HSP

Hospira Inc. (HSP) reported earnings per share of 93 cents for the first quarter of 2011, well above the Zacks Consensus Estimate of 79 cents. Earnings benefited from strong US sales of the generic version of Sanofi Aventis’ (SNY) cancer drug Taxotere which was launched in March 2011.

Results were however 1 cent below the year-earlier earnings of 94 cents due to difficult year-over-year comparisons. Earnings in the prior-year quarter were boosted by strong margin contribution from US sales of Hospira’s generic version of Sanofi’s Eloxatin (oxaliplatin) which has been temporarily discontinued. Higher research and development expenses also affected earnings in the quarter.

First quarter revenues of $1 billion were almost flat year over year. Total revenues beat the Zacks Consensus Estimate of $941 million. The top line was boosted by strong performance of the Specialty Injectable Pharmaceuticals (SIP) business.

Despite Hospira expecting a 5–6% sequential decline in the first quarter, revenues were actually up 1% over the fourth quarter 2010.

The Quarter in Detail

Sales in the SIP business were up 4.4% from the prior year to $638.6 million driven by strong US sales of the generic version of Sanofi’s Taxotere and Eli Lilly’s (LLY) oncology drug, Gemzar (launched in November 2010).

The generic version of Taxotere, which is already marketed in the EU, received clearance from the U.S. Food and Drug Administration (FDA) in March 2011. We believe that this could be Hospira’s most important product launch, which will boost its top line significantly, going forward.

Increased backorders in the SIP segment resulted in supply shortages which affected the fourth quarter 2010 results. The level of backorders has now decreased which benefited the first quarter performance.

The prior-year quarter, however, accrued the benefits from Hospira’s generic version of Eloxatin, which was absent this quarter, thereby pulling down the first quarter revenues slightly.

The Medication Management (MMS) segment was weak during the quarter with sales slipping to $240.2 million (down 4.0% over the prior year). The Other Pharma segment was also down 15.5% with sales of $123.5 million.

Geographically, during the quarter the Americas segment contributed $808.9 million (down 0.8%), Europe, Middle East and Africa (EMEA) contributed another $120 million (down 2.0%) and Asia-Pacific (APAC) added $73.4 million (up 5.9%) to total revenues.

2011 Guidance Maintained

Hospira maintained its 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.

Hospira expects adjusted earnings between $3.90 and $4.00 per share, representing growth in the range of 18–21% year over year. The Zacks Consensus Estimate for 2011 is $3.98 per share, on the higher end of the guidance range.

2011 cash flow from operations is forecast between $650 million and $700 million. Capital expenditures are expected in the range of $375 million to $400 million.

Share Repurchase Program Authorized

Hospira announced authorization of share repurchase of upto $1 billion by its board of directors reaffirming its aim to return value to its shareholders.

Our Recommendation

Currently, we have an Underperform recommendation on Hospira. The shares of Hospira, however, retain a Zacks #3 Rank (short-term Hold).

 
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