Neogen's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Neogen (NEOG)

Q3 2012 Earnings Call

March 27, 2012 11:00 am ET

Executives

James L. Herbert - Chairman and Chief Executive Officer

Lon M. Bohannon - President, Chief Operating Officer and Director

Steven J. Quinlan - Chief Financial Officer, Principal Accounting Officer and Vice President

Analysts

Steven F. Crowley - Craig-Hallum Capital Group LLC, Research Division

Reggie Miller - Credit Agricole Securities (USA) Inc., Research Division

Stephen A. O'Neil - Hilliard Lyons, Research Division

Brad Hoover - Sidoti & Company, LLC

Gregory W. Halter - LJR Great Lakes Review

Presentation

Operator

Welcome to the Neogen Third Quarter Fiscal Year 2012 Earnings Results Conference Call. My name is Christine, and I'll be your operator for today's conference. [Operator Instructions] Please note, today's conference is being recorded. I will now turn the call over to Neogen's Chief Executive Officer, Jim Herbert. Sir, you may begin.

James L. Herbert

Good morning, and welcome to our regular quarterly conference call. Today, we'll be reporting to you as announced the results of our third quarter that ended on February 29 and also the first 9 months of Neogen's 2012 fiscal year.

I'll remind you that some of the statements that are made here today could be termed as forward-looking statements. These forward-looking statements, of course, are subject to certain risks and uncertainties and actual results may differ than those that we discuss today. These risks that are associated with our business are covered in part in the company's Form 10-K as filed with the Securities and Exchange Commission.

In addition to those of you that are joining us today by live telephone conference, I also welcome those who may be joining by way of simulcast on the world wide web. These comments, along with some exhibits, will be available on the web for approximately 90 days. Following our comments this morning, we'll entertain questions from participants who are joined by this live telephone conference. And I'm joined today by Lon Bohannon, Neogen's President; and Steve Quinlan, our Chief Financial Officer.

Earlier today, Neogen issued a press release announcing the results of our third quarter for the 2012 fiscal year. We once again reported record numbers. Revenues for the company's third quarter were approximately $44.9 million. That's a little over 6% above the prior year. This brings the first 3 quarters of the year to total revenues of approximately $135.5 million. That's about $6.4 million ahead of last year.

Net income for the third quarter was $5.2 million or an improvement of about 6.1% as compared to a year earlier. This equates to $0.22 a share as compared to the prior year's third quarter of $0.21 a share.

On a year-to-date basis, net income stands at approximately $16.5 million as compared to $16.9 million in 2011.

I think a quick look at these numbers today show that these year-to-date numbers are beginning to dig out from that troublesome second quarter that we reported. While I'm certainly not pleased with the gains of the quarter, I am pleased that we continue to remain solidly profitable. Though the quarter was not monumental, it was the 80th quarter in the past 85 quarters when Neogen reported increases compared to the prior year. That record now spans over 21 years.

We told you in just before Christmas in our last call that when our revenues were up only about 2% for that second quarter that we knew where problems were and that we were going about making the necessary adjustments to get back to double-digit growth. We didn't know at that time that the worst was really yet to come and that was to happen in December. I'm a good bit more optimistic today. December was significantly below December of last year, so we started off the quarter in a hole. However, January finished up about 10% ahead of the prior year, and February finished up about 20% better than February of last year.

Now I realize that 2 months don't make a trend, but this performance has actually, as I said, increased my confidence level. So given the performance of January and February and the realization that we're comparing against a third quarter last year that had an increase of 25% over the prior year, I think the company may be ready to enjoy spring.

While we still have some uncertainties or certainly is still out there, and I realize that we're not totally out of the woods, what happens in Europe continues to be problematic. Those who listened to our last quarter conference call may remember me talking about how we had pushed through the financial difficulties in most of those EU countries in good shape during the first 2 years of their crisis, but we're finding it more difficult to hold our own in the last several months. Well, that trend continued into the third quarter with a revenue drop in France compared to the prior year, along with the Netherlands and other major countries such as Spain, Portugal, Italy, Ireland, Greece and Egypt. In fact, revenues outside the U.K. and Germany were down about 10% compared to last year.

At the same time, we had nice increases in the U.K., along with some notable increases in Food Safety sales in Germany.

When I talked to you in December, I said I was going to Europe in early January to explore the situation. And I came away feeling that we had not lost market share, but the overall markets were just in the doldrums. We began to put in place some new programs at that time, and I believe that we're beginning to see some results.

However, due in large part to the 40 countries that we service through our Scotland operations, we did see a drop in the percent of international revenues as compared to our total revenues in the third quarter. Third quarter revenues from international sources were approximately 40.7% as compared to 44.7% in the third quarter of last year.

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