MICHIGAN: Neogen Corp. NEOG reported second-quarter fiscal 2016 earnings of 24 cents per share, which increased 14.3% year over year driven by a 16.3% increase in revenues that totalled $79.6 million. The strengthening of the U.S. dollar against the euro, British pound, Brazilian real and Mexican peso hurt earnings by 2 cents and revenues by $2.2 million.
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Segment Details
Food Safety revenues increased 13% to $37.2 million, primarily driven by robust performance by the allergen product line, which soared 24% on a year-over-year basis. Sales of every single food allergen test increased at least 13%. Overall organic growth at the food safety segment stood at 6% (13% at constant currency). Acquisitions of BioLumix and Lab M within the past year drove considerable top-line growth in the quarter.
Sales of general sanitation products that include the new AccuPoint advanced sanitation monitoring system (launched in June) increased 25% in the quarter under review. Sales of AccuPoint samplers, the disposable component of the system, also increased 25% on a year-over-year basis.
Sales from test for mycotoxins and other natural toxins dipped year over year, while foodborne pathogen line of products increased 11%, led by a 27% increase in sales of Listeria detecting test kits.
Animal Safety business revenues surged 19.3% on a year-over-year basis (mostly organic) to $42.4 million. Rodenticides sales surged 69% driven by higher contract manufacturing revenues and retail market share gains. A new distribution agreement with a large milk equipment manufacturer (GEA) in the commercial dairy industry also drove results.
Uniprim veterinary antibiotic sales, which Neogen acquired in 2012, increased on a year-over-year basis. Uniprim is a prescription-only combination of trimethoprim and sulfadiazine that is effective in treating a wide range of infections in animals.
GeneSeek animal genomic operations revenues increased about 35% driven by higher revenues from genomic testing for meat type chickens, and increased penetration in the swine industry.
International sales were approximately $28.7 million which equated to about 36% of total revenues. Neogen Europe revenues declined by 6% in local currency (euro) primarily due to difficult year-over-year comparisons and lower mycotoxin revenues. Brazil revenues increased 38% in local currency (real). Mexico reported revenue growth 58% in local currency (peso).
However, after conversion to U.S. dollar, Europe revenues declined 10%, Brazil revenues fell 12%, while Mexico revenues increased 28% in the quarter.
Operational Details
Gross profit increased 11.7% year over year to $38.2 million. Gross margin contracted 200 basis points (bps) to 48% due to unfavorable product mix, impact of acquisitions and the strong U.S. dollar.
Total operating expenses increased 10.8% on a year-over-year basis to $23.6 million. As a percentage of revenues, total operating expenses declined 150 bps to 29.7%.
The decline in total operating expenses, as a percentage of revenues, was primarily attributed to decline across all the expense lines. Sales and marketing declined 80 bps, administrative fell 40 bps and research & development decreased 30 bps in the quarter.
Operating income increased 13.3% to $14.6 million. Operating margin, however, contracted 40 bps on a year-over-year basis to 18.4%, due to lower gross margin.
Balance Sheet
Neogen had cash and investments of nearly $123 million as of Nov 30, as compared with $111 million at the end of Aug 31, 2015.
