Neogen (NASDAQ:NEOG) Corporation, in its first quarter 2024 fiscal year earnings call, reported a slight decline in core revenue growth and highlighted challenges in the Asian and genomics markets. Despite the difficulties, the company maintained its full-year outlook, citing increased gross margins and a significant rise in adjusted EBITDA, primarily due to the merger with the former 3M Food Safety division. This is in line with InvestingPro data, which shows a significant 73.61% EBITDA growth for the last twelve months ending in Q4 2023.
Key takeaways from the call:
- Neogen reported a 0.4% decline in core revenue growth on a pro forma basis, citing weakness in Asia and genomics. This is consistent with InvestingPro's real-time metrics, which show a 56.01% annual revenue growth for the last twelve months ending in Q4 2023, but a lower quarterly growth rate of 72.61% for the same period.
- The company saw a gross margin increase of 400 basis points to 51%, driven by higher-margin business from the 3M Food Safety transaction and positive price cost. This aligns with InvestingPro data, which indicates a gross profit margin of 49.75% for the last twelve months ending in Q4 2023.
- Adjusted EBITDA grew by 94% to $52 million, primarily due to the merger with the former 3M Food Safety division. InvestingPro data supports this, showing an EBITDA of $187.31 million for the same period.
- Despite lower-than-expected Q1 performance, the company maintained its full-year outlook. This is in line with InvestingPro Tips, which suggest that analysts predict the company will be profitable this year.
- The company is in the process of integrating the former 3M business and expects to complete the relocation of product lines by the third quarter.
- Neogen's new ERP system is operational but still experiencing some inefficiencies.
Neogen's integration of the former 3M Food Safety division, which saw a core revenue growth of approximately 1% on a pro forma basis, is on track. The company expects to complete the relocation of product lines and exit transition services agreements in the third quarter.
The company's new ERP system, although operational, is still experiencing some inefficiencies. These inefficiencies are expected to affect shipments in the second quarter. The company, however, expects a modest sequential increase in revenue and adjusted EBITDA margin in the second quarter, consistent with InvestingPro Tips that suggest revenue growth has been accelerating.
Neogen also reported a decline in the genomics business due to pricing pressure from two large customers in challenging markets. The company expects a rebound in inventory levels in the second half of the year.
Despite the challenges, the company remains optimistic about future opportunities. Neogen's adjusted net income was $24 million, driven by higher adjusted EBITDA. The transition manufacturing agreement costs will roll off, resulting in a positive margin impact. This aligns with an InvestingPro Tip which indicates that net income is expected to grow this year.
The company also addressed challenges in the poultry and swine markets during the earnings call. Despite pressure from two large customers for a price decrease, Neogen decided to decline their request, citing that it would not significantly affect profitability.
Neogen is also working on winning back customer trust in the Asia-Pacific region, where it has faced some difficulties. Despite these challenges, the company maintained its full-year outlook, citing increased gross margins and a significant rise in adjusted EBITDA, primarily due to the merger with the former 3M Food Safety division. For more in-depth analysis and tips, consider subscribing to InvestingPro, which offers 11 additional tips for Neogen.
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