Neogen reports third quarter revenue and net income increases

March 27, 2012

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

LANSING, Mich., March 27, 2012 – Neogen Corporation (Nasdaq: NEOG) announced today that its revenues for the third quarter of FY 2012, which ended Feb. 29, increased 6.3% to $44,912,000, from the previous year’s third quarter revenues of $42,235,000. The current year’s third quarter revenues are almost entirely comprised of products available in the prior year’s comparable quarter, and also represent record third quarter revenues for the 30-year-old company.

Third quarter net income increased 6.1% to $5,244,000, or $0.22 per share, compared to the prior year’s third quarter net income of $4,943,000, or $0.21 a share. Year to date, nine-month net income was $16,485,000, or $0.69 per share, in the current fiscal year, compared to $16,878,000, or $0.71 per share, in the prior year.

“We are pleased to report third quarter results that reflect higher growth across a number of our product lines and market segments,” said James Herbert, Neogen’s chief executive officer and chairman. “With our recent staffing increase throughout all levels of our organization, Neogen is now better positioned to help address both global food safety and food security needs wherever they may exist.”

The third quarter was the 76th consecutive profitable quarter from operations for the company, and the 80th quarter of the past 85 quarters to show increased revenues as compared with the previous year—including the last 28 consecutive quarters.

“Our third quarter results reflect progress in our efforts to get back to 10% organic quarterly growth,” said Lon Bohannon, Neogen’s president and chief operating officer. “In the quarter, we had strong sales for our new quantitative mycotoxin tests developed by our research and development group. We also sold more of our existing products to existing market segments, and achieved sales growth in new markets, partially as a result of our increased investment in sales and marketing.”

Neogen’s gross margin increased to 51.0% of sales in its third quarter of the current year, compared to 48.7% of sales for FY 2011’s third quarter. This increase largely was the result of favorable product mix across multiple market segments, and efficiencies gained through increased sales volume in its animal safety operations.

“As can be seen from our financial statements, Neogen has maintained a strong balance sheet, with sufficient cash and investments and borrowing capacity to pursue a full spectrum of growth strategies,” said Steve Quinlan, Neogen’s vice president and chief financial officer. “We will continue to look to take advantage of our liquidity through execution of synergistic acquisitions of businesses and technologies, while exercising our historical discipline in this area.”

Sales of Neogen’s extensive line of food allergen tests increased in the third quarter of FY 2012 when compared to the prior year’s third quarter, as food processors began implementing programs to comply with components of the United States’ Food Safety Modernization Act (FSMA) of 2011. For the first time, FSMA defines unlabeled food allergens as adulterants, along with bacterial pathogens and other substances known to cause human illness. FSMA requires food manufacturers to have programs in place to reduce the occurrence of accidental contamination of nonallergenic foods with known food allergens. These safety programs may require the use of testing products, such as Neogen’s rapid and accurate food allergen testing products.

Sales of Neogen’s natural toxin testing kits returned to double-digit growth in the third quarter when compared to the comparable quarter of FY 2011. The product line’s revenue increase was bolstered by the launch of Neogen’s innovative Reveal® Q+ test kits for aflatoxin, DON and zearalenone. The new tests are extremely easy test strips that return precise, fully quantitative results in only minutes. The USDA also recently verified the performance of Reveal Q+ for Aflatoxin, enabling the test to be used for official testing in the national grain inspection system.

The current year’s third quarter also saw a 30% increase in sales of veterinary products, compared to the prior year quarter, as strong promotional distributor programs positively impacted the sales across multiple product lines. Sales of the company’s detectable veterinary needles increased more than 20%, as meat processors have attempted to further protect consumers from the hazards of broken veterinary needles in meat at the retail level. Sales of veterinary biologics, including the only available vaccine to prevent equine type B botulism, increased more than 40% when compared to FY 2011’s third quarter.

Sales of Neogen’s animal care products also grew significantly in the quarter, up more than 40% when compared to the prior year’s third quarter. The products include veterinary supplements for dogs and cats, vitamin injectables for large animals, woundcare products, and equine supplements.

Although Neogen continues to experience revenue shortfalls in many countries of the European Union, sales to the United Kingdom and Germany showed strength in the third quarter. On a year-to-date basis, Neogen’s subsidiaries in Mexico and Brazil continued their forward sales momentum, albeit from a small base.

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. 28/29 Nine months ended Feb. 28/29
  2012 2011 2012 2011
 Food Safety $21,923 $20,634 $67,247 $64,226
 Animal Safety 22,989 21,601 68,254 64,862
Total revenue 44,912 42,235 135,501 129,088
Cost of sales 22,020 21,647 66,975 63,245
Gross margin 22,892 20,588 68,526 65,843
Operating expenses
 Sales & Marketing 8,929 7,044 25,662 22,060
 Administrative 4,660 3,677 12,846 11,253
 Research & Development 1,754 1,802 4,976 5,240
Total operating expenses 15,343 12,523 43,484 38,553
Operating income 7,549 8,065 25,042 27,290
Other income (expense) 595 -222 543 -712
Income before tax 8,144 7,843 25,585 26,578
Income tax 2,900 2,900 9,100 9,700
Net income $5,244 $4,943 $16,485 $16,878
Net income per diluted share $0.22 $0.21 $0.69 $0.71
Other information
 Shares to calculate per share 23,988 23,934 23,999 23,720
 Deprecation & amortization $1,578 $1,357 $4,489 $3,941
 Interest income 30 13 78 70
 Gross margin (% of sales) 51.0% 48.7% 50.6% 51.0%
 Operating income (% of sales) 16.8% 19.1% 18.5% 21.1%
 Revenue increase vs. FY 2011 6.3%   5.0%  
 Net income increase vs. FY 2011 6.1%   -2.3%  
(In thousands)
  Feb. 29 2012 (Unaudited) May 31 2011 (Audited)
Current Assets
 Cash & investments $61,335 $56,083
 Accounts receivable 34,332 28,634
 Inventory 36,313 31,994
 Other current assets 4,214 5,791
Total current assets 136,194 122,502
Property & equipment 29,502 22,340
Goodwill & other assets 74,651 74,820
Total assets $240,347 $219,662
Liabilities & Equity
Current liabilities $17,436 $17,797
Other long-term liabilities 12,927 12,887
Equity: Shares outstanding
 23,554 in Feb. & 23,291 in May 209,984 188,978
Total liabilities & equity $240,347 $219,662

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