allowed us to continue to take a more balanced approach to capital deployment as we move through the year, including acquisitions and share buy backs. In the fourth quarter we completed one acquisition in Europe, as well as two small divestitures, one in the U.S.

and one in Europe, none of these were material to our financial results. In the fourth quarter we also accelerate our share repurchases by buying back over 1.7 million shares in the quarter at an average cost of $52.88 per share. For the full year the company repurchased approximately 3.3 million shares.

We ended 2014 with a net debt to capitalization ratio of 32.4% compared to 35.2% at the end of 2013 and 48.2% right after the Astra Tech acquisition. Looking forward, our balance sheet provides us considerable flexibility to deploy capital through acquisitions and share buybacks.

Inventories now standard at 113 days, which is down six days compared to September, down 10 days from June and down one day compared to December 2013.

For the year our inventory pattern was pretty consistent with what we anticipated as we had indicated that inventories would drop in the second half of 2014, after increasing previously as a resulted transition plants associated with anticipated operational changes.

Looking ahead, we anticipate continued progress in this area recognizing that there is some seasonality to our inventory patterns, as inventories will tend to increase a bit in the first half of the year. Accounts receivable days were 55 days the ended December, just down seven days from the prior quarter to down one day compared to December 2013.

Capital expenditures for the year totaled $100 million, while depreciation was $81 million and amortization was $48 million. As we move into 2015, we are pleased with the operating performance of the business, particularly the improvements driving our operating margin rate and cash flow performance.

Well our assumptions for 2015 include continued improvements in both these areas, we are also reflecting a series of unprecedented moves in foreign currency rates over the last 60 days, including significant strengthening of the U.S.

dollar against most major foreign currencies, as well as the significant weakening of the Euro relative to the Swiss Frank. The U.S. Dollar is now 14% stronger relative to the Euro than it was on average in 2014, with similar strengthening across other key currencies, including the Swedish Krona, Canadian Dollar, Australian Dollar and British Pound.

At current rates these movements would create an unfavorable impact to our sales results for 2015 of about 800 basis points. With respect to earnings, at current rates the impact to adjusted EPS for 2015 would be approximately $0.14 per share, reflecting a substantial benefit from our cash flow heading program.

Absent the impact from the hedges, the earnings headwind from FX would be about double the $0.14 that we are currently facing. These hedges helped to partially blend our FX impact over a rolling 18-month period.

While they do not eliminate or reduce the long-term impact of currency changes they do reduce the volatility by essentially gradualizing rate changes.

Longer-term, one target benefit of our operating margin improvement initiatives is a standardized production processes across similar facilities, allowing us to flex a portion of our production between plants and geographies based on the number of factors, including currency movements.

In the near term we are accelerating targeted actions to address specific costs and pricing opportunities as a result of the currency challenge.

As we provided our 2015 earnings guidance I want to point out that this is on a non-GAAP basis, and excludes the impact of amortization, restructuring related activities and fair market value adjustments on derivatives, financial instruments and pensions.

As Bret stated, we are establishing our 2015 earnings per share guidance as $2.50 to $2.60 on an adjusted basis. Our guidance reflects the impact of the incremental current headwind of approximately $0.14 per share and the non-GAAP adjustments that I mentioned earlier.

In addition, our guidance reflects an anticipated 50 basis points headwind in our 2015 tax rate compared to 2014’s rate and that’s a result of projected unfavorable geographic earnings mix. There may be some opportunity to prove on the tax rate as we move through the year; we’ll just have to see. That completes our prepared remarks.

We certainly appreciate your support and we’ll now be glad to take any questions that you might have. .

Thank you. [Operator Instructions]. We will take our first question from Robert Jones with Goldman Sachs..

Hi, this is Nathan Rich on for Bob today. Chris, first question for you. You just mentioned the ability to maybe shift manufacturing and costs across geographies to offset some of the FX impact.

I was just wondering if you could maybe give us a little bit more detail on how big of an opportunity is this, and is there an benefit from doing this assumed in your guidance. .

Yes, Nathan. As we look at that, that’s certainly one of the longer-term objectives associated with the operating margin improvement initiatives. As we look at it, we have plants that make similar products, not always necessarily the exact same product or using the exact same process in terms of manufacturing process.

So one of our objectives of the initiative is frankly to standardize that on a much more common basis allowing some plants that are producing similar products to actually produce the same products in the same manner, and that would allow us over time to flex production back and forth based on a number of different factors, including FX.

