Why Is Food And Animal Safety-Focused Neogen Stock Tumbling Today?

Neogen Corporation NEOG reported Q2 FY24 sales of $229.6 million, down 0.2% Y/Y, missing the consensus of $232.87 million. Core revenue declined 0.9%. 

Acquisitions and discontinued product lines contributed 0.2% to revenue growth, while foreign currency added 0.5%.

The company reported an adjusted EPS of $0.11, compared to $0.15 a year ago and missing the consensus of $0.14.

Gross margin was 50.9% in the second quarter of fiscal 2024, up from 48.9% a year ago, primarily due to the favorable impact of the product mix.

Revenues for the Food Safety segment were $164.4 million, up 1.9% Y/Y. Revenues for the Animal Safety segment were $65.2 million, compared to $68.7 million a year ago.

On a global basis, the company's Genomics business experienced a core revenue decline in the mid-single-digit range, with increased sales in international beef markets offset by customer attrition in the U.S. due to the aforementioned strategic shift in focus.

Guidance: Neogen notes that improvements in its primary end markets are likely to happen at a slower pace than originally anticipated. 

As a result of this view, as well as incremental headwinds related to the strategic shift in focus of the Genomics business, the company has revised its FY24 revenue guidance to $935 million-$955 million, versus prior guidance of $955 million-$985 million and consensus of $960.65 million.

The company sees FY24 Adjusted EBITDA of $230 million-$240 million compared to the previous expectation of $235 million-$255 million. 

The company expects capital expenditures to be approximately $130 million, including approximately $100 million related specifically to the integration of the former 3M Food Safety Division.

William Blair writes that although there hasn't been a significant downward revision, there are concerns regarding how the company will achieve its projected goals for fiscal 2025, aiming for over $1 billion in sales and a $300 million EBITDA margin. 

This plan implies a need for mid-single-digit-plus growth in sales from the stagnant growth in the first half of 2024. Additionally, the calculations suggest a requirement for EBITDA margins to increase by more than 500 basis points by fiscal 2025.

Price Action: NEOG shares are down 13.10% at $17.27 on the last check Tuesday.