Neogen Corp. (NEOG) posted an impressive 14.3% rise in adjusted earnings per share to 24 cents for fiscal 2015-first-quarter (ended Aug 31, 2014) from the year-ago level of 21 cents and inched past the Zacks Consensus Estimate by a penny. Net earnings in the first quarter increased 13.3% to $8.9 million from $7.8 million a year ago.
Following the announcement of the first quarter results, Neogen witnessed two upward estimate revisions over the last seven days for fiscal 2015, with no downward revision over the same time frame. The Zacks Consensus Estimate for fiscal 2015, however, remained flat at 93 cents per share in the same period. Since the earnings announcement, shares of Neogen rose 0.2% to close at $40.91 yesterday.
Revenues spiked 15.5% year over year to $67.6 million, but missed the Zacks Consensus Estimate of $70 million.
Segment Details
Neogen’s Food Safety business recorded year-over-year growth of 3.2% in revenues to $31.0 million in the first quarter. Revenues were boosted by increased sales of multiple product lines in several market segments, which more than offset lower sales of mycotoxin and meat speciation test kits. Higher consumable vial sales associated with Neogen's Soleris test system also drove the revenue growth.
Revenues from the Animal Safety segment soared 28.3% to $36.6 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, rodenticide products, veterinary syringes, forensic kit sales and fly control products also boosted revenues.
Revenues from GeneSeek – Neogen’s agrigenomic business – improved in the reported quarter on increasing market acceptance of the product line and the development of new genomic products. The upside was also driven by a 52% increase in genomic sales from Neogen's subsidiary in Scotland.
Expenses and Margins
Neogen’s gross profit grew 12.2% to $34.1 million in the reported quarter. However, gross margin contracted 150 basis points (bps) to 50.4% in the first quarter of fiscal 2015 from 51.9% 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 18.4% to $12.2 million, while general and administrative expenses rose 8.6% to $6.0 million. Also, the research and development expenses spiked 15.2% to $2.4 million.
Despite increased operational expenses, operating earnings rose 8.2% to $13.4 million but operating margin contracted 130 bps to 19.9% from the year-ago level of 21.2%.
Financial Update
As of Aug 31, 2014, Neogen’s cash and cash equivalents totaled $88.1 million, up 15.2% from $76.5 million as of May 31, 2014. The company had no long-term debt at the end of the year.
Zacks Rank
Currently, Neogen carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical products industry include ICU Medical (ICUI), Conatus Pharmaceuticals Inc. (CNAT) and Eagle Pharmaceuticals (EGRX). ICU Medical sports a Zacks Rank #1 (Strong Buy), while both Conatus Pharmaceuticals and Eagle Pharmaceuticals carry a Zacks Rank #2 (Buy).
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