Hospira Misses; 2011 View Weak - Analyst Blog

Hospira Inc.(HSP) reported earnings per share of 77 cents for the fourth quarter of 2010, much below the Zacks Consensus Estimate of 93 cents and the year-earlier earnings of 87 cents. The lackluster earnings performance was due to lower revenues and higher research and development expenses.

Fourth quarter revenues decreased 6% from the prior-year quarter to $992.1 million. Total revenues were also much below the Zacks Consensus Estimate of $1.04 billion. Revenue performance was disappointing due to the voluntary hold of Symbiq Infusion Pump shipments and certain non strategic asset divestures. Moreover, geographically, the Americas and Europe, the Middle East and Africa (EMEA) segments were down versus the prior year.

For full year 2010, Hospira reported earnings per share of $3.31, much below the Zacks Consensus Estimate of $3.46 but 6.4% above the year ago earnings of $3.11. Full year 2010 revenues decreased 1% from the prior year to $3.92 billion. The Zacks Consensus Sales Estimate for full year 2010 was $3.96 billion.

The Quarter in Detail

Sales in the Specialty Injectable Pharmaceuticals (SIP) business were up 4.6% from the prior year to $605 million despite the temporary discontinuation of sales of Hospira's generic version of Sanofi-Aventis' (SNY) Eloxatin (oxaliplatin) in the US. In the quarter, the company launched the generic version of Eli Lilly's (LLY) oncology drug, Gemzar.

The Medication Management (MMS) segment fared badly during the quarter with sales slipping to $252.1 million (down 9.9% over the prior year). The disappointing performance of the MMS business was attributable to Hospira's voluntary hold on shipments of its Symbiq Infusion System to new customers.

The Other Pharma segment was the main reason for the decline in fourth quarter revenues, with the segment posting sales of $135 million, down 31.5%. The decline in revenues was due to the divestiture of some non-strategic assets.

Geographically, during the quarter the Americas segment contributed $778.9 million (down 5.4%), Europe, Middle East and Africa (EMEA) contributed $129 million (down 16.0%) and Asia-Pacific (APAC) contributed $84.2 million (up 7.8%) to total revenues.

2011 Guidance Lags Expectations

Hospira introduced 2011 financial projections. Revenue is expected to grow in the range of 5-7% on a constant currency basis. Foreign exchange is expected to have a positive impact of 1% on 2011 revenues. The guidance assumes the launch of docetaxel, the generic version of Sanofi's Taxotere and a solution presentation of its generic version of Gemzar in 2011.

Hospira expects adjusted earnings between $3.90 and $4.00 per share, representing growth in the range of 18-21% over the prior year. The company's guidance is well below the current Zacks Consensus Estimate of $4.32 per share. We expect a significant downward revision in estimates given the disappointing guidance.

2011 cash flow from operations is forecasted between $650 million and $700 million.

Our Recommendation

Currently, we have a Neutral recommendation on Hospira which is supported by a Zacks #3 Rank (short term Hold rating). We are encouraged with the company's acquisition of Javelin Pharmaceuticals (July 2010) and the expanded supply agreement with Genzyme (GENZ). The company's deal with Durect Corp. (DRRX) is another positive. However, we prefer to remain on the sidelines until resolution of the Symbiq Pump issues which have been affecting Hospira's earnings performance for sometime now.

 
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