LANSING ? One Michigan manufacturer that has never had a lay off is Neogen Corp., which primarily develops rapid and easy-to-use diagnostic test kits to detect natural toxins, pesticide residues, and bacterial organisms in food and animal feed products. Neogen has hired more than 40 people for its Lansing plant in the past 12 months, and could hire another 30 this year.
Neogen also produces a line of more than 300 veterinary instruments, plus animal grooming aides and nutritional supplements.
?We?re not replacing jobs as fast as the auto industry is losing them, but we?re doing it in a different sort of way,?? said Neogen President and CEO James Herbert. ?We expect our employment to grow.?
With recent acquisitions in Europe, where the market for Neogen?s technology is growing more rapidly than the United States, and the upside potential for developing tools to combat bioterrorism, the sky may be indeed the limit for Neogen?s financial future.
But then Neogen?s financials have been very solid for more than a decade. When Neogen announced its net income for the first quarter of fiscal 2006, which ended Aug. 31, had increased 35 percent from the previous year?s first quarter, it marked the 50th consecutive profitable quarter from operations for the company, and the 54th of the past 59 quarters when Neogen reported revenue increases as compared with the previous year.
The first quarter also marked the first time Neogen reported more than $2 million of net income in a single three-month period. This solid financial news propelled Neogen into the Forbes Magazine 2005 list of the 200 Best Small Companies in America for the fourth time in six years. The Forbes list is based on growth in sales, earnings, and return on equity for the past five years, and the latest 12 months.
Neogen received rave reviews from Stonegate Securities in a report issued in mid October. Stonegate pointed out that Neogen has sustained growth levels, considerable market opportunities, growth through new product introductions and significant profit margin expansion.
But Stonegate also warned thee are some risks to the Neogen story. Those include demand by its customers for constant technology advances, risks related to its recent acquisitions, and a highly competitive marketplace that drives down prices.
Herbert tackled those concerns head on.
?We?re continually probing for new technologies that are more sensitive and more active, and give test results to the industry faster,?? he said. ?Our industries are constantly looking for cheaper ways to test. But it?s been that way since I started this company in 1982. We invest 5 percent of our gross revenues on research and development.?
Neogen has made two acquisitions in the past year, with a third pending. Herbert said his seasoned management staff spends a lot of time with acquisitions to make sure they blend smoothly into the corporation.
?We?ve not had a bad acquisition. We know exactly what we?re doing.?
And competition, well, Neogen has been playing in a crowded field for a long time now and knows to win it must be a low-cost producer. One of the ways it remains low cost is by driving down its internal production costs. But another trick is to out service the competition.
?Tractor Supply Company is one of our clients. They are the Wal-Mart of the farm distribution business and they say you?ll have to sell products to us cheaper this year than last year,? Herbert said. ?One of the ways you combat that is to provide so much service and reliability that it builds trust with our clients.?
Neogen will be looking for more customers outside the United States in the future, where two thirds of an estimated $4 billion market for Neogen?s disposable test kits is in Europe and Asia. Neogen now derives 27 percent of its revenues from outside the United States, up from 20 percent three years ago.
Neogen also is developing some cutting edge biotechnology tools that use amino acid technology to develop antibodies to detect the presence of a particular product or compound. New tools available for proteomics and genomics will open up new business opportunities, as well.
?We want to be a one-stop shop in food and animal safety,?? Herbert said. ?We?re doing business with the 20 largest food companies. We don?t have all their business. We could sell them more products.?
Herbert said Neogen has a third opportunity for expansion in acquisitions that provide synergy in both markets and products. When Neogen acquired HACCO, it got into the rodenticide business. He said food safety and animal safety heavily impacted by rodents, which destroy billions of dollars in food each year.
?We just recently announced that we acquired a company that makes diagnostic test kits in the analysis of milk,?? he said. ?Plus we continue to strive towards consolidation of our business. Our pharma products on the animal side are still made by outside manufacturers. This year, we?ll be bringing more of those in house.?
Neogen has no debt on the books, an untapped $25 million bank line of credit and as a publicly traded company, access to the capital markets should the company want to pick up some other good deals, Herbert said.
?We have dry powder left to make acquisitions when we see good targets.?
Mike Brennan is Editor & Publisher of Mitechnews.Com.
