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Neogen (NEOG) Earnings Beat, Revenues Lag Estimates in Q1

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Neogen Corporation (NEOG - Free Report) reported earnings of 29 cents per share in the first quarter of fiscal 2019. The figure considers adjustment for a 4-for-3 stock split effective Dec 29, 2017. The bottom line beat the Zacks Consensus Estimate of 28 cents and increased 26.1% from the year-ago quarter.

Revenues increased 4.6% on a year-over-year basis to $99.63 million, missing the Zacks Consensus Estimate by 3.71%.

Per Neogen, growing revenues from key food safety products, including tests for foodborne pathogens and sanitation, contributed to the top-line growth. Also, continued double-digit growth in the company’s global animal genomics business boosted the top line.

Revenues in Detail

Food Safety Segment: Revenues at the segment totaled $52.2 million, up 12.7% on solid overall organic growth. Sales of the foodborne pathogen detection tests, like Listeria and Salmonella, rose 43% year over year in the reported quarter. Revenues also included contribution from Neogen’s Listeria Right Now test system.

Neogen Corporation Price, Consensus and EPS Surprise

 

The company witnessed a 16% rise in sales of Culture Media products on continued strength in synergistic global combination of its former Acumediaand Lab Mculture media brands. There was also a 17% jump in sales of sanitation test systems from the year-ago period.

Animal Safety Segment: The segment recorded revenues of $47.4 million, reflecting a 1% decline from the year-ago quarter. Difficult business conditions in the animal protein sector resulting in weakness in the distribution channel led to the decline in Animal safety business revenues.

Furthermore, decreasing sales at the segment’s animal care, life sciences, and cleaner and disinfectant product lines also dented revenue growth.

However, a 21% rise in sales of the company’s biologics, including BotVax B equine botulism vaccine and EqStimimmunostimulant, a 23% increase in sales of the detectable D3 Needles along with a 63% rise in sales of the water treatment disinfectants had partially offset the decline in Animal safety revenues. 

The worldwide genomics business unit recorded a 15% increase in the reported quarter. Per management, this growth is partly attributable to the September 2017 buyout of the University of Queensland Animal Genetics Laboratory in Australia. Also, the upside is backed by robust revenues from the company’s bovine business, which includes commercial beef and dairy product lines.

Margin Details

Gross margin contracted 80 basis points (bps) to 46.9% in the first quarter, largely because of a 7.3% rose in cost.

Adjusted operating income was $16.5 million, compared with $16.4 million in the year-ago quarter. Operating income accounted for 16.6% of sales in the first quarter compared to 17.4% of sales a year ago, which implies a 80-bps contraction.

Our Take

Neogen exited the first quarter of fiscal 2019 on a mixed note. We are encouraged by the year-over-year rise in earnings and revenues. We believe that Neogen is steadily progressing on the back of its four-pronged strategy. Moreover, we are upbeat about the integrations and an expanding international footprint, which should consistently drive results. Per management, the company witnessed revenue growth in Europe, Brazil, Mexico, China and India along with other geographies in the reported quarter. However, the company faced pricing and supply challenges in the global animal protein sector, including the dairy and swine markets.

Zacks Rank & Key Picks

Neogen currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical space are Intuitive Surgical (ISRG - Free Report) , Amedisys, Inc. (AMED - Free Report) and Masimo Corporation (MASI - Free Report) .

Intuitive Surgical’s long-term expected earnings growth rate is 14.7%. The stock currently carries a Zacks Rank of 2 (Buy).

Amedisys’ long-term expected earnings growth rate is 19.4%. The stock holds a Zacks Rank #1 (Strong Buy) at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.

Masimo’s long-term expected earnings growth rate is 14.8%. The stock has a Zacks Rank #2 at present.

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