A third quarter 12-percent increase in net income and a similar 12-percent increase in revenues beat back ongoing headwinds faced by Lansing-based Neogen Corporation, which is the parent to St. Joseph's International Diagnostic Systems, or IDS, on Cleveland Avenue in St. Joseph Charter Township. Both figures set records for the 33-year old company once again.
Neogen Corporation announced today that its net income for the third quarter of fiscal 2016, which ended February 29, increased 12-percent to $8,311,000, when compared to the prior year’s $7,454,000. Earnings per share in the current quarter were $0.22, compared to $0.20 a year ago. Current year-to-date net income increased 11-percent over prior year to $26,707,000, or $0.71 per share, compared to $24,142,000, or $0.65 per share, for the same period a year ago.
Revenues for the third quarter of fiscal 2016 also increased 12-percent to $76,725,000, from the previous year’s third quarter revenues of $68,409,000. That increase was aided by recent acquisitions completed by the company, and was achieved despite a shortfall of approximately $1.8 million in comparative revenues due to currency conversions. Overall organic growth for the company was 10-percent for the quarter. The quarterly revenue and net income results represent third quarter records for the 33-year-old company. Year to date fiscal 2016 revenues increased 13-percent to $231,196,000 from fiscal 2015’s $204,463,000.
James Herbert is Neogen's Chairman & CEO. He says today, “We achieved these third quarter results despite the continuing currency headwinds that most American companies with significant global revenue streams are now facing.” He points out that, “Despite the challenges that negatively impacted our operating results, we are well-positioned globally to continue to grow Neogen well into the future.”
The third quarter was the 96th of the past 101 quarters that Neogen reported revenue increases as compared with the previous year — including all consecutive quarters in the last 11 years.
Richard Calk is Neogen's President & Chief Operating Officer. He says, “Regulations and consumer demand aimed at improving the safety, quality and quantity of food are proliferating around the world, and Neogen is there to meet that demand.” He adds, “Our products, services, and expertise fit extremely well within traditional food industry practices, as well as the emerging organic and antibiotic-free markets.”
Neogen’s gross margin was 45.9-percent in the third quarter, compared to 49.3-percent for fiscal 2015’s third quarter. Factors contributing to the change in gross margin included a shift in mix toward product lines with lower gross margins, adverse currency translations, incremental revenue from acquisitions that have gross margins lower than the company’s historical average, and standard cost adjustments. Operating income was $11.3 million, or 14.7-percent of sales, in the current quarter, compared to $12.2 million, or 17.8-percent, in the third quarter of the company’s 2015 fiscal year. The reduction in operating income percentage was the result of the reduction in gross margin percentage. Pre-tax income was favorably impacted by net gains from currency hedging activities, recorded through other income, and increased interest income. Neogen’s effective tax rate for the current quarter was 28.8-percent, compared to 36.3-percent in the prior year quarter, due to utilization of research and development tax credits.
Steve Quinlan serves as Neogen's Chief Financial Officer. He reports, “As in recent quarters, conversions to the U.S. dollar from the euro, the British pound, the Brazilian real, and the Mexican peso continued to negatively impact Neogen’s top and bottom lines. In our third quarter, the adverse currency effect resulted in us reporting approximately $0.02 per share of earnings less than we would have reported in a neutral currency environment.” He notes, “Despite this, our Mexican subsidiary was still able to achieve a 7-percent increase in sales in dollars in the third quarter; after increasing 28-percent in pesos. The currency impact was especially pronounced at our Brazilian subsidiary, where a 48-percent sales increase for the quarter in local currency was reduced to a 0.3-percent increase once those sales were converted to dollars. Revenues from Neogen’s Scotland-based subsidiary declined 1-percent in dollars, but were 4-percent higher in local currency, for the third quarter of the 2016 fiscal year.”
Revenues for the company’s Animal Safety segment increased 16-percent during the third quarter, almost entirely organic, compared to the prior year. As in the second quarter of the current fiscal year, the third quarter was aided by a new distribution agreement with a large equipment manufacturer in the commercial dairy industry.
Sales of the company’s rodent control products increased 60-percent in the current quarter compared to the same period in the prior year, as Neogen increased its contract manufacturing of rodenticides and continued to gain share in its retail markets. In the third quarter, Neogen also recorded a large increase in sales of its agricultural insect control products manufactured and marketed by Chem-Tech, when compared to the prior year. Neogen acquired Chem-Tech’s highly effective insecticides in January 2014, and the product line has continued to grow under the company’s ownership. Neogen’s Prozap insecticide brand is well known in the large animal production industry, and is particularly popular with dairy and equine producers. These revenue increases more than offset declines in revenues from sales of the company’s veterinary instruments, and cleaner and disinfectant product lines for the quarter.
In the current year third quarter, revenues for the company’s Food Safety segment increased 8-percent compared to the prior year, aided in part by the August 2015 acquisition of Lab M. Overall organic growth for the Food Safety segment was 4-percent for the quarter, and 10-percent in constant currency. The current third quarter Food Safety sales performance was led by a 19-percent increase in sales of Neogen’s rapid tests for food allergens, such as gluten and peanuts. This increase was aided by increasing global food allergen regulatory efforts, and strong initial sales of Neogen’s new product to simultaneously detect six tree nuts (i.e., almond, hazelnut, pecan, walnut, cashew, and pistachio) with one test.
Neogen Corporation and its St. Joseph subsidiary, International Diagnostic Systems on Cleveland Avenue develop and market 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, food allergens, drug residues, plant diseases and sanitation concerns. Neogen’s Animal Safety Division is a leader in the development of animal genomics along with the manufacturing and distribution of a variety of animal healthcare products, including diagnostics, pharmaceuticals, veterinary instruments, wound care and disinfectants.
