Hospira: Earnings Preview

| About: Hospira, Inc. (HSP)

Hospira Inc. (NYSE:HSP) is all set to announce its second quarter 2011 results ahead of the opening bells on Wednesday, July 27, 2011. The Zacks Consensus Estimate for the second quarter of 2011 is 77 cents, representing an estimated year-over-year decline of 10.5%.

First Quarter 2011 Recap

Hospira 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’ (NYSE:SNY) cancer drug Taxotere which was launched in March 2011.

Results were however a 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 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 revenue surpassed the Zacks Consensus Estimate of $941 million. The top line was boosted by strong performance of the Specialty Injectable Pharmaceuticals (SIP) business. (Read our full coverage on the earnings report at Hospira Beats, Backs Outlook).

Agreement of Estimate Revisions

Over the past 30 days, 4 of the 13 analysts covering Hospira for the second quarter of 2011 have revised their earnings estimates. While two have upped their estimates, the other two have trimmed theirs. The annual estimates for 2011 have also been revised by 4 of the 13 covering analysts over the past 30 days. Three analysts have decreased their estimates whereas one has increased the estimate.

Management expects the second quarter of 2011 to be the weakest quarter in terms of earnings in 2011 due to the projected softness in the Medication Management segment on account of limited sales of Plum A+ pumps. Moreover, generic Taxotere sales are also expected to be less than in the first quarter as a significant amount of revenue slated for the second quarter was already generated in the first. We believe that the analysts have reduced their estimates in line with management’s expectations.

Magnitude of Estimate Revisions

Over the past 30 days, the estimates for the second quarter have remained static at 77 cents. However, the full year estimates have gone down by 2 cents in the past 30 days. The Zacks Consensus Estimate for fiscal 2011 currently stands at $3.97.

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 is a positive 4.16%.

Our Recommendation

Currently, we have a Neutral recommendation on Hospira. The shares of Hospira carry a Zacks #3 Rank (short-term Hold). We are positive on Hospira’s expanding biosimilar portfolio and strong pipeline. The company expects to launch more than 17 drugs by 2012. However, the Symbiq pump issues and the pending resolution of the FDA warning letter are matters of concern.