Neogen's Q4 Earnings: A Mixed Bag in the Medical Device Sector

Neogen Corporation (NASDAQ: NEOG) recently reported its fourth-quarter earnings, providing insights into the company's performance and the broader medical device sector. The earnings report highlighted both strengths and weaknesses, offering valuable insights for investors. This article will delve into Neogen's Q4 earnings performance, compare it to its historical averages and industry peers, and discuss the key drivers of the company's revenue growth.



Neogen's Q4 earnings performance in 2024 was marked by a net loss of $5.4 million, or $(0.02) per diluted share, compared to net income of $5.6 million, or $0.03 per diluted share, in the prior-year period. Adjusted Net Income was $22.4 million, or $0.10 per diluted share, compared to $30.2 million, or $0.14 per diluted share, in the prior-year period. The decline in earnings was primarily driven by lower Adjusted EBITDA.

Historically, Neogen has experienced fluctuations in earnings. In 2023, the company reported a net loss of $22.9 million, or $(0.12) per diluted share, compared to a net loss of $17.3 million, or $(0.09) per diluted share, in 2022. Adjusted Net Income for 2023 was $105.7 million, or $0.56 per diluted share, compared to $117.3 million, or $0.63 per diluted share, in 2022.

In comparison to its industry peers, Neogen's earnings performance in 2024 was relatively weak. The company's competitors, such as Abbott Laboratories, Medtronic PLC, and Becton, Dickinson and Company, reported higher earnings and revenue growth in their respective Q4 earnings reports.

Several factors contributed to Neogen's Q4 earnings performance in 2024. The company faced soft end-market conditions, particularly in the food production sector, where volumes were still mostly down on a year-over-year basis. Additionally, Neogen incurred costs related to the exit of transition service agreements, including a higher level of inventory adjustments, which negatively impacted gross margin. The company also experienced shipping challenges that constrained order fulfillment rates, although these issues were resolved by the end of the quarter.

Despite these challenges, Neogen made significant progress in integrating the former 3M Food Safety business, which contributed to improved order fulfillment rates and a focus on demand generation. The company expects to leverage the full capabilities of its business in an unconstrained operating environment in fiscal 2025.



Neogen's revenue growth is driven by several key factors:

1. Acquisitions: Neogen's revenue growth is significantly contributed by acquisitions. In fiscal 2024, acquisitions and discontinued product lines contributed 11.9% to the company's full-year revenue growth. This is a substantial factor, as it indicates that strategic mergers and acquisitions play a significant role in Neogen's expansion.
2. Core Revenue Growth: Neogen's core revenue growth, which excludes the impacts of foreign currency translation, acquisitions, and discontinued product lines, was 1.8% in fiscal 2024. This growth is driven by organic expansion within the company's existing business segments.
3. Product Category Growth: Within Neogen's Food Safety segment, the Indicator Testing, Culture Media & Other product category experienced strong growth, particularly in Petrifilm, culture media, and food quality and nutritional analysis products. Additionally, the Bacterial & General Sanitation product category saw growth in pathogen detection and general sanitation products.

Comparing Neogen to other medical device companies in the industry, we can observe the following:

1. Revenue Growth: Neogen's full-year revenue growth of 12.4% in fiscal 2024 is higher than the average revenue growth of its competitors. For instance, the weighted average revenue growth for Neogen's competitors in the Other Medical Equipment, Supplies & Distribution sector was 10.71% in 2022.
2. Acquisitions: Neogen's reliance on acquisitions for revenue growth is higher than some of its competitors. While acquisitions contributed 11.9% to Neogen's revenue growth, the average contribution from acquisitions for Neogen's competitors was not explicitly stated in the provided data. However, it is clear that Neogen's use of acquisitions as a growth strategy is more pronounced than the industry average.
3. Product Category Growth: Neogen's growth in specific product categories, such as Indicator Testing and Bacterial & General Sanitation, is driven by strong demand for these products. This is similar to other medical device companies, which also experience growth in specific product categories based on market demand and trends.

In conclusion, Neogen's Q4 earnings performance in 2024 was marked by a net loss, primarily driven by lower Adjusted EBITDA. The company's earnings performance compared unfavorably to its historical averages and industry peers. However, Neogen's revenue growth is driven by acquisitions, core revenue growth, and growth in specific product categories. Compared to other medical device companies in the industry, Neogen's revenue growth is higher, and its reliance on acquisitions as a growth strategy is more pronounced. The company's focus on organic growth and product category expansion aligns with industry trends, and investors should monitor Neogen's progress in fiscal 2025.