LANSING — Neogen Corp. (Nasdaq: NEOG), the provider of food and animal safety and disease testing kits, Tuesday reported a 3.1 percent increase in net income on a 6.5 percent increase in revenue for the first quarter of its fiscal year, which ended Aug. 31.

Net income was $6 million or 25 cents a share, up from the prior year’s $5.8 million, which last year was also 25 cents a share.

Revenue was $45.7 million, up from $42.9 million a year earlier. The current year’s revenue increase is almost entirely comprised of products available in the prior year’s first quarter.

The first quarter revenues and net income represent quarterly records for the 29-year-old company.

“In the first quarter we continued our remarkable quarter-to-quarter success in consistent growth in sales and profits, while at the same time implementing our plan to ensure long-term growth,” said James Herbert, Neogen chairman and CEO. “I’m very proud of our management team and employee group, who have kept our strong quarter-to-quarter growth going for more than 20 years.”

The quarter marked the 74th consecutive profitable quarter from operations for the company, and was the 78th of the past 83 quarters when Neogen reported revenue increases as compared with the previous year — including the last 26 consecutive quarters.

“Last year at this time we reported a first quarter revenue increase of 33 percent that was bolstered by a significant spike in sales of two test kits primarily resulting from unusual weather conditions,” said Lon Bohannon, Neogen’s president and COO. “During the first quarter we were also able to move forward with some infrastructure improvements intended to accelerate future growth, including completing the purchase of a facility in Lexington, Ky., which will greatly expand our Animal Safety operational capabilities, and consolidating our recently acquired VeroMara seafood testing operations in Oban, Scotland, into our expanded Neogen Europe facilities in Ayr, Scotland.”

Neogen’s gross margin was 50.3 percent of sales in its first quarter of the current year, down from 53.0 percent of sales in the prior fiscal year’s first quarter. This decline was largely the result of a shift in product mix towards products in the Animal Safety segment, which have lower margins. Neogen again reported operating income, expressed as a percentage of sales, in excess of 20 percent for the quarter.

Neogen CFO Steve Quinlan said the company generated positive cash flow from operations during the quarter, although its cash and investments position declined by $4.7 million due to the decision to acquire facilities in Lexington, Ky. and the VeroMara business.

“For our operating expenses, sales and marketing increased overall and as a percentage of sales as a part of a planned investment in our sales and marketing infrastructure to better serve our growing domestic and international markets, while general and administrative and research and development expenses decreased as a percentage of sales,” Quinlan said. “The R&D drop was solely due to a decline in contracted outside R&D services in the current year quarter. We remain committed to supporting a strong internal R&D program, and view this decline as a timing issue. With our continuing strong cash position, no long-term debt, and full access to a significant bank line of credit, we remain poised to pursue growth strategies.”

Neogen’s Animal Safety Division led the company’s first quarter revenue increase, with sales up 8.4 percent from the prior year to $22.4 million. The quarter saw significant, broad-based increases in sales of the company’s agricultural cleaners and disinfectants, especially internationally.

Neogen markets its own BioSentry branded cleaners and disinfectants worldwide, as well as related DuPont products in most of the Western Hemisphere. The cleaner and disinfectant market benefitted significantly from Neogen’s expanding sales and marketing effort, as the company used additional personnel to strengthen relationships with its distributor partners, and help expand the use of Neogen’s products into new markets, such as the greenhouse and aquaculture industries.

Sales of Neogen’s animal care products increased 24 percent in the current quarter. Veterinary instruments were up 26 percent over the prior year’s comparable first quarter, bolstered by new product placements associated with an expanded program with large farm and ranch retailer Tractor Supply Co., and a significant increase in sales of the company’s detectable veterinary needles.

Faced with a difficult quarterly comparison, Neogen’s Food Safety Division first quarter revenues increased 4.6 percent to $23.3 million. The division was able to offset the loss of exceptionally high diagnostic sales from the prior year’s first quarter with significant increases in the sales of other products, including its Soleris general microbial detection system, and the expanded line of BetaStar dairy antibiotic test kits. Neogen recently introduced a new version of its simple dairy antibiotic test, BetaStar High Sensitivity, which was developed specifically to meet the more stringent regulations that exist in certain Eastern European countries, and help to prevent antibiotic residues from entering the food chain.

The company also developed a new Soleris test for the presence of heterotrophic bacteria, such as Pseudomonas, which is a critical factor in the shelf life of fluid dairy products, bottled water, and many other food and personal care products. The Soleris system allows for the accurate detection of spoilage organisms, such as yeast and mold, in a fraction of the time of traditional microbial detection methods.

In the current first quarter, Neogen also recorded significant sales of its Soleris product line into China. The company’s Mexican subsidiary recorded a 57 percent sales increase compared to the prior year with its sales of Neogen’s food and animal safety products, and the company continues to see significant revenue growth from its new subsidiary in Brazil. For the first quarter of its 2012 fiscal year, Neogen’s percentage of revenues from international sources represented 41.4 percent of its total revenues.

Neogen Corporation develops and markets products dedicated to food and animal safety. The company’s Food Safety Division markets diagnostic test kits to detect foodborne bacteria, natural toxins, genetic modifications, food allergens, drug residues, plant diseases, and sanitation concerns, and dehydrated culture media. Neogen’s Animal Safety Division markets a complete line of diagnostics, veterinary instruments, veterinary pharmaceuticals, nutritional supplements, disinfectants, and rodenticides.


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