Gene testing and animal safety services drive double-digit growth at Neogen

Neogen CEO James Herbert

Michigan-based Neogen ($NEOG) said Thursday that its third-quarter revenues grew 10% year over year to $68.4 million and net income rose 13% to $7.5 million, despite negative currency trends that continue to impede the company's overseas expansion plans. The growth came not only from the company's food safety products, but also from its animal safety and genomics segment, which recorded a 7% increase in sales. Total earnings per share rose to 20 cents from 18 cents in the same period a year ago.

One major bright spot for Neogen was GeneSeek, its Nebraska-based genomics lab, which recently introduced new tests that can screen cattle DNA for 150,000 gene-marker variations linked to sought-after traits. The unit also moved to a larger facility last May, which greatly increased its capacity, according to the company's earnings release. That helped drive revenues from GeneSeek up 29% year over year in the third quarter.

During a call with analysts after the earnings release, Neogen's executives said that GeneSeek is screening as many as 200,000 DNA samples per month. They explained that ranchers with desirable heifers are able to command high prices for new calves, boosting the demand for technologies that can help them screen for the best traits in their breeding heifers. "This group continues to offer new iterations of its custom chip and service offerings, primarily developed to aid beef and dairy cattle producers and they continue to perform well in their markets," said Steve Quinlan, chief financial officer, during the call.

Neogen is also benefiting from its October acquisition of BioLumix, a maker of automated systems for detecting microbial contaminants. That addition helped boost revenues in the company's food safety segment 14% year over year. The deal also ended 7 years of litigation between the two companies.

Currency fluctuations continue to put a damper on Neogen's results. For example, the company said that sales in its Scotland-based European unit were up 12% in the quarter, but when they converted the pounds sterling to dollars, the increase dwindled to 4%. The overall quarterly results did not live up to the expectations of analysts, who were hoping the company would earn 23 cents per share on revenues of $70 million.

Currency challenges are not affecting Neogen's overseas expansion plans, however. "We continue to believe that a large part of our growth potential is outside of the United States," said CEO James Herbert in the earnings release. "We will continue to expand Neogen's footprint into areas where significant growth potential exists, and refine our currency strategies in an attempt to mitigate adverse effects."

- here's the earnings release
- access a transcript of the earnings call here

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