Neogen Announces Third Quarter Results

Rhea-AI Summary

Neogen Corporation (NEOG) reported third-quarter revenues of $128.2 million, marking a 10% year-over-year increase, with year-to-date revenues up 14%. Net income for the quarter was $5.4 million, adversely affected by $10.6 million in costs related to the merger with 3M's Food Safety business. Gross margins decreased to 44.8%, impacted by rising raw material costs and a shift toward lower-margin products. Both Food Safety and Animal Safety segments experienced revenue growth, while international revenues rose 10%, though China saw a 17% decline due to COVID-19 restrictions.

Positive

• Third-quarter revenues increased 10% year-over-year to $128.2 million.
• Year-to-date revenues rose 14% to $387.1 million.
• Food Safety segment revenues grew 7% to $62.8 million, driven by new product sales.
• Animal Safety segment revenues increased 12% to $65.5 million, led by strong veterinary instrument sales.
• International revenues rose 10%, with U.K. operations up 16%.

Negative

• Net income of $5.4 million was impacted by $10.6 million in merger-related costs.
• Gross margins fell to 44.8% from 46.1% due to rising raw material costs and a shift to lower-margin products.
• China's revenues decreased by 17% due to COVID-19 lockdowns and poor economic conditions.

Solid year-over-year revenue growth showcases continued strength of products and markets

Closing of announced agreement to merge with 3M's Food Safety business on track and company has made strong progress with integration plans

LANSING, Mich., March 24, 2022 /PRNewswire/ -- Neogen Corporation (NASDAQ: NEOG) announced today the results of the third quarter of its 2022 fiscal year, which ended February 28. Revenues were $128,244,000, a 10% increase compared to the previous year's third quarter revenues of $116,709,000. This quarter marked the 119th of the past 125 quarters that Neogen has reported revenue increases compared to the same period in the prior year. Current year-to-date revenues were $387,066,000, up 14% compared to revenues of $341,034,000 for the same period a year ago.

"I am pleased to report solid top line growth for the quarter, with meaningful gains across our Food Safety, Animal Safety, and international operations," said John Adent, Neogen's President and Chief Executive Officer. "Our results for the third quarter demonstrate the resilience of our business, particularly in an inflationary environment and amid continued supply chain disruptions. We are making significant progress with integration planning in anticipation of the closing of our transaction with 3M's Food Safety business, a deal that positions us at the forefront of this new era in food security with the resources, capabilities, and solutions to be a global food security provider."

Financial and Business Highlights

Net income for the third quarter was $5,443,000, or $0.05 per share, adversely impacted by $10.6 million of professional fees incurred in connection with Neogen's plan to combine 3M's Food Safety business with the company's existing operations, which was announced on December 14, 2021. Excluding the 3M deal-related costs, net income for the quarter would have been $13,600,000, or $0.13 per share, compared to $13,377,000, or $0.12 per share, in the previous year's third quarter.

Current year-to-date net income was $33,348,000, or $0.31 per share; excluding $19.9 million in year to date 3M Food Safety deal costs, net income for the year to date would have been $48,807,000, or $0.45 per share, compared to $45,122,000, or $0.42 per share, for the same period a year ago.

For each comparative period above, earnings per share amounts have been adjusted to reflect the company's 2-for-1 stock split on June 4, 2021.

Gross margins were 44.8% of sales in the third quarter of the fiscal year, compared to 46.1% recorded in the same period a year ago. Ongoing supply chain issues and the current inflationary environment continued to adversely impact raw material costs and freight expenses, which rose $2.2 million during the quarter. Additionally, a product mix shift toward Animal Safety products, which generally have lower gross margins, negatively impacted gross margins for the period.

Excluding the 3M Food Safety related deal costs, operating expenses rose by 6% during the third quarter, primarily due to increased compensation and personnel-related costs, an uptick in travel and other customer facing activities, increased shipping costs and the impact of amortization expense from recent acquisitions.

