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    NEOGEN (NEOG)

    Q1 2025 Earnings Summary

    Reported on Jan 22, 2025 (Before Market Open)
    Pre-Earnings Price$14.85Last close (Oct 9, 2024)
    Post-Earnings Price$14.75Open (Oct 10, 2024)
    Price Change
    $-0.10(-0.67%)

    What went well

    • Neogen is experiencing significant growth in international markets, particularly in Asia Pacific, Latin America, and Europe, and is investing to expand in these regions where they currently have low market share, presenting significant growth opportunities. For example, Japan, their largest market outside the U.S., has turned the corner and started to grow again.
    • Neogen is successfully regaining customers and recapturing market share lost due to previous supply chain challenges, especially with their Petrifilm product line in Japan, where they have started to see business turn around and return to growth.
    • Neogen is restructuring its leadership to focus more on commercial activities and demand generation by appointing a Chief Commercial Officer, which is expected to drive revenue growth and capitalize on growth opportunities.

    What went wrong

    • Neogen continues to face share headwinds, with an $8 million impact in the first quarter, primarily in the U.S., indicating ongoing challenges in regaining lost market share, which may negatively affect revenue growth.
    • The company is still struggling to win back customers after previous operational issues with their warehouse management system (EWM), acknowledging that it will "take a little bit longer" to rebuild trust, potentially delaying revenue recovery.
    • Challenges in the China market could hinder Neogen's growth prospects in the Asia Pacific region, as the company admits that "China has been challenging", despite efforts to focus on the broader region.

    Q&A Summary

    1. Full Year Guidance
      Q: Are you trending towards high or low end of guidance?
      A: After one quarter, we are not narrowing our full-year guidance range. There is still uncertainty around customer share recovery timing and broader market conditions. We remain on track for a more second-half weighted year, with volume ramping up as we progress.

    2. Customer Loss Quantification
      Q: Can you quantify recent customer losses?
      A: In the first quarter, we experienced a share headwind impact of about $8 million globally, mostly in the U.S.. This aligns with the couple of points of growth headwind we anticipated entering the year.

    3. Petrifilm Customer Recovery
      Q: What's the status of Petrifilm customer recovery?
      A: In Japan, we've won back customers and are seeing growth again. For the broader business affected by warehouse system issues, rebuilding trust will take longer. Customers want to see consistent supply over multiple quarters before fully returning.

    4. Debt and Capital Allocation
      Q: What's the plan for debt over the next 3 years?
      A: Our priority is reducing leverage, aiming for net leverage around 3x by fiscal year-end. As we reduce debt, it will free up capacity for M&A. This level is higher than anticipated but manageable.

    5. Investment in Food Safety
      Q: How are you investing in food safety post-3M acquisition?
      A: We're investing heavily in building out international regions and in R&D, especially for Petrifilm products. The new high-volume feeder for Petrifilm is an example of our commitment.

    6. Hurricane Impacts
      Q: Any impacts from recent hurricanes?
      A: We are monitoring impacts from the recent storms but don't have quantification at this time.

    7. Petrifilm Feeder Feedback
      Q: Any early feedback on the high-volume Petrifilm feeder?
      A: Early feedback is positive; one customer insisted on keeping the feeder after testing.

    8. Chief Commercial Officer Role
      Q: Why create a Chief Commercial Officer position now?
      A: With a strong operations team, we're shifting focus to demand generation by appointing someone dedicated to revenue growth. This change aligns with our business needs.

    9. Portfolio Review Post 3M Acquisition
      Q: Are you consolidating overlapping products from 3M acquisition?
      A: We've pared some lines from 3M and are evaluating our portfolio to invest where we get the greatest return.

    10. Importance of China Market
      Q: How important is China for Neogen's growth?
      A: We're focusing on the Asia Pacific region as a whole. We have strong teams across countries like Japan, Korea, and Thailand, reducing reliance on China alone.

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