Neogen reports 44% increase in net income, 20% increase in revenues

March 27, 2007

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

LANSING, Mich., March 27, 2007 – Neogen Corporation (NASDAQ: NEOG) announced today that its net income for the third quarter of FY 2007, which ended Feb. 28, increased 44% from the previous year’s restated third quarter. Net income in the quarter rose to $1,990,000, or $0.21 per share, compared to the prior year’s $1,386,000 ($0.16 per share). Year-to-date net income for the first nine months of Neogen’s 2007 fiscal year increased 29% to $6,822,000 from the restated $5,309,000 in FY 2006, or to $0.73 per share in the current year from the prior year’s $0.63.

Third quarter revenues increased 20% to $21,054,000, a record third quarter for the 24-year-old company, compared to the prior year’s $17,584,000. Year to date, nine-month revenues rose 21% in the current fiscal year to $63,463,000 from FY 2006’s $52,618,000.

The third quarter was the 56th consecutive profitable quarter from operations for the company, and the 60th quarter of the past 65 quarters to show increased revenues as compared with the previous year.

“The strong focus on our growth strategy by our world-wide employee team is continuing the unprecedented growth record that now extends to more than 16 years,” said James Herbert, Neogen’s chief executive officer and chairman. “The growing synergy between our food and animal safety divisions, the organic growth of our existing products, and the continued successful integration of acquired businesses have all been keys to meeting our performance expectations.”

Neogen’s ongoing efforts to control costs and improve productivity were evident in the third quarter’s net income increase, as well as other key indicators. Gross margin as a percentage of sales increased to 52.0% of sales in the current quarter from 48.5% in the previous year’s comparable quarter. In the first nine months of Neogen’s 2007 fiscal year, Neogen’s operating income improved 29% to $10,296,000.

“From an operating performance standpoint, the third quarter was our best quarter so far this fiscal year,” said Lon Bohannon, Neogen’s president and chief operating officer. “Organic sales for the corporation exceeded 10% for the first time this year, and gross margins were up significantly from the prior year. In addition, our focus on growing sales in international markets is yielding positive results as evidenced by international revenues representing 41% of total sales in the third quarter.”

Neogen’s Food Safety Division led the company’s third quarter revenue increase, with sales up 30% from $8,862,000 in FY 2006 to $11,517,000 in FY 2007. Year-to-date, the Food Safety Division’s revenues were up 42% to $34,599,000 for FY 2007. While the December 2005 addition of UCB’s dairy antibiotic testing products and the Feb. 21, 2006 addition of Centrus International’s optical microbial detection system contributed to the division’s revenue gain, sales of established food safety products increased 13.5% for the quarter.

Neogen’s Scotland-based Neogen Europe operations achieved exceptional growth with an increase of 30% in FY 2007’s third quarter over the prior year’s comparable quarter. Neogen Europe’s sales represent a combination of sales of Neogen food safety products produced in the U.S. for the European market, and diagnostics manufactured in Scotland for worldwide distribution.

The Food Safety Division’s performance in the third quarter was also paced by a 31% increase in sales of Acumedi® dehydrated culture media to the food industry to detect safety and quality concerns. Neogen’s proprietary AccuPoint® sanitation monitoring system products continued their growing market acceptance, with sales increasing approximately 38% in the third quarter compared to FY 2006. In their first year as Neogen products, the company’s line of dairy antibiotic detection products and Soleris™ optical microbial detection system have also seen growing market acceptance.

Neogen’s Animal Safety Division’s third quarter revenues increased 9% to $9,537,000. The increase also represented a significant improvement over the first two quarters of FY 2007. The division’s sales growth was paced by a 29% increase in sales of veterinary instruments. Sales of wound, leg and foot care products improved 19%, and sales of animal supplements improved 40% in the third quarter.

The third quarter and year-to-date 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 non-cash compensation expense. The company adopted 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 $309,000 and $931,000 for the FY 2006 third quarter and nine-month periods, respectively. Net income was reduced $246,000 and $676,000 for the same quarter and nine-month 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 Nov. 30 Nine months ended Nov. 30
  2007 2006 
Restated (1)
2007 2006 
Restated (1)
 Food Safety $11,517 $8,862 $34,599 $24,357
 Animal Safety 9,537 8,722 28,864 28,261
Total revenue 21,054 17,584 63,463 52,618
Cost of sales 10,104 9,062 30,484 24,765
Gross margin 10,950 8,522 32,979 26,853
Operating expenses
 Sales & Marketing 4,612 3,753 13,517 11,369
 Administrative 2,379 1,854 6,516 5,166
 Research & Development 937 766 2,650 2,339
Total operating expenses 7,928 6,373 22,683 18,874
Operating income 3,022 2,149 10,296 7,979
Other income (expense) 68 (54) 127 179
Income before tax 3,090 2,095 10,423 8,158
Income tax 1,100 709 3,601 2,849
Net income $1,990 $1,386 $6,822 $5,309
Net income per diluted share $0.21 $0.16 $0.73 $0.63
Other information
 Shares to calculate per share 9,478 8,545 9,397 8,427
 Deprecation & amortization $488 $527 $2,046 $1,480
 Interest income 4 115 15 15
 Gross margin (% of sales) 52.0% 48.5% 52.0% 51.0%
 Operating income (% of sales) 14.4% 12.2% 16.2% 15.25%
 Revenue increase vs. FY 2006 19.7%   20.6%  
 Net income increase vs. FY 2006 43.6%   28.5%  
(In thousands)
  Feb. 28 
May 31 
Restated (1)
Current Assets
 Cash & investments $7,924 $1,959
 Accounts receivable 15,323 13,116
 Inventory 18,444 17,626
 Other current assets 5,241 3,565
Total current assets 46,932 36,269
Property & equipment 15,590 14,255
Goodwill & other assets 37,469 37,766
Total assets $99,991 $88,290
Liabilities & Equity
Current liabilities $8,932 $10,017
Long term debt 0 9,955
Other long-term liabilities 3,020 2,894
Equity: Shares outstanding
 9,245 in Feb. & 8,311 in May 88,039 65,424
Total liabilities & equity $99,991 $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