Hospira Earnings Preview

Apr.25.11 | About: Hospira, Inc. (HSP)

Hospira Inc. (NYSE:HSP) is all set to announce its first quarter 2011 results on Tuesday, April 26, 2011 before market opens. The Zacks Consensus Estimate for the first quarter of 2011 is 79 cents, representing an estimated year-over-year decrease of 16%.

Fourth Quarter 2010 Recap

Hospira had reported disappointing fourth quarter results. The company reported earnings per share of 77 cents for the fourth quarter of 2010, much below the Zacks Consensus Estimate of 93 cents and the year-earlier earnings of 87 cents. The lackluster earnings performance was due to lower revenues and higher research and development expenses.

Fourth quarter revenues decreased 6% year over year to $992.1 million. Total revenues were also much below the Zacks Consensus Estimate of $1.04 billion. Revenue performance was disappointing due to the voluntary hold of Symbiq Infusion Pump shipments and increased backorders in the SIP segment. (Read our full coverage on the earnings report at "Hospira Misses; 2011 View Weak")

Agreement of Estimate Revisions

A good many of the analysts have revised their estimates for Hospira, both over the last 30 and 7 days. Over the past 30 days, 11 of the 14 analysts covering Hospira for the first quarter of 2011 have revised their earnings estimates and that too in the upward direction. The annual estimates for 2011 have also been revised upward by 7 of the 13 covering analysts.

Over the past 7 days, 3 analysts following Hospira for the first quarter and 2 following it for 2011 have revised their estimates upward. Notably, none of the analysts covering Hospira have trimmed their estimates either in the past 7 or 30 days.

In this context, it is worth noting that most of the analysts had pared their estimates following the release of fourth quarter results given the poor performance in the quarter ensuing from Symbiq pump issues, increased backorders in the SIP segment and higher R&D expenses.

The adverse pump and backorder issues, which perpetrated the decline in the fourth quarter, were temporary in nature and are fixable in the near term. Moreover, in March 2011, Hospira received clearance from the U.S. Food and Drug administration (FDA) for its generic version of Sanofi Aventis' (NYSE:SNY) cancer drug Taxotere. The generic version of Taxotere, which is already marketed in the EU, could be Hospira's most important product launch. The first quarter results are expected to benefit from this launch. We believe that these factors may have been responsible for the overly bullish stance of the analysts.

Magnitude of Estimate Revisions

The bullish sentiment among the analyst community has resulted in a 3 cent and 1 cent upward movement in the Zacks Consensus Estimates for the respective first quarter and fiscal year 2011 over the past 7 days. The estimates over the past 30 days have gone up by 9 cents for the first quarter and 3 cents for 2011. The Zacks Consensus Estimates for the first quarter and fiscal 2011 currently stand at 79 cents and $3.98, respectively.

Hospira has surpassed expectations in three of the past four quarters except for a substantial decrease in the December 2010 quarter. The average earnings surprise for the last four quarters was a positive 7.37%.

Our Recommendation

Currently, we have an Underperform recommendation on Hospira. The shares of Hospira, however, retain a Zacks #3 Rank (short-term Hold). We downgraded Hospira from Neutral to Underperform following poor fourth quarter results and issuance of lower-than-expected 2011 guidance.