Neogen reports first quarter results

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Sep 24, 2019, 08:45 ET

LANSING, Mich., Sept. 24, 2019 /PRNewswire/ -- Neogen Corporation (Nasdaq: NEOG) announced today that revenues for the first quarter of its 2020 fiscal year, which ended Aug. 31, were $101,424,000, compared to the previous year's first quarter revenues of $99,626,000.

The first quarter was the 110th of the past 115 quarters that Neogen reported revenue increases compared with the previous year — including all consecutive quarters in the last 14 years.

Net income for the first quarter of Neogen's 2020 fiscal year was $14,652,000, or $0.28 per share, compared to $15,237,000, or $0.29 per share, in the previous year's first quarter. In the prior year's first quarter, Neogen benefitted from higher tax deductions relating to employee stock option exercises, which contributed to an effective tax rate of 11% for the quarter. In the first quarter of the current year, Neogen's effective tax rate was 17%.

"Our first quarter did not meet the overall performance expectations that we have for ourselves. Even considering the difficult international business climate created by the continuing strong U.S. dollar and the U.S. trade issues with China and elsewhere, we must work to produce better results," said John Adent, Neogen's president and chief executive officer. "We were, however, pleased with the continued strength of our genomics business, and we are continuing to build upon our core strengths to return to our historic growth rates, while also expanding our capabilities.

"In August, we announced a licensing agreement with Corvium, a leading producer of risk management software for the food safety industry, that will complement our diagnostics business by efficiently providing our customers with the information they need to make rapid data-driven decisions to protect their consumers and businesses," Adent continued. "We have also continued our genomics laboratory expansions in China, Brazil Canada and the United Kingdom, and are in the beginning stages of an expansion at our flagship operation in Lincoln, Neb., as we work to satisfy the accelerating demand for our genomics services."

Neogen's gross margin was 47.5% of sales in the first quarter of the current fiscal year, compared to 46.9% recorded in the same period a year ago, driven by improved gross margins in the domestic genomics business, and a favorable mix shift in Food Safety towards higher margin products. Operating income for the quarter was $16,264,000, or 16.0% of sales, compared to $16,479,000, or 16.5%, a year ago, with the decline largely the result of increased spending in new product development.

"The first quarter saw a continuation of the adverse currency environment that we experienced in each of the four quarters of our previous fiscal year. In the current quarter, we would have recorded approximately $1.2 million more in revenues in a neutral currency environment," said Steve Quinlan, Neogen's chief financial officer. "At the bottom line, we knew we faced a difficult comparison with the prior year quarter's exceptionally low effective tax rate, which was impacted by the exercise of stock options by company employees. The timing and amount of these exercises will continue to impact the company's effective rate going forward. But, as shown on our balance sheet, our strong cash position provides great flexibility to continue to invest in our businesses going forward."

Revenues for the company's Food Safety segment were $51,021,000 in the current quarter, compared to $52,183,000 in the prior year's first three months. The decrease was due primarily to lower sales internationally, caused in part by the continued strong U.S. dollar. As the majority of Neogen's international locations report through the company's Food Safety segment, adverse currency translations are primarily reflected in this segment's revenue results.

Revenues at the company's Brazilian operations decreased 16% in the current quarter compared to the prior year in U.S. dollars, as losses in sales of biosecurity products and forensic test kits were offset only partially by increases in sales of mycotoxin test kits, dairy residue test kits and culture media. The decrease in biosecurity sales was the result of a non-recurring government tender in Brazil in the prior year first quarter, while the decline in forensic test kits revenues was due to the loss of a large commercial lab customer that performs drug testing of truck and bus drivers in that country.

Mexico-based Neogen Latinoamerica's sales increased 5% in U.S. dollars, due to strong increases in sales of mycotoxin and pathogen test kits, and dehydrated culture media; these increases were somewhat offset by lower sales of rodenticides and disinfectants. Revenues at our European operations rose 1% in local currency, as increases in cleaners and disinfectants were partially offset by lower sales in the culture media, spoilage organism and foodborne pathogen product lines, but decreased 4% when converted to U.S. dollars. In China, the African swine fever outbreak in that country resulted in lower genomic testing to the pork markets, and contributed to an 18% decline in revenues.

