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Neogen Meets Earnings Ests, Shares Up 2%

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Food and animal safety products company Neogen Corp.’s (NEOG - Free Report) share price increased 2.1% to $60.97 on Sep 24, after reporting promising first-quarter fiscal 2014 results.

Neogen’s earnings rose 14.3% year over year to 32 cents per share from 28 cents in the year-ago quarter. Earnings were in line with the Zacks Consensus Estimate. Net income increased 16.8% to $7.8 million, a quarterly record for the company.

Revenues grew 17.7% to a record $58.5 million, beating the Zacks Consensus Estimate of $56 million. Recent accretive acquisitions and strategic international expansions led to strong revenue growth in the reported quarter.

NEOG’s gross margin decreased 140 basis points (bps) to 51.9% in the first quarter of fiscal 2014 from 53.3% in the comparable year-ago period, mainly due to a product mix shift toward lower margin products and services. Sales and marketing along with administrative expenses increased 11.4% to $15.7 million.

Research and development (R&D) expenses also grew 8.3% to $2.1 million. However, operating margin increased 40 bps to 21.2% from the year-ago level of 20.8%.

Quarter in Details

Neogen reports in two segments – Food Safety and Animal Safety. Revenues from the Food Safety Division, representing 51.3% of total revenues, climbed 14.5% to $30.0 million in the quarter. Growth was led by solid revenue gains of 54% in Neogen's Scotland-based Neogen Europe subsidiary on the back of higher sales of test kits for mycotoxins, food allergens and meat speciation. Strong sales of animal genomic testing services also contributed to the growth.

Both Neogen do Brazil and Neogen Latino America had strong quarters, with revenues increasing 54% and 34%, respectively. Overall, Neogen’s revenues from international markets constituted 42.3% of total revenues in the first quarter of fiscal 2014.

Revenues from NEOG’s line of test kits for food allergens and meat speciation continue to grow at a healthy pace on the back of strong demand in the underlying market, increasing 30% in the reported quarter. Revenues from natural toxin diagnostics grew 12%, based on higher demand for Neogen’s quick Reveal Q+ quantitative tests for mycotoxins, including aflatoxin and deoxynivalenol (DON).

The Animal Safety division revenues increased 21.7% to $28.6 million in the reported quarter, driven by the newly acquired SyrVet veterinary instruments and supplies business, as well as the earlier acquisition of Uniprim veterinary antibiotic. On an organic basis, the segment grew 10%.

Revenues from animal care products, and durable and disposable veterinary instruments jumped 33% and 35% year over year, respectively. Neogen’s GeneSeek subsidiary soared 28% in the quarter, led by successful market adoption of a new genomic test for the beef and dairy cattle markets.

Financial Condition

NEOG exited the quarter with cash and cash investments of $84.4 million, lower than $85.4 million as of May 31, 2012. The company had no long-term debt at the end of the quarter.

Our Take

We are impressed with NEOG’s ability to deliver record revenues and net income in the first quarter of fiscal 2014. The company continues to expand its top line and product portfolio through organic and inorganic means. Its recent acquisitions are in tandem with its strategy to invest in products that can offer global competitive advantage.

However, we are cognizant regarding potential integration-related risks and stiff competition from other players in the market. The stock has a Zacks Rank #3 (Hold).

Other medical stocks that are worth considering include Alere , with a Zacks Rank #1 (Strong Buy), and Advaxis and Boston Scientific (BSX - Free Report) , both carrying a Zacks Rank #2 (Buy).

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