Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Neogen Corp (NEOG, Financial) successfully relocated the former 3M sample handling product lines to their facility in Lexington, Kentucky, and is ramping up to full production levels.
- Total food safety core revenue grew in the mid-single-digit range, showing solid growth compared to the previous year.
- The USDA's Food Safety Inspection Service named Neogen's Molecular Detection System (MDS) as its primary screening method for Salmonella and Listeria in meat, eggs, and poultry.
- Launch of the Petrifilm automated reader, which automates the loading of Petrifilm plates, enhancing efficiency for high-volume labs.
- Neogen Corp (NEOG) expects core revenue growth in the mid-single-digit range for fiscal year 2025, with total revenue anticipated between $925 million and $955 million.
Negative Points
- Food production volumes remained mostly down on a year-over-year basis due to customer pressures.
- Core revenue in the animal safety segment declined by 3% compared to the prior year quarter.
- Worldwide genomics revenue was down mid-single digits on a core basis, particularly impacted by the shift away from small production animals in the US.
- Gross margin in the quarter decreased by 300 basis points from the same quarter a year ago, driven by costs related to distribution and logistics operations and higher inventory adjustments.
- Adjusted EBITDA margin declined by 370 basis points year-over-year, primarily due to the decline in gross margin and transaction FX impacts.
Q & A Highlights
Q: Can you give us some rate of customers that you've won back for Petrifilm, and how the new automated Petrifilm reader can drive business? Also, what percent of your customers are high-volume?
A: We saw double-digit growth in Petrifilm in Q4, particularly in Japan where we regained lost customers. The new automated reader, which can handle 300 plates, targets high-throughput food safety labs. While high-volume customers are fewer, they represent significant volume. This reader will also help us target non-food labs in the future.
Q: Should we expect the gross margin headwinds from distribution and inventory issues to be temporary?
A: The Q4 gross margin was impacted by higher inventory write-downs and inefficiencies, resulting in about 200 basis points of inefficiency. We expect these issues to improve over time, particularly in the second half of fiscal 2025, as we stabilize our operations.
Q: What are the opportunities and risks for Neogen in the next one to two years from a commercial perspective?
A: Opportunities include leveraging the One Neogen portfolio to drive share growth, particularly in underpenetrated regions like Asia and Europe. We also see growth potential in new product developments like the MDS for pathogen testing. Risks include the successful integration of new Petrifilm manufacturing and market conditions, particularly in the production animal segment.
Q: What are the remaining risks and opportunities from a P&L perspective in the next one to two years?
A: Near-term risks include the need for a year without significant integration challenges. We expect a lighter first half of fiscal 2025 due to previous shipping constraints but anticipate a stronger second half. Long-term opportunities lie in achieving unconstrained growth and driving operational efficiencies.
Q: What is the bridge to achieving the $300 million EBITDA goal?
A: The key drivers are growth and operational efficiencies. We need to reach over $1 billion in revenue and improve fall-through rates, particularly with high-margin products like Petrifilm. The integration thesis remains intact, and we expect strong incrementals on growth.
Q: What is baked into the high and low end of the revenue and EBITDA guidance ranges?
A: The guidance considers a couple of points impact from previous supply constraints and a slow recovery in the food safety end market. We also assume a lower part of the cycle for the animal safety market. These factors could influence the results positively or negatively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
