Neogen Profits Fall On Integration Of Acquisitions; Revenue Rises
LANSING (WWJ) –– The Lansing animal and food safety testing product maker Neogen Corp. (Nasdaq: NEOG) Tuesday announced net income of $6.6 million for the third quarter of its fiscal year, which ended Feb. 28, down from $6.7 million in the same period a year earlier. Earnings per share was unchanged at 18 cents for both periods.
Revenue for the quarter was $62 million, up 21 percent from $51.1 million a year earlier.
For the nine months, net income was $20.621 million, or 56 cents a share, up from $20.158 million or 55 cents a share a year earlier. Revenue for the nine months was $180.1 million, up 19 percent from $151.5 million a year earlier.
Said Neogen chairman and CEO James Herbert: “Our third quarter acquisition of the Chem-Tech insecticide business, and other recent strategic moves, have increased the depth and breadth of Neogen’s food security product portfolio. This continued strong top line growth has penalized bottom line results, due in part to changing product mix and integration costs.”
Added Neogen president and COO Steve Snyder: “Similar to our second quarter, the current year’s third quarter faced an extremely tough comparison against the previous year quarter when our gross margins were driven sharply higher because of very profitable sales of mycotoxin test kits to defend against toxins in grain caused by weather conditions. However, our organic growth of food safety products was 11 percent, with attractive margins.”
Neogen’s gross margin was 49.5 percent of sales in its third quarter, compared to 53.5 percent of sales for FY 2013’s third quarter. This decrease was due almost entirely to the change in the company’s overall product mix. The company believes that the current product mix will remain fairly constant for the near term.
Sales and marketing expenses rose by 14 percent during the period due to increases in personnel costs, higher marketing and advertising activity, and shipping cost increases resulting from increased volume. General and administrative costs rose by 23 percent, with the largest components of the increase being personnel expenses, amortization of intangible assets related to business acquisitions, higher stock option expense and legal fees. Research and development rose by 6 percent for the quarter.
“As the company absorbs our recent acquisitions, we will continue to manage the product lines and related inventories, and expect to gain operating efficiencies as we more fully integrate the businesses,” said Neogen CFO Steve Quinlan. “Our cash flow generation has allowed us to continue to invest in the business, and also gives us flexibility as additional investment opportunities arise.”
Neogen’s quarterly revenue growth was aided in part by the acquisitions of SyrVet veterinary instruments in July 2013, Prima Tech veterinary instruments in November 2013, and Chem-Tech agricultural insecticides in January 2014. All contributed to the 32 percent revenue increase reported for Neogen’s Animal Safety segment for the current quarter.
The 11 percent quarter revenue growth in Neogen’s Food Safety segment was entirely organic, as increased sales of multiple product lines into several market segments more than offset lower sales of mycotoxin test kits compared to the prior year quarter. The lower sales of mycotoxin test kits were due to improved growing conditions in the United States that led to less testing for the toxins, not an erosion of market share.
As with recent quarters, Food Safety segment sales increases were led by increasing sales of instruments and disposables associated with Neogen’s Soleris test system used to detect spoilage organisms, and the company’s line of simple tests to detect food allergens. The tests, which include screening and quantitative tests for milk, peanuts, soy, and other major food allergens, have experienced sustained, significant growth over recent years as regulators in the U.S. and around the world have increasingly targeted food allergens for regulatory action.
Revenues from Neogen’s Scotland-based subsidiary increased 22 percent in the third quarter, with higher sales of food allergen test kits, lab services, and several other key product lines. For both the quarter and year-to-date period, Neogen also achieved double-digit increases in sales of food and animal safety products from its Mexican and Brazilian subsidiaries.
Neogen’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 develops 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 http://www.neogen.com.