"We incurred significant legal and consulting fees during the quarter as we prepared for the 3M Food Safety combination; this spending will continue through the end of this fiscal year and into next fiscal year as we work toward closing," said Steve Quinlan, Neogen's Chief Financial Officer. "At the same time, our team is also continuing to drive growth initiatives across the company while addressing the current cost pressures in our business."

Results by Segment

Food Safety

Revenues for the company's Food Safety segment were $62,756,000 in the third quarter, an increase of 7% compared to $58,424,000 in the prior year's third quarter. On an organic basis, the segment's revenue increased 4%. The company's recently launched products continued to lead growth as they gained market share in the third quarter. Sales of the new AccuPoint^® Advanced NG handheld sanitation monitoring system drove a 16% increase in sales of the general sanitation product line. The Soleris^® rapid general microbial testing product line recorded a 10% increase in equipment sales in the third quarter, and sales of the company's innovative Listeria Right Now^™ 60-minute test system recorded an increase of 13% over the prior year. Megazyme, the food quality and nutritional analysis company that the company acquired in December 2020, continued to exceed expectations as it has been integrated into the company's Food Safety distribution channels.

Additional growth in this segment came from the company's diagnostics portfolio, with increases in allergen test kits (12%) and culture media (11%). This growth was partially offset by a decline in dairy drug residue testing, as the company exits sales of non-core products within its portfolio.

Animal Safety

Revenues for the company's Animal Safety segment were $65,488,000 in the third quarter of the fiscal year, an increase of 12%, compared to $58,285,000 in the previous year; organic growth was 9%. The growth was driven by strong sales of veterinary instruments, which recorded an increase of 36% over the previous year's third quarter, on market share gains and private label business. Animal care products increased by 12%, with strong growth in vitamin injectables and antibiotics.

Biosecurity products sold through the Animal Safety segment increased by 2%, driven by an 11% increase in insect control products and a 2% increase in sales of cleaners and disinfectants. This growth was partially offset by a 5% decline in sales of rodent control products, primarily due to difficult prior year comparisons.  

Neogen's worldwide genomics business recorded an increase of 10% in the third quarter of the fiscal year, compared to the prior year's third quarter, including new sales resulting from Neogen's acquisition of Genetic Veterinary Sciences, Inc. on December 9, 2021.

International Highlights

International revenues rose by 10% for the quarter. Revenues at Neogen's U.K. operations increased by 16% (18% in British pounds), driven by sales of cleaners and disinfectants to the U.K. and Asia. Revenues at Neogen's Brazilian operations decreased by 2% (flat in Brazilian real) over the third quarter last year, as increased sales of deoxynivalenol (DON) test kits and Raptor^® readers were offset by lower sales of dairy drug residue test kits.

In China, revenues decreased by 17% (19% in Chinese yuan), adversely affected by the country's "Zero COVID-19" strategy, which has led to large-scale commercial lockdowns and travel bans; additionally, poor economic conditions for pork producers and difficult comparisons to a strong prior year resulted in lower sales of cleaners and disinfectants. Sales in the Latin American region increased by 1% (4% in Mexican pesos), with a 10% increase in sales of Food Safety products, offset by lower sales of rodent control products to a large customer. Revenues at Neogen's Australasia operations increased by 20% (29% in Australian dollars), driven by the continued growth of genomic services in the beef and sheep markets.

About Neogen

Neogen Corporation develops and markets comprehensive solutions dedicated to food and animal safety. The company's Food Safety segment markets dehydrated culture media and diagnostic test kits to detect foodborne bacteria, natural toxins, food allergens, drug residues, plant diseases, and sanitation concerns. Neogen's Animal Safety segment is a leader in the development of genomic solutions along with the manufacturing and distribution of a variety of animal healthcare products, including diagnostics, pharmaceuticals, veterinary instruments, wound care, and disinfectants, as well as rodent and insect control solutions.

