Tag - NEOG

Most U.S. companies are gazing into cloudy crystal balls, trying to figure out what 2009 holds for them. At Neogen (Nasdaq:NEOG), the first quarter of fiscal 2009 is in the books and the future doesn’t look too shabby for this maker of food and animal safety products.

Based in Lansing, Mich., Neogen has 26 years under its belt fulfilling “A Mission That Matters,” of making the world safer for people and animals. Given the headline-grabbing woes of contaminated food such as Salmonella-laden vegetables in fast-food restaurants and E. coli-tainted beef reaching supermarkets, it’s easy to see why there’s interest in Neogen's products.

A report this summer from The Freedonia Group said U.S. demand for food safety products is likely to increase 6.5% a year to become a $3.2 billion market by 2012.

Neogen operates two divisions: food safety, which markets testing products including kits to detect such substances as foodborne bacteria, spoilage and allergens; and animal safety, marketing diagnostic and pharmaceutical products, nutritional supplements, veterinary supplies and disinfectants.

Few companies can boast a stock price rising this year, but Neogen is hanging on: up 1.32% year to date. Over the past two years, the share price has nearly doubled. Neogen stock, which is thinly traded, hit a 52-week high of $31.95 on Sept. 19, while it dropped to a low of $20.35 on Jan. 22. On Wednesday, Neogen closed at $26.90.

SmallCapInvestor.com reporter Jennifer Schonberger is reporting from the 20th Roth Capital Partners Annual OC Growth Stock Conference this week in Dana Point, Calif. The conference features presentations from more than 300 small-cap companies.

In the past six months, there have been 10 highly publicized food recalls involving harmful pathogens, such as E. coli and salmonella. With recent incidents of major food, produce and other product recalls, Neogen Corp. (Nasdaq: NEOG), maker of diagnostic kits to test the safety of food and animal products, is profiting.

“There’s no question that the increased attention and consumer activism has brought some pressure to bear, which has resulted over time with new regulation,” said Lon Bohannon president and chief operating officer of Neogen in an interview at the 20th annual Roth OC Growth Stock Conference this week in Dana Point, Calif. “We’re going to have strengthening imports at our borders, which should result in more testing going forward. Additionally, a lot of industries are taking a look at what they need to do in terms of quality and food safety. All of that has resulted in an increase.”

Markets are growing faster for Neogen on the food safety side because of greater awareness both domestically and internationally.

Going forward international markets should fuel growth for Neogen. According to Bohannon, international markets are twice as large as the domestic market for the company. Three years ago international sales comprised 26% of total sales, compared with 40% of total sales for the first half of fiscal 2008, ended Nov. 27, 2007.

Tighter regulations in Europe should assist in fueling future growth for the company. For the first half of fiscal 2008, Neogen Europe saw sales increase by 35% alone, compared with sales growth of 21% in fiscal 2007.

Some things are in the kitchen with Dinah, and they’re scary. A mycotoxin here, bacteria there, listeria, salmonella, and is that E. Coli playing around with the frying pan? Not to worry. Neogen Corporation (Nasdaq: NEOG) has test kits to smoke out everything from sulfites in shrimp to allergens in almonds.

Nothing stirs Neogen’s sales like contamination concerns and a few food recalls. Fiscal 2008 second-quarter revenue, released earlier this month, rose 23% to $27.2 million from the same period in fiscal 2007, with the food safety division up 24% to $14.5 million and animal safety up 21% to $12.7 million.

Sales of AccuPoint and related accessories, used to test food preparation surfaces, grew almost 20% in the second quarter through November. Sales of Soleris, an optical system used to detect microbial contamination, grew more than 40%. Soleris is used to uncover poor food quality and spoilage. And revenue from tests for microorganisms, such as E. Coli and friends, and demand to detect mycotoxins, which occur naturally in field crops such as corn, also grew.

Clean living makes for happier, healthier animals, too. Neogen’s animal safety division markets a line of diagnostics, veterinary instruments and drugs, nutritional supplements, disinfectants and rodenticides. Reducing stress on food animals such as cows by killing off pathogens and rodent barn mates, and improving the methods of administering vaccines and drugs, have a big impact on the safety and quality of meat and milk.

Sales of veterinary instruments and products rose 55% in the second quarter, while life sciences and vaccine sales dropped 10% on order timing issues and rodenticide sales were down 4% because of mild U.S. weather.

With a revenue boost from nearly each sales category, earnings for the 25-year-old Lansing, Mich.-based company rose 34% to $0.22 per share in the second quarter from a year-ago. Net income in the second quarter was a record — the 59th consecutive profitable quarter from operations for Neogen.

Neogen Corp. (Nasdaq: NEOG) COO Lon Bohannon said during a midday conference call that skyrocketing grain and petroleum prices are keeping him awake at night.

“We do have some challenges to keep life interesting and, I guess in some cases, to provide job security for some of us here at Neogen,” Bohannon said. “The increases definitely have an impact on our cost.”

The commodity price increases put pressure on Neogen’s customers, who rely on grain for food and animal production. Soaring petroleum prices increase Neogen’s costs for acquiring packaging, plastics and film, which are used to produce products. Neogen makes food safety testing products used to detect dangerous substances in human food and animal feed.

Soaring prices can have unintended positive aspects however, Bohannon said. He said the company has sold more toxin-detecting kits to ethanol producers during the first six months of fiscal 2008 than during the entire fiscal 2007.

“I believe we have also identified additional new prospects as more of these ethanol plants come online and we can further expand our sales to this industry in the quarters and years ahead with some new products and some new formats of existing products,” Bohannon said.

Bohannon said he believes Neogen will be able to raise prices on its products without a serious risk of losing business because of the firm’s quality and customer service offerings.

Over the past five years, the food-safety market has more than doubled in size to $1.6 billion and it's expected to grow at a 5.5% clip through 2010. The U.S. food safety testing market generates sales of about $600 million, while the worldwide market for animal safety products is estimated to exceed $14 billion annually.

Corporate liability concerns and government regulations affecting food producers are increasing spending on food safety testing. Food packaging companies face serious consequences if products become contaminated by harmful bacteria, toxins, unlabeled food allergens or other contaminants. A coalition of consumer and industry groups are pressing the Bush administration to double the U.S. Food and Drug Administration’s food safety budget, now about $450 million per year.

Two companies benefiting from increased food safety testing are Neogen Corporation (Nasdaq: NEOG) and Strategic Diagnostics Inc. (Nasdaq: SDIX).

Neogen through its subsidiaries, is a leading provider of food safety testing and animal health products. Neogen’s Food Safety segment develops and markets diagnostic test kits for detecting dangerous or unintended substances in human or animal food, including food-borne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, drug or pesticide residues or general sanitation concerns. The company’s animal safety segment produces and sells pharmaceuticals, rodenticides, disinfectants, vaccines, veterinary instruments, topical ointments and diagnostic kits. Neogen markets its products directly as well as through a network of national and international distributors and large farm supply retail chains. It operates in the United States, Latin America, Asia and Europe.

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.