I would say that we have some limited capability to-date to do that. I would say that that is a longer term objective, and while there may be a little bit of help in that in 2015, I would say that’s really more of a longer term benefit that we see from the program. .

Great. Thanks and then Bret you talked about U.S. growth being a little bit soft, and I understand I guess there was some pull forward ahead of the price increase in October. Could you just maybe talk about your expectations for 2015 in the U.S.

Do you see that internal growth rate kind of improving throughout the year and then also internationally just kind of any impact on kind of the sales and earnings cadence around the IDS Show?.

Okay Nathan, quickly our U.S. growth was muted for the reasons that both Jim and Chris covered. I do think that the U.S. market has accelerated somewhat as we move through the year, and there is no reason not to expect it won’t accelerate going forward, and that’s why in our comments we said we expect our own internal growth in the U.S.

to accelerate as we move through 2015, so we are reasonably comfortable with that. On international and the effects of the IDS, the IDS is not a big selling show for consumables.

Meaning, we go to the show, we demonstrate our new products, and then over a subsequent month or subsequent quarters we try to get back to those dentists or those customers and re-engage on the new technology. So, we don’t usually see a big boost in short-term growth from the IDS, in fact what we see is a big boost in spending for the IDS.

It is quite an expensive show. So if we look at first quarter, our first quarter, it’s probably going to be the most challenging quarter we have for the reasons stated there, that we are likely – I think that U.S. growth will accelerate its growth through the year that will help us.

It’s probably more back-end loaded than front-end loaded, and spending will probably be front end loaded, both on the efficiency programs and on trade shows, the IDS being the largest. But it usually doesn’t resolve in a quick ramp-up in sales, it’s more a precursor to sales later in the year. .

Great, thanks for the color. .

Thank you. .

We will take our next question from Jeff Johnson with Robert Baird. .

Thank you.

Good morning guys, how are you?.

Good morning Jeff. .

Good morning Jeff. .

Good. Just wondering Chris maybe we could just start on the Russia CIS. You’ve been helpful the last few quarters providing the breakout there, but we are starting to bump-up against the much easier comps there. Should we still expect down -- on top of down comps over the next few quarters or just what’s going on in that business.

Obviously the geo-political stuff is still an issue there. .

Yes I think you have a couple of factors going on. Obviously, it is very unstable from an economic situation. We think that the demand levels are continuing to drop.

Certainly, we are not seeing any sequentially improvements if they are continuing to decline in double digits, and so from that angle, I think that’s an indication that it really has not stabilized. First quarter, we began to run-up against the base.

So, from that angle, we are running against a base that declined as opposed to a base that improved, but I guess I would say that, that base has continued to decline the subsequent three quarters.

So again, I guess all I can say at this stage is it’s highly uncertain and certainly we would hope that it stabilizes, and that’s historically been a nice growth market for us, but it’s been a pretty significant headwind, and I don’t know that that’s going to flip around anytime soon. .

All right. That’s helpful. And then Bret going back to some of your comments on the first question there around margins, you know margins continue to impress this quarter. I think it’s seven straight quarters here that you guys have put up some very solid margin improvement.

Is it fair to think though, we have to think of those margins kind of flattening out. I’m just trying to read your comments on the IDS spending and the kind of improvement on the U.S. organic throughout the year.

Would it be kind of flat to start the year and then some nice expansion as we exit the year or how to think about that margin gating?.

Yes, thanks Jeff. You know, I think for the full year, we are comfortable in saying we are going to see continued margin improvement in 2015. Part of that’s our self-help program and part of that’s I think the opportunity for faster growth in the U.S. in particular. I do think quarter is always hard to predict.

First quarter, I think is going to be the most challenging for the spending that you commented on. So I don’t really have high expectations for the first quarter for margin improvement. I think it will be more backend loaded in the year this year..

All right, that’s helpful. And then just Chris back on the FX, issues for the year. It sounds like you are saying that about 50% of the impact flows through this year and obviously currency is going to be volatile over coming months and quarters in that, I’m sure. So is that kind of a flow though rate we should be thinking of.

I know its varied anywhere from 50% flow-through to a 100% flow through over the last few years. But is that – with the hedging in place kind of 50% the right number at this point. .

