NEOGEN reports 16% increase in net income

December 21, 2015

CONTACT: Steve Quinlan, Vice President & CFO, 517.372.9200

LANSING, Mich., Dec. 21, 2015 — NEOGEN Corporation (NASDAQ: NEOG) announced today that net income for the second quarter of its 2016 fiscal year, which ended Nov. 30, increased 16% to $9,073,000, or $0.24 per fully diluted share, from $7,806,000, $0.21 per share, in fiscal 2015. Current year-to-date net income was $18,396,000, or $0.49 per share, compared to $16,689,000, or $0.45 per share, for the same period a year ago.

Revenues for the second quarter of fiscal 2016 increased 16% to $79,610,000, from the previous year’s second quarter revenues of $68,455,000. This increase was aided in part by recent acquisitions completed by the company. The quarterly revenue and net income results represent second quarter records for the 33-year-old company. Year to date, FY 2016 revenues increased 14% to $154,471,000 from FY 2015’s $136,054,000.

“We are pleased to report that broad-based increases in the second quarter, throughout NEOGEN’s varied market segments, led us to reach our often stated goal of producing double-digit organic growth for the quarter,” said James Herbert, NEOGEN’s chief executive officer and chairman. “We recorded these organic increases in revenues in many of our product lines, including animal genomics, pharmaceuticals, biosecurity products, and food safety diagnostics. The second quarter was yet another quarter when NEOGEN delivered results by both creating and capturing opportunities within its food and animal safety market segments.”

The second quarter was the 95th of the past 100 quarters that NEOGEN reported revenue increases as compared with the previous year — including all consecutive quarters in the last 10 years.

“The recent publication of three additional rules for the Food Safety Modernization Act, or FSMA, and numerous well-publicized food recalls, have helped to create an environment where food companies are scrutinizing their existing food safety plans,” said Richard Calk, NEOGEN’s president and chief operating officer. “NEOGEN is well positioned with a comprehensive line of products, including tests for pathogens, allergens, general sanitation and more, that are market leaders in helping food companies ensure the safety of their products.”

Expressed as a percentage of sales, operating income was 18.4% for the quarter, compared to 18.8% recorded in the company’s second quarter of its 2015 fiscal year. NEOGEN’s gross margin was 48.0% of sales in its second quarter of the current year, compared to the 50.0% recorded in the same quarter of the previous fiscal year. The change in gross margin was primarily due to product mix, acquisitions, and adverse currency translations.

“Currency fluctuations continued to negatively impact both our top and bottom lines, and resulted in an adverse currency effect of about $0.02 per share to earnings for the second quarter, very similar to our first quarter. These impacts were felt in conversions to the U.S. dollar from the euro, the British pound, the Brazilian real, and the Mexican peso,” said Steve Quinlan, NEOGEN’s chief financial officer. “Despite the continuing difficulty in the currency environment, our Mexican subsidiary was still able to achieve a 28% increase in sales in dollars in the second quarter. In pesos, the sales increase for our Mexican subsidiary was 58% for the quarter. The currency impact was especially pronounced at our Brazilian subsidiary, where a 38% sales increase for the quarter in local currency was reduced to a 12% decrease once those sales were converted to dollars.”

NEOGEN’s Animal Safety segment reported a revenue increase of 19% during the second quarter, compared to the prior year. Overall organic growth for the Animal Safety segment was also 19% for the quarter, as there was only a minor contribution to Animal Safety revenues from products and services acquired within the past year. Sales of the company’s rodenticides increased 69% in the current quarter compared to the same period in the prior year, as NEOGEN increased its contract manufacturing of rodenticides, and gained share in its retail markets. The quarter was aided by a new distribution agreement in the commercial dairy industry with a large equipment manufacturer. In the second quarter, NEOGEN also recorded a large increase in sales of its Uniprim® veterinary antibiotic, when compared to the prior year. NEOGEN acquired Uniprim in 2012; it is a prescription-only combination of trimethoprim and sulfadiazine that provides effective antibacterial activity against a wide range of infection in animals.

Revenues from the company’s GeneSeek® animal genomic operations in Lincoln, Neb., rose approximately 35% in the second quarter of 2016 compared to fiscal 2015. This growth resulted from a large increase in genomic testing for meat type chickens, and increased penetration in the swine industry.

