Neogen reports 12% increase in net income

Neogen Corporation (NASDAQ: NEOG) announced today that its net income for the third quarter of fiscal 2016, which ended Feb. 29, increased 12% to $8,311,000, when compared to the prior year’s $7,454,000. Earnings per share in the current quarter were $0.22, compared to $0.20 a year ago. Current year-to-date net income increased 11% over prior year to $26,707,000, or $0.71 per share, compared to $24,142,000, or $0.65 per share, for the same period a year ago.

Revenues for the third quarter of fiscal 2016 increased 12% to $76,725,000, from the previous year’s third quarter revenues of $68,409,000. This increase was aided by recent acquisitions completed by the company, and was achieved despite a shortfall of approximately $1.8 million in comparative revenues due to currency conversions. Overall organic growth for the company was 10% for the quarter. The quarterly revenue and net income results represent third quarter records for the 33-year-old company. Year to date fiscal 2016 revenues increased 13% to $231,196,000 from fiscal 2015’s $204,463,000.

“We achieved these third quarter results despite the continuing currency headwinds that most American companies with significant global revenue streams are now facing,” said James Herbert, Neogen’s chief executive officer and chairman. “Despite the challenges that negatively impacted our operating results, we are well-positioned globally to continue to grow Neogen well into the future.”

The third quarter was the 96th of the past 101 quarters that Neogen reported revenue increases as compared with the previous year — including all consecutive quarters in the last 11 years.

“Regulations and consumer demand aimed at improving the safety, quality and quantity of food are proliferating around the world, and Neogen is there to meet that demand,” said Richard Calk, Neogen’s president and chief operating officer. “Our products, services, and expertise fit extremely well within traditional food industry practices, as well as the emerging organic and antibiotic-free markets.”

Neogen’s gross margin was 45.9% in the third quarter, compared to 49.3% for fiscal 2015’s third quarter. Factors contributing to the change in gross margin included a shift in mix toward product lines with lower gross margins, adverse currency translations, incremental revenue from acquisitions that have gross margins lower than the company’s historical average, and standard cost adjustments. Operating income was $11.3 million, or 14.7% of sales, in the current quarter, compared to $12.2 million, or 17.8%, in the third quarter of the company’s 2015 fiscal year. The reduction in operating income percentage was the result of the reduction in gross margin percentage. Pre-tax income was favorably impacted by net gains from currency hedging activities, recorded through other income, and increased interest income. Neogen’s effective tax rate for the current quarter was 28.8%, compared to 36.3% in the prior year quarter, due to utilization of research and development tax credits.

“As in recent quarters, conversions to the U.S. dollar from the euro, the British pound, the Brazilian real, and the Mexican peso continued to negatively impact Neogen’s top and bottom lines. In our third quarter, the adverse currency effect resulted in us reporting approximately $0.02 per share of earnings less than we would have reported in a neutral currency environment,” said Steve Quinlan, Neogen’s chief financial officer. “Despite this, our Mexican subsidiary was still able to achieve a 7% increase in sales in dollars in the third quarter; after increasing 28% in pesos. The currency impact was especially pronounced at our Brazilian subsidiary, where a 48% sales increase for the quarter in local currency was reduced to a 0.3% increase once those sales were converted to dollars. Revenues from Neogen’s Scotland-based subsidiary declined 1% in dollars, but were 4% higher in local currency, for the third quarter of the 2016 fiscal year.”

Revenues for the company’s Animal Safety segment increased 16% during the third quarter, almost entirely organic, compared to the prior year. As in the second quarter of the current fiscal year, the third quarter was aided by a new distribution agreement with a large equipment manufacturer in the commercial dairy industry.

Sales of the company’s rodent control products increased 60% in the current quarter compared to the same period in the prior year, as Neogen increased its contract manufacturing of rodenticides and continued to gain share in its retail markets. In the third quarter, Neogen also recorded a large increase in sales of its agricultural insect control products manufactured and marketed by Chem-Tech, when compared to the prior year. Neogen acquired Chem-Tech’s highly effective insecticides in January 2014, and the product line has continued to grow under the company’s ownership. Neogen’s Prozap® insecticide brand is well known in the large animal production industry, and is particularly popular with dairy and equine producers. These revenue increases more than offset declines in revenues from sales of the company’s veterinary instruments, and cleaner and disinfectant product lines for the quarter.

In the third quarter of 2016, revenues from the company’s GeneSeek® animal genomic operations in Lincoln, Neb., increased approximately 24% when compared to fiscal 2015. As in the second quarter of the current fiscal year, the third quarter growth resulted primarily from increases in the genomic testing of poultry and swine.

In the current year third quarter, revenues for the company’s Food Safety segment increased 8% compared to the prior year, aided in part by the August 2015 acquisition of Lab M. Overall organic growth for the Food Safety segment was 4% for the quarter, and 10% in constant currency. The current third quarter Food Safety sales performance was led by a 19% increase in sales of Neogen’s rapid tests for food allergens, such as gluten and peanuts. This increase was aided by increasing global food allergen regulatory efforts, and strong initial sales of Neogen’s new product to simultaneously detect six tree nuts (i.e., almond, hazelnut, pecan, walnut, cashew, and pistachio) with one test.

Sales of Neogen’s Acumedia® dehydrated culture media into traditional domestic culture media markets, including animal vaccine and cell culture market segments, increased 24% in the current quarter when compared to the prior year. The company’s sales of its AccuPoint® Advanced Sanitation Monitoring System products increased 14% in the third quarter, and sales of Neogen’s tests for Listeria increased 18% in the quarter as the food industry continues to respond to recent outbreaks. These revenue increases offset a decline in revenues from sales of the company’s mycotoxin test kits, as relatively clean grain crops compared to the prior year lowered worldwide demand for mycotoxin testing.

Certain portions of this news release that do not relate to historical financial information constitute forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. Actual future results and trends may differ materially from historical results or those expected depending on a variety of factors listed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s most recently filed Form 10-K.

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