Yahoo Finance Neogen Corp (NEOG) Q3 2024 Earnings Call Transcript Highlights: Steady Growth Amidst ...
Revenue: $229 million, core revenue growth over 6% for the quarter.
Food Safety Segment Revenue: $158 million, increase of 4%, core growth almost 6%.
Animal Safety Segment Revenue: $71 million, core revenue increase of 7%.
Gross Margin: 51.1%, increase of 160 basis points from previous year.
Adjusted EBITDA: $53 million, margin of 23%, decline of 50 basis points year-over-year.
Adjusted Net Income: $26 million.
Adjusted Earnings Per Share (EPS): $0.12.
Full Year Guidance: Revenue between $910 million and $920 million, adjusted EBITDA between $210 million and $215 million.
Capital Expenditures: Expected full year approximately $130 million, with integration-related CapEx approximately $100 million.
Release Date: April 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Neogen Corp completed the relocation of the former 3M pathogen detection product line and manufacturing in one of its Lansing facilities.
The company completed the first two phases of the four-phase relocation of the former 3M sample handling product line, with the remaining phases expected to be completed by the end of the fiscal year.
Neogen Corp saw solid core revenue growth in both Food Safety and Animal Safety segments, despite being below expectations.
The company received approval for a new molecular detection assay, which provides rapid and specific detection of two salmonella serotypes relevant for the poultry industry.
Neogen Corp developed a testing method for bioethanol producers to determine production from cellulose versus starch-based raw materials, marking a first to market.
Negative Points
Operational inefficiencies created by system implementations have negatively affected the rate at which Neogen Corp can meet end user needs and ship products to customers.
The company experienced an extended period with a higher than usual backlog of open orders, which has negatively impacted demand and potentially led to lost sales.
There are some customers that Neogen Corp will need to win back due to supply constraints and customer attrition.
Shipping inefficiencies are expected to continue into Q4, impacting the company's full year outlook and requiring additional time to resolve.
Neogen Corp's third quarter revenues were impacted by shipping inefficiencies, and the company did not reduce its past-due backlog as planned.
Q & A Highlights
Q: Can you talk about the working capital and inventory trends into Q4 and the first half, and how that affects the projection of working capital cash flow? A: David Naemura (CFO) explained that they brought in about $48 million of inventory from 3M in Q2 and Q3, which should be the bulk of the transfer. Integration CapEx was about $23 million in the quarter, and they are on track for the full year estimate of around $100 million of integration CapEx. Receivables were higher due to the back-end loaded nature of the quarter. He mentioned that they are not ready to provide details on future inventory trends but expect a significant reduction in integration CapEx next year and improvements in efficiencies.
Q: What's left in the integration process, and can you provide details on dates and key product categories? Is every facility now on SAP? A: John Adent (CEO) mentioned that two phases of the four-phase integration for sample handling are complete, with the majority expected to be done in Q4 and fully by Q1. Petrifilm planters are almost done, and pathogen testing integration is complete. Major facilities in the US are on SAP, but not all international locations will have a full SAP rollout.
Q: Did the inefficiencies of integrating the 3M business get worse quarter over quarter? A: David Naemura (CFO) indicated that backorders were flat from Q2 to Q3, and they hoped to make improvements. John Adent (CEO) added that they are working to resolve issues with order drops in the warehouse from SAP to the SAP module VWM, and they have seen improvements in shipping times, with 80% of shipments happening in less than five days in Q3, up from 40% in Q2.
Q: How should we think about the progression of rectifying inefficiencies and translating that into EBITDA margins going forward? A: David Naemura (CFO) stated that they should have an easier comparison next year, which will help growth. He expects '25 to be a better margin year than '24, but he refrained from providing specific numbers until the next quarter.
Q: As you look at the deal a couple of years into this, do you still feel confident that the company can eventually hit high single digits plus growth and a 30% plus EBITDA margin? A: John Adent (CEO) expressed confidence in the company's ability to achieve these targets, acknowledging frustration with the current pace of integration but emphasizing that the issues are short-term. He mentioned that customers tend to return when supply issues are resolved, and he is committed to addressing the current challenges.
This article first appeared on GuruFocus.
