Hospira (HSP) is carrying out its restructuring plans in an attempt to reduce its operating expenses. The company is reducing its workforce by 10% (1400-1500 employees), which would result in savings of $110 -$140 million by 2011. This initiative, named ‘Project Fuel’, was announced by the company earlier in March 2009. Management reiterated the restructuring plan at the recently held JP Morgan Healthcare Conference.
The main aim of the project was to optimize the product portfolio, evaluate non-strategic assets and streamline the organizational structure. During the third quarter conference call, management announced that they are on track to meet the milestones, having notified almost 60% of the targeted 1400–1500 positions.
In order to hive off the non-strategic assets, in July 2009, Hospira decided to sell its critical care business to ICU Medical for $35 million cash. The critical care business generated $75 million of global sales annually and the overall margin was also lower. Thereafter, Hospira announced the sale of its Salisbury, Australia manufacturing facility that was primarily used for oral contract manufacturing, not a focus area for Hospira.
With respect to optimization of the product line, Hospira has identified approximately 55% of more than 7,000 SKUs, which can be eliminated over time. The simplification of the product line should help the company focus on key growth areas. Given the strategic initiatives undertaken by Hospira, gross margin should continue to expand over the next several years. From the 38.4% achieved in third quarter of 2008, gross margin has improved to 41.5% in the third quarter of 2009 thanks to an improved product mix and manufacturing efficiencies. We are Neutral on Hospira.
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