Margins Pressure Drive Neogen Corporation (NASDAQ: NEOG) Stock Lower

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Neogen Corporation (NASDAQ: NEOG), stock lost over 1.8% on 23rd September, 2020 (as of 10:49 am GMT-4 ; Source: Google finance) on margins pressure in the first quarter of FY 21. Neogen’s gross margin has contracted to 46.0% of sales in the first quarter of the current fiscal year, compared to 47.5% recorded in the same period a year ago, on the back of a mix shift in the Food Safety segment toward lower margin products.

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The firm has reported 8% rise in the revenues to $109,325,000 compared to the previous year’s first quarter revenues of $101,424,000. The company delivered the net income for the first quarter of Neogen’s 2021 fiscal year of $15,860,000, which reflects an increase compared to $14,652,000, in the previous year’s first quarter.           Operating expenses has fallen by 2%, mainly due to lower travel and customer facing activities worldwide resulting from the COVID-19 pandemic. Operating income for the quarter was $18,895,000, or 17.3% of sales, compared to $16,264,000, or 16.0% of sales, a year ago.

Moreover, the revenues for the company’s Food Safety segment has risen to $54,185,000 in the first quarter, compared to $51,021,000 in the prior year’s first three months. The increase was driven by higher sales of disinfectants, hand sanitizers and insecticides through Neogen’s international locations, the majority of which report through the company’s Food Safety segment. The segment’s first quarter revenues were also driven by the July launch of Neogen’s new Soleris NG automated microbial system, which rapidly detects a wide variety of microorganisms that threaten the safety and quality of food and other consumer products.

Furthermore, the revenues at Neogen’s United Kingdom operations grew 21% in U.S. dollars (17% in local currency), on the back of solid rise in sales of hand sanitizers, cleaners and disinfectants mainly used to fight COVID-19 in the U.K., Asia and Africa, and sales of the Raptor mycotoxin test system. However, Neogen’s revenues from its operations in Brazil and Mexico were both significantly affected by currency translations into U.S. dollars. The company’s revenues in Brazil rose 38% in local currency, due to a large non-recurring sale of insecticides to a governmental health organization, bovine and porcine genomics services, and market gains on aflatoxin test kits. The Animal Safety segment reported increase in revenues to $55,140,000 for the first quarter of the fiscal year 2021, compared to $50,403,000 in the prior year first quarter.

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