Zacks_Analysts' Blog : Hospira Trims Outlook - Analyst Blog

Hospira Inc.’s (HSP) third quarter 2011 adjusted preliminary earnings of $0.66 per share were in line with the Zacks Consensus Estimate. The projected adjusted earnings for the third quarter, for which detailed results will be announced on October 26, 2011, before the start of trading, were  shy of the year ago adjusted earnings by $0.08.

The weak preliminary earnings for the third quarter were attributable to the slowdown in production at the company’s facility in Rocky Mountain, North Carolina.

Preliminary third quarter revenues climbed 2.9% to $977 million driven by strong US sales of the generic version of Sanofi Aventis’ (SNY) cancer drug Taxotere (docetaxel). Preliminary revenues, however, fell short of the Zacks Consensus Estimate of $1,052 million.

Apart from reporting disappointing preliminary third quarter numbers, Hospira also trimmed its projection for 2011. The Lake Forest, Illinois based company reduced its 2011 adjusted earnings guidance to $2.95-$3.05.

The facility at Rocky Mountain is expected to function below full capacity throughout the remainder of 2011. The Zacks Consensus Estimate for 2011 of $3.00 per share is within the revised guidance range provided by the company.

We note that issues pertaining to the facility at Rocky Mountain, North Carolina have been troubling Hospira, a global specialty pharmaceutical and medication delivery company, for quite sometime.

In April 2010, Hospira had received a warning letter from the US Food and Drug Administration (FDA) expressing concerns regarding the manufacturing facility at North Carolina. Though the company is aggressively working to address their concerns, production at the site has not reached normal levels thereby hampering performance leading to the weak forecast.

Our Recommendation

The shares of Hospira carry a Zacks #4 Rank (Sell) in the short-run highlighting near-term pressure on the stock. We are concerned about the manufacturing issues confronting Hospira. We have a Neutral recommendation on the stock in the long-run.