Zacks Equity Research Neogen Q2 Earnings & Revenues Lag Estimates, Rise Y/Y

Neogen Corp. (NEOG - Snapshot Report) posted adjusted earnings of 21 cents per share in the second quarter of fiscal 2015 (ended Nov 30, 2014) which missed the Zacks Consensus Estimate by a penny. However, on a year-over-year basis, earnings surged about 24% on the back of double-digit revenue growth and improvement in operating efficiencies.  

Neogen Corporation - Earnings Surprise | FindTheBest

Following the announcement of the first quarter results, Neogen witnessed one upward estimate revision over the last seven days for fiscal 2015, with no downward revision over the same time frame. The Zacks Consensus Estimate for fiscal 2015, however, remained flat at 93 cents per share in the same period. Since the earnings announcement, shares of Neogen rose about 1.2% to close at $48.28 in the last trading session.

Quarter Details

Second-quarter revenues of $68.5 million missed the Zacks Consensus Estimate of $70 million. Revenues, however, spiked 14.9% year over year, largely driven by the company’s recently completed acquisitions.

Revenues from Neogen’s Food Safety business recorded year-over-year growth of 16% to $33 million, aided by the BioLumix acquisition that was brought on board in Oct, 2014. The company’s Scotland-based European subsidiary also reported strong performance in terms of both earnings and revenues.

Revenues from the Animal Safety segment improved 13.8% to $35.5 million. The upside was significantly driven by the successful integration of the recent acquisitions by Neogen – Chem-Tech agricultural insecticides in Jan 2014 and Prima Tech veterinary instruments in Nov 2013. Strength in Neogen’s line of proprietary detectable veterinary needles, disposable supplies and diagnostics also boosted revenues.
GeneSeek – Neogen’s agrigenomic business – reported strong revenue growth in the second quarter. The strength largely came from increased operational capacity gained by a move into larger and upgraded facilities in May 2014. Increasing market acceptance and the development of new genomic profiling products, a steady increase in the companion animal business, and growth in international markets, especially Europe and Brazil, also drove the upside.

Gross margin improved 50 basis points (bps) year over year to 50%, primarily driven by favorable product mix shifts and improved efficiencies within the company's Animal Safety segment.

Operating margin expanded 250 bps buoyed by increased revenues and improved gross margin. Additionally, the operating expense growth (8%) was less than the rate of revenue growth (15%).

Neogen had cash and investments of $94.3 million as of Nov 30, 2014, up from $88.1 million as of Aug 31, 2014. The company had no long-term debt at the end of the quarter.

Our Take

Although Neogen’s earnings and revenues missed our estimates, the company continues to show progress on the back of core business expansion and successful integration of recent acquisitions.

Neogen is creating a direct presence in important global markets through acquisitions of successful distributor partners in Europe, Brazil and most recently China. Moreover, in the next several months, Neogen plans to consolidate its recently acquired BioLumix with the company’s closely related Soleris technology, which will greatly enhance this business.

However, Neogen continues to face currency headwinds which make its products less competitive internationally.

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

Better-ranked stocks in the medical products industry include ICU Medical (ICUI - Snapshot Report), OraSure Technologies (OSUR - Snapshot Report) and Abaxis (ABAX - Analyst Report). While both ICU Medical and OraSure Technologies sport a Zacks Rank #1 (Strong Buy), Abaxis carries a Zacks Rank #2 (Buy).


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