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Marginal Earnings Beat at Hospira in Q4 (Revised)

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Hospira, Inc.’s (HSP - Analyst Report) fourth quarter 2013 adjusted earnings of 51 cents per share surpassed the Zacks Consensus Estimate by a penny. Fourth quarter 2013 earnings were however below the year-ago figure by 7.3%.

Results were hurt by lower revenues and higher selling, general and administrative (SG&A) costs and tax rate. Including one-time items, the company posted earnings of 20 cents per share in the final quarter of 2013 compared to the year-ago figure of 3 cents.

Fourth quarter revenues slipped 1.3% year over year to $1.1 billion, in line with the Zacks Consensus Estimate. The year-over-year decline was primary due to the weak performance of the company’s Medication Management division and the negative foreign exchange impact.

The company’s full-year earnings were $2.09 per share, ahead of the Zacks Consensus Estimate by a penny and 4% above the year-ago figure. Revenues in the final quarter of 2013 came in at $4.1 billion, in line with the Zacks Consensus Estimate and marginally above the year-ago figure.

The Fourth Quarter in Detail

The Specialty Injectable Pharmaceuticals (SIP) segment, the biggest contributor to Hospira’s revenues, performed well in the final quarter of 2013 aided by improved pricing in the U.S. Segmental sales climbed 5.2% (up 6.4% at constant currency) to $732.7 million.

The Medication Management segment performed disappointingly during the fourth quarter of 2013 due to low device sales. Sales in the segment declined 17.5% (down 16.7% at constant currency) to $221.7 million. The segment has been going through a rough patch. In Feb 2013, the U.S. Food and Drug Administration (FDA) expanded the import ban on certain Hospira products issued in 2012.

In Nov 2012, the FDA had issued a directive prohibiting Hospira from importing Symbiq medication infusion pumps, manufactured at its Costa Rica facility, into the U.S. The U.S. regulatory body issued a fresh directive in Feb 2013, preventing Hospira from importing Plum, GemStar and LifeCare PCA infusion pumps, manufactured in Costa Rica, to the U.S. Sales in the Other Pharma division declined 3.1% (down 2.8% at constant currency)  to $130 million.

Geographically, the Americas, Europe, Middle East and Africa and the Asia-Pacific markets contributed $856.9 million (down 0.6% at constant currency), $138.7 million (down 4.2% at constant currency) and $88.8 million (up 7.8% at constant currency), respectively, to total revenue in the final quarter of 2013.

2014 Outlook

Apart from releasing its earnings results, Hospira also provided guidance for 2014. Hospira expects top-line growth in the range of negative 2% to positive 3% (on a constant currency basis). The company still expects 2014 adjusted earnings in the range of $2.00 to $2.25 per share. The pre-earnings Zacks Consensus Estimate of $2.14 per share is within the company’s guidance range.

The company expects cash flow from operations for 2014 in the range of $100 million – $200 million ($317 million in 2013). Depreciation and amortization is projected in the range of $225 million–$275 million. Hospira forecasts 2014 capital expenditures in the range of $375 million–$425 million ($354 million in 2013).

Our Take

We are not surprised by the modest results posted by Hospira in the final quarter of 2013 with both revenues and earnings declining on a year-over-year basis. We believe revenues will remain under pressure until the manufacturing issues confronting the company are resolved.

A positive development for Hospira in 2013 was the European approval of the company’s Inflectra (infliximab) for the treatment of inflammatory conditions such as rheumatoid arthritis, ankylosing spondylitis, Crohn's disease, ulcerative colitis, psoriatic arthritis and psoriasis.

We note that Inflectra is the biosimilar version of Johnson & Johnson / Merck & Co. Inc.’s (JNJ - Analyst Report)/(MRK - Analyst Report) blockbuster drug Remicade. Biosimilars, which are generic versions of biologic drugs, are expected to be a significant growth driver in the generics industry in the coming years. The biosimilars market represents huge commercial opportunity with a significant amount of biologic sales slated to lose patent protection in the coming years.

Hospira carries a Zacks Rank #4 (Sell). NuVasive, Inc. (NUVA - Snapshot Report) is a better-ranked stock in the sector carrying a Zacks Rank #1 (Strong Buy).

(We are reissuing this article to correct a mistake. The original article, issued Wednesday, February 12, 2014, should no longer be relied upon.)
 

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