Hospira Earnings Call Insights: Free Cash Flow and Inspections

Hospira, Inc. (NYSE:HSP) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Free Cash Flow

David Roman – Goldman Sachs: I was hoping we could – I’ll do my best to keep this in one question. I’m trying to reconcile some pieces of the guidance as it relates to the P&L and then in the cash flow. Tom, you are guiding to an improvement in overall growth in operating margins in 2013, but a decline in operating cash flow as well as free cash flow. Can you help us maybe put the pieces together there and I don’t understand why the cash flow dynamics wouldn’t be actually better given the expansion in operating profitability?

Thomas E. Werner – SVP, Finance and CFO: Yeah, in terms of free cash flow, the real difference there is the increased capital spending we’re going to have in 2013, some of which as we mentioned was related to Vizag as well as modernization in the existing U.S. – primarily U.S. facilities. A big piece of the modernization is visual – automated visual inspection, so that’s a big swing factor in the free cash flow. In terms of operating cash flow, this year being 12, that is, we had some very substantial improvements in working capital and while we’ll keep a tight handle on that, for next year we don’t expect it to be at the same level. I’ll kind of browse through my detail here as we move through the questions and if I notice anything else, David, I’ll either mention it or speak to you when we follow-up with you later.

Inspections

Gregory Gilbert – Bank of America Merrill Lynch: Last call you had a slide that detailed the inspections that had occurred through the first three quarters of the year. Could you, Mike, update us on everything that occurred inspection lines across the Company in the fourth quarter please?

F. Michael Ball – CEO: So, in the fourth quarter, Gregg, we basically had – since our last call, let’s put it that way. Since our last call, we’ve had one inspection and that would be the device inspection at Lake Forest that I referred to in our prepared remarks. Then, we’re having this inspection going on at Rocky Mount. So that’s the total of what’s happened in terms of FDA inspections across the Company since our last call.

Gregory Gilbert – Bank of America Merrill Lynch: What you releasing from Clayton, you mentioned limited quantities. Is there anything holding you back in terms of getting back to, I guess normal might be a strong word, but any context around the pace of launches from there?

F. Michael Ball – CEO: Not really, we’re just starting up the plant again and we need to build up an inventory. As you know, propofol is in relatively short supply in the marketplace, so basically anything that we make gets absorbed pretty quickly. So, we’re basically releasing small batches right now. We don’t want to get completely spread out everywhere and then immediately go into a backorder situation. So, we’re trying to make some batch releases to try and take care of the shortage in the market, while building up inventories and then we will expand our distribution.

A Closer LookHospira Earnings Cheat Sheet>>