Release Date: October 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Neogen Corp (NEOG, Financial) has solidified its position as the largest player in the food safety market following the 3M food safety transaction, enhancing its product portfolio and geographic reach.
- The company is benefiting from secular tailwinds in the food safety market, including increasing regulatory requirements and consumer expectations for food transparency.
- Neogen Corp (NEOG) is seeing growth in its large animal genomics business, particularly in the beef and dairy segments.
- The company has resolved ERP-related challenges in its primary distribution center, improving operational efficiency.
- Neogen Corp (NEOG) is making progress in regaining market share, with encouraging responses from initial efforts to win back previously impacted customers.
Negative Points
- Neogen Corp (NEOG) experienced a 1% decline in core revenue for the first quarter, with foreign currency posing a 390 basis point headwind.
- The Animal Safety segment is facing challenges due to cyclical lows in end market conditions, particularly in the United States.
- The company saw a decline in its genomics business on a year-over-year basis, with weakness in the companion animal segment.
- Gross margin decreased by 260 basis points year-over-year, driven by lower volume and higher distribution costs.
- Neogen Corp (NEOG) is facing challenges in customer recovery, particularly in the US, due to previous shipping delays and needs to demonstrate consistent supply to win back trust.
Q & A Highlights
Q: How is Neogen planning to allocate investments in sales, marketing, and R&D following the 3M acquisition?
A: David Naemura, CFO, mentioned that Neogen is focusing on commercial investments, particularly in international regions, due to the critical mass achieved post-3M acquisition. The company is also prioritizing R&D investments in the Petrifilm platform, which is seen as a significant growth opportunity.
Q: What is Neogen's strategy regarding debt management and potential acquisitions?
A: David Naemura, CFO, stated that the primary capital allocation priority is funding the integration of 3M, followed by reducing leverage. As leverage decreases, it will free up capacity for mergers and acquisitions. The company aims to reach around 3 times net leverage by the end of the fiscal year.
Q: Can you provide an update on the customer recovery efforts following the Petrifilm stock-out issue?
A: John Adent, CEO, explained that Neogen has successfully regained customers in Japan and is seeing growth there. However, broader business recovery, particularly in the U.S., will take longer as the company works to rebuild trust and demonstrate consistent supply.
Q: How is Neogen addressing customer losses and what feedback are they receiving from clients?
A: John Adent, CEO, noted that customers have expressed frustration, but Neogen is sharing improvements and efficiency gains with them. The company is having constructive discussions and has been able to resign contracts with many customers after demonstrating improvements.
Q: What are the expectations for Neogen's financial performance for the rest of the fiscal year?
A: David Naemura, CFO, indicated that the company expects a more second-half weighted year, with improvements in revenue volumes and gross margins. The guidance remains unchanged, and the company is monitoring the timing and pace of share recovery and broader market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
