It has been about a month since the last earnings report for Neogen (NEOG). Shares have lost about 3.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Neogen due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Neogen's Q3 Earnings Miss Estimates, Gross Margin Expands

Neogen reported third-quarter fiscal 2024 earnings per share of 12 cents, unchanged from the prior year’s comparable period figure. The reported figure missed the Zacks Consensus Estimate by 14.3%.

Revenues in the fiscal third quarter rose 4.8% on a year-over-year basis to $228.8 million. Core revenues were 6.2%. Acquisitions and discontinued product lines did not impact core growth, while foreign currency posed a negative impact of 1.4%. The metric missed the Zacks Consensus Estimate by 0.5%.

Segments in Detail

Within segments, Neogen registered Food Safety revenues of $157.8 million in the fiscal third quarter, marking a 4.1% improvement from the prior-year period, led by 5.8% core growth and 0.2% growth from acquisitions and discontinued product lines, offset by a negative foreign currency impact of 1.9%.

The core revenue growth in the segment was led by Indicator Testing, Culture Media & Other product category, which benefited from higher sales of Petrifilm, as well as sample handling and nutritional analysis products. However, this was partially offset by a decline in culture media sales, primarily due to a larger, one-time order in the prior-year period.

Revenues from Animal Safety were $71.1 million, up 6.5% year over year. The upside was caused by a core revenue growth of 7%, a 0.2% headwind from discontinued product lines and a negative foreign currency impact of 0.3%.

The core growth in the segment was led by Neogen’s portfolio of biosecurity products, driven by new business wins and increased demand for cleaners, disinfectants and insect control products.

On a global basis, Neogen’s Genomics business witnessed a core revenue decline in the mid-single-digit range, with increased sales in international beef markets offset by customer attrition in the United States, a result of the aforementioned strategic shift in focus.

Margin Details

Neogen’s fiscal third-quarter gross profit increased 8.3% year over year to $116.9 million. The gross margin expanded 162 basis points (bps) to 51.1%. The upside was led by a favorable impact from the product mix.

Sales and marketing expenses rose 30.9% to $47.9 million, whereas administrative expenses increased 12.2% from the prior-year quarter to $52 million.

R&D expenses were $4.9 million, down 33.1% year over year. Operating costs totaled $104.9 million, up 16.2% from the year-ago quarter.

The company reported an operating profit of $12 million for the fiscal third quarter compared with $15.7 million in the year-ago quarter.

Cash Position

Neogen exited the third quarter of fiscal 2024 with cash and investments of $161.4 million compared with $205.8 million at the fiscal second quarter of 2024-end. At the fiscal third-quarter end, the company’s non-current liabilities included a total outstanding debt of $900 million and committed borrowing headroom of $150 million.

Full-Year Guidance

Neogen updated its outlook for fiscal 2024.

The company anticipates full-year revenues in the band of $910 million-$920 million (down from the previous guidance of $935-$955 million). The Zacks Consensus Estimate for the same is currently pegged at $938.1 million.

NEOG expects capital expenditures to be approximately $130 million, which includes approximately $100 million related specifically to the integration of the former 3M Food Safety Division (unchanged).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -34.29% due to these changes.

VGM Scores

At this time, Neogen has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Neogen has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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