Revenues for the company’s Food Safety segment rose 13% during the second quarter, compared to the prior year, aided in large part by the acquisitions of BioLumix® and Lab M within the past year. Overall organic growth for the Food Safety segment was 6% for the quarter; in constant currency, organic growth was 13%. Sales of NEOGEN’s rapid tests for food allergens, such as gluten and peanuts, continued their strong performance in the second quarter, growing approximately 24% compared to the prior year. The growth was aided by increasing global regulatory efforts and consumer demand to ensure products represented as being free of food allergens are correctly labeled.

The company’s sales of its recently launched AccuPoint® Advanced ATP Hygiene Monitoring System increased 25% in the current quarter when compared to the prior year. This innovative system has gained use and acceptance in food and animal production environments where instant, accurate sanitation test results are essential. Sales of NEOGEN’s tests for Listeria increased 27% in the current second quarter as the food industry responded to recent outbreaks, and as a result of an increased awareness of the potential of the pathogen to be present in food items previously thought unlikely (e.g., ice cream).

Revenues from NEOGEN’s Scotland-based subsidiary declined 10% in dollars, and was 6% lower in local currency, for the second quarter of the 2016 fiscal year. The decline was due to difficult comparisons with a strong 2015 second quarter resulting from genomics revenues, and a spike in sales of mycotoxin test kits in response to a DON outbreak in Europe — which did not repeat this year.

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 the development of animal genomics along with the manufacturing and distribution of a variety of animal healthcare products, including diagnostics, pharmaceuticals, veterinary instruments, wound care and disinfectants.

NEOGEN CORPORATION UNAUDITED SUMMARIZED CONSOLIDATED OPERATING DATA
(In thousands, except for per share and percentages)
  Quarter ended Nov. 30 Six months ended Nov. 30
  2015 2014 2015 2014
Revenue
 Food Safety $37,254 $32,955 $71,714 $63,918
 Animal Safety 42,356 35,500 82,757 72,136
Total revenue 79,610 68,455 154,471 136,054
Cost of sales 41,386 34,247 78,455 67,770
Gross margin 38,224 34,208 76,016 68,284
Operating expenses
 Sales & Marketing 14,203 12,743 27,774 24,963
 Administrative 6,791 6,094 13,543 12,107
 Research & Development 2,618 2,474 5,192 4,878
Total operating expenses 23,612 21,311 46,509 41,948
Operating income 14,612 12,897 29,507 26,336
Other income (expense) -420 -471 -876 -201
Income before tax 14,192 12,426 28,631 26,135
Income tax 5,050 4,600 10,200 9,400
Net income $9,142 $7,826 $18,431 $16,735
Net loss (income) attributable
to non-controlling interest
-69 -20 -35 -46
Net income attributable to NEOGEN Corp $9,073 $7,806 $18,39 $16,689
Net income attributable to NEOGEN Corp
per diluted share
$0.24 $0.21 $0.49 $0.45
Other information
 Shares to calculate per share 37,868 37,379 37,810 37,331
 Deprecation & amortization $2,960 $2,657 $5,680 $5,171
 Interest income 51 47 118 92
 Gross margin (% of sales) 48.0% 50.0% 49.2% 50.2%
 Operating income (% of sales) 18.4% 18.8% 19.1% 19.4%
 Revenue increase vs. FY 2015 16.3%   13.5%  
 Net income increase vs. FY 2015 16.2%   10.2%  
NEOGEN CORPORATION SUMMARIZED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
  Nov. 30 2015 May 31 2011
Assets (Unaudited) (Audited)
Current Assets
 Cash & investments $123,018 $114,164
 Accounts receivable 57,604 59,208
 Inventory 61,485 51,601
 Other current assets 8,370 6,222
Total current assets 250,477 231,195
Property & equipment 51,865 44,473
Goodwill & other assets 123,441 116,513
Total assets $425,783 $392,181
 
Liabilities & Equity
Current liabilities $31,227 $25,456
Other long-term liabilities 16,654 15,762
Equity: Shares outstanding
 37,444 in Nov. & 37,128 in May 377,902 350,963
Total liabilities & equity $425,783 $392,181

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.

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Category: Earnings