Chief Financial Officer at DENTSPLY SIRONA
Thank you Don. Good morning, and thanks to all of you for joining us. Today I will cover fourth quarter results, fiscal year '21 performance, our current outlook for '22, and an update on our capital allocation policy. As a reminder, my remarks today will be based on non-GAAP financial results unless otherwise noted. Please refer to the reconciliation tables at the back of the press release and slides, both of which are posted in the Investors section of our website.
In the fourth quarter, we delivered revenue of $1.088 billion with organic sales growth of 1.8% and reported growth of 0.6%. Our clear aligners, implants, and CAD/CAM businesses posted a strong growth in the quarter. In line with our expectations, consumables declined versus last year. In the quarter, we also experienced more acute supply chain and COVID-related constraints which we estimate to have suppressed our total company organic growth by approximately two to three points. We view this as a temporary headwind but anticipate that our supply chain will remain challenged for at least one or two quarters in 2022.
Gross profit was $627 million or 57.7% of sales. Our margin rate increased 100 basis points year-over-year driven by benefits from portfolio optimization and efficiency improvements offset by inflationary cost pressures. SG&A expenses were $351 million or 32.3% of sales. SG&A as a percent of sales increased 290 basis points year-over-year primarily due to commercial investments in growth areas, including clear aligners, implants, and digital capabilities. Additionally, SG&A ran at a lower rate in the prior year quarter as we were still ramping back up to our normal pace of operations.
R&D spend was $59 million, an increase of 32.2% year-over-year. This increase reflects our focus on innovation and a $10 million one-time re-class of R&D expenses reflected as SG&A in the first three quarters of the year. The re-class was a result of further centralization of R&D processes and has no impact on our operating profit or net income numbers.
Operating income was $217 million, down 13.7% versus last year due to increased investments in R&D and selling and marketing. Operating margin of 20% was below our target exit rate of 21% primarily as a result of weaker volume in the quarter. EPS was $0.76 versus $0.87 in the prior year quarter.
Turning to segment performance, in Q4 technology and equipment organic sales grew 6.5% while consumables declined 4.6%. T&E segment organic sales expansion was led by double-digit growth in clear aligners, CAD/CAM and implants. The T&E segment posted strong growth despite difficult supply chain conditions. Up until the third quarter, the majority of our supply chain challenges were cost-related due to inflationary pressures. In the fourth quarter, we started to face significant component shortages, impacting the production of imaging equipment and treatment centers. We estimate this impact to have reduced the T&E segment growth rate by at least four points. We ended the quarter with a higher than normal backlog in imaging and our team will continue to manage the supply chain situation as effectively as possible over the next few quarters. Similar to many other industries, the availability of electronic components in dental is inconsistent at the moment.
On the consumables side, organic sales declined primarily due to the strong sales levels seen in Q4 2020 as office capacity and patient traffic were returning to pre-COVID levels. We expect the same difficult year-on-year comparison in Q1 2022. We also estimate that the price increase we implemented on October 1 pulled a portion of sales forward into Q3.
Now turning to financial performance by region during the fourth quarter, U.S. sales were $385 million. Organic sales increased slightly year-on-year. In the U.S., we had growth in implants, aligners and CAD/CAM. Our consumables performance was roughly in line with our expectations. European sales were $437 million with organic growth of 1.8% and product category performance similar to the U.S. Rest of the world sales were $266 million, representing organic growth of 4% with growth across consumables and T&E. This region was unfavorably impacted particularly in APAC by increased government restrictions associated with COVID variants, primarily in China.
Now turning to the full year 2021 performance, in '21 we delivered organic sales growth of 24.6%, near the top of our outlook range. Reported sales were $4.25 billion. To a weaker euro to U.S. dollar exchange rate, reported sales came in at the lower end of our outlook range.
Fiscal year 2021 was a year of progress on our key growth vectors. Digital diagnostic devices such as Primescan, Axeos, and Orthophos, had a strong year. In three years, we scaled our clear aligners from having no presence in this space to a business that generated $270 million in 2021. In the fourth quarter, SureSmile exceeded our $100 million annual run rate goal. Bite came in short of expectations for the reasons we have indicated before, such as changes in consumer spending patterns and shifts in digital customer engagement tools. However, we believe Bite will contribute to our growth in aligners in the second half of 2022.
Despite the challenges in VTC, we achieved sequential growth in total aligner shipments in Q4. Our implants business finished the year strong. Our intention is to keep improving our platform to achieve market growth rates consistently. Full year gross profit margin of 58.6% represents an expansion of 120 basis points since 2019.
SG&A expenses for the full year were 34% of sales. This ratio remains below pre-COVID 2019 levels, reflecting the benefits from our efficiency improvement initiatives. We finished the year with R&D at 4% of revenue. R&D will continue to be core to our growth strategy.
