Neogen says China food recalls will not materially boost sales

Jennifer Schonberger | Sep 27, 2007 2:01pm EDT | Comment

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With 68 food recalls within the past quarter, one would expect an increase in margins for Neogen Corporation (Nasdaq: NEOG), but the manufacturer of diagnostic kits to test the safety of human and pet food said on a fiscal first quarter 2008 earnings call this morning that food recalls from China have not substantially impacted the top line.

The small cap said revenues in its food safety segment grew 20% and that China food recalls did not have a significant impact on actual sales of diagnostic test kits; rather, the sales increase was due to focused marketing and sales programs.

“China is still in its infancy [with regard to food safety] and it will take time before China represents a substantial portion of international revenue streams,” Neogen CFO Richard Current said.

However, Current said that as the country continues to export products and with the upcoming Olympics, more emphasis will be placed on food safety.

“In the short term there’s no question that with the Olympics, the Chinese government has an interest in food safety, as the country knows it’s a chance to make an impression on the world’s perception of China,” said Current.

The CFO said at this point, China would be interested in easy and simple tests they can use to examine water and food in conjunction with the major event. He said Neogen’s AccuPoint general sanitation system is currently the greatest sales opportunity for the company; there are 125 units in China already. Sales of Accupoint were up roughly 50% for the quarter.

Going forward, Neogen will be positioned well if China strives to improve the quality of food for consumption. “No one knows for sure how it will all play out—it’s a developing area. We’re not investing a lot of resources over there, but it is an opportunity,” Current said.

Shares of Neogen (NEOG) gained $0.12, or 0.54%, to $22.20 in afternoon trading Thursday. Over the last 52 weeks, shares have ranged from $12.85 to $23.29.