• Food safety innovation offers growth opportunities for investors. As we discussed in our July 2016 report Food Safety: In a State of Transformation, the global food safety testing market is expanding due to the enactment of government regulations such as the Food Safety Modernization Act (FSMA), quality improvement initiatives by food processors, and consumer demand for safer food.
  • Our optimistic view on growth in food safety testing is supported by Neogen’s fourth quarter earnings release. Neogen is flagged in our report for having high exposure to the food safety theme.

– Revenues for the fourth quarter of Neogen’s 2016 fiscal year (ending May 31) were $90.08 million (+15% YoY), versus a consensus estimate of $86.3 million. Revenues for fiscal 2016 increased 13.5% over fiscal 2015. Fiscal fourth quarter EPS was $0.26 (+4% YoY), in line with consensus estimates. Fiscal 2016 EPS increased 7.8% over fiscal 2015.

– Food Safety segment revenues increased 11% during fiscal 2016 versus the prior year. Growth was driven by rapid tests for food allergens and AccuPoint Advanced Sanitation Monitoring System products.

– Animal Safety segment revenues increased 16% during fiscal 2016 versus the prior year (14% organic). Growth was driven by agrigenomics testing and biosecurity products.

  • Biosecurity benefiting from consumer trends. Neogen’s Animal Safety business is positioned to benefit from growing demand for poultry raised without antibiotics. As antibiotic use is reduced, there’s a growing need for biosecurity products such as cleaners, disinfectants, rodenticides and insecticides. These maintain control over any infections that would become food safety problems as the food products pass through the farm gate (from the farm to the consumer).
  • Prospective opportunities in seafood testing. Neogen CEO Jim Herbert believes the FSMA will have more impact on imported seafood than any other part of their market. The company offers products for salmon and trout genotyping, but it is interested in expanding further into the aquaculture market.

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Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Sebastian Vanderzeil is a research analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.