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Neogen (NEOG) Down 17.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Neogen (NEOG). Shares have lost about 17.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Neogen due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Neogen Post Revenue Growth on Strong Food Safety Business

Neogen reported earnings of 29 cents per share in the first quarter of fiscal 2019. The figure considers adjustment for a 4-for-3 stock split effective Dec 29, 2017. The bottom line beat the Zacks Consensus Estimate of 28 cents and increased 26.1% from the year-ago quarter.

Revenues increased 4.6% on a year-over-year basis to $99.63 million, missing the Zacks Consensus Estimate by 3.71%.

Per Neogen, growing revenues from key food safety products, including tests for foodborne pathogens and sanitation, contributed to the top-line growth. Also, continued double-digit growth in the company's global animal genomics business boosted the top line.

Revenues in Detail

Food Safety Segment: Revenues at the segment totaled $52.2 million, up 12.7% on solid overall organic growth. Sales of the foodborne pathogen detection tests, like Listeria and Salmonella, rose 43% year over year in the reported quarter. Revenues also included contribution from Neogen's Listeria Right Now test system.

The company witnessed a 16% rise in sales of Culture Media products on continued strength in synergistic global combination of its former Acumediaand Lab Mculture media brands. There was also a 17% jump in sales of sanitation test systems from the year-ago period.

Animal Safety Segment: The segment recorded revenues of $47.4 million, reflecting a 1% decline from the year-ago quarter. Difficult business conditions in the animal protein sector resulting in weakness in the distribution channel led to the decline in Animal safety business revenues.

Furthermore, decreasing sales at the segment's animal care, life sciences, and cleaner and disinfectant product lines also dented revenue growth.

However, a 21% rise in sales of the company's biologics, including BotVax B equine botulism vaccine and EqStimimmunostimulant, a 23% increase in sales of the detectable D3 Needles along with a 63% rise in sales of the water treatment disinfectants had partially offset the decline in Animal safety revenues.

The worldwide genomics business unit recorded a 15% increase in the reported quarter. Per management, this growth is partly attributable to the September 2017 buyout of the University of Queensland Animal Genetics Laboratory in Australia. Also, the upside is backed by robust revenues from the company's bovine business, which includes commercial beef and dairy product lines.

Margin Details

Gross margin contracted 80 basis points (bps) to 46.9% in the first quarter, largely because of a 7.3% rose in cost.

Adjusted operating income was $16.5 million, compared with $16.4 million in the year-ago quarter. Operating income accounted for 16.6% of sales in the first quarter compared to 17.4% of sales a year ago, which implies an 80-bps contraction.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Neogen has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Neogen has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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