Neogen Profits Flat Despite Higher Sales

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LANSING — The Lansing biotech firm Neogen Corp. (Nasdaq: NEOG) Tuesday announced fiscal fourth quarter revenue of $48.5 million, up 11 percent from $43.6 million a year earlier. The company’s fiscal year ended May 31.

Net income was $6 million or 25 cents a share, unchanged from a year earlier.

Revenue for the fiscal year rose 7 percent to $184 million from $172.7 million a year earlier. Net income was $22.5 million or 94 cents a share, down from $22.8 million or 96 cents a share a year earlier.

“Last year at this time it was becoming apparent that our existing infrastructure would not sustain the levels of growth that we had reported in recent fiscal years,” said James Herbert, Neogen chairman and CEO. “The results we are reporting today reflect an emphasis in our 2012 fiscal year to create an operational infrastructure that would allow for sustainable growth going forward at the levels we expect. As our improving third and fourth quarter revenue performances show, we are now better positioned to seize opportunities throughout our global food and animal safety markets.”

The fourth quarter was the 77th consecutive profitable quarter from operations for the company, and the 81st quarter of the past 86 quarters to show increased revenues as compared with the previous year — including the last 29 quarters.

“I am pleased to report that we were able to achieve a key objective of ours in the fourth quarter — organic quarterly growth in excess of 10 percent,” said Lon Bohannon, Neogen’s president and COO. “This achievement is an indication that we are beginning to see a return on the investment we made in adding sales and marketing personnel earlier in the year. We’re also pleased to report that the fourth quarter revenue increase was the result of broad-based sales growth in market segments throughout our food and animal safety groups. A number of recent product introductions and regulatory approvals bode well for us as we move forward in our new fiscal year.”

For the year, gross margins of 50.2 percent compare to 50.8 percent in FY 2011, adversely impacted by product mix within Animal Safety. Operating expenses increased by 12.9 percent, due to the infrastructure investment in personnel and programs, amortization of intangibles from previous acquisitions, and legal expense related to the protection of the company’s intellectual property.

“We were adversely impacted by currency fluctuations in the quarter, as the financial turmoil in the European Union caused investors to seek the safety of the U.S. dollar, driving down the value of currencies we deal in such as the Euro, the British pound, the Brazilian real, and the Mexican peso,” said Steve Quinlan, Neogen’s vice president and CFO. “This resulted in a $413,000 currency loss for the fourth quarter, and $531,000 for the full year related to the translation of receivables and payables denominated in foreign currencies, net of the effects of foreign currency economic hedges.”

The May acquisition of the Igenity animal genomics business from Merial Ltd. helped bolster GeneSeek’s strong growth resurgence in the fourth quarter. Igenity’s extensive bioinformatics portfolio is used to identify positive or negative traits that allow beef cattle producers to make the best breeding herd selections. The Igenity program has commercialized the bioinformatics to detect a number of cattle diseases that have been found to be genetically transmitted. Results from these tests allow cattle producers to make certain genetic carriers are not used in ongoing breeding programs. The merging of Igenity’s and GeneSeek’s capabilities is helping Neogen maintain its leadership position in the commercialization of animal genomics.

Sales of Neogen’s leading line of veterinary animal care products experienced strong growth, increasing 27 percent for the year, and were led by large increases in sales of small animal supplements and large animal vitamin injectables. Sales of veterinary biologics, including the only available vaccine to prevent equine type B botulism, increased more than 16 percent when compared to FY 2011. Neogen’s agricultural cleaners and disinfectants also experienced significant sales increases when compared to the previous fiscal year, evidence that the company’s efforts to market its products as synergistic biosecurity solutions continue to gain traction.

Neogen’s Scotland-based Neogen Europe subsidiary recorded a revenue increase of 11 percent despite the poor economic environment in a number of European Union countries it serves. Particular strength was noted in the United Kingdom, Germany and France. The company’s Mexican subsidiary recorded a 20 percent sales increase compared to the prior year, while sales at Neogen’s subsidiary in Brazil more than doubled. Overall, 42 percent of Neogen’s total revenues were from its international markets.

Sales of capital equipment and disposable vials associated with Neogen’s Soleris  general microbial detection system exhibited strong growth for the year, up 16 percent compared to the previous fiscal year. The Soleris system allows for the accurate detection of spoilage organisms, such as yeast and mold, in much less time than traditional methods.

Neogen’s well-received new ANSR for Salmonella recently earned approval from the influential independent AOAC Research Institute, which confirms the innovative test’s ability to accurately detect Salmonella DNA in food and environmental samples. ANSR for Salmonella returns DNA-definitive results in only 10 minutes post-enrichment — competitive systems can take more than 3 hours to return the same results. Additional ANSR tests for Listeria spp., Listeria monocytogenes and non-O157 shiga-toxin producing E. coli are in development.

The ANSR test system is in Neogen’s comprehensive line of food safety tests food processors can use to assist in complying with the wide-ranging United States’ Food Safety Modernization Act (FSMA) of 2011, and other similar global food safety and security initiatives. Sales of Neogen’s food allergen test kits increased significantly in FY 2012 compared to the previous year as FSMA has defined unlabeled food allergens as adulterants, along with bacterial pathogens (e.g., STECs) and other substances known to cause human illness. Compliance with these new regulations often require the use of testing products, such as Neogen’s rapid and accurate food safety testing products to detect the presence or absence of these adulterants and other contaminants.

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, 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.

More at www.neogen.com

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