ネオジェン（NEOG）2027年度第1四半期決算説明会：コア成長率8.1％を受けガイダンスを上方修正

主要な要点

• ネオジェンの2027年度第1四半期売上高は2億2280万ドルに達し、コア成長率は8.1%となりました。注文時期および前年の代理店在庫調整に伴う比較の容易さが、コア成長率に約300ベーシスポイント寄与しました。
• 食品安全性部門の売上高は1億6320万ドルに達し、コアベースで8.1%増加しました。一方、動物安全性部門の売上高は5960万ドルとなり、こちらもコアベースで8.0%増加しました。
• 調整後EBITDAは4160万ドルに増加し、利益率は18.7%となり、前年同期比で170ベーシスポイント拡大しました。
• フリーキャッシュフローは、前年同期比で約1800万ドル改善して470万ドルとなり、営業キャッシュフローの増加と設備投資の減少が寄与しました。
• 経営陣は2027年度の売上高見通しを8億8500万〜8億9000万ドルに、調整後EBITDA見通しを1億8100万〜1億8300万ドルに上方修正しました。
• 最初のPetrifilm SKUが完全な検証を完了しました。ネオジェンは、計画されている数四半期にわたる製造移管が来月開始されると見込んでいます。

主要財務実績

事業および業績動向

食品安全性部門の成長は、Petrifilmを含め11%増加した指標菌検査および培地製品が牽引しました。細菌および一般衛生製品は7%増加し、病原体検出は2桁成長となりました。同セグメントのコア成長には、注文のタイミングと前年比較から約400ベーシスポイントの恩恵が含まれています。

動物安全性部門の成長は第4四半期から加速しました。獣医用器具は注射針および注射器の供給改善の恩恵を受け、バイオセキュリティ分野では害虫駆除製品が堅調な成長を記録しました。注文のタイミングにより、セグメントのコア成長率は約100ベーシスポイント押し上げられました。

四半期売上高に占める海外の比率は51%となり、米国の49%を上回りました。ネオジェンはアジア太平洋地域での2桁成長を筆頭に、すべての地域で成長を記録しました。

調整後営業費用は前年同期比でほぼ横ばいでした。研究開発（R&D）および一般管理費の投資増加は、物流・流通費の減少、地域マーケティングリソースの集約、ならびに洗浄・消毒剤事業の売却によって相殺されました。

ネオジェンは、商業機能、製品・機器エンジニアリング、アッセイ開発、微生物学的開発、テクノロジー、基幹システムへの投資を継続しました。経営陣は、これらの支出は長期的な成長を支えることを目的としており、オペレーションプログラムによって効率性を向上させていると説明しました。

Petrifilmの製造移管は、引き続き主要なオペレーション上の優先事項です。全17SKUのうち最初の製品が製造、品質、安定性テストを完了し、ネオジェンの移行パートナーが製造した製品と同等の性能を示しました。経営陣はこれを重大なリスク削減の節目と説明しました。

業績見通し

ネオジェンは2027年度の売上高見通しを8億8500万〜8億9000万ドルに、調整後EBITDA見通しを1億8100万〜1億8300万ドルに上方修正しました。この見通しには引き続きゲノミクス事業が含まれており、計画されている売却の完了後に更新される予定です。

経営陣は、前年同期との比較や第1四半期の注文時期の影響により、第2四半期が当年度で最も低いコア成長率になると予想しています。上半期のコア成長率は約3.5%と見込まれており、同社によればこれは通期前提とおおむね一致しています。

上半期の調整後EBITDA利益率は第1四半期の18.7%と同水準を維持する見込みです。経営陣は、下半期にオペレーション改善が集中することで、通期の調整後EBITDA利益率が2026年度とおおむね一致すると引き続き予想しています。

同社は、GAAPベースの営業キャッシュフローとフリーキャッシュフローの両方が前年同期比で大幅に増加すると見込んでいます。

ネオジェンは、ゲノミクス事業の売却から約1億4000万ドルの純手取金を見込んでおり、主に負債削減に充当する予定です。オーストラリアとニュージーランドでの規制当局の承認を条件として、経営陣は12月末までに最終決定を下す見込みです。同社は、この取引により純レバレッジ比率が取引完了時点で3倍未満になり、年度末までに2.5倍に近づく可能性があると述べています。

