Neogen reports 29% revenue increase

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

LANSING, Mich., March 25, 2004 – Neogen Corporation (Nasdaq: NEOG) today announced that its third quarter revenues increased 29% to $14,717,000 from $11,403,000 in the prior year. For the first nine months of Neogen’s 2004 fiscal year, revenues have increased 14% to $40,196,000 from $35,158,000 in FY 2003.

Net income for the third quarter increased to $1,183,000 from $1,030,000 in the prior year’s comparable quarter. Adjusted for the December 5-for-4 stock split, net income per share was $0.14 in the third quarter compared to $0.13 for the same period of the prior year. Year to date, net income increased 15% to $4,028,000, or to $0.48 from $0.44 on a post-split, per-share basis.

The quarter is the 44th consecutive profitable quarter from operations for the Company, and the 49th quarter of the past 53 quarters to show increased revenues.

“Our solid third quarter results are further evidence of the operational strength throughout Neogen,” said James Herbert, Neogen’s president. “The quarter was a combination of growth in a number of our core products, and a great start for our recently acquired companies. We’re pleased with the performance of both Hacco and Hess & Clark in Neogen’s first full quarter of ownership.”

Neogen’s Animal Safety Division led the Company’s third quarter revenue increase, with revenues up 61% from $4,957,000 in FY 2003 to $7,976,000 in FY 2004. While the addition of Hacco’s rodenticides and Hess & Clark’s disinfectants accounted for the majority of the Animal Safety Division’s revenue gain, established products showed revenue increases of 12% in the third quarter. Sales of Neogen’s vaccine for equine botulism and AmVet veterinary pharmaceuticals experienced strong increases as they continued to gain market acceptance. Neogen’s veterinary instrument sales have been bolstered by continuing improvement in sales to veterinary retailers, including Tractor Supply Company, Orscheln’s, and Petsmart.

In the quarter, Neogen’s Food Safety Division again beat last year’s strong sales performance. The division recorded a 5% increase in the third quarter as compared to FY 2003, when the division recorded an overall 30% increase. Food Safety Division revenue increases were led by sales of test kits to detect genetically-modified organisms, food allergens, and Listeria. In the third quarter, Neogen shipped a substantial order of test kits to Brazil to detect soybeans that have been genetically modified to make them tolerant to Roundup® herbicides. Brazil is a leading exporter of soybeans to the European market, which demands assurances that the commodity is GMO-free.

“We are pleased to report that we were able to better last year’s outstanding revenue performance in the third quarter, and we believe we can achieve greater sales growth in future quarters,” said Lon Bohannon, Neogen’s chief operating officer. “Sales increases in certain Food Safety products, such as food allergen and GMO test kits, were up significantly during the quarter, and we are excited about additional growth opportunities for our Food Safety Division.”

Neogen’s tests to detect food allergens continued their market growth, with sales increasing 33% for the first nine months of the fiscal year. Proposed food allergen labeling legislation being considered by Congress points to increased regulatory activity on food allergens.

In March, Neogen’s board and management took action to consolidate the Company’s Chicago Ideal Instruments operations into existing operations in Lansing, Mich., and Lexington, Ky. The consolidation is expected to be completed prior to Neogen’s year end on May 31. Ideal’s inventories of finished goods, packaging, shipping, and customer service will be relocated to Neogen’s Lexington operations. Ideal’s engineering, manufacturing, and quality control operations will be transferred to the Company’s Lansing facilities.

“Obviously, consolidating operations is an extremely difficult decision,” said Richard Current, Neogen’s chief financial officer. “But, the move will greatly improve logistics, reduce costs, and provide us with an even firmer financial footing as we move forward. The states of Michigan and Kentucky have been very helpful in providing economic incentives to assist us streamline our current operations and accommodate future growth.”

Neogen is expected to incur a onetime charge to operations of $0.03 to $0.05 per share in the fourth quarter related to the consolidation of Ideal operations. Going forward, the Company expects to realize savings of $0.04 to $0.06 per share per year as a result of the consolidation.

In December, Neogen announced that its Board of Directors approved a 5-for-4 stock split. With the split, shareholders of record on Dec. 22, 2003, received one additional share of stock for each four shares held. The stock split was effected in the form of a stock dividend that was paid in newly issued common stock on Dec. 31, 2003. As of Dec. 15, 2003, Neogen had 6,400,000 shares of common stock outstanding. After the stock split, the Company had 8,000,000 shares of common stock outstanding.

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.

NEOGEN CORPORATION UNAUDITED SUMMARIZED CONSOLIDATED OPERATING DATA
(In thousands, except for per share and percentages)
  Quarter ended Feb.29 Nine months ended Feb. 29
  2004 2003 2004 2003
Revenue (1)
 Food Safety $6,741 $6,446 $20,769 $19,608
 Animal Safety 7,976 4,957 19,427 15,550
Total revenue 14,717 11,403 40,196 35,158
Cost of sales 7,791 5,361 20,007 16,006
Gross margin 6,926 6,042 20,189 19,152
Operating expenses
 Sales & Marketing 3,001 2,957 8,727 8,903
 Administrative 1,368 1,049 2,120 3,141
 Research & Development 792 621 2,120 2,118
Total operating expenses 5,161 4,627 14,270 14,162
Operating income 1,765 1,415 6,068 5,354
Other income (expense) (23) 115 149 364
Income before tax 1,742 1,530 6,068 5,354
Income tax 559 500 2,040 1,848
Net income $1,183 $1,030 $4,028 $3,506
Net income per diluted share $0.14 $0.13 $0.48 $0.44
Other information
 Shares to calculate per share 8,512 7,983 8,345 7,960
 Deprecation & amortization $308 $320 $926 $945
 Interest income 32      
 Gross margin (% of sales) 47.1% 53.0% 50.2% 54.5%
 Operating income (% of sales) 12.0% 12.4% 14.7% 14.2%
 Revenue increase vs. FY 2003 29.1%   14.3%  
 Net income increase vs. FY 2003 14.39%   14.9%  
NEOGEN CORPORATION SUMMARIZED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
  Feb. 29
2004
May 31
2003
Assets
Current Assets
 Cash & investments $1,597 $8,897
 Accounts receivable 9,533 7,499
 Inventory 12,445 9,840
 Other current assets 2,069 1,735
Total current assets 25,644 27,971
Property & equipment 10,375 4,640
Goodwill & other assets 22,308 15,425
Total assets $58,327 $48,036
 
Liabilities & Equity
Current liabilities $6,333 $5,763
Long-term line of credit 4,600  
Other long-term liabilities 859 871
Stockholders' equity
shares outstanding 8,008 in Feb. & 7,750 in May (2)
46,535 41,402
Total liabilities & equity $58,327 $48,036

(1) 2003 revenues have been revised from amounts previously reported to conform with 2003 classifications that include shipping charges to customers as revenues.

(2) Reflects effect of Dec. 31, 2003, 5-for-4 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.