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Hospira’s (HSP - Analyst Report) second quarter 2014 adjusted earnings of 72 cents per share easily beat the Zacks Consensus Estimate of 56 cents. Second quarter 2014 earnings were above the year-ago figure by 30.9%, aided by higher revenues.

 

 

 

Including one-time items, the company posted earnings of 42 cents per share in the second quarter of 2014 compared with the year-ago figure of 20 cents.

Second quarter revenues climbed 10.7% year over year to $1.14 billion, surpassing the Zacks Consensus Estimate of $1.05 billion. Strong sales of drugs in the company’s Specialty Injectable Pharmaceuticals (SIP) division benefited the top line.

The Second Quarter in Detail

The SIP segment, the biggest contributor to Hospira’s revenues, performed well in the reported quarter. Favorable pricing and continued supply recovery boosted segmental sales, which climbed 13.8% (up 14.2% at constant currency) to $785.3 million.

The Medication Management (MM) segment performed modestly during the reported quarter with segmental sales improving only 0.7% (up 1.4% at constant currency) to $215.5 million. The segment has been going through a rough patch. In Feb 2013, the 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 improved 10.3% (up 9.3% at constant currency) to $135 million.

Geographically, the Americas, Europe, Middle East and Africa and the Asia-Pacific markets contributed $913.2 million (up 12.7% at constant currency), $132.7 million (down 2.6% at constant currency) and $89.9 million (up 14.7% at constant currency), respectively, to total revenues in the second quarter of 2014.

2014 Outlook Upped

Encouraged by the strong performance, Hospira lifted its guidance for 2014. Hospira now expects top-line growth in the range of 6% to 9% on a constant currency basis (old guidance: negative 2% to positive 3%). Foreign currency movements will have a minimal impact on the top line.

The company now projects adjusted earnings per share in the range of $2.30 to $2.50 (old guidance: $2.00 to $2.25 per share). The Zacks Consensus Estimate (pre earnings) stands at $2.21 per share. We expect it to be revised upwards following the fresh outlook issued by the company.
 
The company now expects cash flow from operations for 2014 in the range of $275 million to $375 million (old guidance: $100 million to $200 million). Depreciation and amortization is still projected in the range of $225 million to $275 million. In 2014, capital expenditures are still forecast in the range of $375 million to $425 million.

Our Take

Hospira’s impressive top-line growth in the second quarter, driven by its SIP segment, is encouraging. However, the MM segment is still under pressure. We believe segmental revenues will remain soft until the regulatory issues are resolved.

However, this had little effect on the company’s overall second quarter performance. Better-than-expected results along with a raised 2014 outlook evoked a positive response with the stock gaining in pre-market trading.

We are impressed by the global strategy announced by Hospira last year regarding its devices portfolio. Through this strategy, Hospira aims to modernize and streamline its device portfolio in order to drive growth and serve customers more efficiently. We believe that this strategy will enable Hospira to sustain long-term growth.

We are also positive on the company’s focus on biosimilars. In Sep 2013, the European Commission approved Inflectra, the biosimilar version of Johnson & Johnson (JNJ - Analyst Report) and Merck & Co.’s (MRK - Analyst Report) blockbuster drug Remicade. This is the third biosimilar to be marketed by Hospira in the EU. Biosimilars have led to massive cost savings in the EU.

Hospira is preparing to enter the U.S. market with biosimilars. The biosimilar market in the U.S. is estimated in the range of $6 billion to $13 billion by 2020. This, too, will result in considerable cost saves. The company has a lucrative biosimilars pipeline, potentially worth multi-billion dollars.

Hospira carries a Zacks Rank #2 (Buy). Abaxis (ABAX - Analyst Report) is another Zacks Ranked #2 (Buy) stock in the medical sector.

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