Owning a company that makes a mistake is never fun, but it's at least reassuring when a company's management owns up to its mistakes, rather than blame "external, uncontrollable factors" or fall back on other popular excuses.
In a recent example of management accountability, food- and animal-safety products company Neogen's
The big drag on the quarter was the Food Safety division, which has been flat for the year partially because of the rollout of a new version of the company's ATP Sanitation product. Previously contracted out but now made in-house, the product has been improved and will produce better margins, according to the company. The switchover has not been without problems, but Neogen believes that this problem is behind it now and expects to recapture about $1 million in lost sales.
Beyond that loss, the company confessed to not focusing on multinational companies in the past; management said it wasn't necessary for continued growth. However, with most of the easy sales now wrapped up, the company is working on how to address the bigger customers that may belong to competitors such as Idexx Laboratories
A bit more worrisome is that Neogen attributes some existing sales losses to competitors who have lured customers away on price. Neogen plans to revisit these customers in an attempt to recapture sales. That's great, but it will probably require concessions on price. Neogen has gross margins near 50% and net margins around 9.5%, so the company has some leeway to make this pursuit, but it always bears watching when a company is forced to use price as its weapon.
In all, it wasn't a pretty quarter for Neogen, and the stock isn't exactly cheap at 26 times trailing earnings. But there are still some positives. Insiders control approximately 14% of the shares, with CEO James Hebert holding a little over 5%. The company has a solid balance sheet and a business model based on disposable products, and through the first nine months of this fiscal year, the company has still grown sales and earnings by 16.3% and 11%, respectively.For more on Neogen, check out "Neogen's Got the Right Stuff."