NEOG

Neogen Corporation (NEOG)

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Neogen (NEOG)

Q3 2011 Earnings Call

March 22, 2011 11:00 am ET

Executives

Lon Bohannon - President, Chief Operating Officer and Director

James Herbert - Chairman and Chief Executive Officer

Steven Quinlan - Chief Financial Officer

Analysts

Brad Hoover - Sidoti & Company, LLC

Scott Gleason - Stephens Inc.

Gregory Halter - Great Lake Review

Joseph Hartman

Anton Brenner - Roth Capital Partners, LLC

Steven Crowley - Craig-Hallum Capital Group LLC

Presentation

Operator

Welcome to Neogen's Third Quarter Fiscal Year 2011 Earnings Results Call. My name is Monica and I'll be your operator for today's call. [Operator Instructions] I will now turn the call over to Jim Herbert. Mr. Herbert, you may begin.

James Herbert

Well, good morning, and welcome to our regular quarterly conference call for investors and analysts. And as Monica reported or suggested, we'll be reporting on our third quarter which ended on February 28, as well as the results of the first nine months of the year or our first three quarters of this fiscal year.

But to start with, I'd 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 that are associated with our business are covered in part in the company's Form 10-K as filed with the Securities and Exchange Commission.

And in addition to those of you joining us today by this live telephone conference, I'd also welcome those who may be joining by way of the simulcast on the World Wide Web. These comments, along with some exhibits, will be available on the Web for approximately 90 days. Following comments this morning, we'll entertain questions from participants who are joined on this live telephone conference. And I'm joined today by Lon Bohannon, Neogen's President; Steve Quinlan, our Chief Financial Officer; and in fact, Rick Current, the former CFO who now works part time from his water residence is also with us this morning to fill in on any historical financial questions that might come up.

Earlier today, Neogen issued a press release announcing results of our third quarter for the 2011 fiscal year. Once again, I'm pleased to report another record-breaking quarter and I continue to give the credit to our team of over 600 employees located in several places around the world who continue to remember that the toughest thing about success is you have to keep on being a success.

Net income for the third quarter increased 27% from the previous year to approximately $4.9 million or $0.21 a share. This compares with last year's earnings per share of $0.17. Our third quarter revenues increased 25% to approximately $42.2 million, which is another record for our 28-year old company. For the first nine months, our revenues show an increase of 27% in the current fiscal year as compared to -- up to $129 million as compared to last year's approximately $101 million.

The net income for the first nine months of this year is up 31% to approximately $16.9 million from $12.9 million a year ago. And putting that on a per share basis, this year's earnings are now standing at $0.71 as compared to last year's $0.56. As with the last quarter, our revenues are coming amazingly close to our budgets. Last quarter, I reported to you that our actual revenues were about 99.5% of what we’d budgeted. This quarter, they came in at 101% of budget despite the fact that we had some currency translation issues.

Once again, the revenues of this quarter added to Neogen's stream of quarterly revenue increases or successes marking our 76th quarter in the past 81 in which we've shown increased revenues as compared to a year earlier. Or stated another way, we've only been five quarters, there's only been five quarters in over 20 years that we failed to beat the previous year's revenue. Frankly, this was a quarter in which everybody did their job. Those of you who have followed the company and know that operating profit is the best overall barometer for our success. Some of our businesses have less gross margin than others, but they also have lower operating expenses.

Operating income for the third quarter increased by 40%. This helped push our operating income for the first nine months up to 21.1% as compared to 19.6% a year ago. I think there are several items on the balance sheet that are noteworthy this morning. As an example, even though we had a strong growth in the first nine months of this year, our inventory levels are essentially the same as they were nine months ago. Obviously, our accounts receivable would be expected to be up and they are. However, at the end of February, if I looked at things right at our accounts receivable, actual aging was better than it was at the beginning of the year. A lot of credit there goes to our manufacturing group for inventories and certainly to our administrative group in the attainment of their accomplishment as it relates to receivables.

The quarter was also a good one for cash generation. We generated $4.4 million in cash from operations during the quarter, which brings our cash and securities balance now to over $47 million at the end of the quarter. I think I'll stop at this point and let Lon give you some color on the two operating divisions, then I'll come back with some quick wrap up and perhaps give you a glimpse of what we're seeing for the future. Lon?

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