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Neogen (NEOG) Up 6.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Neogen (NEOG). Shares have added about 6.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Neogen’s Q2 Earnings & Revenues Miss Estimates, Margin Rises

Neogen's earnings per share of 31 cents lagged the Zacks Consensus Estimate of 32 cents by 3.1% in second-quarter fiscal 2020. However, earnings per share 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 top-line growth. Also, the newest global genomics locations in Australia and Canada contributed significantly to the company’s overall genomics business. Continued double-digit growth in Neogen’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.

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 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, the 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.

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

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.9% due to these changes.

VGM Scores

At this time, Neogen has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. It's no surprise Neogen has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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