Turning now to profitability, operating margin was 20.5%, in line with our expectations to deliver greater than 20% for the full year. Looking back, we have delivered over 200 basis points of operating margin expansion since 2019 and approximately 500 basis points since 2018.
The effective tax rate was 23% versus 20.9% in the prior year. The increase was primarily due to geographic mix of pre-tax income and our continued business recovery from COVID.
Turning to full year earnings, we delivered EPS of $2.87 versus $1.79 in the prior year. In 2021, we generated EBITDA of approximately $1 billion. EBITDA is an objective scorecard to measure improvements in operational execution and cash flow generation. Our operating cash flow was $657 million and free cash flow exceeded $500 million. We returned approximately $300 million in cash to shareholders, including dividends and share repurchases. We also completed acquisitions totaling $248 million and finished the year with cash on hand of $339 million.
Now let me provide an overview of our financial expectations for fiscal 2022.
We expect organic sales to be in the 4% to 5% range. This equates to a net sales range of $4.3 billion to $4.4 billion. Our assumption for our biggest FX exposure is a euro to U.S. dollar exchange rate of 1.14, which is lower than the FY21 average of 1.19.
From a revenue perspective, market demand remains strong despite COVID variant challenges in certain markets. The R&D pipeline is generating new and exciting products to meet the most pressing needs of our end customers and channel partners. We expect strong contributions to growth from clear aligners, CAD/CAM, implants and imaging. Our expectation is that operating profit margin will be over 21% in the second half of 2022 and exit the year at the 22% target margin rate in the fourth quarter.
Our efficiency improvements and portfolio optimization initiatives will continue in 2022 while managing through supply chain challenges. We estimate the effective tax rate to be between 23% and 24%. Our estimate for share count is approximately 219 million. EPS is expected to be in the range of $3.05 to $3.25. We anticipate growth to be more heavily weighted towards the back half of the year. We are projecting organic growth in the low single digits in the first half and mid-single digits or higher in the second half.
Due to the revenue cadence, supply chain constraints, and inflationary pressures, earnings in the first half are expected to be approximately 40% to 45% of the total annual projection. As a reminder, Q1 typically has the lowest quarterly sales of the year and as a result, operating income margin also tends to be lower. This January, we observed slower patient traffic in certain markets due to COVID.
During the first half of the year, we will continue to be impacted by the ongoing shortage of electronic components, particularly in the imaging and treatment center businesses. These shortages are now impacting the availability of electronic boards for Primemill as well. We are allocating the reduced quantity of boards first to fulfill spare parts needs of mills already owned by end customers and secondarily to units in production. The retail demand for Primemill is solid and our dealer partners in the U.S. have sufficient inventory to meet that demand. In the short term, this trade-off will reduce our wholesale volume of Primemills but is the right thing to do for our customers. Finally, we are projecting our clear aligner franchise to grow sequentially each quarter in 2022. Bite will likely post a year-on-year decline in the first half but is expected to be a contributor to overall 2022 growth.
I want to echo Don's words and express my support and sympathy to my colleagues impacted by the evolving geopolitical events in Eastern Europe. Our teams in the region are doing a terrific job and have grown our commercial presence substantially in the last several years. Our local sales in Russia and Ukraine represented about 3% of total company revenue in 2021. Given the fluidity of the situation, it is hard to measure the potential impact of the ongoing conflict on our financials. We will continue to monitor and assess options available to minimize the impact to our 2022 outlook.
Switching gears to our capital allocation framework for 2022, first, reinvesting in the business for profitable growth continues to be our number one priority. We plan to invest at least 4% of revenue in R&D and about 4% in capital expenditures. Our cash flow generation also gives us the ability to provide a consistent and meaningful return of cash to our shareholders. For the next two years, we plan to return at least 50% of our free cash flow through dividends and share repurchases. Similar to last year, today we are announcing a double-digit increase to our dividend. The remaining balance to reach 50% or more of free cash flow returns will be accomplished through the use of opportunistic share buybacks throughout the year.
Overall, we are confident that the progress we are making in key growth areas combined with the resilience of the dental market will allow us to continue to expand revenue and earnings over time. Additionally, the strength of our EBITDA generation enables the funding of our investment priorities and the funding of a very competitive cash flow yield to our shareholders.
To close my remarks, I'd like to highlight two important sustainability initiatives we have underway. First, in collaboration with our strategic partners Smile Train and FDI, we are developing the first global standard for cleft treatment protocols that includes digital clinical work flows. Second, we are sponsoring the 2022 World Oral Health Campaign to promote the importance of oral health for every person's overall wellbeing. This awareness is aligned with our mission to empower millions of customers by creating innovative solutions for healthy smiles.
With that, I will now turn the call back to Don.