Hospira (HSP)

Q2 2012 Earnings Call

August 01, 2012 9:00 am ET


Karen King

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

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

Sumant Ramachandra - Chief Scientific Officer and Senior Vice President of R&D, Medical & Regulatory


David H. Roman - Goldman Sachs Group Inc., Research Division

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

John M. Putnam - Capstone Investments, Research Division

Ami Fadia - UBS Investment Bank, Research Division

Matthew Taylor - Barclays Capital, Research Division

Marshall Urist - Morgan Stanley, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Shibani Malhotra - RBC Capital Markets, LLC, Research Division



Welcome to Hospira's Second Quarter 2012 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 second quarter 2012 conference call and webcast. Participating in today's call are Mike Ball, Chief Executive Officer, Hospira; Tom Werner, Senior Vice President, Finance and Chief Financial Officer; and Sumant Ramachandra, Senior Vice President and Chief Scientific Officer.

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.

On 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 materials that summarizes the points of today's call. We do not speak directly to the materials. It is for your reference to use as an enhanced communication tool. You will find the presentation on our website at www.hospirainvestor.com.

Finally, we will be ending the call at the top of the hour this morning. [Operator Instructions] With that, I'll now turn the call over to Mike.

F. Michael Ball

Thanks, Karen. Good morning, everyone. Welcome to our second quarter 2012 conference call. I will begin today's call by providing an update on our quality remediation efforts and growth initiatives, followed by a discussion of our second quarter sales results, which, like our adjusted EPS, were in line with our expectations and those of the street. Tom will then provide a deeper dive into the financials and wrap up with a discussion on guidance.

In line with the approach we have adopted since the acceleration of our remediation activities last year, we're providing as much disclosure as we can under the circumstances, including a list of FDA inspections since our last quarter call. We continue to progress with our remediation and move towards recovery, making for a very busy quarter. We continue to engage in constructive dialogue with the FDA, meeting with them on several locations both at the agency's headquarters and the district offices. We had several FDA inspections both at our plants and at our corporate headquarters. Third, we continue to progress with our remediation efforts at Rocky Mount. Our annual preventive maintenance shutdown went as planned, and we are bringing the lines back into production. Fourth, we are sharing our learnings at Rocky and other facilities across the organization to ensure implementation of best practices and to holistically put in place modern and robust quality processes and systems.

As our remediation program progresses across our plants, we have uprooted additional issues, some of which have unfortunately resulted in product recalls, inventory loss and production disruptions. We are driving to root cause and implementing corrective actions. As we have said in the past, we believe identifying and resolving these issues signify that we are moving in the right direction on our journey to achieving sustainable compliance.

Let me provide additional details on some of these activities, starting with Rocky Mount. First of all, as I mentioned, we've made significant progress with our remediation efforts at the plant. We went into our midyear scheduled maintenance shutdown in early July. 10 days later, we started the plant back up in a phased approach and are returning to the 60% to 70% production and release levels. We expect to remain at this level during the third quarter and then modestly increase through the end of the year. During the maintenance shutdown, we took advantage of the downtime to advance our modernization at the plant, including completing various facility upgrades and commencing activity to fully automate our visual inspection process. Over time, these efforts will lead to greater efficiency at Rocky and ultimately faster release rates and improved supply levels.

Second, our intent is to begin ramping down the level of consultants at Rocky. We are building up a robust number of trained internal employees to do the work on the plant floor, and by year end, we expect the number of consultants to gradually decline as their role becomes limited to overseeing remediation activities. We are pleased by the progress at the facility, and I want to thank all of those at Rocky Mount for their tremendous work and effort.

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