Neogen reports third quarter results

March 25, 2014

Press Release
CONTACT: Steve Quinlan, Vice President & CFO, 517.372.9200

LANSING, Mich., March 25, 2014 — Neogen Corporation (NASDAQ: NEOG) announced today that its revenues for the third quarter of FY 2014, which ended Feb. 28, increased 21% to $61,996,000, from the previous year's third quarter revenues of $51,055,000. Year to date, FY 2014 revenues increased 19% to $180,143,000 from FY 2013's $151,522,000.

Third quarter net income was $6,575,000, compared to the prior year's $6,652,000. Adjusted for a 3-for-2 stock split effective Oct. 31, 2013, earnings per share in the current quarter were $0.18, compared to $0.18 a year ago. Current year-to-date net income was $20,621,000, or $0.56 per share, compared to $20,158,000, or $0.55 per share, for the same period a year ago.

The third quarter was the 88th of the past 93 quarters that Neogen reported revenue increases as compared with the previous year — including all consecutive quarters in the last eight years.

"We are pleased to report our solid third quarter revenue results," said James Herbert, Neogen's chief executive officer and chairman. "Our third quarter acquisition of the Chem-Tech insecticide business, and other recent strategic moves, have increased the depth and breadth of Neogen's food security product portfolio. This continued strong top line growth has penalized bottom line results, due in part to changing product mix and integration costs."

"Similar to our second quarter, the current year's third quarter faced an extremely tough comparison against the previous year quarter when our gross margins were driven sharply higher because of very profitable sales of mycotoxin test kits to defend against toxins in grain caused by weather conditions," said Steve Snyder, Neogen's president and chief operating officer. "However, our organic growth of food safety products was 11%, with attractive margins."

Neogen's gross margin was 49.5% of sales in its third quarter, compared to 53.5% of sales for FY 2013's third quarter. This decrease was due almost entirely to the change in the company's overall product mix. The company believes that the current product mix will remain fairly constant for the near term.

Sales and marketing expenses rose by 14% during the period due to increases in personnel related costs, higher marketing and advertising activity, and shipping cost increases resulting from increased volume. General and administrative costs rose by 23%, with the largest components of the increase being personnel related expenses, amortization of intangible assets related to business acquisitions, higher stock option expense and legal fees. Research and development rose by 6% for the quarter. Operating income rose to $10.3 million, an increase of 6% compared to the same period a year ago.

"As the company absorbs our recent acquisitions, we will continue to manage the product lines and related inventories, and expect to gain operating efficiencies as we more fully integrate the businesses," said Steve Quinlan, Neogen's chief financial officer. "Our cash flow generation has allowed us to continue to invest in the business, and also gives us flexibility as additional investment opportunities arise."

Neogen's overall revenue growth of 21% for the current comparative quarter was aided in part by the acquisitions of SyrVet® veterinary instruments in July 2013, Prima Tech® veterinary instruments in November 2013, and Chem-Tech agricultural insecticides in January 2014. All contributed to the 32% revenue increase reported for Neogen's Animal Safety segment for the current quarter.

The 11% quarter revenue growth in Neogen's Food Safety segment was entirely organic, as increased sales of multiple product lines into several market segments more than offset lower sales of mycotoxin test kits compared to the prior year quarter. The lower sales of mycotoxin test kits were due to improved growing conditions in the United States that led to less testing for the toxins, not an erosion of market share.

As with recent quarters, Food Safety segment sales increases were led by increasing sales of instruments and disposables associated with Neogen's Soleris® test system used to detect spoilage organisms, and the company's unmatched line of simple tests to detect food allergens. The tests, which include screening and quantitative tests for milk, peanuts, soy, and other major food allergens, have experienced sustained, significant growth over recent years as regulators in the U.S. and around the world have increasingly targeted food allergens for regulatory action.

Revenues from Neogen's Scotland-based subsidiary increased 22% in the third quarter, with higher sales of food allergen test kits, lab services, and several other key product lines. For both the quarter and year-to-date period, Neogen also achieved double-digit increases in sales of food and animal safety products from its Mexican and Brazilian subsidiaries.

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, food allergens, drug residues, plant diseases and sanitation concerns. Neogen's Animal Safety Division is a leader in the development of animal genomics along with the manufacturing and distribution of a variety of animal healthcare products, including diagnostics, pharmaceuticals, veterinary instruments, wound care and disinfectants.

(In thousands, except for per share and percentages)
  Quarter ended Feb. 28 Nine months ended Feb. 28
  2014 2013 2014 2013
 Food Safety $28,020 $25,311 $86,417 $77,537
 Animal Safety 33,976 25,744 93,726 73,985
Total revenue 61,996 51,055 180,143 151,522
Cost of sales 31,291 23,742 89,583 70,409
Gross margin 30,705 27,313 90,560 81,113
Operating expenses
 Sales & Marketing 11,986 10,533 33,529 30,232
 Administrative 6,320 5,132 18,135 14,510
 Research & Development 2,106 1,982 6,496 5,901
Total operating expenses 20,412 17,647 58,160 50,643
Operating income 10,293 9,666 32,400 30,470
Other income (expense) -40 394 -522 544
Income before tax 10,253 10,060 31,878 31,014
Income tax 3,700 3,450 11,400 10,950
Net income $6,553 $6,610 $20,478 $20,064
Net loss (income) attributable
to non-controlling interest
22 42 143 94
Net income attributable to Neogen Corp $6,575 $6,652 $20,621 $20,158
Net income attributable to Neogen Corp
per diluted share (1)
$0.18 $0.18 $0.56 $0.55
Other information
 Shares to calculate per share(1) 37,233 36,603 37,149 36,455
 Deprecation & amortization $2,427 $1,869 $6,641 $5,274
 Interest income 28 33 88 114
 Gross margin (% of sales) 49.5% 53.5% 50.3% 53.5%
 Operating income (% of sales) 16.6% 18.9% 18.0% 20.1%
 Revenue increase vs. FY 2013 21.4%   18.9%  
 Net income increase vs. FY 2013 -1.2%   2.3%  
(In thousands)
  Feb. 28 2014 May 31 2011
Assets (Unaudited) (Audited)
Current Assets
 Cash & investments $68,810 $85,369
 Accounts receivable 48,068 38,737
 Inventory 51,861 38,315
 Other current assets 7,230 6,026
Total current assets 175,969 168,447
Property & equipment 39,838 34,345
Goodwill & other assets 114,543 87,766
Total assets $330,350 $290,558
Liabilities & Equity
Current liabilities $24,534 $17,719
Other long-term liabilities 14,692 14,552
Equity: Shares outstanding
 6,644 in Feb. & 36,084 in May (1) 291,124 258,287
Total liabilities & equity $330,350 $290,558

(1) Reflects effect of Oct. 31, 2013, 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