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Neogen Reports 30 Percent Increase In Quarterly Net Income

LANSING -- Neogen Corp. (Nasdaq: NEOG) announced net income of $6.8 million or 28 cents a share in the second quarter of its fiscal year, ended Nov. 30, up from $5.2 million or 22 cents a share in the same quarter of the prior fiscal year.

Revenue was $50.7 million, up 13 percent from $44.9 million a year earlier.

For the six months, net income was $13.5 million or 56 cents a share, up from $11.2 million or 47 cents a share for the first half of the prior fiscal year. Revenue for the six months was $100.5 million, up 11 percent from $90.6 million a year earlier.

"Our strong second quarter was led by significant initial sales of recently developed product lines, and an acquisition that was immediately accretive to both our top and bottom lines," said James Herbert, Neogen chairman and CEO. "We launched our innovative Reveal Q+ tests for mycotoxins in time to respond to significant mycotoxin outbreaks, and our new Reveal 3-D tests for food allergens specifically address expanding global regulatory testing requirements. Sales of Uniprim, the popular antibiotic we acquired in early October, were aided by our stronger sales and marketing organization."

The second quarter was the 75th consecutive profitable quarter from operations for the company, and the 83rd quarter of the past 88 quarters that Neogen reported revenue increases as compared with the previous year -- including the last 31 consecutive quarters.

"A significant portion of our second quarter growth was due to increases in same-store sales of key products, including natural toxin and food allergen diagnostics on our Food Safety side, and small animal supplements and rodenticides on our Animal Safety side," said Lon Bohannon, Neogen's president and COO. "Aflatoxin and DON outbreaks in the US and EU grain harvests created significant opportunities and we were able to quickly ramp up production of our new test kits to meet the substantial demand. We believe our quick response to the outbreaks is a good example of the organizational strength that sets us apart from our competitors."

Neogen's gross margin increased to 53.8 percent of sales in its second quarter, compared to 50.5 percnet of sales for FY 2012's second quarter. This increase was largely the result of a shift in product mix toward diagnostic products in the food safety segment, which have higher margins. Additionally, margins within the animal safety segment improved due to a shift in product mix to higher margin products. Largely as a result of the increased gross margins, Neogen reported operating income, expressed as a percentage of sales, of 20.6 percent for the quarter, compared to 18.1 percent in the year ago quarter.   

"Our strong sales growth, favorable product mix and improved operating efficiencies drove our gross margins and operating income improvements during the quarter," said Steve Quinlan, Neogen CFO. "We are also pleased to report our utilization of working capital improved, as both our accounts receivable and inventory levels grew less than the increase in sales."

Sales of Neogen's natural toxin diagnostics increased 62 percnet in the second quarter, as grain producers and processors escalated the testing of their products to address safety and quality concerns due to difficult growing conditions, especially in the United States and parts of Europe. The sales increase was also due to increasing acceptance of Neogen's new simple and quick Reveal Q+ quantitative tests for mycotoxins, including aflatoxin and deoxynivalenol (DON). The second quarter also saw product introductions of Reveal Q+ tests for ochratoxin and T-2/HT-2 toxins, completing the line of innovative mycotoxin tests that also include kits for fumonisin and zearalenone. Sales of tests to detect histamine also increased significantly in the second quarter when compared to the same quarter a year earlier. Histamine is a toxin produced in certain types of harvested fish, especially tuna, if they are improperly handled.

Sales of Neogen's rapid tests for food allergens continued their strong advance, improving approximately 16 percent in the current quarter compared to the prior year's second quarter. This performance was in part the result of strong initial acceptance of the company's new Reveal 3-D test kits. The new test format offers a rapid time to results, easy extraction, and a third test line to indicate when a very high level of target food allergen is present, instead of simply the presence or absence of that allergen.

Sales of Neogen's rodenticides continued their strong rebound in FY 2013, increasing 23 percent from the prior year's comparable quarter. In the quarter, rodenticide sales were especially strong in the farm retail and animal protein market segments. Sales of Neogen's small animal supplements increased significantly in the current year quarter when compared to the prior year quarter, as the company responded to a temporary market shortage of supplements used as thyroid hormone replacement therapy in dogs.

On Oct. 2, Neogen completed the acquisition of Macleod Pharmaceuticals, an animal health company headquartered in Fort Collins, Colorado. Macleod is the original manufacturer of Uniprim, a leading veterinary antibiotic. Uniprim is a prescription-only combination of trimethoprim and sulfadiazine that provides effective antibacterial activity against a wide range of infections.

Neogen develops and markets products dedicated to food and animal safety. The company's Food Safety Division markets dehydrated culture media and diagnostic test kits to detect foodborne bacteria, natural toxins, food allergens, drug residues, plant diseases and sanitation concerns. Neogen's Animal Safety Division is a leader in the development of animal genomics along with the manufacturing and distribution of a variety of animal healthcare products, including diagnostics, pharmaceuticals, veterinary instruments, wound care and disinfectants.

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