For the full year, Hospira reported that net sales were down 0.7% to $2.63 billion. Excluding a currency benefit, sales actually declined somewhat more, by 1%. Per-share earnings, meanwhile, sank to $1.46 versus $1.92 in 2004. Adjusting for a variety of items -- such as costs associated with the company's becoming independent of former parent Abbott Laboratories
Hospira's fourth-quarter sales dropped 7.7% to $646.2 million, while EPS declined 48% to $0.16 from $0.31. With adjustments, earnings performance looked a little better but still wasn't pretty -- $0.32 a share versus $0.40 in 2004. Part of the drop was attributable to an expected slowdown in the top line -- Hospira had previously disclosed plans to exit several low-margin contracts in its One 2 One contract manufacturing business, a move that sliced fourth-quarter sales by $11 million.
Unfortunately, costs also took off in the quarter, particularly in research and development and selling general and administrative expenses. More R&D is not necessarily bad as long as it leads to future products. As for SG&A, the company cited new information technology as a major unexpected culprit. Unfortunately, things are going to get worse before they get better -- Hospira expects higher IT support costs throughout 2006 as it installs SAP
However, there were other numbers that should please investors. Free cash flow for 2005 was $315 million, up from $158.1 million in 2004. That figure is expected to decline somewhat in 2006, but still is projected to be pretty robust at between $290 million and $310 million. Furthermore, Hospira is likely to put that cash to good use, as it recently authorized a $400 million share repurchase program.
Hospira is obviously far from perfect. SG&A and R&D spending should be closely monitored going forward. Despite this stumble, though, the medical products and services company remains a solid long-term business.
For more on Hospira:
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
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