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NEOGEN CORP (NEOG)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $231.3M (+0.7% YoY), adjusted EPS was $0.11, and adjusted EBITDA was $51.4M (22.2% margin). GAAP EPS was $(2.10) due to a large non-cash goodwill impairment primarily tied to the former 3M Food Safety acquisition .
  • The company lowered FY25 guidance: revenue to $905–$925M (from $925–$955M) and adjusted EBITDA to $205–$215M (from $215–$235M), citing stronger USD FX headwinds, genomics restructuring attrition, and delayed ramp in sample collection production; capex remains ~$85M, including ~$55M for Petrifilm integration .
  • Sequentially, Q2 improved versus Q1 on core growth (3.5%), gross margin (49.0%), adjusted EBITDA margin (+210bps), and free cash flow; management expects further margin expansion in 2H from cost reductions in shipping/distribution and restructuring benefits .
  • Strategic actions progressed: restructuring focused on genomics, portfolio review targeting a significant portion of Animal Safety, and progress on Petrifilm facility and MDS assay launches; management emphasized increasing regulatory focus on food safety as a secular tailwind .

What Went Well and What Went Wrong

What Went Well

  • Core growth accelerated to 3.5% in Q2, with Food Safety core +3.6% and Animal Safety core +3.2%; excluding sample collection headwind, Food Safety core grew ~8% per CFO commentary .
  • Sequential margin expansion: adjusted EBITDA margin rose to 22.2% (from 20.1% in Q1), and gross margin reached 49.0% (Q1: 48.4%); excluding integration/restructuring, gross margin was 52.2% vs 52.3% in prior-year quarter .
  • Management cited improving end-market indicators and progress recapturing share in Food Safety, with product launches (e.g., Petrifilm Bacillus cereus plate, MDA2 Quantitative Salmonella) strengthening portfolio positioning .
  • Quote: “We saw improvement across the business compared to the first quarter, with core revenue growth accelerating in both of our segments, sequential margin expansion and significantly better free cash flow” – CEO John Adent .

What Went Wrong

  • FY25 guidance was reduced (revenue and adjusted EBITDA) on stronger USD FX, genomics attrition from restructuring, and longer ramp to full capacity in sample collection; CFO quantified FX + genomics as “over 2/3” of the $25M revenue guide cut .
  • Shipping and distribution costs remained elevated versus plan, pressuring margins; management expects operational actions and contract renegotiations to improve costs in 2H, but acknowledged underestimation entering the year given post-integration complexities .
  • Material weaknesses identified in internal controls (COSO components) as of Nov 30, 2024; results are preliminary pending 10-Q filing within grace period, with a Form 12b-25 to extend filing timeline .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$229.629 $236.794 $216.964 $231.258
GAAP Diluted EPS ($USD)$(0.02) $(0.02) $(0.06) $(2.10)
Adjusted EPS ($USD)$0.11 $0.10 $0.07 $0.11
Gross Margin (%)50.9% 47.9% 48.4% 49.0%
Adjusted EBITDA ($USD Millions)$55.100 $52.954 $43.714 $51.381
Adjusted EBITDA Margin (%)24.0% 22.4% 20.1% 22.2%

Segment revenue breakdown:

Segment Revenue ($USD Millions)Q2 2024Q4 2024Q1 2025Q2 2025
Food Safety$164.403 $166.906 $159.345 $164.238
Animal Safety$65.226 $69.888 $57.619 $67.020

Additional KPIs and balance sheet:

KPIQ4 2024Q1 2025Q2 2025
Core Revenue Growth (%)2.0% (1.4%) 3.5%
Cash and Cash Equivalents ($USD Millions)$170.611 $120.477 $140.231
Non-current Debt ($USD Millions)$888.391 $889.129 $889.867
Adjusted Net Income ($USD Millions)$22.364 $14.378 $24.352

Notes:

  • Q2 GAAP loss reflects a non-cash goodwill impairment ($461.4M) driving $(2.10) GAAP EPS; adjusted EPS remained $0.11, essentially flat YoY .
  • Excluding integration/restructuring costs, Q2 gross margin was 52.2% vs 52.3% in prior-year quarter .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2025$925–$955 $905–$925 Lowered
Adjusted EBITDA ($USD Millions)FY 2025$215–$235 $205–$215 Lowered
Capital Expenditures ($USD Millions)FY 2025~85 (incl. ~$55 Petrifilm) ~85 (incl. ~$55 Petrifilm) Maintained

Drivers of change: stronger USD FX, genomics revenue attrition from restructuring, and longer ramp in sample collection production; higher shipping/distribution costs weighed on EBITDA guide .

