Hospira (NYSE:HSP) shares climbed 7% on heavy volume Thursday as investors struck an optimistic tone following the firm's report of first-quarter results. The provider of medical products and services has definitely made progress in its operations. However, any enthusiasm should be tempered by the fact that the company's momentum will likely be slow in the near term.
Hospira reported that revenue in the quarter increased 6.6% to $662.1 million versus $621.2 million in the year-ago quarter. Net income rose 18.7% to $77.2 million, compared with $65 million in fiscal 2004. The company was bolstered by strong sales in its specialty injectable pharmaceuticals business and its contract manufacturing services. However, Hospira expects this business will take a hit for the rest of the year, primarily because the company is winding down its distribution relationship with Schering AG (NYSE:SHR) affiliate Berlex. Sales in the specialty injectable line aren't likely to show much improvement until 2006, when Hospira plans to introduce 11 new generic products, up from three this year.
While the firm's sales may be a bit bumpy in the near term, Hospira is making concrete efforts to clean up its operations. The company has closed on a strategic agreement with ICU Medical (NASDAQ:ICUI). That deal, under which ICU agreed to manufacture critical-care products for Hospira, allowed Hospira to divest an underperforming manufacturing facility in Salt Lake City. Further, the company is improving its information technology infrastructure through a gradual rollout of SAP (NYSE:SAP) software.
While there are definitely signs that Hospira is on the right track, for now the stock is fairly pricey. Investors should probably take a wait-and-see attitude.
Follow up on Hospira with Hospira's Possibilities.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