Yes, at this point in time Jeff, that’s correct. I mean recognize that the caveat for this is highly volatile, right. I mean these rates are flipping around significantly, constantly almost hour by hour. So yes, as we sit here today, we think the headwind in approximately $0.14 in terms of earnings at current rates for the impact on 2015.

But that includes about that size of benefit in that net number from the cash flow hedges. Those cash flow hedges again, I guess they anniversary themselves, they go away. So again, the gross impact is basically close to double that $0.14. .

Yes, okay. Thanks guys. Yes got it thanks. .

We will take our next question from Steve Beuchaw with Morgan Stanley..

Hi guys, thanks for taking the questions. I have one longer-term cash flow question; I guess that would be for Chris. You guys have given us a pretty helpful roadmap for how you think about margins improving over time. The cash flow improvement in 2014 was obviously very strong.

Would you be willing to speak to a longer-term view, maybe through 2017, just to be consistent with the commentary on the margin improvement? You know thinking about how you can grow, either operating a fee cash flow over that period of time. We know margins keep improving, but obviously you’ve had some improvements on the balance sheet as well.

Can you give us a sense for how that flows from here? Thanks..

Yes, I guess I would say Steve that as we think about the objectives of our self health program as Bret describes it, obviously margins are certainly one of that and the other piece frankly is to continue to improve our ROIC and by basically addressing the asset base, including working capital.

We think we have opportunities over time to continue to improve in the working capital side. Again, that’s going to be a gradual improvement, but we think that we showed some improvement, solid improvement in 2014. We’re hoping to continue to, we expect to continue to drive that in ’15 and beyond.

So I think that as we think about the cash flow opportunities, I think the cash flow opportunity is really too full. No one, it improved earnings as a result of the operating margin improvement and then secondly the improvements in networking capital over time.

So I mean again, I think that growth certainly drives it as well I guess would be the third factor in the context of as today’s markets improves and internal growth improves and then that’s obviously a factor as well. So those three things would cause me to say over time we would expect that to continue to improve..

And then I want to follow up on implants. I wonder if you’d be willing to give us any geographic and deconstruction of how the growth was looking in your implant business towards the end of the year.

How do you see it into next year? And then while we are on the topic of implants, given the amount of strategic activity going on in the implant market, are you seeing any opportunities for commercial traction, incremental share gains or maybe a bit of opportunity to capitalize on attrition given the amount of activity out there? Thanks..

Yes Steve, this is Jim Mosch. As I mentioned in my comments, I think one of the things that we relied on significantly in 2014 was the EV launch. As I mentioned, we’re probably ahead about 50%, a little more than a 50% conversion level of that system and I will also say that that’s been pretty evenly distributed.

We saw continued sequential growth in the U.S., so we’re kind of pleased with that position. I think we recognize that we needed improvement in that area from early in the year. We saw that in Q3 and Q4 and we expect that to continue into 2015. Likewise Europe was strong ex-CIS. CIS has been a challenge.

That’s a pretty sizable market for us and we don’t expect to see a lot of improvement in that situation in 2015. As Chris mentioned, it’s very, very volatile. From the rest of the world situation we’ve seen improvement in the Pacific Rim through 2014. So as I look at it I believe that we’re well positioned.

We’re seeing nice growth in our digital portfolio. We have continued traction in the EV system and we would expect to continue to improve in the overall implant business. On the commercial side, I think we’re going to be absorbing EV really throughout 2015. We do have some new opportunities.

We will have some product additions that we’ll show at the IDS as it relates to Atlantis and our digital portfolio and we expect to kind of get some continued growth from that segment, but as far as a major commercial shift, I don’t see anything on the horizon..

Very helpful. Thanks Jim..

We’ll take our next question Brandon Couillard with Jefferies. .

Thanks, good morning. Bret, back on the U.S.

business, just to make sure I heard this right, did you say that the hand piece comp was a 80 basis point headwind in the fourth quarter and then could you parse out just the tier side consumables trend and how that shaped up in the fourth quarter relative to sort of the runway we see in the last three periods..

Sure Bran, I’ll take a shot at that and Chris may need to interject here as well. On the small equipment decline year-over-year there’s a couple of factors there. One is that we had a large launch last year.

It was Aquasil Cordless was the launch and so that’s a piece of equipment that goes along with an impression material, suite of products that’s called – that was very successful last year and it created a big baseline for us to get over this year.

