Neogen (NEOG) Q4 Earnings Beat Estimates, Gross Margin Up
Neogen Corporation NEOG reported fourth-quarter fiscal 2023 earnings per share (EPS) of 14 cents, down 33.3% year over year. However, the reported figure topped the Zacks Consensus Estimate by 40%.
The full-year adjusted EPS was 56 cents per share, down 23.3% compared with the year-ago figure. However, the metric beat the Zacks Consensus Estimate by 9.8%.
Revenues for the fourth quarter increased 72.6% on a year-over-year basis to $241.8 million. Core revenue growth was registered at 2%, while acquisitions contributed 71.8%. The metric beat the Zacks Consensus Estimate by 6.4%. Per the management, the fourth quarter was the 124th out of the past 130 quarters in which Neogen reported a year-over-year revenue increase.
The company reported revenues of $822.4 million in fiscal 2023, which rose 56% from the year-ago period. The same beat the Zacks Consensus Estimate by 1.8%.
Segments in Detail
Within segments, Neogen registered Food Safety revenues of $169.3 million in the fiscal fourth quarter, a stupendous improvement from $67.4 million in the prior-year period, led by 149.3% growth from acquisitions. The reported figure also exceeded our model’s segmental projection of $134.4 million for the fourth quarter.
The 3.9% core growth within this segment was led by the Culture Media & Other category, which benefited from strong growth in food quality and nutritional analysis products in the Megazyme business.
Neogen Corporation Price, Consensus and EPS Surprise
Neogen Corporation price-consensus-eps-surprise-chart | Neogen Corporation Quote
Revenues from Animal Safety were $72.5 million, down 0.3% year over year. Within the segment, the core growth of 0.3% was led by the Veterinary Instruments & Disposables product category, which benefited from a new line of business with a large retail customer. The reported figure also comprised a foreign currency headwind of 0.6%.
The company's worldwide genomics business performed well in the quarter, driven by volume increases in international beef markets and companion animal testing.
Margin Details
Neogen’s fiscal fourth-quarter gross profit increased 89.5% year over year to $123.2 million. The gross margin expanded 454 basis points (bps) to 50.9%. The increase was led by incremental revenues from the former 3M Food Safety Division.
Sales and marketing expenses rose 100.6% to $42.9 million, whereas administrative expenses rose 129% from the prior-year quarter to $50 million. R&D expenses were $7.1 million, up 84.1% year over year. Operating costs totaled $99.8 million, up 112.4% from the last year’s quarter.
The company reported an operating profit of $23.4 million for the quarter under review. The adjusted operating margin contracted 318 bps to 9.7%.
Cash Position
Neogen exited fiscal 2023 with cash and investments of $245.6 million, down from $381.1 million at the end of the fiscal fourth quarter of 2022. At the fiscal fourth quarter’s end, the company’s non-current liabilities included outstanding debt of $900 million, unchanged from the fiscal third-quarter level.
Full-Year Guidance
Neogen provided its outlook for fiscal 2024.
The company anticipates revenues for the full year in the band of $955 million-$985 million. The Zacks Consensus Estimate for the same is currently pegged at $946.7 million.
NEOG expects capital expenditures to be approximately $130 million, which includes approximately $100 million related specifically to the integration of the former 3M Food Safety Division.
Our Take
Neogen exited the fourth quarter of fiscal 2023 with better-than-expected earnings and revenues. Core growth in both the segments buoys optimism despite the challenges of lower volumes and inventory levels in end markets. NEOG’s integration activities are progressing well, with three of the four key product lines of the former 3M business expected to be fully integrated into its facilities by the end of the fiscal third quarter.
The company made good progress with the transition manufacturing arrangement for the flagship Petrifilm product line, simultaneously emphasizing continued innovation to capitalize on the leading market position. Further, NEOG expanded its Reveal portfolio with the addition of quantitative assays for the detection of histamine in fish and dry animal proteins, as well as for DON and Aflatoxin in grains and grain byproducts. All these developments bode well for the stock.
Meanwhile, escalated operating costs are concerning. Neogen’s larger Food Safety product categories — Natural Toxins and Allergens — reported slight core revenue declines due to the discontinuation of the drug testing kit product line for international dairy markets.
Zacks Rank and Other Key Picks
Neogen currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, Elevance Health, Inc. ELV and Intuitive Surgical, Inc. ISRG.
Abbott, carrying a Zacks Rank of #2, reported a second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported a second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported a second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 4.2%.
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