Neogen reports 33% increase in net income

January 04, 2011

Press Release
CONTACT: Richard R. Current, Vice President & CFO, 517.372.9200

LANSING, Mich., Jan. 4, 2011 – Neogen Corporation (NASDAQ: NEOG) announced today that its net income for the second quarter of FY 2011, which ended Nov. 30, increased 33% from the previous year’s second quarter. Net income in the quarter rose to $6,110,000, or $0.26 per share, compared to the prior year’s $0.20.

Second quarter revenues increased 25% to $43,931,000, compared to the prior year’s $35,251,000. Year-to-date revenues for the first six months of fiscal year 2011 rose 28% to $86,853,000 from FY 2010’s $67,598,000. Current year-to-date net income for the same six-month period increased 33% to $11,935,000 from $9,006,000 in FY 2010, or to $0.51 per share compared to the prior year’s $0.39. The second quarter revenues and net income represent quarterly records for the 28-year-old company.

“While we are very pleased to report yet another solid quarter of revenue and earnings growth, an analysis of the growth is even more encouraging,” said James Herbert, Neogen’s chief executive officer and chairman. “The growth was the result of broad-based advancements throughout our market segments. It was a combination of a continual flow of new products from R&D and immediately accretive acquired product lines. The quarter showed indications that some customers are now more willing to make capital expenditures that had earlier been delayed.”

Operating income as a percentage of sales increased to 21.9% in the current quarter from the previous year’s comparable quarter of 20.5%. On a six-month basis, operating income is 22.1% of sales compared to 21.0% in the prior year.

“We’re extremely pleased to report another quarter where operating income exceeded 20% of sales since we view 20% as a benchmark of our success in controlling costs and achieving continuous improvement in operational efficiencies,” said Lon Bohannon, Neogen’s president and chief operating officer. “Another good indicator of our positive operational performance is that the increase in our profits from operations grew 33% quarter over quarter, a faster rate than our strong 25% increase in revenues for the quarter.”

The second quarter was the 71st consecutive profitable quarter from operations for the company, and the 75th quarter of the past 80 quarters when Neogen reported revenue increases as compared with the previous year — including the last 23 consecutive quarters.

“Even considering the effect of a negative currency exchange, we had another excellent quarter in generating cash. We have now produced $19.6 million in cash from operations for the first six months of the current fiscal year — compared to $28 million for all of last year,” said Richard Current, Neogen’s chief financial officer. “Given that our overall growth strategy continues to stress cash acquisitions as well as organic sales growth, cash on hand balances around $40 million are not excessive by any reasonable measure.”

Neogen’s Food Safety Division’s second quarter revenues increased 16% from $18,446,000 in FY 2010 to $21,341,000 in FY 2011. Year-to-date, the Food Safety Division’s revenues were up 21% to $43,593,000 for FY 2011. Sales growth in Food Safety was broad-based across multiple market segments and product lines for the quarter and on a year-to-date basis. Despite being negatively affected by currency translation, Neogen’s Scotland-based Neogen Europe subsidiary recorded a sales increase of 41% in the current quarter compared to the prior year, including sharp increases in sales of Acumedia® dehydrated culture media and food safety diagnostics.

Quarterly sales of Neogen’s BetaStar® Combo dairy antibiotic test, launched in April 2009, tripled when compared to the prior year quarter. Developed to comply with the European Union’s maximum residue levels, BetaStar Combo is the fastest single test for beta-lactam and tetracycline dairy antibiotics. Current fiscal year to date sales of the company’s test for histamine, a natural toxin of special concern to the tuna industry, increased nearly 40%.

Second quarter sales of Neogen’s Soleris® microbial detection system increased significantly led by a 33% increase in revenues for reader instruments. The Soleris system measures microbial growth by monitoring pH and other biochemical reactions that generate a color change as microorganisms grow and metabolize. The Food Safety division also saw a continuation in the quarter of strong increases in sales of the Acumedia dehydrated culture media that it offers to the cell culture market.

Neogen’s second quarter also saw strong double-digit percentage increases in sales of its foodborne pathogen tests for Salmonella and Listeria. The company’s recently introduced Reveal® 2.0 rapid pathogen detection tests were designed for accurate results, while simplifying testing protocols and enrichment procedures.

Led by performance of the April 2010 acquisition of the GeneSeek genetics service business, Neogen’s Animal Safety Division second quarter revenues increased 34% to $22,590,000, compared to $16,805,000 in the previous fiscal year. For FY 2011’s first six months, the Animal Safety Division’s sales increased 37% over the comparable period last year to $43,260,000.

GeneSeek, a leading commercial agricultural genetics laboratory, continued to exceed expectations in the second quarter with the sale of higher density DNA testing products, which are primarily used as discovery tools for breeding traits and disease susceptibility or resistance in cattle, pigs, and other species. GeneSeek also had an increase in sample volume for the lower density DNA testing products that are used more for breeding value predictions. Much of the increase came from growth with international customers in Canada, Australia, New Zealand, Brazil, and Europe.

Neogen’s sales of forensic diagnostics to detect drugs of abuse increased 30% as the company’s top accounts have increased the volume and breadth of their testing. Sales of rodenticides, cleaners and disinfectants in the quarter increased 13% over the prior year as Neogen strengthens its presence in the important agronomic and animal protein market segments. The quarter also saw sales of the company’s veterinary instruments grow 28% when compared to the prior year’s second quarter, spurred by increased sales of Neogen’s needle and syringe business.

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 Nov. 30 Nine months ended Nov. 30
  2010 2009 2010 2009
 Food Safety $21,341 $18,446 $43,593 $35,921
 Animal Safety 22,590 16,805 43,260 31,677
Total revenue 43,931 35,251 86,853 67,598
Cost of sales 21,443 16,729 41,598 31,806
Gross margin 22,488 18,522 42,255 35,792
Operating expenses
 Sales & Marketing 7,504 6,405 15,016 12,377
 Administrative 3,714 3,191 7,576 6,082
 Research & Development 1,641 1,698 3,438 3,161
Total operating expenses 12,859 11,294 26,030 21,620
Operating income 9,629 7,228 19,225 14,172
Other income (expense) -119 -18 -490 64
Income before tax 9,510 7,210 18,735 14,206
Income tax 3,400 2,600 6,800 5,200
Net income $6,110 $4,610 $11,935 $9,006
Net income per diluted share $0.26 $0.20 $0.51 $0.39
Other information
 Shares to calculate per share 23,729 23,050 23,599 22,933
 Deprecation & amortization $1,325 $1,016 $2,583 $2,027
 Interest income 28 16 57 33
 Gross margin (% of sales) 51.2% 52.5% 52.1% 52.9%
 Operating income (% of sales) 21.9% 20.5% 22.1% 21.0%
 Revenue increase vs. FY 2010 24.6%   28.5%  
 Net income increase vs. FY 2010 32.5%   32.5%  
(In thousands)
  Nov. 30 
May 31 
Current Assets
 Cash & investments $44,392 $22,806
 Accounts receivable 28,050 27,433
 Inventory 31,433 31,316
 Other current assets 4,253 4,465
Total current assets 108,128 86,020
Property & equipment 20,738 19,180
Goodwill & other assets 74,809 75,033
Total assets $203,675 $180,233
Liabilities & Equity
Current liabilities $21,297 $17,033
Other long-term liabilities 10,420 10,147
Equity: Shares outstanding
 23,115 in Nov & 22,625 in May 171,958 153,053
Total liabilities & equity $203,675 $180,233

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