But secondly we saw small equipment generally slow down in the fourth quarter and diverge from the growth rates of consumables. That happens from time to time, but not that often and when it does diverge significantly we call it out.

I would assume that that’s temporary and its probably going to play itself out here over the next few quarters as those two growth rates, consumables and small equipment kind of return to a common norm. As far as consumables themselves, the chairside consumable component of our business grew retail quite nicely in the fourth quarter.

I would say at a kind of an accelerating pace. Now it was [indiscernible] hidden by the small equipment impact and also the slight destocking coming out of the third quarter price increases. But I think Jim commented that we’re in mid single digits in those products.

We had some encouraging reports on that market from one large distributor earlier in the month and like we mentioned, we think that that consumable segment is going to continue to accelerate going into ’15 in the U.S. So we’re reasonably optimistic about that market..

Thanks and then Chris, in terms of the outlook for next year, can you give us some parameters around operating cash flow in CapEx and then just to clarify, does the guidance contemplate any contribution from incremental share repurchases?.

The guidance at this point basically includes the share repurchase that had been done as well as offset of future equity dilution. So from that angle that’s pretty consistent with the way we typically provide guidance at the beginning of the year.

CapEx, at this point I would estimate that we’re forecasting in the $110 million range for the year and relative to cash flow I would expect I mean obviously we’re coming off an enormous base. I would expect a modest improvement, slight improvement for the year as we continue to make improvement in terms of working capital.

But again, it actually would probably not be the same level of improvement that we saw in terms of 2014 over 2013..

Super. Thank you..

You bet..

We’ll take our next question from John Kreger with William Blair..

Hi, thanks very much.

The 1.9% organic constant dollar growth that I think you had in the fourth quarter, can you give us a sense about what the price component of that was?.

Yes, as we look at it, let me ask the question John via the margin line, which did improve obviously about 90 basis points in the quarter. Price was a component of that. We did typically take our price increases on many of our businesses October 1.

Our price increase overall was in the 1.5% range and we think that most of that appears to have stuck at lease in the quarter. So again, that’s not on all of our businesses globally, but that’s on again I guess our U.S. consumables business and several of our international business.

So again, there is no doubt that price is a component of the 1.9% growth, but I wouldn’t say that it’s every bit of it..

Great, thanks. So Chris given that, can you just talk a little bit more about this destocking effect that you saw in the U.S. I assume that’s behind you.

Do you feel like inventory levels out in the channel are pretty reasonable and stable or might we see any more of that as we move through early ’15?.

Yes, I know. We think at this point John we’re kind of entering the year at a pretty normal basis. We called out on the third quarter call that we thought that again, a few of the distributors might have gone in a little bit deeper if you will in terms of price increased pre buy activity in the quarter.

Interest rates were low and that gives us obviously as we take price increases, that’s how they put it through their models and make a determination in terms of what the return in terms of going deeper on key products might be and we call that out in terms of it being a potential impact.

Obviously it’s always a little bit hard to tell in the exact amount of that, but again that was pretty much in line I would say in the fourth quarter with what we anticipated on the third quarter call. And again, we think we’re entering unbalanced, entering the year again in a pretty stable position.

Again, there’s going to be individual businesses, plus and minus and individual geographies plus and minus, but I think overall pretty balanced..

That’s all for it, thanks. Maybe one last one; particularly in the U.S. and Europe, do you have any visibility to the underlying customer type and what sort of growth your seeing into lets say the kind of smaller practice versus larger or/and corporate accounts. Are you seeing any differential in growth rates into those two classes..

Yes, as it relates to that, I mean we certainly recognize that in certain geographies, we see it in the U.S., we see a little bit in the UK. We’ve seen a little bit of activity in Canada, this kind of this rise of Corporate Dentistry.

I would say that we’ve had very favorable impact in those type of customers, because we have such a broad portfolio and we are able to leverage that portfolio and our clinical education programs to be able to address the needs of those types of practices.

I wouldn’t say at this point in time we’ve seen such a shift and it’s a major, major change where we see a major shift between group or corporate customers versus individual practices. We haven’t seen that phenomena as of yet..

Great, thank you very much..

Our next question comes from John Block with Stifel. .

Hi, thanks. This is Ethan Roth on for John. The implant business was up mid-single digits over the second consequently quarter. Last quarter you provided some commentary on the Astra Tech EV system. You mentioned that one third of conversions were coming from new customers.

