Neogen's Q1 2026: Contradictions Emerge on Tariff Impact, Market Softening, and Strategic Shifts

The above is the analysis of the conflicting points in this earnings call

Date of Call: October 9, 2025

Financials Results

• Revenue: $209M; core revenue up 0.3% YOY; FX +50 bps; divestitures/discontinued products -440 bps
• EPS: $0.04 adjusted EPS, down from $0.07 in the prior-year quarter
• Gross Margin: 45.4%, a sequential improvement from Q4 FY2025; pressured by sample collection inefficiencies and higher tariffs

Guidance:

• Reaffirmed full-year FY2026 guidance.
• Q2 expected to see a modest sequential revenue step-up from Q1 baseline (Q1 included ~$6M from divested Cleaners & Disinfectants).
• Expect margin improvement through FY26 as sample collection productivity and inventory write-down performance improve.
• Cost actions: ~10% headcount reduction; ~$20M annualized OpEx savings (~$12M benefit in FY26) with run-rate impact beginning in October.
• Genomics sale process continues; guidance includes genomics and will be updated upon transaction.
• PetriFilm production transfer on track to complete in Q2 of next fiscal year; partner capacity ensures supply continuity during transition.

Business Commentary:

* Revenue and Financial Performance: - Neogen's revenue for Q1 FY2026 was approximately $209 million, up 0.3% year-over-year on a core basis. - The growth was in line with expectations, driven by solid performance in certain product lines like food quality and pathogens, despite a mid-single-digit decline in PetriFilm revenue. - Challenges in the distributor base and normalizing buying patterns at a large distributor were cited as factors affecting PetriFilm sales.

• Operational and Cost Reduction Initiatives:
• The company announced a reduction of approximately 10% of its headcount, impacting both existing and planned positions, aiming for an annualized impact of $20 million.
• This action was taken to align costs with the current revenue of the business and not expected to negatively impact demand generation.

• The reduction is part of a broader effort to streamline operations and enhance commercial and R&D capabilities.

• Innovation and Product Pipeline:

• Neogen is focusing on reinvigorating innovation by prioritizing high-impact projects and enhancing innovation processes.
• The company is advancing key projects, including the integration of PetriFilm production and addressing sample collection inefficiencies.

• This focus on innovation is aimed at driving growth and improving market share in food safety and animal health sectors.

• Inventory Management and Sample Collection Challenges:

• Neogen is working to optimize inventory and reduce excess stock, aiming to improve cash generation.
• Increased focus on sample collection product line is expected to lead to improved performance and reduced spoilage.
• The company is addressing production inefficiencies and labor costs in sample collection, with an emphasis on reducing scrap and enhancing machine uptime.

Sentiment Analysis:

• Core revenue about flat at +30 bps; Adjusted EBITDA margin 17% with gross-margin headwinds from tariffs and sample-collection inefficiencies. Free cash flow improved by $43M YOY but was still an outflow. Management reaffirmed full-year FY2026 guidance and executed cost reductions (~$20M annualized) with benefits beginning in October; expects margin improvement over the balance of the year.

Q&A:

• Question from Brandon Vazquez (William Blair): What gave you confidence to take the CEO role and where are the pockets of strength amid execution issues and competitor share gains?
  Response: Neogen has a strong, trusted portfolio in attractive markets; share losses were concentrated in supply-challenged lines, and disciplined execution/process fixes should restore growth.

• Question from Brandon Vazquez (William Blair): How will you take share with unique products like PetriFilm, and how should EBITDA margins progress through FY26?
  Response: Share gains will come from underpenetrated regions and tighter commercial execution leveraging broad solutions; EBITDA margin should ramp through the year as inventory/sample-collection issues ease and cost actions flow through.

• Question from Subbu Nambi (Guggenheim Securities): Timeline to outline your vision and when the company can pivot to offense?
  Response: A more detailed strategic update is planned for early 2026; near term focuses on quick wins, cost alignment, and delivering critical projects (PetriFilm, sample collection, inventory).

• Question from Subbu Nambi (Guggenheim Securities): You beat revenue consensus but didn’t raise guidance—any one-timers or pull-forwards?
  Response: No one-time items; guidance held given early-year uncertainty, particularly around ramping sample collection volumes.

• Question from Subbu Nambi (Guggenheim Securities): Why are you confident in margin/cash flow improvement and the <$15M PetriFilm duplicative cost?
  Response: Margin expansion depends on fixing inventory and sample collection and leveraging strong incremental margins; the ~$15M PetriFilm duplicative cost outlook remains intact; FCF should improve as CapEx moderates and working capital normalizes.

• Question from Bob Lovick (CJS Securities): Has the innovation pipeline been impacted by execution challenges, and what’s the plan for new products?
  Response: Innovation will be refocused on fewer, high-impact, externally informed projects while operational execution is stabilized to enable greater R&D investment.

• Question from Bob Lovick (CJS Securities): What is the underlying margin level excluding short-term headwinds, and recovery potential?
  Response: Q1 margins faced several hundred bps of headwinds; improvements and the $20M annualized cost savings should support margin recovery, especially in H2.

• Question from David Westenberg (Piper Sandler): What is the ~$6M sample collection cost and will it persist?
  Response: Losses stem from scrap, quality flags, and excess labor (selling at a loss); reducing backorders, temp labor, and turnover should improve economics through Q2 into Q3.

• Question from David Westenberg (Piper Sandler): How do headcount reductions square with the need for stability and talent?
  Response: Reductions realign resources; ongoing optimization with targeted hiring and upgrades will focus talent on top priorities and improve execution.

• Question from Thomas DeBourcy (Nephron Research): Will portfolio pruning continue beyond Cleaners and the potential genomics sale?
  Response: The portfolio is continuously reviewed, but after Cleaners divestiture and ongoing genomics process, the focus is on optimizing remaining lines; no additional divestitures signaled.

• Question from Subbu Nambi (Guggenheim Securities): How do reduced backorders coexist with excess spoilage inventory?
  Response: Backorder improvements are specific to sample collection; excess spoilage reflects broader inventory mix/shelf-life issues being addressed via improved S&OP.