Neogen reports 38% increase in quarterly net income

March 29, 2010

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

LANSING, Mich., March 29, 2010 – Neogen Corporation (NASDAQ: NEOG) announced today that its net income for the third quarter of FY 2010, which ended Feb. 28, increased 38% from the previous year to $3,881,000. Adjusted for a 3-for-2 stock split effective Dec. 15, net income in the quarter rose to $0.17 per share, compared to the prior year’s $0.12.

Third quarter revenues increased 21% to $33,833,000, a record third quarter for the 27-year-old company, compared to the prior year’s $27,840,000. Year to date, nine-month revenues increased 15% in the current fiscal year to $101,431,000 from FY 2009’s $87,831,000. Current year-to-date net income for the same nine-month period increased 23% to $12,887,000 from $10,457,000 in FY 2009, or to $0.56 per share compared to the prior year split-adjusted amount of $0.46 per share.

“We are very pleased to report our exceptional third quarter results, especially considering that many of our customers have been under severe economic stress,” said James Herbert, Neogen’s chief executive officer and chairman. “The broad-based nature of our organic growth, and operating results, indicate significant progress in continuing our plan to ensure long-term growth. I’m very proud of our management team and employee group.”

The third quarter was the 68th consecutive profitable quarter from operations for the company, and the 72nd quarter of the past 77 quarters to show increased revenues as compared with the previous year—including the last 20 consecutive quarters.

“It was especially gratifying to see that a significant portion of our third quarter growth was due to increases in same-store sales of key products, including mycotoxin diagnostics and dehydrated culture media on our Food Safety side, and vitamin injectables and biosecurity on our Animal Safety side,” said Lon Bohannon, Neogen’s president and chief operating officer. “The outbreak of vomitoxin in last fall’s corn harvest created a substantial opportunity and we were able to quickly ramp up production to meet the increased demand for test kits to detect this harmful mycotoxin. We believe our quick response to the vomitoxin outbreak is a perfect example of the superior customer and technical service that sets us apart from our competitors.”

For the quarter, operating income increased 61% to $5,749,000, and for the first nine months of the company’s 2010 fiscal year, Neogen’s operating income improved 32% to $19,921,000. Expressed as a percentage of revenues, year-to-date operating income for the current fiscal year improved to 19.6% compared to 17.2% in the prior year. Gross margins in the third quarter and for the first nine months of the 2010 fiscal year were 51.6% and 52.5% of sales respectively, compared with 46.8% and 50.0% for the same periods in the prior year.

“The company continued to generate exceptional cash flow from operations with year-to-date totals of nearly $22,000,000,” said Richard Current, Neogen’s vice president and chief financial officer. “In fact, despite the $6,500,000 BioKits acquisition during the quarter, February cash levels nearly equaled the levels in November. The primary cash generators were control of asset growth by the operating groups and higher levels of net income.”

The Lansing, Mich.-based Food Safety Division led the company’s third quarter revenue increase, with sales up 39% from $14,173,000 in FY 2009 to $19,718,000 in the current year. For the first nine months of FY 2010, the division’s sales increased 23% over the prior year to $55,640,000. The December 2009 acquisition of Gen-Probe’s BioKits food safety business contributed to the Food Safety Division’s third quarter revenue gain.

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. Cool, wet weather experienced in the U.S. corn belt in 2009 led to sharp increases in demand for tests to detect mycotoxins, especially vomitoxin. In the quarter, sales of mycotoxin test kits were particularly strong to customers associated with the production of ethanol. Ethanol producers sell the grain by-products of their process to the animal feed industry, and these by-products can contain concentrated levels of any mycotoxins present in commodity grains used to produce ethanol.

Sales of the company’s Acumedia® dehydrated culture media products significantly improved over FY 2009’s third quarter, as did sales of test kits to detect food allergens and drug residues—including Neogen’s new BetaStar® Combo. Neogen developed BetaStar Combo, which simultaneously detects beta-lactam and tetracycline antibiotic residues in milk, to comply with European Union regulations. Neogen Europe continued its trend of exceptional growth performance in the quarter as Neogen’s food safety products continue to gain market share throughout the E.U.

Sales of capital equipment and disposable vials associated with Neogen’s Soleris® general microbial detection system also exhibited strong growth in the quarter. The Soleris system allows for the accurate detection of spoilage organisms, such as yeast and mold, in much less time than traditional methods.

Third quarter sales of Neogen’s Lexington, Ky.-based Animal Safety Division increased to $14,115,000 in the current year. For the first nine months of FY 2010, the division’s sales increased 7% over the prior year to $45,791,000. The May 2009 acquisition of drug residue testing products from International Diagnostic Systems contributed to the division’s FY 2010 revenue increase.

While the Animal Safety Division’s customers continue to feel the effects of a depressed animal protein market, this division did experience strong increases in sales for a number of products. Sales of rodenticides into domestic markets increased 51% as Neogen continues to grow its market share, and new products gain market acceptance. Sales of vitamin injectables into the livestock market were up 45% over the prior year. Sales of Neogen’s OTC wound treatment products also increased substantially in the current quarter.

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 Feb. 28 Nine months ended Feb. 28
  2010 2009 2010 2009
 Food Safety $19,718 $14,173 $55,639 $45,101
 Animal Safety 14,114 13,667 45,791 42,370
Total revenue 33,832 27,840 101,430 87,831
Cost of sales 16,371 14,813 48,177 43,875
Gross margin 17,461 13,027 53,253 43,956
Operating expenses
 Sales & Marketing 6,795 5,422 19,172 17,053
 Administrative 3,391 2,769 9,473 8,382
 Research & Development 1,526 1,265 4,687 3,436
Total operating expenses 11,712 9,456 33,332 28,871
Operating income 5,749 3,571 19,921 15,085
Other income (expense) 32 602 66 1,407
Income before tax 5,781 4,173 19,987 16,132
Income tax 1,900 1,350 7,100 5,675
Net income $3,881 $2,823 $12,887 $10,457
Net income per diluted share $0.17 $0.12 $0.56 $0.46
Other information
 Shares to calculate per share 23,188 22,646 23,013 22,617
 Deprecation & amortization $1,119 $942 $3,147 $2,892
 Interest income 34 60 68 195
 Gross margin (% of sales) 51.6% 46.8% 52.5% 50.0%
 Operating income (% of sales) 17.0% 12.8% 19.6% 17.2%
 Revenue increase vs. FY 2009 21.5%   15.5%  
 Net income increase vs. FY 2009 37.5%   23.2%  
(In thousands)
  Feb. 28
May 31
Current Assets
 Cash & investments $31,107 $13,842
 Accounts receivable 23,850 23,363
 Inventory 31,667 31,363
 Other current assets 3,289 3,198
Total current assets 89,913 71,766
Property & equipment 16,948 17,058
Goodwill & other assets 58,439 53,352
Total assets $165,300 $142,176
Liabilities & Equity
Current liabilities $14,619 $9,246
Other long-term liabilities 4,339 4,251
Equity: Shares outstanding
 22,556 in Feb. & 22,105 in May 146,342 128,679
Total liabilities & equity $165,300 $142,176

(1) Reflects effect of Dec 15, 2009, 3-for-2 stock split

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