Neogen Corp. (NEOG) recently posted fiscal second quarter results. The company’s GAAP net income grew 18% to $4.6 million, compared to $3.9 million in the year-ago period. Adjusting for a 3-for-2 stock split effective Dec 15, earnings per share came in at 20 cents per share, which edged past the Zacks Consensus Estimate by a penny.
 
Neogen develops and markets products dedicated to food and animal safety. The company’s Food Safety division markets dehydrated culture media, and diagnostic test kits to detect food borne bacteria, natural toxins, genetic modifications, food allergens, drug residues, plant diseases and sanitation concerns. Neogen’s Animal Safety division markets a complete line of diagnostics, veterinary instruments, veterinary pharmaceuticals, nutritional supplements, disinfectants, and rodenticides. During the quarter, Neogen completed the acquisition of BioKits food safety business of Gen-Probe Inc. (GPRO). The U.K.-based business includes more than 50 test kits for food allergens, meat and fish speciation, and plant genetics.
 
The Lansing, MI-based company recorded a growth of 13% in revenues to $35.2 million, compared to $31.2 million posted in the year-ago quarter. The growth primarily driven by a 20% increase in Food Safety division’s revenues to $18.4 million due to broad-based growth witnessed across markets and product lines, particularly drug residue test kits. Furthermore, Animal Safety division’s revenues grew 6% to $16.8 million mainly due to robust performance by Neogen’s rodenticides, cleaners and disinfectants.
 
Gross margin improved by 80 basis points (bps) year over year to 52.5% primarily on account of increased sales of higher value test kits. Operating expenses, as a percentage of revenues, decreased by 90 bps to 32% as a result of management’s stringent initiatives to control costs and improve productivity. Accordingly, operating income rose by 23% year over year to $7.2 million, while operating margin grew by 170 bps to 20.5%.
 
Neogen ended the quarter with cash and equivalents of $32.4 million, compared to $12.7 million in the year-ago period. During the first half of the current fiscal, the company generated $16.5 million of cash from operations and deployed approximately $6.5 million towards the acquisition of BioKits.
 
Bolstered by strong quarterly results, Neogen expects to achieve operating margin of 20% for the entire fiscal 2010. The Zacks Consensus Estimate on the company’s earnings for the fiscal year ending May 2010 is currently pegged at 73 cents per share, which remained constant over the past 2 months. However, the Zacks Consensus Estimate for the next fiscal has moved up a penny over the past week to 84 cents per share.
Read the full analyst report on “NEOG”
Read the full analyst report on “GPRO”
Zacks Investment Research