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Regulatory focus on food safetyHighlighted USDA selection of MDS as primary screening method; expectation of gradual end-market improvement Emphasized secular tailwinds from regulatory requirements and consumer expectations Detailed proposed expanded Salmonella framework and RTE oversight; sees significant tailwinds Strengthening regulatory tailwinds
Shipping & distribution costsDistribution inefficiencies resolved; Q4 margins light due to inventory adjustments; plan for second-half recovery Q1 margins pressured by higher shipping; initiatives underway Costs still elevated; operational actions/renegotiations planned to reduce in 2H Improvement expected in 2H
Sample collection production rampRelocation completed; ramp to full production targeted near-term Ramp ongoing; demand exceeded capacity; full production targeted Q3 All lines operational; targeting prior levels by end of Q3; ~$6M Q2 headwind Nearing normalization
Genomics restructuringShift to larger production animals; global core down mid-single digits Continued weakness in companion animal; attrition from strategic shift Restructuring to rightsizing; companion business attriting; focus on cattle Portfolio pruning continues
Petrifilm platformAutomated reader launch; double-digit Petrifilm growth Positive traction; share recapture underway New Bacillus cereus plate; customers returning with reliable supply Expanding SKU/platform
Portfolio review / Animal Safety divestitureNoted evaluation of lower-growth areas Ongoing review prioritizing high-return areas Active engagements; targeting ~half of Animal Safety revenue Accelerating
Internal controls——Material weaknesses identified; 12b-25 to complete impairment audit Remediation in progress

Management Commentary

  • CEO framing: “We intend to build on the progress we made in the second quarter in building Neogen for the future and positioning the company to win in the market” .
  • On margin actions: “We initiated restructuring actions focused mainly on rightsizing our Genomics business… combined with cost reductions related to our logistics operations… support continued margin improvement in the second half” .
  • Regulatory backdrop: “We are seeing an increased level of interest in foodborne pathogen mitigation… proposed framework under which Salmonella would be declared an adulterant in additional raw poultry products” .
  • Operations leadership: CFO adding COO responsibilities as current COO retires; goal to better align finance and operations for margin optimization and capital allocation .
  • CFO on guidance cuts: “Two biggest components is really FX and the genomics reduction… over 2/3 of the reduction… sample collection being kind of the third piece” .

Q&A Highlights

  • Margin profile at lower revenue base: Management aims for higher-quality margin profile via focusing genomics on cattle and pruning low-margin/cyclical components; targeting mid-20s EBITDA in 2H, even as revenue base moves closer to ~$900M .
  • Sample collection impact and recovery: Q1 headwind ~$4–$5M; Q2 headwind ~$6M; at ~50% of historical output in Q2; expected 100% by end of Q3 and easing impact into Q4 .
  • Shipping/distribution costs: Majority of pressure from internal logistics footprint; actions include renegotiating rates and adding talent; operational improvements expected to drive reductions more than external factors .
  • Guidance bridge details: Stronger USD and genomics restructuring account for over two-thirds of the revenue guide cut; remaining portion from sample collection ramp and elevated shipping/distribution costs .
  • Portfolio strategy: Active engagements targeting meaningful Animal Safety divestiture (~half of segment revenue) to improve profitability and focus on food safety .

Estimates Context

  • We attempted to retrieve Wall Street consensus from S&P Global (EPS, revenue, EBITDA) for Q2 2025 and prior quarters, but access was unavailable due to SPGI request limits at time of writing. Comparisons vs consensus estimates are therefore not included. Values would ordinarily be sourced from S&P Global consensus; unavailable for this report.

Key Takeaways for Investors

  • Q2 showed sequential improvement in core growth, margins, and FCF with adjusted EPS holding at $0.11; GAAP loss was driven by a non-cash goodwill impairment, not operating deterioration .
  • Guidance reduction appears driven primarily by exogenous FX and deliberate portfolio reshaping (genomics), plus temporary sample collection ramp issues; operational cost reductions are in-flight to support 2H margin uplift .
  • Food safety secular/regulatory tailwinds (USDA actions; heightened oversight) and product launches (MDA2 Quant Salmonella, Petrifilm Bacillus cereus plate) underpin medium-term growth narrative and potential share recapture .
  • Portfolio review and potential Animal Safety divestiture could be a catalyst to raise consolidated margin profile and reduce cyclicality; watch for transaction updates and impact on EBITDA mix .
  • Near-term trading: Monitor 10-Q filing and remediation plans for internal control material weaknesses; watch sequential margin progression and sample collection capacity restoration into Q3/Q4 .
  • Medium-term thesis: Post-integration execution, cost normalization, and targeted portfolio focus on food safety solutions should support higher incrementals; continued regulatory momentum may be a demand catalyst .
  • Liquidity: Cash of ~$140M and non-current debt of ~$890M; management targets positive FY25 FCF with lower 2H capex and cost actions .