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Neogen (NEOG) Up 13.1% 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 13.1% 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 Earnings Miss Estimates in Q3, Margins Up

NEOGEN third-quarter fiscal 2021 earnings per share of 25 cents increased from the year-ago quarter’s figure of 23 cents per share by 8.7%. It lagged the Zacks Consensus Estimate by 7.4%.

Revenues for fiscal third quarter increased 16.9% on a year-over-year basis to $116.7 million despite the ongoing difficult global business environment. Revenues surpassed the Zacks Consensus Estimate by 9%.

Segments in Detail

For the quarter, the company registered Food Safety revenues of $58.4 million, reflecting 15.7% (up 11% organically) year-over-year growth. The acquisitions of international distributors in the second half of fiscal 2020 and Megazyme (on Dec 30) — a food quality diagnostics company — contributed to growth. The segment’s increase was led by a 14% improvement in sales of its diagnostic test kits to detect natural toxins in food and animal feed, including increases in sales of its aflatoxin test kits (up 25%). .  

Animal Safety revenues in fiscal third quarter were $58.3 million, up 18.1% year over year. The upside can be attributed to 79% increase in sales of rodenticides throughout its product line, including significantly higher sales in the U.S. Pacific Northwest of products.

NEOGEN’s International business increased 16% in the reported quarter, partly owing to two months of sales from the Megazyme acquisition.  NEOGEN’s U.K. business increased 4% in pounds as lower economic activity caused by the pandemic resulted in sluggish sales performance across the organization. However, this increase was 9% when converted to U.S. dollars.

NEOGEN’s revenue from China for the current quarter was more than doubled driven by increased sales of disinfectant products, and greater sales of swine and dairy genomic services. NEOGEN Latinoamerica business based on Mexico grew 14% in the reported quarter in local currency.

NEOGEN Australasia’s quarterly revenues rose 73% in local currency, aided in part by the February 2020 acquisition of a food safety distributor. NEOGEN Brazil’s revenues rose 12% in local currency on strength in diagnostic kit sales, but declined 11% after translation of the Brazilian real to U.S. dollar.

In fiscal third quarter, revenues from NEOGEN’s worldwide animal genomics business increased 10% year over year. The upside was primarily led by 19% increase in sales in the global swine industry, as producers rebuilt their herds that were devastated by African swine fever, especially in China.

Margin Details

NEOGEN’s fiscal third-quarter gross profit increased 18.8% year over year to $53.8 million. Gross margin expanded 75 basis points (bps) to 46.1%.

Sales and marketing expenses rose 5.8% to $18.7 million, whereas administrative expenses rose 40.4% from the prior-year quarter to $15.1 million. Research & development expenses were $4.2 million, up 10.8% from the year-ago quarter. Operating costs totaled $38.1 million, up 17.9% year over year.

In the reported quarter, operating income was $15.8 million, up 20.9% from the year-ago quarter’s level. Nevertheless, operating margin expanded 46 bps to 13.5%.

Cash Position

The company ended fiscal third-quarter 2021 with cash and investments of $353.3 million, up from $343.7 million at the end of the fiscal second quarter. The company had no debt on the balance sheet at quarter-end.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Neogen has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. 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

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Neogen has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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