Neogen reports record third quarter, 25% increase in net income

CONTACT: Richard R. Current, Vice President & CFO, 517/372-9200

LANSING, Mich., March 20, 2003 – Neogen Corporation (Nasdaq: NEOG) announced today that net income for the third quarter of its 2003 fiscal year, which ended Feb. 28, was 25% higher than the previous year’s third quarter.

Net income per share was $0.16 for the third quarter as compared with $0.13 for the same period last year. The quarter marked the 40th consecutive profitable quarter from operations for the Company. Net income for the first nine months was $0.55 per diluted share, as compared to $0.45 for the prior year. Neogen’s quarterly net income increased to $1,030,000 from $826,000 in FY 2002. Year-to-date net income is up 24% to $3,506,000, compared to the prior year’s first nine months of $2,833,000.

“Our third quarter completes an unbroken string of 10 years of quarterly profits from operations,” said James Herbert, Neogen’s president. “Our compound annual growth in revenue over the past five years has been over 20%. Few companies in today’s business climate can match our record.”

Neogen’s third quarter revenues were $11,102,000 — the first time the Company’s third quarter revenues have exceeded $10 million. Revenues were 15% greater than last year’s comparable quarter of $9,655,000. Revenues for the Company’s first nine months were $34,272,000 compared to $30,085,000 in the prior year.

Neogen’s Food Safety Division third quarter revenues were up 30% compared to the prior year, with broad-based increases across many market segments. Sales of test kits to detect mycotoxins in feed and food products increased 53% as geographic regions of the United States experienced conditions causing natural toxin contamination in corn and other grains. Sales of tests to detect two of these toxins, aflatoxin and fumonisin, were more than double prior year levels.

Sales of Neogen’s test kits to detect food allergens, including peanut, egg and milk residues, continued their substantial growth trend by increasing 34% in the third quarter on a year-to-year comparison. Neogen’s tests to detect dangerous food pathogens, including E. coli O157:H7, Listeria and Salmonella, improved 16%, and sales of dehydrated culture media jumped 26%.

“The world’s news is full of reasons why sales of our Food Safety products should continue their strong growth into the foreseeable future,” said Ed Bradley, Neogen’s vice president of Food Safety and Marketing. “On almost a daily basis, news of a food recall due to a food allergen or foodborne pathogen points to a need to do more testing to ensure the safety of our food supply. The continuing move toward fewer but larger multinational food producers also works in our favor. Large multinationals prefer to use one-stop vendors that can provide all their testing needs—Neogen’s strength.”

With the onset of war in Iraq, existing Neogen diagnostic products and diagnostic test production capability could be used to help counter the threat of retaliatory bioterrorism. “We hope that situation does not happen,” said Herbert. “But if bioterrorism does threaten, Neogen is equipped to provide diagnostic products necessary to ensure the safety of our food system, as well as help protect our plant and animal industries.”

Overcoming a difficult quarter-to-quarter comparison, sales of Neogen’s Animal Safety Division in the third quarter matched sales of the prior year quarter. In the prior year’s third quarter, Neogen filled the initial stocking order of veterinary instruments for 330 Tractor Supply Company (TSC) retail stores across the United States, as well as an initial TSC warehouse reserve. The Company’s Animal Safety Division also continues to be adversely affected by poor economic conditions in the animal protein market, as lower prices have led to less spending on animal health products. The animal protein market is traditionally cyclical in nature, and is showing signs of recovery.

The Animal Safety Division posted increases in several of its markets, including sales of diagnostics tests to detect drug residues, life science products, and certain veterinary product lines. Since its original deal with TSC that included 330 stores, Neogen has added approximately 100 new TSC locations when the retailer purchased certain assets of the defunct Quality Farm & Fleet retail chain, 30 Canadian TSC locations, and the 116-store Orscheln’s retail chain with locations throughout the Midwest United States.

“We’re very proud of what we were able to accomplish in the third quarter with our Animal Safety Division,” said Lon Bohannon, Neogen’s chief operating officer. “We knew well in advance that this quarter would be a difficult comparison. We are very optimistic that the third quarter bodes well for our prospects for future growth within the division.”

After the close of its third quarter, Neogen announced its acquisition of Adgen Ltd., a private company based in Ayr, Scotland. Since its founding in 1994, Adgen has been a major distributor of Neogen products in Europe, as well as a producer and marketer of its own agricultural diagnostic testing products. The acquisition provides Neogen better access to the European Union, and allows the Company to better serve its network of customers and distributors throughout the EU. Adding Adgen’s experienced research and development team will be a strong asset to Neogen as it works toward developing the next generation of food safety diagnostic testing products, especially products tailored to meet certain unique requirements in the European market.

Neogen’s new location in Scotland adds to the Company’s international physical presence established earlier with the opening of its location in Shanghai, China, in April 2002. Establishment of the Chinese location helped contribute to Neogen’s sales growth in the first nine months.

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, genetic modifications, food allergens, drug residues, plant diseases and sanitation concerns. Neogen’s Animal Safety Division markets a complete line of diagnostics, veterinary instruments, veterinary pharmaceuticals and nutritional supplements.

NEOGEN CORPORATION UNAUDITED SUMMARIZED CONSOLIDATED OPERATING DATA
(In thousands, except for per share and percentages)
  Quarter ended Nine months ended Feb. 28
  2003 2002 2003 2002
Revenue
 Food Safety $6,206 $4,760 $18,876 $14,998
 Animal Safety 4,896 4,895 15,396 15,087
Total revenue 11,102 9,655 34,272 30,085
Cost of sales 5,361 5,038 16,006 14,903
Gross margin 5,741 4,617 18,266 15,182
Operating expenses
 Sales & Marketing 2,656 2,152 8,017 6,549
 Administrative 1,049 929 3,141 3,106
 Research & Development 621 438 2,118 11,146
Total operating expenses 4,326 3,509 13,276 11,146
Operating income 1,415 1,230 5,354 4,398
Income before tax 1,530 1,230 5,354 4,398
Income tax 500 404 1,848 1,565
Net income $7,409 $6,553 $24,143 $20,478
Net income per diluted share $0.16 $0.13 $0.55 $0.45
Other information
 Shares to calculate per share 3,386 6,441 6,369 6,365
 Deprecation & amortization $320 $315 $945 $813
 Interest income        
 Gross margin (% of sales) 51.7% 47.8% 53.3% 50.5%
 Operating income (% of sales) 12.7% 11.5% 14.6% 13.4%
 Revenue increase vs. FY 2002 15.0%   13.9%  
 Net income increase vs. FY 2002 24.7%   23.8%  
NEOGEN CORPORATION SUMMARIZED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
  Feb. 28
2003
May 31
2002
Assets
Current Assets
 Cash & investments $8,279 $6,353
 Accounts receivable 7,262 6,462
 Inventory 8,767 8,683
 Other current assets 1,717 1,751
Total current assets $43,880 $39,904
 
Liabilities & Equity
Current liabilities    
Accounts Payable $1,688 $2,239
Other current liabilities 2,544 1,635
Total Current liabilities 4,232 3,964
Stockholders' equity
shares outstanding 6,107 in 2003 & 6,108 in 2002
39,254 35,546
Total liabilities & equity $43,880 $39,904

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.