Normally, Hospira's (NYSE: HSP ) sort of business -- injectable drugs and medication delivery -- would be considered relatively stable. Not the most growth-happy of enterprises, I'll grant, but generally a steady business with stable margins and solid returns.
But that's not the case -- at least, not yet.
Hospira has been consistently inconsistent recently, and this second quarter was one of the bad ones. Top-line performance, with revenue up a bit more than 1% as reported and up about 4% on a "core" basis, wasn't great, but also wasn't the biggest trouble. Margins were once again the problem. Gross and operating margins were down on an adjusted basis, and responsible for most of the underperformance this time out. Management blamed part of the trouble on its separation from Abbott Labs (NYSE: ABT ) , as well as less-than-ideal capacity utilization.
As is probably apparent to most Hospira investors already, success for companies like Hospira, Baxter (NYSE: BAX ) , and Cardinal Health (NYSE: CAH ) isn't necessarily driven by the same factors as for other health care companies like Merck (NYSE: MRK ) or Medtronic (NYSE: MDT ) . While margins and operating efficiency always matter, there's a little more leeway in the traditional pharmaceutical and device industries, and consistently excellent cost control is perhaps not quite as essential for success.
I can understand if Hospira supporters want to argue in favor of the company's good returns on capital and competitive position. I can also understand if they want to view these past few quarters as the price paid for adjusting to Hospira's new independence and new operating model.
But just because I understand it, that doesn't mean I'll agree with it completely. It's not all that hard to find promising health-care companies with good margins and good returns, without the volatility that Hospira is seeing. For now, I'll spend my time finding better companies, rather than justify buying into Hospira.
For more Foolish thoughts on health care:
Merck is a fomer Income Investor pick. To see which stocks are still on the list, sign up today for a free30-day guest pass.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).