NEOG

Neogen Corporation (NEOG)

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Neogen Corporation (NEOG)

F1Q2011 Earnings Call Transcript

September 23, 2010 11:00 am ET

Executives

Jim Herbert – Chairman and CEO

Lon Bohannon – President and COO

Rick Current – VP and CFO

Analysts

Matt Hewitt – Craig-Hallum

Marco Rodriguez – Stonegate Securities

Trey Cobb – Stephens

Steve O'Neil – Hilliard Lyons

Greg Halter – Great Lakes Review

Bill Butler [ph]

Ken Rees [ph]

Joseph Poston [ph] – Wells Fargo

Presentation

Operator

Welcome to the first quarter fiscal year 2011 earnings announcement conference call. My name is Monica and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I would now like to turn the call over to Jim Herbert. Mr. Herbert, you may begin.

Jim Herbert

Good morning and welcome to our regular quarterly conference call for investors and analysts. As indicated today, we will be reporting our Neogen's fiscal year 2011 first quarter, which ended on August the 31st.

And I would remind you that some of the statements that are made here today could be termed as forward-looking statements. These forward-looking statements, of course, are subject to certain risks and uncertainties and the actual results may differ from those that we discuss today. These risks associated with our business are covered in part in the company's Form 10-K as filed with the Securities and Exchange Commission.

In addition to those of you who are joining us today by live telephone conference, I also welcome those who may be joined by way of simulcast on the Worldwide Web. These comments along with some exhibits will be available on for approximately 90 days.

Following comments this morning, we will entertain questions from participants who are on the live call and I'm joined today by Lon Bohannon, Neogen's President; and Rick Current, our Chief Financial Officer.

Earlier today, Neogen issued a press release announcing the results of our first quarter of the company's new year. And once again, I am pleased to report a record-breaking quarter and I continue to give credit to the team of 600 employees who continue to remember that the toughest thing about a success is that you have to keep on being a success.

Our first quarter revenues climbed 33% over the same quarter last year and at same quarter a year ago, that was a nice double-digit increase by the way. Revenues for the quarter were $42 million – $42.9 million as compared to $32.3 million last year. Frankly, the revenues didn't come as a big surprise to management since they came in within about 1% of what our budgeted numbers were.

Once again, revenues added to the company's stream of successes, marking this as the 74th quarter and in fact, 79 in which we have shown increased revenues compared to the same quarter a year earlier. That revenue span of record now spans almost 20 years.

Even with the expansion in a number of our operating areas, we matched net income to revenues, recording also a net increase of 33% as compared to a year ago. The first quarter net income of $5.8 million translated to $0.25 a share and a little ahead of the analysts' expectations. Actual net income from operations was even better at a 38% increase compared to the prior year.

The credit for the outstanding performance this quarter can be shared by both food and animal safety divisions and the various operating units within each of those two groups. For the quarter, we maintained the same balance of revenues between the U.S. and our international sales, with revenues from international sources accounting for about 40% of the total.

We maintained that balance, even though currency translation for the quarter detracted from that record due to the increased value of the dollar as compared to both the euro and the pound. These translations accounted for almost $700,000 reduction in revenue as compared to a year earlier and a $500,000 reduction in operating income.

Though hurt by the currency translations, our Neogen Europe operations continued to show outstanding growth and on a pound sterling comparison, revenues were up approximately 50% as compared to a year earlier. Even after the translation, Neogen Europe showed a 40% increase as compared to a year earlier.

Our Mexico operations provided growth results with revenues there up approximately 70% compared to a year earlier. And that subsidiary, as I think most of you know, is responsible for both our food and animal safety product sales in Mexico.

I am also pleased to report that our Brazilian operation is now beginning to gain traction after spending most of the last year in getting Neogen do Brasil qualified to do business in various areas in Brazil and sorting through the product registration issues. This subsidiary should begin to make some noticeable increases in revenues in the quarters ahead. In fact, we will be adding additional product opportunities for the Brazilian operations in the coming months.

In the second quarter, we will begin to handle sales of our Dairy Antibiotic Test business on a direct basis rather than through a distributor, and we believe that we will be able to make some notable gains in sales of those products.

Also in the third quarter, we will take over direct sales of our cleaner and disinfectant products rather than work through a distributor and expect sales and margins will further add to the growth in Brazil. Brazil, of course, continues to be a greater factor in the world food business. It is now becoming one of the world's chief suppliers of beef, pork, chicken, milk, and soybean. And you may remember that Brazil was one of the very few countries that actually showed an increase in GDP in the last calendar year.

The drivers of our domestic market also continued to show good promise for the months ahead. During the last four months, there were 77 food recalls in the U.S. due to food safety issues. This is further evidence of our prediction that food producers and processors will continue to face problems with the safety of the food supply as we increase production to take care of increasing world demand.

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