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Neogen (NEOG) Up 5.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Neogen (NEOG - Free Report) . Shares have added about 5.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Neogen due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

NEOGEN’s Q2 Earnings and Revenues Fall Shy of Estimates

NEOGEN Corporation’s second-quarter fiscal 2021 earnings per share 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 due to 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.

Cumulative net cash flow from operating activities at the end of fiscal second quarter was $47.5 million compared with $40.5 million a year ago.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Neogen has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Neogen has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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