Why Is Food Safety Firm Neogen Stock Trading Lower Today?

Neogen Corporation NEOG reported Q1 FY24 sales of $229 million, an increase of 73.0% Y/Y, missing the consensus of $231.1 million.

Core revenue declined 1.3%. Acquisitions and discontinued product lines contributed 73.5% to revenue growth, while foreign currency added 0.8%.

It reported an adjusted EPS of 11 cents, which missed the consensus of 12 cents.

Gross margin was 51.0%, up from 47.0% a year ago, primarily due to higher gross margins generated by incremental revenues from the former 3M Food Safety Division.

Revenues for the Food Safety segment were $166.3 million, up 157.2% Y/Y.

Revenues for the Animal Safety segment were $62.7 million in the first quarter, compared to $67.7 million a year ago.

Guidance: Considering Q1 results, as well as typical seasonality of revenue and the expectation of an improved end-market environment in 2H 2023, the company continues to anticipate FY24 revenue of $955 million-$985 million, versus the consensus Of $968.41 million.

The company sees adjusted EBITDA of $235 million to $255 million.

William Blair writes that Q1 sales and EBITDA were about 1% and 6% below their estimates, respectively, with weakness attributed to continued destocking in the animal health segment and worsening macro conditions in China that negatively impacted the acquired 3M Food Safety business. 

The analysts Brandon Vazquez and Justin Lin say the earnings release points to “encouraging” demand for key products like Petrifilm in Q2, giving some incremental confidence in reiterated guidance, though they look for more details around management’s confidence in this range.

William Blair reiterates the Outperform rating.

Price Action: NEOG shares are down 2.36% at $16.57 on the last check Tuesday.