It has been about a month since the last earnings report for Neogen (NEOG). Shares have added about 4.2% in that time frame, underperforming 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 drivers.
Neogen Sees Q3 Revenue Growth on Strong Food Safety Business
Neogen 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.
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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -18.27% due to these changes.
At this time, Neogen has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Neogen has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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