On Tuesday, Neogen Corporation ( NEOG ) shares are trading lower after the company reported worse-than-expected third-quarter 2024 earnings and cut 2024 guidance.

The company reported sales of $228.8 million, up 4.8% year over year, missing the consensus of $230.01 million. Core revenue growth was 6.2%.

Neogen’s third quarter adjusted EPS was $0.12 flat Y/Y but below the consensus of $0.14.

Gross margin was 51.1% in the third quarter of fiscal 2024, compared to 49.5% in the same quarter a year ago. This increase is primarily due to increased sales of higher-margin products in the Company’s Food Safety segment.

Third-quarter Adjusted EBITDA was $52.7 million, representing an Adjusted EBITDA Margin of 23.0%, compared to $51.3 million and a margin of 23.5% a year ago. 

This drop in margin was primarily due to higher operating expenses compared to the prior-year period, reflecting additions to accommodate the integration of the former 3M Food Safety Division.

Guidance: Neogen cuts its fiscal year 2024 sales guidance to $910 million—$920 million, down from prior guidance of $935 million—$955 million versus the consensus of $938.16 million.

The lower guidance reflects a slower-than-anticipated recovery of order fulfillment rates, impacting the ability to meet end-market demand. 

Neogen lowers adjusted EBITDA guidance to $210 million-$215 million versus prior guidance of $230 million-$240 million.

William Blair writes that the revised guidance will lower investor confidence in the company’s ability to meet its original pro forma targets, a key tenet of their bullish thesis. 

While there are a few positives (Petrifilm seems to be leading growth and animal safety rebounded after quarters of declines), William Blair says the small miss combined with another period of lowered expectations will put the stock further in the penalty box, especially since key metrics like EBITDA are sequentially worsening rather than improving despite the high margin contributions of the 3M business. 

While acknowledging the stock is likely stuck for a few quarters, the analyst maintains the Outperform rating given the stock’s low valuation at 13 times the fiscal 2025 EBITDA estimate and potential for improving fundamentals in the coming quarters.

Price Action: NEOG shares are down 5.23% at $13.63 on the last check Tuesday.