Hospira Tops on EPS, Misses on Revs - Analyst Blog

Hospira Inc.’s (HSP) second-quarter fiscal 2010 earnings (excluding special items) of 86 cents per share handsomely beat the Zacks Consensus Estimate of 79 cents and the year-ago earnings of 73 cents per share. On a reported basis, the company earned 49 cents per share, up 206.3% from the year-ago earnings of 16 cents per share.

Revenues for the quarter climbed 1.2% to $968 million (up 0.3% at constant exchange rates or CER). However, revenues in the reported quarter fell short of the Zacks Consensus Revenue Estimate of $1,006 million.

The Specialty Injectable Pharmaceuticals (SIP) business performed well in the reported quarter. The impressive showing was mostly offset by a decline in Medication Management Systems (MMS) arising from Hospira’s voluntary hold on shipments of its Symbiq Infusion System to new customers.

While SIP revenues increased 16.0% from the year-ago period (at CER) to $574.4 million, revenues from the Other Pharma segment declined 15.8% at CER to $149.6 million. The SIP segment's impressive performance was driven by strong sales of the generic oncolytic oxaliplatin, launched during the third quarter of 2009, coupled with robust growth of the sedative agent Precedex.

Revenues from MMS in the reported quarter plummeted 19% year-over-year at CER to $142.4 million. Other Devices revenues continued to decline in the reported quarter, recording revenues of $101.8 million, down 12.2% year-over-year at CER.

Geographically, during the quarter, the Americas, EMEA and APAC contributed $781.1 million (up 2.8%), $120.8 million (down 7.9%) and $66.3 million (down 10.3%), respectively to total revenues.

Adjusted income from operations increased 20.6% to $213.1 million, largely driven by a favorable product mix and efficiency arising from restructuring initiatives. These were offset by certain quality and product-related charges.

2010 Guidance Backed

Hospira reaffirmed its 2010 adjusted earnings projection given during the first quarter earnings release. The company continues to expect full-year earnings (excluding special items) in the range of $3.35–$3.45. The current Zacks Consensus Earnings Estimate is $3.50 for 2010.

Furthermore, the company also maintained net sales growth guidance in the range of 3% to 5% at CER. 2010 net sales growth inclusive of the impact of foreign exchange is also projected in the range of 3% to 5%. 2010 cash flow from operations is forecasted between $525 million and $575 million.

Our Recommendation

Hospira is a Zacks #3 Rank (Hold) stock implying that it will perform in line with the overall US equity market over the next one to three months. However, the more prominent positive long-term catalysts -- such as the recently completed acquisition of Javelin Pharmaceuticals, the expansion of the supply agreement with Genzyme Corp. (GENZ) and the recently signed deal with Durect Corp. (DRRX), among others -- have caused us to upgrade Hospira shares to Outperform from Neutral.

Furthermore, the company has been launching several new products to drive growth. We believe that the current price represents an attractive entry point for long-term investors.
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