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Neogen (NEOG) Earnings and Revenues Miss Estimates in Q3

Zacks Equity Research

Neogen Corporation NEOG reported earnings per share (EPS) of 25 cents in the third quarter of fiscal 2019. The bottom line missed the Zacks Consensus Estimate of 27 cents by 7.4%. Moreover, EPS declined 21.9% from the year-ago quarter.

Revenues increased 3% on a year-over-year basis to $97.7 million, missing the Zacks Consensus Estimate of $102.2 million by 4.4%.

Per Neogen, continued weakness in the global animal protein market and strongly negative currency conversions posed as headwinds in the reported quarter. Despite these, the company witnessed year-over-year revenue growth on strength in the international business and solid performance in the core Food Safety and genomic product lines. Thus, the fiscal third quarter was the 108th of the past 113 quarters to report year-over-year revenue increases (this includes all consecutive quarters in the past 13 years).

Revenues in Detail

Food Safety Segment: Revenues at the segment totaled $51.1 million, up 8% year over year. Sales of the foodborne pathogen detection tests, including Listeria and Salmonella, rose 16% year over year in the reported quarter. Revenues also included contribution from Neogen’s Listeria Right Now test system. Its sales increased five times year over year.

Neogen Corporation Price, Consensus and EPS Surprise

 

Neogen Corporation Price, Consensus and EPS Surprise | Neogen Corporation Quote

Further, the company witnessed 17% year-over-year rise in sales of rapid diagnostics to detect natural toxins along with an 11% year-over-year increase in general sanitation product revenues. Year-over-year growth of 7% in sales of rapid diagnostics to detect food allergens also contributed to the top line.

Animal Safety Segment: This segment recorded revenues of $46.6 million, reflecting a 2.1% decline from the year-ago quarter.  Decreasing sales of products to distributor partners into the animal protein market, including rodent and insect control products, led to the downside. Moreover, adverse impacts of the U.S.-China trade war and tough economic conditions in the production animal market dented revenue growth in the Animal safety segment.

Meanwhile, growing sales of cleaners, disinfectants, detectable needles and vaccines contributed to the top line.

The worldwide animal genomics business unit recorded a 15% increase in the reported quarter. Per management, this growth is partly attributable to solid revenue growth from genomics laboratories in Scotland, Australia and Brazil. Also, the upside is backed by robust revenues from genomic testing of beef and dairy cattle, swine, poultry, and companion animals globally.

Margin Details

Gross margin contracted 130 basis points (bps) to 45.7% in the fiscal third quarter, largely because of 5.6% rise in costs. Per management, unfavorable product mix within the segments adversely impacted the gross margin.

Operating income was $14.6 million compared with $15.9 million in the year-ago quarter. Operating income accounted for 15% of sales in the fiscal third quarter compared with 16.8% of sales a year ago, which implies a 180-bps contraction.

Our Take

Neogen exited the fiscal third quarter on a disappointing note. Headwinds like turbulent economic conditions in production animal markets, and trade war between the U.S. and China along with decreased sales to animal protein market distributor partners led to the Animal Safety segment’s disappointing performance. Moreover, adverse currency movement lowered revenues in the fiscal third quarter by $2.5 million from the prior quarter. The effect of the negative currency movement is majorly due to weakening currencies against the dollar in Brazil and the U.K.

Meanwhile, strength in the international business and solid performance in core Food Safety and genomic product lines resulted in year-over-year revenue growth. Thus, the fiscal third quarter was the 108th of the past 113 quarters to report year-over-year revenue increase. Per management, the company witnessed revenue growth in Europe, Brazil, Mexico, China and India along with other geographies in the reported quarter. We are also upbeat about Neogen recently launching coconut food allergen test kits —3-D for Coconut Allergen and Veratox for Coconut Allergen tests.

Zacks Rank & Stocks to Consider

Neogen currently has a Zacks Rank of #3 (Hold). A few better-ranked stocks in the broader medical space are IDEXX Laboratories, Inc. IDXX, Varian Medical Systems, Inc. VAR and Hologic, Inc. HOLX. Notably, each of these stocks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEXX Laboratories exited the fourth quarter of 2018 on a promising note, with better-than-expected earnings and revenues. The company delivered a positive earnings surprise in each of the trailing four quarters, the average being 7.2%.

Varian Medical Systems, Inc.’s first-quarter fiscal 2019 adjusted earnings of $1.06 per share were in line with the Zacks Consensus Estimate. Adjusted earnings were in line with the year-ago quarter figure. Revenues totaled $741 million, which outpaced the consensus mark of $717.9 million. On a year-over-year basis, revenues rose 9.2% and 10% at constant currency (cc).

Hologic reported first-quarter fiscal 2019 adjusted EPS of 58 cents, surpassing the Zacks Consensus Estimate by a penny. Revenues of $830.7 million beat the Zacks Consensus Estimate of $818.4 million.

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