Neogen Corp. (NEOG) posted fiscal 2010 third-quarter results on Monday. The company’s net income recorded a strong growth of 37.5% to $3.9 million, or 17 cents per share from $2.8 million, or 12 cents per share in the year-ago period. The result also squeezed past the Zacks Consensus Estimate of 16 cents and was primarily driven by robust sales of food safety test kits.
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 foodborne 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.
The Lansing, MI-based Neogen witnessed a growth of 21.5% in total revenue to $33.8 million, from $27.8 million posted in the year-ago quarter. The increase was mainly attributable to a strong 39.1% growth in Food Safety division’s revenues to $19.7 million due to higher sales of mycotoxin (a toxin produced by fungus) test kits and dehydrated culture media.
The company witnessed significant demand for test kits during the quarter as cool, wet weather conditions in the US Corn Belt during last summer and fall led to an outbreak of mycotoxin. Neogen’s Animal Safety division’s revenues recorded a modest growth of 3.3% year-over-year to $14.1 million as growth in rodenticides and vitamin injectables were partially offset by the impact of a sluggish animal protein market.
Neogen’s gross margin increased by 480 basis points (bps) year-over-year to 51.6%, primarily due to management initiatives to boost productivity and efficiency coupled with increased sales of higher margin test kits. Operating expenses rose by 23.9% year-over-year to $11.7 million. However, robust growth in sales and gross margin more than offset the increase in operating expenses. Consequently, operating income surged by 61.0% year-over-year to $5.7 million, while operating margin rose by 420 bps to 17.0%.
Neogen ended the quarter with cash and equivalents of $31.1 million, compared to $13.7 million in the year-ago period. During the first nine months of the current fiscal year, the company generated nearly $22.0 million of cash from operations and deployed approximately $6.5 million towards the acquisition of UK-based BioKits food safety business of Gen-Probe Inc. (GPRO).
Meanwhile, the Zacks Consensus Estimate on Neogen’s earnings for the fiscal year ending May 2010 presently stands at 74 cents per share, which moved down a penny over the past two months. However, the Zacks Consensus Estimate for the next fiscal, derived from five covering analysts, has remained steady at 86 cents per share over the past three months.
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