Hospira Inc. (HSP) is scheduled to report its second quarter 2010 results on Wednesday, July 28, before the opening bell. The Zacks Consensus Estimate for the quarter is earnings of 79 cents per share (with an upside of 2.53%), compared with earnings of 73 cents per share in the year-earlier period. The Zacks Consensus Estimate for second-quarter revenue is $1,006 million as against $957 million reported in the year-ago quarter.
First-Quarter Recap
Hospira Inc.’s first-quarter fiscal 2010 earnings (excluding special items) of 94 cents per share handsomely beat the Zacks Consensus Estimate of 72 cents and the year-ago earnings of 60 cents. On a reported basis, the company earned 84 cents per share, down 18.4% from the year-ago earnings.
Revenues for the quarter climbed 17.2% year over year to $1 billion. The growth was primarily driven by growth in the Specialty Injectable Pharmaceuticals (SIP) segment.
While SIP revenues increased 36.8% from the year-ago period (at constant exchange rates or CER) to $611.4 million, revenues from the Other Pharma segment declined 14.8% to $146.1 million. Strong growth at the SIP segment was driven by the launch of the generic oncolytic oxaliplatin during the third quarter of 2009 and robust growth of the sedative agent Precedex.
Revenues from the Medication Management Systems (MMS) segment increased marginally (0.6% year over year at CER) to $150.8 million. However, in line with fourth-quarter 2009 trends, Other Devices revenues continued to decline in the reported quarter, recording revenues of $99.3 million, down 16.9% at CER.
Geographically, during the quarter, Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific contributed $815.8 million (up 17.4% year over year), $122.5 million (down 5.6% year over year) and $69.3 million (up 4.6% year over year), at CER, to total revenue.
Agreement of Analysts
Over the last 30 days, 2 of the 9 analysts following the stock have revised their earnings estimates for the second quarter of 2010 while one has moved in the opposite direction. This reflects a marginal upward bias for the to-be-reported quarter. However, the upward bias is more prominent in the longer-term with 3 analysts revising 2010 estimates over the last 30 days and 1 moving in the opposite direction.
We note that annual estimates are on the upswing, as reflected in the higher EPS estimates for 2010 and 2011 projecting year-over-year growth rates of approximately 12.2% and 17.5%, respectively.
There are a number of reasons for the positive sentiment on the stock.
Hospira’s recent acquisition of Javelin Pharmaceuticals gives it access to Dyloject, a post-operative pain management drug, currently under review by the US Food and Drug Administration (FDA). As a non-opioid analgesic, Dyloject scores over traditional intravenous opioids, which have significant adverse events in pain management. We believe Dyloject, on successful commercialization, will be a good addition to Hospira’s product portfolio and help boost its top line. The company’s deal with Durect Corp. (DRRX) to develop and market the latter’s Posidur, which is in late-stage development, is another positive.
In July 2010, Hospira and Genzyme Corp. (GENZ) expanded their supply agreement. The expanded drug-packaging deal allows Hospira to fill and package several products in Genzyme’s portfolio including Cerezyme, Fabrazyme, Myozyme, Lumizyme, Thyrogen, Thymoglobulin, Campath, and select pipeline candidates. This expanded agreement should bring in additional revenues.
Sales from SIP, which includes generic injectables as well as proprietary specialty injectables, continue to drive the company’s top-line growth. The company earns the bulk of its revenues from this segment and has been launching several new products to drive growth and we believe that the SIP segment will drive another strong quarter for Hospira. Growth appears promising due to increased demand for core generic injectable drugs. Another factor favoring the segment is the promising pipeline, which contains many injectables going off-patent in the next few years.
Hospira is looking to establish its presence in one of the most sought after emerging markets — India. This initiative is also expected to contribute further to top-line growth.
Furthermore, we believe that the US Food and Drug Administration’s order to Baxter (BAX) to recall and destroy 200,000 Colleague brand infusion pumps over the next two years from the U.S. market will enable Hospira to gain significant market share from Baxter. The agency has ordered Baxter to make refunds to customers or give them free replacements. Hospira, Baxter and Carefusion (CFN) are the leading players in the infusion pumps market.
Magnitude of Estimate Revisions
As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimate for the second quarter of 2010 has gone up a penny (from 78 cents to 79 cents). The magnitude of estimates revisions becomes more significant with time for the stock. 2010 estimates have moved up by 2 cents and 2011 estimates have moved up 8 cents over the last 30 days. We believe that the reason for the more significant magnitude of upward revisions in the longer term lies in the fact that the positive effects of the Javelin acquisition and the Durect deal are expected to be felt in the long term.
Positive Surprise History
The company has a history of positive earnings surprises, surpassing the Zacks Consensus Estimate in each of the last 4 quarters. Hospira has performed consistently well during this period with its average earnings surprise being 27.22%. This implies that the company has beaten the Zacks Consensus Estimate by 27.22% over the last four quarters on average.
We will not be surprised if Hospira reports better-than-expected results, yet again, driven by the SIP segment. We believe sales in the yet-to-be reported quarter will only be moderately affected by currency headwinds, that too mostly in the EMEA market.
Our Recommendation
Read the full analyst report on "HSP"
Read the full analyst report on "GENZ"
Read the full analyst report on "DRRX"
Read the full analyst report on "BAX"
Read the full analyst report on "CFN"
Zacks Investment Research
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