Certain portions of this news release that do not relate to historical financial information constitute forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. Actual future results and trends may differ materially from historical results or those expected depending on a variety of factors listed in Management's Discussion and Analysis of Financial Condition and Results of Operations in the company's most recently filed Form 10-K.

NEOGEN CORPORATION UNAUDITED SUMMARIZED CONSOLIDATED OPERATING DATA (In thousands, except for per share and percentages)
		Quarter ended Feb. 28					9 Months ended Feb. 28
		2022			2021			2022		2021
Revenue
Food Safety	$	62,756		$	58,424		$	192,610	$	$170,143
Animal Safety		65,488			58,285			194,456		170,891
Total revenue		128,244			116,709			387,066		341,034
Cost of sales		70,832			62,860			209,052		183,669
Gross margin		57,412			53,849			178,014		157,365
Operating expenses
Sales & marketing		21,477			18,693			63,220		52,938
Administrative		24,997			15,146			60,985		38,343
Research & development		4,561			4,236			13,218		12,170
Total operating expenses		51,035			38,075			137,423		103,451
Operating income		6,377			15,774			40,591		53,914
Other income		266			203			707		1,208
Income before tax		6,643			15,977			41,298		55,122
Income tax		1,200			2,600			7,950		10,000
Net income	$	5,443		$	13,377		$	33,348	$	45,122
Net income per diluted share	$	$0.05		$	$0.12		$	$0.31	$	$0.42
Other information:
Shares to calculate per share		108,133			107,390			108,130		106,768
Depreciation & amortization	$	6,322		$	5,633		$	17,833	$	15,107
Interest income		314			294			741		1,571
Gross margin (% of sales)		44.8%			46.1%			46.0%		46.0%
Operating income (% of sales)		5.0%			13.5%			10.5%		15.8%
Revenue increase vs. FY 2021		9.9%						13.5%
Net income vs. FY 2021		(59.3%)						(26.1%)

 

NEOGEN CORPORATION UNAUDITED SUMMARIZED CONSOLIDATED BALANCE SHEET DATA (In thousands)
		Feb. 28			May 31
		2022			2021
Assets
Current assets
Cash & investments	$	378,439		$	381,087
Accounts receivable		92,978			91,823
Inventory		113,395			100,701
Other current assets		23,514			17,840
Total current assets		608,326			591,451
Property & equipment, net		104,699			100,453
Goodwill & other assets		266,873			228,288
Total assets	$	979,898		$	920,192
Liabilities & Equity
Current liabilities	$	64,403		$	53,599
Non-current liabilities		39,951			26,216
Equity: Shares outstanding   107,818 at Feb. 28, & 107,468 at May 31		875,544			840,377
Total liabilities & equity	$	979,898		$	920,192

 

CONTACT: Steve Quinlan, Chief Financial Officer
                   517.372.9200, squinlan@neogen.com

 

View original content:https://www.prnewswire.com/news-releases/neogen-announces-third-quarter-results-301509892.html

SOURCE NEOGEN Corporation

FAQ

What were Neogen's revenues for the third quarter of fiscal year 2022?

Neogen reported third-quarter revenues of $128.2 million, a 10% increase from the previous year.

How much did Neogen's net income decrease due to merger costs?

Neogen's third-quarter net income was $5.4 million, adversely impacted by $10.6 million in costs related to the merger with 3M.

What impact did COVID-19 have on Neogen's international revenues?

Neogen's revenues in China decreased by 17% due to COVID-19 restrictions and poor economic conditions for pork producers.

What growth did Neogen's Animal Safety segment experience in Q3 2022?

The Animal Safety segment saw a 12% revenue increase, totaling $65.5 million, driven by strong sales of veterinary instruments.

What are Neogen's plans regarding the merger with 3M's Food Safety business?

Neogen is on track to close the merger with 3M's Food Safety business and has made strong progress with integration plans.