Neogen's (NEOG) Q1 Earnings Miss Estimates, Margins Rise
Neogen Corporation NEOG reported first-quarter fiscal 2024 earnings per share (EPS) of 11 cents, down 31.3% year over year. The reported figure missed the Zacks Consensus Estimate by 21.4%.
Revenues for the fiscal first quarter increased 73% on a year-over-year basis to $228.9 million. Core revenues declined 1.3%. Acquisitions and discontinued product lines contributed 73.5%. The metric missed the Zacks Consensus Estimate by 1.2%. Per management, the Animal Safety business experienced continued destocking as anticipated, with channel inventory levels reaching multi-year lows.
Segments in Detail
Within segments, Neogen registered Food Safety revenues of $166.3 million in the fiscal first quarter, marking a stupendous 157.2% improvement from $64.6 million in the prior-year period, led by 4.5% core growth and 150.7% growth from acquisitions. The reported figure also exceeded our model’s segmental projection of $150.1 million for the first quarter.
Core growth within this segment was led by the Bacterial & General Sanitation product category, which benefited from new microbiological testing business in the United States and the United Kingdom and solid growth in the Natural Toxins and Allergens product category.
Revenues from Animal Safety were $62.7 million, down 7.4% year over year. Within the segment, the core revenue decline of 6.7% was due to the Veterinary Instruments and Disposables product category, which experienced continued destocking by large veterinary distributors, and the Animal Care and Other product category, which had lower sales of small-animal supplements and vitamin injectables, due in part to supply constraints. These decreases were partially offset by growth in the Rodent Control, Insect Control and Cleaners and Disinfectants product categories. The reported figure missed our model’s segmental projection of $82 million for the first quarter.
Neogen Corporation Price, Consensus and EPS Surprise
Neogen Corporation price-consensus-eps-surprise-chart | Neogen Corporation Quote
The company's worldwide genomics business declined modestly in the quarter as strength in sheep and beef testing in Australia and new business in beef markets in the United Kingdom and Brazil were offset by decreases in porcine and poultry testing due to two large domestic customer losses.
Margin Details
Neogen’s fiscal first-quarter gross profit increased 87.5% year over year to $116.8 million. The gross margin expanded 394 basis points (bps) to 50.9%. The increase was led by higher gross margins generated by incremental revenues from the former 3M Food Safety Division.
Sales and marketing expenses rose 95.7% to $45.8 million, whereas administrative expenses rose 61.5% from the prior-year quarter to $45.1 million. R&D expenses were $6.7 million, up 37.7% year over year. Operating costs totaled $97.6 million, up 73.7% from the last year’s quarter.
The company reported an operating profit of $19.1 million for the quarter under review. The adjusted operating margin expanded 378 bps to 8.4%.
Cash Position
Neogen exited the first quarter of fiscal 2024 with cash and investments of $178.8 million, compared with $163.2 million at the end of the fiscal fourth quarter of 2023. At fiscal first-quarter end, the company’s non-current liabilities included a total outstanding debt of $900 million as well as committed borrowing headroom of $150 million.
Full-Year Guidance
Neogen updated its outlook for fiscal 2024.
The company continues to anticipate full-year revenues in the band of $955 million-$985 million. The Zacks Consensus Estimate for the same is currently pegged at $966.2 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 (unchanged).
Our Take
Neogen exited the first quarter of fiscal 2024 with lower-than-expected earnings and revenues. The company’s legacy Food Safety business performed well, particularly in core product lines of allergen, natural toxin and microbiological testing. The Animal Safety business however, experienced continued destocking, with channel inventory levels reaching multi-year lows.
Escalated operating costs were a concern.
Zacks Rank and Other Key Picks
Neogen currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks from the broader medical space are DaVita Inc. DVA, Align Technology ALGN and Boston Scientific Corporation BSX.
DVA currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for DaVita’s third-quarter 2023 adjusted EPS is currently pegged at $1.92. The consensus estimate for revenues is pegged at $3 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DaVita has an estimated long-term growth rate of 12.7%. DVA’s earnings yield of 7.9% compares favorably with the industry’s 4.4%.
Align currently has a Zacks Rank #2. The Zacks Consensus Estimate for third-quarter 2023 adjusted EPS is currently pegged at $2.27. The same for revenues is pegged at $1 billion.
ALGN has an estimated long-term growth rate of 17.5%. ALGN’s earnings yield of 3.09% compares favorably with the industry’s yield.
Boston Scientific currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its third-quarter 2023 adjusted EPS is currently pegged at 48 cents. The consensus estimate for revenues stands at $3.47 billion.
BSX has an estimated long-term growth rate of 12.8%. Boston Scientific’s earnings yield of 3.9% compares favorably with the industry’s negative yield.
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