Release Date: April 09, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Neogen Corp (NEOG, Financial) achieved a 7% core revenue growth in its Food Safety segment, indicating a solid underlying business despite market challenges.
- The company successfully completed the refinancing of its Term Loan A, extending the maturity by close to three years and realizing 60 basis points of interest rate savings.
- Neogen Corp (NEOG) has made significant progress in the integration of its transformational acquisition, with sample collection recovering to prior production levels.
- The company is focusing on its differentiated bovine genomics product offering, which has shown growth despite challenges in other areas of the genomics business.
- Neogen Corp (NEOG) is taking actions to accelerate the building of a more profitable and focused business, with potential portfolio actions expected to be accretive to margins and prioritized for debt repayment.
Negative Points
- Neogen Corp (NEOG) faced a challenging macroeconomic environment, with uncertainty in global trade and potential recession concerns impacting customer confidence and inventory commitments.
- The company's third-quarter results were below expectations, with core revenue growth of only 20 basis points and a foreign currency headwind of 310 basis points.
- The Animal Safety segment experienced a core revenue decline of 2.6%, with notable softness in China due to macroeconomic uncertainty.
- Neogen Corp (NEOG) is dealing with challenges in its genomics business, which has been a headwind for the past seven quarters, resulting in a mid-single-digit decline in core revenue.
- The company is updating its full-year revenue outlook to approximately $895 million, reflecting a softer market backdrop and the uncertain impact of tariffs.
Q & A Highlights
Q: How much of the lowered guidance is due to macroeconomic factors versus execution issues like sample handling?
A: David Naemura, CFO: The lowered guidance is primarily due to macroeconomic headwinds. We saw broader softening as the quarter progressed, with about $6 million below expectations, $4 million of which was due to macro uncertainty, including $2 million from China. Sample handling was slightly below expectations but not a major factor.
Q: Can you clarify the impact of tariff headwinds? Are they affecting margins or sales volume?
A: John Adent, CEO: The tariff impact is market-specific. In China, for example, 40% of our Animal Safety products come from the US, which could be affected by tariffs. We are analyzing each market to mitigate impacts. David Naemura, CFO: The tariff impact could be around $30 million, with two-thirds from China. We expect some impact on both margins and sales volume, but we are working on mitigating actions.
Q: Are the distributors' hesitancy to commit to inventory concentrated in the US or global?
A: John Adent, CEO: The hesitancy is global. Distributors are cautious due to uncertainty, especially around tariffs, and are not aggressively increasing inventories.
Q: What are the mission-critical objectives for Neogen to deem the year a success?
A: John Adent, CEO: Key objectives include derisking Petrifilm manufacturing, increasing sample handling production to meet demand, and aligning cost structures with current revenue levels. David Naemura, CFO: Portfolio actions are also important for focusing on attractive markets and improving margins.
Q: How should we think about the global genomics business going forward?
A: David Naemura, CFO: We entered the year with a roughly $90 million global genomics business. Our focus is on the differentiated bovine business, which is in the $50 million range and has shown growth. We are moving away from less profitable segments.
Q: Can you quantify the impact of destocking and potential for a bounce-back?
A: David Naemura, CFO: We didn't see destocking but rather hesitancy to take inventory. The $6 million shortfall included $4 million from broader uncertainty, with $2 million from China. The situation remains dynamic with potential for changes.
Q: How are you addressing the cost structure given the current revenue levels?
A: John Adent, CEO: We are actively aligning costs with revenue levels. We've already restructured the genomics business and are evaluating other areas to ensure costs fit the current revenue environment.
Q: What should we keep in mind for fiscal 2026?
A: David Naemura, CFO: Key factors include cost actions to impact exit rates, portfolio adjustments, and progress on integration items like sample handling. Revenue growth will be a major focus, and we'll provide more guidance in the summer.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
