Neogen Meets Q3 Earnings Ests, Beats Rev - Analyst Blog

Neogen Corp. NEOG reported flat year over year adjusted earnings per share of 18 cents for the third quarter of fiscal 2014 compared with the year-ago level as well as the Zacks Consensus Estimate. However, net earnings declined 1.2% to $6.6 million from $6.7 million reported a year ago. As a result, following the earnings release, shares of Neogen fell 0.1% till the last reported session.

Revenue Details

Revenues in the third quarter reported a rise of 21.4% to $62 million, edging past the Zacks Consensus Estimate of $60 million. On a year-to-date basis, revenues grew 18.9% to $180.1 million.

Segment Details

Neogen's Food Safety business recorded organic revenue growth of 10.7% year over year to $28.0 million. Revenues were driven by Neogen's AccuPoint 2 ATP detection system and increased sales of instruments and disposables associated with Neogen's Soleris test system. The increase was partially offset by lower sales of mycotoxin test kits. The Food Safety division represented 45.2% of total revenues in the quarter.

The Animal Safety segment revenues increased 32% to $34.0 million in the reported quarter. The increase is attributed to the successful integration of recent acquisitions by Neogen– Chem-Tech agricultural insecticides in Jan 2014, Prima Tech veterinary instruments in Nov 2013 and SyrVet veterinary instruments in Jul 2013. A strong year for cattle ranchers also drove sales of many animal safety products, including Neogen's proprietary detectable veterinary needles.

Revenues from Neogen's Scotland-based subsidiary increased 18.3% in the third quarter, with higher sales of food allergen test kits, lab services, and several other key product lines.

Expenses and Margins

Neogen's gross profit grew 12.4% to $30.7 million in the reported quarter. However, gross margin decreased 400 basis points (bps) to 49.5% in the third quarter of fiscal 2014 from 53.5% in the comparable year-ago period. The decrease was mainly due to the change in the company's overall product mix.

Sales and marketing expenses increased 13.8% to $12.0 million due to increases in personnel related costs, higher marketing and advertising activity, and increase in shipping costs as a result of higher volumes.

General and administrative expenses increased 23.1% to $6.3 million, primarily due to amortization expenses related to the recent acquisitions, higher stock option expense and legal fees.

Research and development expenses grew 6.3% to $2.1 million. Despite an increase in operational expenses, operating earnings rose 6.5% to $10.3 million but operating margin decreased 230 bps to 16.6% from the year-ago level of 18.9%.

Financial Update

Neogen's cash and cash investments as of Feb 28, 2014 was $68.8 million, lower than $85.4 million as of May 31, 2013. The company had no long-term debt at the end of the quarter.

Zacks Rank

Currently, Neogen carries a Zacks Rack #3 (Hold). Some better-ranked stocks in the medical products industry worth reckoning are Enzymotec Ltd. ENZY, St. Jude Medical Inc. STJ and Meridian Bioscience, Inc. VIVO. While Enzymotec sports a Zacks Rank #1 (Strong Buy), both St. Jude Medical and Meridian Bioscience carry a Zacks Rank #2 (Buy).