Pharmaceutical and medication delivery company Hospira, Inc. (HSP) Tuesday morning announced a multi-phased restructuring initiative in order to improve margins, drive growth, cut costs and increase shareholder value. The initiative, code-named Project Fuel, would see a 10% reduction in the company's global workforce, delivering annual cost savings as well as incurring charges. Project Fuel is scheduled over a period of 24 months.
In a statement, chairman and chief executive officer, Christopher Begley said, To maximize our opportunities for growth and sustainable shareholder value, Hospira is taking a number of important steps to simplify our business, strengthen our financial position and establish a strong foundation for our future.
The Lake Forest, Illinois-based company is looking to reduce costs and improve operational efficiencies to free-up cash in order to invest for profitable growth and shareholder returns. Project Fuel would do this by optimizing its product line, evaluating non-strategic assets and streamlining its organizational structure.
As part of the Project Fuel restructuring initiative, the company expects to cut about 1,450 jobs, being 10% of its global workforce. According to a recent regulatory filing, the company revealed a total global workforce of about 14,500. The company added that majority of the job cuts will take place over the next 12 months.
Every day our employees make valuable contributions to Hospira, our customers and the patients we collectively serve. We understand the impact these decisions have on our employees and their families, especially during tough economic times. Our actions, while difficult, are designed to benefit all of our stakeholders by ensuring a strong foundation for our future, Begley added.
Project Fuel is expected to yield annual cost savings of about $110 million to $140 million, of which only about $8 million to $10 million in cost savings can be seen in 2009. Annual cost savings would reach $140 million by the second quarter of 2011, by which time Project Fuel would be fully implemented.
The company also estimates incurring total pre-tax charges in a range of $140 million to $160 million, of which about $90 million to $100 million would be incurred in 2009. The charges include about $120 million related to restructuring costs, including employee-separation and other costs, as well as process optimization implementation costs. Potential asset write-downs would make about $30 million in non-cash costs.
Through Project Fuel, Hospira intends to create a focused and streamlined organization by focusing on its main growth businesses of generic injectable medicines and medication management systems, including drug infusion pumps. The company would also consider exiting or divesting non-strategic assets.
Streamlining of product line is necessary as the company carries overlapping drug combinations which are used for the same medical need. By cutting and simplifying the product line, the company stands to gain in improving inventory management and manufacturing efficiency. This would also produce indirect cost reductions through associated decreases in functional support.
Last month, Hospira reported a year-over-year 37.5% surge in profit for its fourth quarter, driven by lower one-time charges and expenses. On an adjusted basis, quarterly earnings per share rose 23.8% and topped market projections. However, the company is more concerned on the 3.4% drop in quarterly net sales to $913.7 million, which also missed analysts' expectations.
The company attributed the decline in fourth quarter revenues primarily to unfavorable foreign currency translation, unusually high U.S. wholesaler purchasing patterns for specialty injectable pharmaceuticals in fiscal 2007, and decreased demand in other pharma from some contract manufacturing customers.
In Tuesday's regular trading session, HSP is currently trading at $26.80, up $0.47 or 1.79% on a volume of 13,300 shares. In the past 52-week period, the stock has been trading in a range of $21.21 to $43.93.
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