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NEOGEN (NEOG) Q2 Earnings and Revenues Fall Shy of Estimates

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NEOGEN Corporation’s (NEOG - Free Report) second-quarter fiscal 2021 earnings per share (EPS) of 30 cents fell short of the year-ago figure of 31 cents per share by 3.2%. It also lagged the Zacks Consensus Estimate by 6.3%.

Revenues for fiscal second quarter improved 6.7% on a year-over-year basis to $115 million despite the ongoing difficult global business environment. Revenues also lagged the Zacks Consensus Estimate by 0.4%.

Segments in Detail

For the quarter, the company registered Food Safety revenues of $57.5 million, reflecting 1.2% year-over-year growth attributable to a 13% increase in sales of its Soleris microbial testing system, Soleris Next Generation (“NG”), compared to the year-ago quarter. Robust customer acceptance of NEOGEN’s Listeria Right Now test system led to 6% sales growth of the system from the year-ago quarter. The segment also benefited from new sales from recently acquired businesses in Italy, Argentina, Uruguay and Chile. However, these increases were offset by flat sales growth of its natural toxins and food allergen product lines along with decline in sales of foodborne pathogen (8%), general sanitation (8%) and culture media (3%) products, which partly resulted from COVID-19-related disruptions in many of the company’s end markets.

Animal Safety revenues for fiscal second quarter were $57.5 million, reflecting a 12.8% year-over-year increase backed by  continued new sales of cleaners and disinfectants used to fight the spread of COVID-19, a 24% increase in sales of rodenticides due to continued demand from the U.S. Pacific Northwest and large increases in sales of genomic testing services, insecticides (backed by the July 2020 acquisition of Elanco’s StandGuard product), animal care products, and needles and syringes as animal protein markets gained strength compared to the year-ago period.

NEOGEN’s revenues from China were 59%, which included significant increases in sales of disinfectants and genomic products as it recovers from its COVID-19 and African swine fever outbreaks. Increased sales of cleaners and disinfectants, rodenticides, detectable needles, and genomics led to a 13% increase in revenues from Mexico and Central America. NEOGEN Australasia’s quarterly revenues surged 81% primarily due to strong sales gains for genomic and animal safety products along with new sales from the March 2020 acquisition of a former distributor of the company’s food safety products.

Revenues from the U.K. operations rose 9% due to strong sales of cleaners and disinfectants. Segment revenues from India increased 5%. However, its revenues from Brazil declined by 22% as a large one-time sale of insecticides in the year-ago quarter did not recur along with adverse currency impact due to the 25% devaluation of the real against the dollar.

Revenues from NEOGEN’s worldwide animal genomics business increased 12% for the second quarter of fiscal 2021 from the comparable year-ago period. This was primarily due to increases in companion animal genomic testing due to a surge in COVID-19-related pet adoptions and continued penetration into the veterinary markets along with testing through beef and dairy breed associations. Internationally, NEOGEN’s genomic sales registered uptick in Australia (mainly bovine and canine), China (dairy cattle and porcine during its recovery from African swine fever outbreak) and Latin America (dairy cattle).

Margin Details

NEOGEN’s fiscal second-quarter gross profit improved 4.3% year over year to $53.2 million. However, gross margin contracted 106 basis points (bps) to 46.3%.

Sales and marketing expenses fell 1.4% to $17.7 million, whereas administrative expenses rose 10.9% from the prior-year quarter to $12.2 million. Research & development expenses were $4.1 million, up 7.3% from the year-ago quarter. Operating costs totaled $33.9 million, reflecting an increase of 3.7% year over year.

For the reported quarter, operating income was $19.2 million, which improved 5.3% from the year-ago period. Operating margin, however, contracted 21 bps to 16.7%.

Cash Position

The company ended fiscal second-quarter 2021 with cash and investments of $390.8 million, reflecting an improvement from $367.5 million at the end of the first quarter of fiscal 2021. The company had no debt on the balance sheet at quarter-end.

Neogen Corporation Price, Consensus and EPS Surprise

Neogen Corporation Price, Consensus and EPS Surprise

Neogen Corporation price-consensus-eps-surprise-chart | Neogen Corporation Quote

Our Take

NEOGEN exited the fiscal second quarter of 2020 with lower-than-expected earnings and revenues. The drop in revenues from Brazil due to foreign exchange translations is disappointing. Despite an impressive top line for fiscal second quarter, the business environment across many of the company’s markets remains sluggish and challenging, which is concerning. The contraction of both margins is a downer.

However, the company’s segmental performance was primarily boosted by enhanced sales of cleaners and disinfectants to meet the requirements created by the coronavirus pandemic. NEOGEN’s international performance was impressive despite the challenging global business climate. Favorable customer response for the company’s Soleris NG system and Listeria Right Now test system buoys optimism.

Zacks Rank & Key Picks

NEOGEN currently carries a Zacks Rank #3 (Hold).

The Zacks Consensus Estimate for Hologic, Inc.’s (HOLX - Free Report) first-quarter fiscal 2021 revenues is pegged at $1.38 billion, indicating a 61.8% improvement from the year-ago reported figure. The consensus mark for the bottom line is pegged at $2.14 per share, indicating a 250.8% surge from the year-ago reported figure. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BioRad Laboratories, Inc.’s (BIO - Free Report) fourth-quarter 2020 EPS is pegged at $3.10 per share, suggesting a 33.6% improvement from the year-ago period. The same for revenues is pegged at $681.8 million, suggesting a 9.2% increase from the year-earlier reported figure. The company currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Quest Diagnostics Incorporated (DGX - Free Report) bottom line for fourth-quarter 2020 is pegged at $3.96 per share, indicating 137.1% improvement from the year-ago reported figure. The same for revenues is pegged at $2.83 billion, suggesting a 47.1% increase from the year-earlier reported figure. The company currently carries a Zacks Rank #2.

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