Neogen plunges on Q3 miss, CEO seeks growth for gene-testing

two farmers feeding cows

Shares of Michigan-based Neogen ($NEOG) fell 12% to $46.06 on March 23, after the company announced third-quarter results that fell short of expectations. There was one bright spot, however: GeneSeek, its genomic-testing business based in Lincoln, NE, saw its revenues spike 24% on increased demand for swine, cattle and dog testing services.

During the quarter, total sales for Neogen, which also makes food-safety testing products, grew 12% year-over-year to $76.7 million. Net income was up 12% to $8.3 million, or 22 cents per share. Analysts had been expecting sales of $78.1 million and EPS of 25 cents, according to Zacks Investment Research.

In a press release announcing the results, Neogen CEO James Herbert cited "continuing currency headwinds" around the world as a major challenge, because the company derives much of its revenues from overseas markets. But he expressed optimism in continued demand from those overseas customers. "Despite the challenges that negatively impacted our operating results, we are well-positioned globally to continue to grow Neogen well into the future," he said.

During a conference call with analysts after the release, Herbert said he has identified a major growth opportunity for GeneSeek in helping dairy and beef producers around the world breed calves with optimal traits. The company opened a Canadian operation for GeneSeek in October. Herbert said during the call that Neogen has now started a new program in Brazil, where the demand for gene-testing products to improve beef cattle breeding is particularly high.

Brazil, said Herbert, is "going to continue to be one of the important suppliers of beef to the world." After spending time recently in Brazil, talking to beef producers, Neogen's executives are enthusiastic about the opportunities there, he said, though he declined to make any concrete forecasts. "It's good, I just don't know how fast it will grow."

Neogen's GeneSeek launched new testing services over a year ago that can screen cattle for 150,000 gene markers linked to sought-after traits. It also offers gene testing for swine, poultry and dogs--all of which experienced high demand in the most recent quarter, the company reported. During the earnings call, Herbert estimated that the company was on track to test 1.5 million samples during this fiscal year, up 2% over fiscal 2015.

- here's the earnings release
- read a transcript of the earnings call at Seeking Alpha