Lower sales, decreased gross margins, and higher costs are not a winning combination for any corporation. Combine a bad quarter with decreased revenue guidance and it's easy to see why shares of medical products supplier Hospira (NYSE:HSP) were down 12% yesterday.

Hospira's sales declined 1.5% for the quarter due to unfavorable year-over-year comparisons, according to the company. This doesn't seem like much of an excuse to me, especially considering the fact that sales were flat in the third quarter of 2005 as well. Previously, the culprit for Hospira's declining revenues was decreased sales to its former corporate parent, Abbott Labs (NYSE:ABT), but this quarter, sales declined in its other segment as well. Here's a chart showing Hospira's stagnant overall sales growth in the past year:

Sales*

Y-O-Y Growth

Q3 2006

$646.6

(1.5%)

Q2 2006

$671.1

1.4%

Q1 2006

$664.3

0.3%

Q4 2005

$646.2

(7.7%)
*in millions

The upcoming fourth quarter isn't going to be any better, either, as Hospira revised its full-year 2006 sales downward, to be 1%-2% higher than 2005. And it's not like Hospira set the market on fire in 2005 either, with sales down 1% that year as well.

If Hospira were trimming its expenses and becoming more efficient, then maybe a few quarters of flat sales would be acceptable, but gross and operating margins are falling as well -- down to 34% and 12%, respectively, as Hospira's margins on products sold to Abbott decline and SG&A expenses rise for no good reason. Adjusted earnings per share are still expected to come in at $1.97 to $2.02 for the year (slightly higher than 2005), but that's excluding such things as expenses related to becoming a stand-alone company.

I think it's increasingly clear why Abbott spun out Hospira from its operations in 2004: to rid itself of a stagnating business segment. It's trading at 24 times its trailing earnings, paying no dividend, and with no expected sales growth in the foreseeable future; it's hard to get my heart pumping over shares of Hospira.

Check out any of our investing newsletters with a 30-day free trial .

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .