Neogen Profits Fall Despite Higher Sales
LANSING -- Neogen Corp. (Neogen: NEOG) said that its revenue for the second quarter of fiscal year 2012, which ended Nov. 30, increased 2.2 percent from the previous year's second quarter to $44.9 million. Net income for the quarter was $5.2 millon or 22 cents a share, down from the prior year's $6.1 million, or 26 cents a share.
Revenue for the first six months of fiscal year 2012 increased to $90.6 million from the prior year's $86.9 million, an increase of 4.3 percent. Net income for the same six-month period was $11.2 million or 47 cents a share, down from $11.9 million or 51 cents a share in the prior fiscal year.
"While I am pleased to report that we remain solidly profitable, I am not pleased to report that we did not meet the high expectations we expect from ourselves," said James Herbert, Neogen's chairman and CEO. "Going forward, our higher growth should return. Despite the results we are reporting today, the company made solid progress in several fundamental areas during the quarter that we expect to drive future growth."
The second quarter was the 75th consecutive profitable quarter from operations for the company, and the 79th quarter of the past 84 quarters when Neogen reported revenue increases as compared with the previous year.
"Although we made good progress in our efforts to expand our sales and marketing organizations to spur future growth, we fell short of our revenue and income goals for the quarter," said Lon Bohannon, Neogen's COO. "Significant future opportunities should be realized in the quarters ahead to return Neogen to the growth levels we have come to expect. From growing global markets to expanding worldwide regulations pertaining to food safety, the fundamentals for our business remain solid."
For the second quarter of its 2012 fiscal year, Neogen's percentage of revenues from international sources represented 42 percent of its total revenues, compared to 43 percent in last year's second quarter.
"Our balance sheet remains strong, giving us the ability to seize opportunities as the business climate improves and pursue a wide variety of growth strategies," said Steve Quinlan, Neogen's CFO.
Neogen's Animal Safety Division second quarter 2012 revenues increased to $22.8 million from $22.6 million in the same period last year. For the first six months, the Animal Safety Division's sales increased 4.6 percent to $45.3 million from a year earlier. Strong quarterly revenue growth in the division's animal care lines were offset by decreases in revenues from the company's rodenticide and disinfectant product lines as well as a decline in GeneSeek agricultural genetic test service business.
Strong divisional performers for the quarter included a double-digit increase in sales of veterinary biologics, including a proprietary equine botulism vaccine, and significant sales increases in companion animal products sold through key veterinary distribution channels. Neogen's forensic test kit revenues were up 12 percent in the second quarter compared with the prior year quarter and the launch of an improved substrate product led to an increase in sales of test reagents.
Neogen's Food Safety Division's second quarter revenues increased 3.3 percent to $22 million from $21.3 million a year earlier. Year to date the division's revenues rose 4 percent to $45.3 million from $43.6 million. Second quarter increases in sales of Soleris test systems used to detect spoilage organisms and Neogen's AccuPoint general sanitation test systems were partially offset by a decline in sales of dehydrated culture media. For both the quarter and year-to-date period, Neogen also achieved high double-digit increases in sales of both food and animal safety products from its Mexican and Brazilian subsidiaries.
Gross margins were 50.5 percent in the second quarter compared to 51.2 percent in the same period a year ago, and were 50.4 percent for the year-to-date, down from 52.1 percent for the same period a year ago. The change in gross margins for both periods was due to changes in product mix and increases in manufacturing expenses. Operating expenses increased by $1.7 million, or 12.9 percent, in the second quarter compared to a year earlier, due primarily to an increase of $1.1 million in sales and marketing expenses. Neogen previously announced an investment in sales and marketing personnel in order to increase future organic sales growth. On a year-to-date basis, operating expenses were 8.1 percent over the same period from last year, principally for the same reason.
Neogen's recently released fully quantitative testing methodology for natural toxins is beginning to build sales momentum. The first test launched in the line, Reveal Q+ for Aflatoxin, is a fully quantitative lateral flow screening test. Aflatoxin is a by-product of mold growth in a wide range of commodities, including corn, and is considered by many to be the most potent naturally occurring carcinogen. Because it is a known severe threat to human and animal health, more than 100 countries have established regulatory limits for aflatoxin in commodities intended as human food or animal feed. Follow-up tests in the new testing methodology for two other important natural toxins, deoxynivalenol and zearalenone, will be launched in Neogen's third quarter.
Neogen also recently launched an even faster method to rapidly and accurately detect yeast and mold in food products. Neogen's new Soleris test detects yeast and mold in 48 hours or less, while conventional methods take up to 5 days. Tests for yeast and mold comprise approximately 15 percent of all microbiological tests performed worldwide.
In the third quarter, Neogen also plans to debut the next generation of molecular diagnostics for foodborne pathogens. The innovative testing platform, to be marketed under the trade name ANSR, offers many advantages over existing rapid testing methodologies, including polymerase chain reaction, by utilizing a unique isothermal reaction test system that is fast, simple and inexpensive. The single-temperature reaction requires only 10 minutes after incubation to deliver DNA-RNA definitive results.
Neogen 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.
