Grain and petroleum prices keeping Neogen COO "awake at night"
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.
Before the start of trading, Neogen reported that its second-quarter profit climbed 34% to $3.25 million, or $0.22 per share, above Wall Street projections of $0.21 per share and from $2.43 million, or $0.17 per share, a year earlier.
The 25-year-old company’s revenue for the three months ended Nov. 30 totaled $27.21 million, beating the consensus estimate of $25.81 million and up 23% from $22.19 million in the year-ago period.
“It’s reasonable to characterize this as another great quarter for the company in terms of both revenues and income,” CEO James Herbert said.
Herbert noted that Neogen is on track to meet its fiscal 2008 goal of achieving $100 million in annual revenue. The second quarter marked the fifty-ninth consecutive profitable quarter for the Lansing, Mich.-based firm, the chief executive said.
“For some time, it’s been the company’s goal to grow revenues at 20% annually,” Herbert said. “We’re almost achieving that goal.”
Sales and marketing expenses rose 17% to $5.46 million during the quarter, from $4.67 million during the same period of 2006. However, as a percentage of sales, sales and marketing expenses decreased to 20%, from 21% a year earlier.
“We believe that our strong sales and marketing program has given us a competitive edge in a number of activities,”
For the second quarter, total expenses climbed 17% to $9.37 million, from $8.01 million in the prior-year period. Cost of sales during the second quarter rose 24% to $13.04 million, from $10.48 million a year earlier.
In December, Neogen acquired Winnipeg, Canada-based Rivard Instruments, Inc., a maker of detectable veterinary hypodermic needles.
“This acquisition brought to an end a long and hard-fought and expensive series of litigations in both Canada and the U.S. regarding conflicting patents,” Herbert said. “Those legal expenses should now be essentially behind us. This acquisition will solidify our position as the dominant manufacturer of detectable hypodermic needles.”
In midday trading, NEOG shares are down 2.012%, or $0.57, at $26.36. Over the last 52 weeks, shares have ranged from $13.83 to $27.93.