リスクと注視すべきポイント

• 第1四半期のコア成長率のうち約300ベーシスポイントは、注文時期および大手販売代理店2社における前年の在庫調整の影響によるものでした。
• インフレにより消費者の負担感が続くなか、食品生産者による生産量に関する見解はまちまちとなっています。
• 農家は燃料費や肥料代の高騰に直面していますが、経営陣は好調な畜産物価格や米国の飼育頭数が数十年ぶりの低水準にあることを挙げています。
• Petrifilmの数四半期にわたる移管では、顧客の継続性、安全在庫、新規サプライヤー、および17SKUの順序付けを慎重に管理する必要があります。
• 重複する製造コストはピークを迎えた後、Petrifilmの移行が進むにつれて減少すると予想されています。
• 研究開発、商業インフラ、自動化、基幹システムへの継続的な投資により、短期的な利益率の拡大が制限される可能性があります。

アナリスト質疑応答のハイライト

経営陣は、初期の商業的進展の要因として、販売KPIの厳格な検証、規律ある案件管理、競合からの切り替え、および専用のグローバル戦略アカウント体制を挙げました。グローバル戦略アカウントは第1四半期に6.2%増加し、経営陣はこの部門が年間で8%を超える成長への軌道に乗ったと述べました。

Petrifilmの経済性について、経営陣は移管の完了に伴い重複コストが減少するはずだと述べました。2028年度までの移行完了後、ネオジェンは特定されたオペレーション改善を実施する計画であり、2029年度に200〜300ベーシスポイントの利益率改善を見込んでおり、翌年には完全な実施が予想されています。

ネオジェンはまた、ハイパースペクトルイメージングの新興企業であるHinaleaとの戦略的提携についても言及しました。経営陣は、早期検出や顧客の検査ワークフローの簡素化など、食品安全性部門全般での応用可能性を見出しており、パートナーシップや技術ライセンスが今後もイノベーション戦略の一環であり続けると述べました。

決算説明会トランスクリプト全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Hello, everyone. Thank you for joining us, and welcome to the Neogen First Quarter Fiscal Year 2027 Earnings Call. [Operator Instructions]. I will now hand the conference over to Bill Waelke, Head of Investor Relations. Bill, please go ahead.

Bill Waelke

Thank you for joining us this afternoon to discuss our fiscal 2027 first quarter results. Here in attendance with me today are Mike Nassif, our Chief Executive Officer; Bryan Riggsbee, our Chief Financial Officer; and Joe Freels, our Chief Commercial Officer.

Before we begin, I would like to remind everyone that during today's call, we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in our forward-looking statements is contained in the company's most recent annual report on Form 10-K, the company's quarterly reports on Form 10-Q and the company's other filings with the SEC as well as the press release and presentation issued in connection with today's call. We encourage you to review those documents. The company does not undertake any obligation to update any forward-looking statements. With that, I'm pleased to turn the call over to Mike.

Mikhael Nassif

Thank you, Bill. Good afternoon, and thank you for joining us today. Last quarter, we described fiscal 2026 as a year of stabilization and foundation building with a focus on becoming experts in the fundamentals. As we entered fiscal year 2027, our focus shifted to scaling those fundamentals to drive more consistent execution, better outcomes for customers and profitable growth. The first quarter showed continued progress. Bryan will discuss the results in more detail. But from an operating perspective, we saw tangible signs that the changes underway across Neogen are taking hold. We are strengthening commercial execution, rebuilding our innovation engine and improving how we connect supply, demand, inventory planning and customer service.

We had an encouraging start to fiscal year 2027, with solid core revenue growth in both our Food and Animal Safety segments. This represents an acceleration from the fourth quarter and while timing of certain customer orders benefited growth to some extent, it is a positive start to the year. Given these results, we believe that the changes we are making are gaining momentum. We are encouraged by the progress, but we remain focused on the work ahead and the areas where further improvement is needed. We understand the constraints that remain, have clear accountability for our priorities and are implementing more disciplined operating mechanisms to drive execution.

