Neogen reports 21% net income increase

September 19, 2017

Press Release
CONTACT: Steve Quinlan, Vice President & CFO, 517.372.9200

LANSING, Mich., Sept. 19, 2017 — Neogen Corporation (Nasdaq: NEOG) announced today that net income for the first quarter of its 2018 fiscal year, which ended Aug. 31, increased 21% to $11,914,000, or $0.31 per share, from the previous year’s first quarter net income of $9,881,000, or $0.26 a share.

First quarter revenues increased 14% to $95,256,000, compared to the previous year’s first quarter revenues of $83,645,000. The revenues and net income represent first quarter records for the 35-year-old company.

“The first quarter was a solid start for our 2018 fiscal year, and reflects the positive impact of growth in many of our core product lines,” said James Herbert, Neogen’s executive chairman. “In the first quarter, we named an experienced new CEO to help us maintain Neogen’s growth trajectory going forward. We are also pleased with the rate of integration of recent acquisitions as that contributed to financial results.”

The first quarter was the 102nd of the past 107 quarters that Neogen reported revenue increases compared with the previous year — including all consecutive quarters in the last 12 years.

“A key goal of ours during this transition of leadership is to identify and ensure continuity with what Neogen has done very well for many years,” said John Adent, who was named Neogen’s chief executive officer on July 17. “Sales of our core food safety products, including tests for mycotoxins, food allergens and sanitation all increased nicely in the quarter. On the animal safety side, the quarter was led by significant increases in revenues from our animal genomics services, as well as growth in sales of our veterinary instruments and insect control products.”

Neogen’s gross margin was 48.2% of sales in the first quarter of the current fiscal year, compared to the 48.4% recorded in the same period a year ago. Operating income for the quarter was $16,424,000, or 17.2% of sales, compared to $14,742,000, or 17.6%, a year ago.

“We saw a moderation of the negative currency translation effects seen in recent quarters, as the currencies we do business in steadied against the dollar. Overall, currency translations had an immaterial impact on the company’s revenues and earnings for the quarter,” said Steve Quinlan, Neogen’s chief financial officer. “Our net income increase was aided somewhat by new accounting guidance regarding stock option exercises, which resulted in a $396,000 reduction in federal income tax expense for the quarter.”

Revenues for the company’s Food Safety segment increased 19% during the first quarter compared to the prior year’s first three months, aided by the acquisitions of Quat-Chem and Rogama within the past year, which report through Neogen’s operations in Scotland and Brazil, respectively. Sales of Neogen’s rapid tests for food allergens, such as gluten and peanuts, increased 17% in the quarter compared to the prior year. This growth continues to be aided by increased global regulatory efforts and consumer demand to ensure products represented as being free of food allergens are correctly labeled.

Sales of Neogen’s AccuPoint® Advanced ATP Sanitation Verification System increased 14% in the current quarter when compared to the prior year. In the current quarter, sales of the company’s mycotoxin test kits increased 9%, and included a 23% increase in the sales of test kits to detect aflatoxin. This increase was the result of hot and dry weather in global corn-growing regions, which is conducive to the growth of molds that produce aflatoxin. The increase was also aided by the introduction of Neogen’s new test for aflatoxin that replaces methanol with water in the testing process.

Revenues from Neogen do Brasil increased 39%, in U.S. dollars, in the current quarter, the result of increases in sales of mycotoxin and drug residue test kits. Mexico-based Neogen Latinoamerica’s sales decreased 2%, due to lower sales of cleaners and disinfectants, the result of the termination of a distribution agreement earlier in the calendar year. Neogen Europe revenues rose 1% in the quarter; strong genomics growth of 19% was offset by lower mycotoxin test sales, as last year’s DON outbreak did not repeat in the current year. Sales of Neogen’s England-based Lab M culture media products increased 34% in the first quarter, as the subsidiary continued its integration into Neogen’s global sales and marketing organization. In the first quarter, Neogen recorded sales into 127 countries and territories outside the U.S. — an all-time high.

Neogen’s Animal Safety segment reported a revenue increase for the first quarter of 9%, led by significant growth in its genomics business, an 11% increase in sales of its insect control product line, and an 11% increase in sales of veterinary instruments, primarily in its needle and syringe product lines.

Revenues from Neogen’s worldwide animal genomics business increased 29% in the first quarter of fiscal 2018 compared to the prior year. This growth was primarily the result of increased market share in the global cattle and poultry markets. The company’s Sept. 1, 2017, acquisition of The University of Queensland Animal Genetics Laboratory (AGL), the leading animal genomics laboratory in Australia, will help accelerate the growth of Neogen’s animal genomics business in Australia, New Zealand and throughout Oceania. AGL is Neogen’s fourth animal genomics laboratory — joining locations in the U.S., Scotland, and Brazil.

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.

(In thousands, except for per share and percentages)
 Quarter ended August 31
Food Safety$46,734$39,156
Animal Safety48,52244,489
Total revenue95,25683,645
Cost of sales49,38543,166
Gross margin45,87140,479
Operating expenses
Sales & Marketing17,02414,797
Research & Development3,0982,678
Total operating expenses29,44725,737
Operating income16,42414,742
Other income812492
Income before tax17,23615,234
Income tax5,3005,300
Net income$11,936$9,934
Net (income) attributable to non-controlling interest($22)($53)
Net income attributable to Neogen Corp$11,914$9,881
Net income attributable to Neogen Corp per diluted share$0.31$0.26
Other information
Shares to calculate per share38,67638,165
Deprecation & amortization$3,993$3,478
Interest income369123
Gross margin (% of sales)48.2%48.4%
Operating income (% of sales)17.2%17.6%
Revenue increase vs. FY 201713.9% 
Net income increase vs. FY 201720.6% 
(In thousands)
 Aug. 31 2017May 31 2017
Current Assets
Cash & investments$159,990$143,635
Accounts receivable66,34168,576
Other current assets11,1907,606
Total current assets310,934292,961
Property & equipment63,28561,748
Goodwill & other assets173,115173,700
Total assets$547,334$528,409
Liabilities & Equity
Current liabilities$38,322$36,002
Other long-term liabilities21,75920,650
Equity: Shares outstanding
38,233 in Aug. & 38,199 in May487,253471,757
Total liabilities & equity$547,334$528,409

Category: Earnings