Hospira (HSP)

Q2 2011 Earnings Call

July 27, 2011 9:00 am ET

Executives

Sumant Ramachandra - Chief Scientific Officer and Senior Vice President of Research & Development & Medical Affairs

Karen King - Vice President Investor Relations

Michael Ball - Chief Executive Officer, Director and Member of Science, Technology & Quality Committee

Thomas Werner - Chief Financial Officer and Senior Vice President of Finance

Analysts

Matthew Taylor - Barclays Capital

David Roman - Goldman Sachs Group Inc.

Jayson Bedford - Raymond James & Associates, Inc.

Gregory Gilbert - BofA Merrill Lynch

Robert Goldman - CL King & Associates, Inc.

Jessica Fye - JP Morgan Chase & Co

Alan Sonnenfeld

Frederick Wise - Leerink Swann LLC

David Buck - Buckingham Research Group, Inc.

Marshall Urist - Morgan Stanley

Louise Chen - Collins Stewart LLC

Gregory Hertz - Citigroup Inc

Presentation

Operator

Welcome to Hospira's Second Quarter 2011 Conference Call. [Operator Instructions] I will now turn the call over to Karen King, Vice President of Investor Relations. Karen, you may now begin your conference.

Karen King

Thank you. Good morning, everyone and welcome to our conference call and webcast regarding Hospira's financial results for the second quarter of 2011. Participating in today's called are Mike Ball, Chief Executive Officer of Hospira; and Tom Werner, Senior Vice President of Finance and Chief Financial Officer. We'd also like to welcome Sumant Ramachandra, Senior Vice President and Chief Scientific Officer, who will be joining us for Q&A.

We will be making some forward-looking statements today, which are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those indicated. A discussion of these factors is included in the Risk Factors and MD&A sections in Hospira's latest annual report on Form 10-K and subsequent Form 10-Qs on file with the SEC. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments.

In today's conference call, non-GAAP financial measures will be used to help investors understand Hospira's base business performance. These non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release and Form 8-K issued this morning, and are also available on the presentations page in the Investor Relations section of our website.

Also posted on our website is a presentation of complementary material that summarizes the points of today's call. We will not be speaking directly from the material which is posted on the Presentation page at www.hospira.com. The material is for your reference to use as an enhanced communication tool.

Finally, we'll be ending the call at the top of the hour this morning. Therefore, in order to allow as many of you as possible to ask a question, we are limiting each person to 1 question. If you ask more than one question, we'll answer the first one and move on to the next person. We ask for your cooperation in this respect.

And with that, I'll now turn the call over to Mike.

Michael Ball

Thank you, Karen, and good morning, everyone. Welcome to our second quarter earnings call. I'm excited to be leading the call today and pleased to be sharing with you highlights from the quarter.

We had strong global net sales performance of $1.1 billion, representing a 10% increase over the second quarter of 2010. We ensured that our customers and patients had access to Docetaxel and other pharmaceutical products, as we made progress towards improving our customer service level goals.

Adjusted gross margin was 40.7% and adjusted operating margin was 19.9%. This translated into adjusted diluted earnings per share of $0.94, a 9% increase from the second quarter of 2010.

I've spent a good deal of my time over the past few months meeting with our customers around the world to better understand their needs and what they are looking for from Hospira. As a result of my discussions, I am firmly convinced that Hospira is uniquely positioned to address customers' most pressing needs around cost, productivity and safety. And so to be able to provide our customers with the highest quality and best selections of products when and where they need them, I've directed the organization to sharpen their focus to ensure that: first and foremost, we have the right processes in place across our global operations to produce the highest quality products for our customers and to complete the remediation of our infusion devices; second, that we have enough supply on hand to make certain our customer service levels meet our customers' needs and demands; and third, that we are taking action today to accommodate future growth needs with regard to capacity in our plants, to ensure that we will be able to meet customers' demand in the future.

Now, why am I telling you this? Because these objectives will be important for us over the next several quarters. They will drive improved customer service levels and market share, both areas in which we have already seen positive results in the second quarter. But this focus will also create some near-term challenges, such as temporary increases to inventory levels and a delay in implementing certain manufacturing improvement efforts. This will in turn affect our margin performance, and has, in fact, caused us to revisit our full year margin projections, which Tom will discuss when he addresses the quarter's financial performance and guidance.

But this focus on meeting our customer needs and providing them with valuable solutions is what will drive Hospira's growth and longer-term success. I look forward to discussing this overall concept in more depth with you at our upcoming Investor Day in September.

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