Neogen Q4 Earnings Lag Estimates but Up Y/Y on Higher Revenues

Neogen Corp. (NEOG) posted a 5.3% rise in adjusted earnings per share to 20 cents for fiscal 2014-fourth-quarter (ended May 31, 2014) from the year-ago level of 19 cents. However, adjusted earnings fell short of the Zacks Consensus Estimate by a penny.

Net earnings in the fourth quarter increased 7.2% to $7.5 million from $7.0 million a year ago while revenues spiked 20.1% year over year to $67.2 million.

Full-year Results

For fiscal 2014, Neogen reported adjusted earnings per share of 76 cents, up 1.3% from 75 cents in fiscal 2013 but down from the Zacks Consensus Estimate of 77 cents. Net earnings for the fiscal year rose 3.6% to $28.2 million from $27.2 million in fiscal 2013.

Revenues for the fiscal year stood at $247.4 million, up 19.2% from $207.5 million in fiscal 2013.

Segment Details

Neogen’s Food Safety business recorded a year-over-year growth of 4.4% in revenues to $29.9 million in the fourth quarter. Revenues were boosted by increased sales of multiple product lines in several market segments, which more than offset lower sales of mycotoxin test kits. Neogen’s AccuPoint product line and increased sales of instruments and disposables associated with Neogen's Soleris test system also drove the revenue growth.

Revenues from the Animal Safety segment soared 36.5% to $37.4 million. The upside was significantly driven by the successful integration of recent acquisitions by Neogen – Chem-Tech agricultural insecticides in Jan 2014, Prima Tech veterinary instruments in Nov 2013, and SyrVet veterinary instruments in Jul 2013. Strength in Neogen’s line of proprietary detectable veterinary needles, biologics and animal care products considerably mitigated the decline in its line of small animal supplements.

Revenues from GeneSeek – Neogen’s agrigenomic business – also improved on increasing market acceptance of the product line and the development of new genomic products.

Revenues from Neogen's Scotland-based subsidiary increased 24% in fiscal 2014, with higher sales of food allergen test kits, lab services, and several other key products. Further, Neogen achieved a 39% increase in sales of food and animal safety products at its Brazilian subsidiary, while its Mexican subsidiary posted an 18% increase for fiscal 2014.

Expenses and Margins

Neogen’s gross profit grew 12.9% to $32.0 million in the reported quarter. However, gross margin contracted 310 basis points (bps) to 47.6% in the fourth quarter of fiscal 2014 from 50.7% in the comparable year-ago period. The decline was mainly due to the shift in overall revenue toward animal safety products, along with product mix shifts within each segment.

Sales and marketing expenses increased 22.2% to $12.9 million on the back of higher personnel related costs, elevated marketing and advertising activities, and increased shipping costs owing to higher volumes.

General and administrative expenses rose 10.7% to $6.3 million, reflecting higher salary and fringe costs for increased personnel, spiraling amortization expenses associated with recent acquisitions, stock option expenses and legal fees.

Meanwhile, research and development expenses declined 2.7% to $1.8 million. Despite an increase in operational expenses, operating earnings rose 7.4% to $11.0 million but operating margin contracted 200 bps to 16.3% from the year-ago level of 18.3%.

Financial Update

As of May 31, 2014, Neogen’s cash and cash investments totaled $76.5 million, lower than $85.4 million as of May 31, 2013. The company had no long-term debt at the end of the year.

Zacks Rank

Currently, Neogen carries a Zacks Rack #3 (Hold). Better-ranked stocks in the medical products industry include Hospira Inc. (HSP), Wright Medical Group Inc. (WMGI) and Alere Inc. (ALR). While Hospira and Wright Medical Group sport a Zacks Rank #1 (Strong Buy), Alere carries a Zacks Rank #2 (Buy).