Gene-testing business boosts Neogen's sales but earnings fall short of high expectations

After Neogen ($NEOG) released disappointing first-quarter earnings in September, its shares dropped 8% to $49.36--a sign that expectations had reached unprecedented heights for the Michigan-based maker of animal safety and gene-testing products. The stock recovered, and the company continues to chart double-digit sales and earnings growth, even though currency woes continue to be a drag on its bottom line, as it announced Monday before the market opened.

Neogen said revenues in its fiscal second quarter grew 16% year over year to $79.6 million, and that its net income was also up 16%, to $9 million, or $0.24 per share. The earnings missed analysts' expectations by $0.02 a share. Currency fluctuations were to blame, the company said in a press release, as it suffered particularly poor conversion rates affecting the euro, British pound, Mexican peso and Brazilian real.

One bright spot for Neogen was growing demand for GeneSeek, its service that screens cattle DNA for up to 150,000 genetic variations and provides other genomic-testing services for both the food and companion animal markets. GeneSeek revenues rose 35% in the second quarter from the same period a year ago, thanks to an uptick in orders for its testing products for chicken and swine, the company announced.

Neogen, which also makes products for the food safety industry, has been working to expand its presence in animal health. In June, it acquired Sterling Test House of India, which gave the company a home base for its animal safety business in that country. And in October, it announced that it is opening an office in Canada, which will initially focus on marketing GeneSeek.

On Wall Street, Neogen has been a hot property, with its shares up 19% for the year. That advance led TheStreet to advise its readers to take some profits out of the company before its Monday earnings release. Why? Shares were trading just a few dollars below the average analysts' 12-month target price of $61, TheStreet pointed out, and it was trading at a price-earnings ratio of 65, vs. just 21 for the Standard & Poor's 500 index. That puts the onus on the company to exceed analysts' predictions for next quarter and the full fiscal year.

Following the earnings release, Neogen's shares dropped 2.5% in premarket trading to $56.53.

- here's Neogen's earnings release
- get more at TheStreet