Neogen reports 30% increase in net income, 19% increase in revenues

July 24, 2007

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

LANSING, Mich., July 24, 2007 – Neogen Corporation (Nasdaq: NEOG) today announced a 30% increase in net income for its 2007 fiscal year, which ended May 31, and a continuation of the company’s outstanding record of profitability.

FY 2007 revenues were $86,138,000, up 19% from $72,433,000 in Neogen’s previous fiscal year. Net income was $9,125,000 in FY 2007, or $0.97 per share, compared to a restated $0.83 in the prior year.

Neogen’s fourth quarter net income increased 34% to $0.24 per share in FY 2007, compared to a restated net income of $0.20 per share for FY 2006’s final three-month period. Neogen’s fourth quarter revenues increased 14% on a year-to-year comparison to $22,675,000. Neogen’s fourth quarter was the 57th consecutive profitable quarter from operations for the 25-year-old company, and the 61st quarter of the past 66 quarters to show revenue increases compared to prior years.

“Our 2007 fiscal year’s outstanding performance is a result of being thoroughly prepared to serve our customers as opportunities arose,” said James Herbert, Neogen’s chief executive officer and chairman. “As the worldwide focus on food and animal safety heightened, we have kept our focus on becoming the dominant worldwide provider of food and animal safety solutions. A barometer of our momentum gain was our international sales increase to 38% of total sales this year, as compared to 29% last year. We’ve estimated that our international markets have twice the potential of our domestic markets, and we’re making significant progress outside of the United States.”

Neogen’s gross margin in FY 2007 increased to 51.7%, up from 51.1% in the previous fiscal year. Productivity improvements, cost reduction initiatives, and better utilization of facilities helped drive a 25% improvement in FY 2007 operating income compared to the previous year.

“It was especially gratifying to see our Animal Safety Division’s exceptional turnaround as the fiscal year progressed, which culminated in 12% organic growth in the fourth quarter,” said Lon Bohannon, Neogen’s president and chief operating officer. “It was the division’s best quarter of the year. The Food Safety group also recorded some very positive results in the fourth quarter, including a broad-based 16% increase in the sales of products to detect foodborne pathogens. The strong fourth quarter organic sales growth provides excellent momentum to begin our new fiscal year.”

Neogen’s Food Safety Division led the company’s FY 2007 revenue increase with sales up 34% to $46,956,000. While the mid-year FY 2006 additions of BetaStar® dairy antibiotic tests and Soleris™ general microbial detection system contributed significantly to the division’s year-over-year revenue gain, sales of both product lines recorded strong double-digit gains in comparable quarters under Neogen ownership.

New U.S. FDA regulations on the dietary supplement industry that take effect in August 2007 are expected to expand interest in the Soleris line. The new regulations require makers of dietary supplements (e.g., ginseng, gingko biloba, etc.) to meet purity and quality standards similar to those required of food producers. The Soleris line is also expected to be helped by a recent study by the standards-setting organization NSF International that demonstrated equivalencies between the rapid Soleris tests and traditional methods when testing dietary supplements for bacterial contamination.

Neogen’s proprietary AccuPoint® sanitation monitoring system continued its growing market acceptance, with sales increasing approximately 40% in FY 2007 compared to the prior year. The recent addition of major food and beverage processors as AccuPoint customers, and a large order shipment to China, bolstered the products’ sales. Neogen continued its role as a leader in providing rapid test kits for natural toxins and food allergens, with both product lines recording double-digit, same-store sales increases in FY 2007 compared to the prior year. Neogen’s product line for the detection of histamine, a natural toxin of special concern to fish processors, increased approximately 30% for the year.

Annual sales for Neogen’s Animal Safety Division increased to $39,182,000. Sales of Neogen’s specialty veterinary instruments and needles more than doubled in FY 2007, as the company continues to seize opportunities in the marketplace. Continued progress on international product registrations, especially in Latin America, contributed to a sales increase of 29% for rodenticides outside of the United States. Other strong performers from Neogen’s Animal Safety Division for the year included forensic drug diagnostics, with sales up 15%, and the Ideal® line of traditional veterinary instruments, with a sales increase of 10%.

Acquisitions and Neogen’s sales efforts outside North America helped drive international sales to 38% of total company revenues, compared to 29% and 27% in the prior two fiscal years. Scotland-based Neogen Europe Ltd. continued its success in the European Union food safety testing markets, recording overall sales growth of approximately 26%.

“Our exceptional cash flow from operations and the stock sale last summer have allowed us to pay off debt and accumulate cash,” said Richard Current, Neogen’s chief financial officer. “With our strong cash position, and full access to our large bank line, we are now poised to pursue both internal and external growth strategies.”

The fourth quarter and year-end results reflect the June 1, 2006 adoption of Financial Accounting Standards Board Statement No. 123R, which requires companies to recognize the cost of stock options as a non-cash compensation expense. The company adopted the statement using the modified-retrospective transition method, restating all prior period amounts on a consistent basis. As a result, the company recognized additional compensation expenses of $310,000 and $1,240,000 for the 2006 fourth quarter and fiscal year, respectively. Net income was reduced $237,000 and $912,000 for the same periods.

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, nutritional supplements, disinfectants, and rodenticides.

(In thousands, except for per share and percentages)
  Quarter ended May 31 Year ended May 31
  2007 2006 
Restated (1)
2007 2006 
Restated (1)
 Food Safety $12,357 $10,622 $46,956 $34,951
 Animal Safety 10,318 9,193 39,182 37,482
Total revenue 22,675 19,815 86,138 72,433
Cost of sales 11,091 9,662 41,575 35,427
Gross margin 11,584 10,153 44,563 37,006
Operating expenses
 Sales & Marketing 4,946 4,430 18,463 15,799
 Administrative 2,785 2,248 9,301 7,414
 Research & Development 645 649 3,295 2,988
Total operating expenses 8,376 7,327 31,059 26,201
Operating income 3,208 2,826 13,504 10,805
Other income (expense) 244 (133) 371 46
Income before tax 3,452 2,693 13,875 10,851
Income tax 1,149 973 4,750 3,822
Net income $2,303 $1,720 $9,125 $7,029
Net income per diluted share $0.24 $0.20 $0.97 $0.83
Other information
 Shares to calculate per share 9,567 8,478 9,441 8,457
 Deprecation & amortization $794 $937 $2,840 $2,419
 Interest income 150 (150) 358 (203)
 Gross margin (% of sales) 51.1% 51.2% 51.7% 51.1%
 Operating income (% of sales) 14.1% 14.3% 15.7% 15.0%
 Revenue increase vs. FY 2006 14.4%   18.9%  
 Net income increase vs. FY 2006 33.9%   29.8%  
(In thousands)
  May 31 
May 31 
Restated (1)
Current Assets
 Cash & investments $13,424 $1,959
 Accounts receivable 14,914 13,116
 Inventory 19,116 17,626
 Other current assets 3,644 3,568
Total current assets 51,098 36,269
Property & equipment 16,402 14,255
Goodwill & other assets 37,784 37,766
Total assets $105,284 $88,290
Liabilities & Equity
Current liabilities $10,038 $10,017
Long term debt 0 9,955
Other long-term liabilities 3,301 2,894
Equity: Shares outstanding
 9,347 in 2007 & 8,311 in 2006 91,945 65,424
Total liabilities & equity $105,284 $88,290

1. On June 1, 2006, the Company adopted Financial Accounting Standards Board Statement No. 123R using the modified-retrospective transition method, under which all prior period amounts have been restated on a consistent basis.

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.


Category: Earnings