Are you still tracking towards similar levels of competitive conversions?.

Yes Ethan, I would say that that’s probably fallen off a little bit and that’s primary as we’ve gotten into the larger markets of the U.S. and Germany where we obviously have much larger businesses, much larger number of customers, so there is really a capacity issues of our ability to address the needs of those customers.

However, we are still seeing a good number of conversions of new customs with our EV system. But I would not say it’s at that one-third level. .

Okay, great. And then just on the 2017 operating margin goal of 20%, what impact if any has the current changes in the FX had on that and since you are still maintaining that target, does that imply modest improvement you are thinking, just on the core margin expansion. Thanks. .

Yes, as we look at 2014 FX was actually a little bit of headwinds, by headwind overall for the year in terms of operating margin rate. As we looked at 2015 at current rates its actually going to flip around and be a bit of a help as the drag on the top line is going to be a little bit more than the drag on the bottom line.

As we think about the 20%, our objective is 20% in 2017, regardless of the FX situation and so you know again, I do think there maybe a little bit of noise give or take here as we have individual periods with FX changes.

But again, I think the key core for us is to keep on focusing on the underlying improvement of business and obviously we are pleased with the progress in 2014. .

We will take our next question from Steven Valiquette with UBS. .

Yes thanks, I literally had the exact same question that was just asked.

So I’m all set now thanks?.

Okay, thanks Steve. .

Thanks Steve. .

And we will take our final question from Erin Wilson with Bank of America..

Great, thanks for taking my questions.

In implants have you seen any sort of meaningful changes in pricing or the competitive dynamics across the implant business in light of industry consolidation and how do you envision that market evolving over the next year, but also longer term and you can speak to high end versus value as well?.

Certainly. From a standpoint of meaningful change pricing wise, we’ve not seen that to-date. In fact as we look at the premium implant segment, one phenomena we have seen is that implant unit growth has increased and certainly it’s taken a couple of years for that to happen.

The other thing we see is that average sell prices are fairly stable and in some cases we are seeing increases. So from the standpoint of the premium implant segment it is defiantly improving and I think you see that in the performance of certainly asking some of our competitors.

The industry consolidation you speak of, obviously that is actually happening as we speak. So I don’t think – we’ve yet to see the full impacts of what will happen with Nobel and Zimmer 3i. I think that will come down the road. As far as the longer period of time, I think that’s a little bit difficult to predict.

Certainly we recognize that in certain geographic segments value is very important, value implants are very important and you need those systems to have access to broader market. And certainly we will look at those opportunities. .

Okay, great and on capital deployment what you are looking at from an acquisition standing? Do you anticipate greater opportunities in 2015 relative to 2014? What types of acquisitions would you be potentially targeting here and on the flip side of that should we anticipate any further divestitures or the emphasis of certain product lines as part of your operational initiatives and would that be incorporated into your guidance.

Thanks. .

Okay Erin, on acquisitions, both acquisitions and divestitures we haven’t done yet, are not incorporated into our guidance at all. I would say that we are a little bit more optimistic about acquisitions. The ability to execute acquisitions in ’15 than we were in ’14, so we are activity involved in that.

I think predicting how much and when is the dangerous game because there is huge timing risk and execution risk on acquisitions. But I think its fair to say that we are interested in growing by acquisition, our balance sheet is in pretty good shape right now.

We said in ’14, we are repeating in ’15 to the extent that aren’t acquisitions, we’ll likely be more active in share buybacks. You say us pick up the phase in share buybacks in 2014 as well. So to us its kind of an either or type equation right now, to the extent there is transactions available, we’ll probably transact them.

Its important that they fit into the our timing for the efficiency program as well, meaning they are stable enough that we could leave them outside the efficiency program for a while or they could easily be integrated while we are doing the efficiency program as well. So we take that into account as another factor.

But I think we are more optimist about the ability to pull cash, to create shareholder value that we have been for some time in the business. .

Okay great, thanks so much. .

Thank you. .

I would now like to turn the conference back over to our speakers for any additional or closing remarks. .

Okay, thank you all for your interest in DENTSPLY. That concludes our conference call. If you other questions I’m available today for follow-up, and I look forward to seeing many of you at the upcoming dental shows in Chicago and at the IDS. Thanks a lot. Bye. .

This does conclude today’s conference call. Thank you all for your participation. You may now disconnect..