Neogen reports 34% increase in net income, 22% increase in revenues

March 23, 2006

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

LANSING, Mich., March 23, 2006 – Neogen Corporation (Nasdaq: NEOG) announced today that its net income for the third quarter of FY 2006, which ended Feb. 28, increased 34% from the previous year’s third quarter. On a per share basis, net income in the quarter rose to $0.19, compared to the prior year’s $0.14. Year-to-date net income for the first nine months of Neogen’s 2006 fiscal year increased 34% to $5,984,000 from $4,471,000 in FY 2005, or to $0.70 per share in the current year from $0.53 in the prior year.

Third quarter revenues increased 22% to $17,583,000, a record third quarter for the company, compared to the prior year’s $14,403,000. Year-to-date, revenues rose 13% in the fiscal year to $52,617,000 from FY 2005’s $46,748,000.

The third quarter was the 52nd consecutive profitable quarter from operations for the company, and the 56th quarter of the past 61 quarters to show increased revenues as compared with the previous year.

“This quarter marks the fourth consecutive quarter that net income exceeded the prior year by more than 30%. This performance is the result of revenue increases, and particularly, our improved operating efficiencies,” said James Herbert, Neogen’s president. “Our December acquisition of UCB’s dairy antibiotic tests has been strong out of the gate. But, I’m even more proud to report that our extensive efforts to recapture some Food Safety market share are now yielding significant results.”

Neogen’s Food Safety Division third quarter revenues increased 43% to $8,861,000 when compared to FY 2005. The division’s revenues were up 17% for the current fiscal year’s first nine months. While Neogen’s Dec. 20 acquisition of UCB’s dairy antibiotic testing business played a significant role in the Food Safety Division’s dramatic upsurge, the division also increased its third quarter same-store sales by 13% over the prior year. The broad-based nature of the division’s advance was reflected by the majority of the Food Safety market segments posting double-digit improvements over the prior year’s results.

Same-store Food Safety Division quarterly increases were led by a 54% improvement in sales of test kits to detect food allergens. New allergen tests, improved test formats, and the new labeling laws that went into effect on Jan. 1 all contributed to this growth. Sales of Neogen’s natural toxin tests increased 31% in the third quarter as a result of widening concerns over mycotoxin contamination of food and pet feed, especially dog food. Natural toxin test sales were also aided by the introduction of an improved format.

“Our third quarter results reflect the success of our ongoing efforts to increase same-store sales while we continue to reduce overall costs of production,” said Lon Bohannon, Neogen’s chief operating officer. “We were particularly pleased with organic sales growth in our Food Safety Division, and the continued productivity gains achieved by our dedicated labor force.”

Neogen is moving the production of its recently acquired dairy antibiotic testing products from Barcelona, Spain, to facilities under renovation in Lansing, Mich. Full production is anticipated to begin in Lansing this summer. Inventory levels of the antibiotic tests were increased to compensate for the production downtime before the Spanish location was closed last month. Virtually every load of raw milk delivered to dairy processing plants worldwide is tested for antibiotic residues. If left unchecked, excessive antibiotic residues in milk could lead to allergic reactions among susceptible individuals, and the gradual decreased effectiveness of antibiotics used to treat human illness. Sales of Neogen’s new dairy antibiotic testing products approximated $8.5 million in its last fiscal year prior to the acquisition.

Neogen’s Animal Safety Division third quarter revenues increased 7% to $8,722,000 when compared to FY 2005. The division’s revenues were up 9% for the current fiscal year’s first nine months. Continuing strong double-digit growth in the sales of OTC veterinary instruments through large farm and ranch retailers, and sales of products to veterinarians, were partially offset by weather-related decreased demand for rodenticides.

Going forward, the Animal Safety Division has numerous additional growth opportunities. Neogen has recently begun selling specialty disposable syringe and needle combinations to large OEM customers. These OEM customers will package the syringe and needle combinations with their own vaccines as part of marketing promotions to veterinarians and other end users. Neogen’s recently launched line of quality electronic cattle prods represent a significant opportunity in the OTC market. The Animal Safety Division’s Life Sciences Group continues to realize opportunities in the forensic market for instrument-based diagnostic solutions. Neogen’s fully automated diagnostic instrument, when combined with its test kits, allows forensic laboratories to accurately process large numbers of samples with minimal technician time and effort.

A week before the close of its third quarter, Neogen acquired all outstanding stock of Centrus International, Inc., from Eastman Chemical Company. Total consideration was $3.3 million, subject to adjustments for working capital changes. Centrus produces Soleris™, a unique, user-friendly, rapid optical testing system that accurately detects microbial contamination. Neogen is continuing to operate Centrus in its facilities in Ann Arbor, Mich., and its other operations will be integrated into those facilities. Centrus recorded sales of Soleris products of approximately $2.8 million in its last fiscal year prior to the acquisition.

Most of the existing Soleris customers are existing Neogen customers, or strong prospects for Neogen products. Of the 36 market segments served by Neogen’s Food Safety Division, 29 have been identified as potential users of the Soleris system. The worldwide market for the general microbiology testing that Soleris targets is estimated to be approximately $200 million per year.

Neogen Corporation develops and markets products and services 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, unique proteins, 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 Feb. 28 Nine months ended Feb. 28
  2006 2005 2006 2005
 Food Safety $8,861 $6,271 $24,356 $20,893
 Animal Safety 8,722 8,186 28,261 25,855
Total revenue 17,583 14,403 52,617 46,748
Cost of sales 9,061 7,445 25,764 24,191
Gross margin 8,522 6,958 26,764 22,557
Operating expenses
 Sales & Marketing 3,753 3,308 11,369 9,987
 Administrative 1,545 1,169 4,235 3,849
 Research & Development 766 704 2,339 2,133
Total operating expenses 6,064 5,181 17,943 15,969
Operating income 2,48 1,777 8,910 6,588
Other income (expense) (54) 4 178 185
Income before tax 2,404 1,781 9,088 6,773
Income tax 772 567 3,104 2,302
Net income $1632 $1,214 $5,984 $4,471
Net income per diluted share $0.19 $0.14 $0.70 $0.53
Other information
 Shares to calculate per share 8,754 8,561 8,591 8,516
 Deprecation & amortization $527 $459 $1,480 $1,356
 Interest income 116 23 115 76
 Gross margin (% of sales) 48.5% 48.3% 51.0% 48.3%
 Operating income (% of sales) 14.0% 12.3% 16.9% 14.1%
 Revenue increase vs. FY 2005 22.1%   12.6%  
 Net income increase vs. FY 2005 34.4%   33.8%  
(In thousands)
  Feb. 28 
May 31 
Current Assets
 Cash & investments $1,,80 $1,972
 Accounts receivable 13,948 10,469
 Inventory 17,007 13,796
 Other current assets 2,512 2,142
Total current assets 34,967 28,379
Property & equipment 12,743 12,193
Goodwill & other assets 37,981 23,312
Total assets $85,981 $63,884
Liabilities & Equity
Current liabilities $8,248 $5,735
Long term debt 12,800  
Other long-term liabilities 3,006 3,314
Equity: Shares outstanding
 8,286 in Feb. & 8,147 in May 61,637 54,835
Total liabilities & equity $85,691 $63,884

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