Global sales of Neogen's natural toxin test kits increased 9% in the current quarter, led by a 23% increase in sales to detect aflatoxin. The quarterly increase in aflatoxin test kit sales was largely driven by increased market share gains in Brazil and Mexico during the corn harvest. Because of a relatively wet spring in the U.S., testing of domestic grain crops has largely been delayed.

Sales of Neogen's rapid tests to detect the foodborne pathogen Listeria, including the innovative Listeria Right Now^™ test system, increased 20% in the quarter compared to the prior year. Listeria Right Now detects the pathogen in less than an hour — without the otherwise necessary incubation time of 24 to 48 hours. Sales of Neogen's sanitation test systems, which includes its AccuPoint^® Advanced ATP Sanitation Monitoring System, increased 12% in the current quarter when compared to the prior year, and the company's test kits to detect foodborne allergens increased 8% compared to the previous year's first quarter.

Neogen's Animal Safety segment reported revenues of $50,403,000 for the first quarter of the 2020 fiscal year, compared to $47,443,000 in the prior year first quarter, an increase of 6%. The segment's highlights in the quarter included strong growth in the domestic genomics testing business, a 10% increase in sales of the company's animal care products, and a 9% increase in veterinary instruments. These increases were partially offset by lower sales of certain rodenticides.

Revenues from Neogen's worldwide animal genomics business increased 17% in the first quarter of fiscal 2020 compared to the prior year. This growth was primarily the result of continued strength in the company's bovine business, which includes commercial beef and dairy product lines. The increase was also the result of Neogen's accelerating growth in companion animal genetic testing, including tests for dog and cat parentage, breed verification, and genetic health.

Neogen Corporation develops and markets products dedicated to food and animal safety. The company's Food Safety Division markets dehydrated culture media and diagnostic test kits to detect foodborne bacteria, natural toxins, food allergens, drug residues, plant diseases and sanitation concerns. Neogen's Animal Safety Division is a leader in worldwide biosecurity products, animal genomics testing and the manufacturing and distribution of a variety of animal healthcare products, including diagnostics, pharmaceuticals and veterinary instruments.

Certain portions of this news release that do not relate to historical financial information constitute forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. Actual future results and trends may differ materially from historical results or those expected depending on a variety of factors listed in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's most recently filed Form 10-K.

NEOGEN CORPORATION UNAUDITED SUMMARIZED CONSOLIDATED OPERATING DATA (In thousands, except for per share and percentages)
		Quarter ended Aug. 31
		2019		2018
Revenue
Food Safety	$	51,021	$	52,183
Animal Safety		50,403		47,443
Total revenue		101,424		99,626
Cost of sales		53,230		52,897
Gross margin		48,194		46,729
Operating expenses
Sales & marketing		17,543		17,233
Administrative		10,699		10,198
Research & development		3,688		2,819
Total operating expenses		31,930		30,250
Operating income		16,264		16,479
Other income		1,388		658
Income before tax		17,652		17,137
Income tax		3,000		1,900
Net income	$	14,652	$	15,237
Net income per diluted share	$	0.28	$	0.29

Other information:
Shares to calculate per share		52,684		52,780
Depreciation & amortization	$	4,437	$	4,271
Interest income		1,510		927
Gross margin (% of sales)		47.5%		46.9%
Operating income (% of sales)		16.0%		16.5%
Revenue vs. FY 2019		1.8%
Net income vs. FY 2019		-3.8%

NEOGEN CORPORATION UNAUDITED SUMMARIZED CONSOLIDATED BALANCE SHEET DATA (In thousands)
		Aug. 31		May 31
		2019		2019
Assets
Current assets
Cash & investments	$	291,016	$	267,524
Accounts receivable		79,112		82,582
Inventory		87,682		85,992
Other current assets		15,738		13,431
Total current assets		473,548		449,529
Property & equipment, net		75,154		74,847
Goodwill & other assets		172,442		171,364
Total assets	$	721,144	$	695,740
Liabilities & Equity
Current liabilities	$	40,427	$	38,251
Non-current liabilities		20,411		19,590
Equity: Shares outstanding 52,423 at Aug. 31 & 52,217 at May 31		660,306		637,899
Total liabilities & equity	$	721,144	$	695,740