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Neogen (NEOG) Q2 Earnings & Revenues Miss, Margin Rises

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Neogen Corporation NEOG second-quarter fiscal 2020 earnings per share (EPS) of 31 cents lagged the Zacks Consensus Estimate of 32 cents by 3.1%. However, EPS was flat year over year.

Revenues in the quarter grew 0.7% on a year-over-year basis to $107.8 million, missing the Zacks Consensus Estimate of $111.9 million by 3.7%.

Per Neogen, growing revenues from key food safety products, including tests for foodborne pathogens, food allergen and general sanitation, contributed to the top-line growth. Also, newest global genomics locations in Australia and Canada contributed significantly to the company’s overall genomics business. Continued double-digit growth in the company’s global animal genomics business also boosted the top line.

The fiscal second quarter was the 111th of the last 116 quarters to mark a year-over-year revenue increase.

Neogen Corporation Price, Consensus and EPS Surprise

Neogen Corporation Price, Consensus and EPS Surprise

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

Revenues in Detail

Food Safety Segment: For the quarter under review, revenues in the segment totaled $56.9 million, up 5.8% year over year. The year-over-year increase was driven by a 14% rise in global sales of test kits to detect food allergens, with particularly impressive sales of gluten, milk, egg and tree nut kits. The increase in sales was supported by the introduction of a test kit for coconut in the past year.

Animal Safety Segment: During the second quarter, this segment recorded revenues of $50.9 million, reflecting a 4.5% decline from the year-ago quarter. The downside mainly resulted from the continued soft performance of the company’s animal protein markets and inventory destocking within its distribution channels.

Margin Details

Gross margin expanded 62 basis points (bps) to 47.3% in the fiscal second quarter.

During the reported quarter, operating income was $18.3 million that inched up 0.1% from the year-ago quarter’s $18.2 million. Operating margin contracted 9 bps to 16.9%.

Our Take

Neogen exited the second quarter on a disappointing note, with earnings and revenues missing the Zacks Consensus Estimate. Nonetheless, the company witnessed a solid performance by the core Food Safety segment and cattle genomics business for both associations and commercial producers. Further, the company’s swine genomics business grew year over year. However, sales of cleaners, disinfectants and rodenticides declined mainly due to continued sluggish demand from the company’s largest distributor in Central America.

Meanwhile, the significant growth in revenues of the genomics testing business, an increase in the company’s disposable syringe sales and a rise in veterinary marking products within the animal safety market in the second quarter of fiscal 2020 are encouraging.

However, headwinds like unstable economic conditions, currency issues, challenges in the animal protein market and inventory destocking within the company’s distribution channels led to the Animal Safety segment’s disappointing performance.

Zacks Rank & Key Picks

Currently, Neogen carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are Haemonetics Corporation HAE, National Vision Holdings, Inc (EYE - Free Report) and ResMed Inc RMD.

Haemonetics, with a Zacks Rank #2 (Buy), reported second-quarter fiscal 2020 adjusted EPS of 87 cents, surpassing the Zacks Consensus Estimate by 20.8%. Revenues of $252.6 million outperformed the consensus mark by 1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Vision’s third-quarter 2019 adjusted EPS of 18 cents surpassed the Zacks Consensus Estimate by 50%. Revenues totaled $431.9 million, beating the consensus mark by 1.4%. The stock currently carries a Zacks Rank #2.

ResMed, with a Zacks Rank #2, delivered first-quarter fiscal 2020 adjusted EPS of 93 cents, beating the Zacks Consensus Estimate by 6.9%. Revenues of $681.1 million beat the Zacks Consensus Estimate by 3.6%.

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