Our objective is to build on this momentum and deliver more consistent growth and margin expansion over the long term. We remain focused on near-term execution while also making targeted investments to strengthen Neogen's long-term leadership position. A key theme of fiscal 2027 is accelerating investment in our future. We are investing in innovation, technology enterprise systems and commercial capabilities to better serve customers and widen our competitive advantage in both of our segments. At the same time, we remain focused on profitability.

Sustainable margin expansion starts with restoring consistent growth improving execution and building scale. As we make progress in those areas, we expect to create additional opportunities for efficiency and margin improvement. Those efforts are centered around 3 strategic priorities: commercial prowess, high-impact innovation and operational excellence. I will now provide an update on each. First, commercial prowess. Across our business, we are seeing early evidence that greater focus, a stronger operating cadence and more targeted customer engagement are translating into improved results.

During the quarter, each region benefited from segment-focused initiatives, competitive conversions and new product promotions. We also advanced several important strategic account opportunities by working as one global team across commercial, technical, product and operations functions. To sustain that momentum, we recently enhanced our sales KPI review process across each region. This gives us weekly visibility into performance and allows us to act faster when adjustments are needed.

At the same time, we continue rolling out our new sales operating model through global training and capability building. We are making positive progress in building a world-class commercial organization and the transformation is becoming more tangible. We are moving beyond organizational design and process definition into account level execution, disciplined pipeline management and competitive wins. These fundamentals are helping us build the commercial foundation needed to support our goal of sustainable profitable growth over the long term. Second, high-impact innovation. As we have said previously, innovation is the backbone of our growth strategy and our largest area of investment in fiscal year '27. We have several discovery projects underway and remain on track against our pipeline objectives for the year.

As a category leader, we are focused on solving our customers' most significant problems. These high-priority opportunities are designed to strengthen our technology leadership and deliver faster, easier-to-use solutions for customers. Just as important as the projects themselves is how we are approaching innovation. We are bringing commercial, technical and product teams together more intentionally around customer needs, opportunity identification and prioritization, while we believe our biggest opportunity for innovations within our existing portfolio, our commitment to innovation also extends beyond our own walls.

Earlier today, we announced a strategic collaboration with Hinalea, an early leader in hyperspectral imaging. We see potential applications for this technology across several areas of our Food Safety business. This collaboration is part of our strategy of applying advanced novel technology and food safety. This allows us to create new solutions that have the potential to simplify customer workflows. This is the first of many potential partnerships in our pursuit of elevating global food safety testing at the point of processing to enable automation and faster decision-making.

We are becoming more disciplined in how we identify customer problems, prioritize opportunities and allocate resources. Over time, we believe this will translate into a customer-focused pipeline, more differentiated solutions and a sustainable source of growth.

Third, operational efficiency. We view operational excellence as much more than a short-term recovery effort. Our objective is to build the processes, capabilities and culture that can create sustainable value for years to come. We are encouraged by the progress we are seeing. Across the organization, teams are operating with greater accountability, stronger cross-functional collaboration and a willingness to challenge legacy approaches in pursuit of better outcomes. Those changes are being reinforced by more disciplined planning and supply chain management.

We continue to strengthen our sales and operations planning process to improve visibility across our global network and make progress in inventory optimization. This enables our teams to deliver the right inventory in the right place at the right time while improving efficiency and customer service. We are beginning to see evidence that these efforts are working. We previously mentioned our focus on continuous improvement. Today, black belts and dozens of green belts are leading projects across the organization. Combined with stronger daily management, operational dashboards and regular operating reviews, this work is improving visibility, accountability and execution. There's still work to do, but we believe a simpler, more scalable and more resilient operating model will position us to improve customer satisfaction, expand margins and generate stronger cash flow over time.

Another major operational priority, the manufacturing transfer of Petrifilm remains on track and is expected to begin the planned multi-quarter transfer next month. This represents the last step in the integration of the former 3M Food Safety business. We have achieved an important milestone with the full validation of our first Petrifilm SKU. Full validation confirms that the product has completed production, quality and stability testing and has demonstrated equivalent performance to product manufactured by our transition partner. We believe this is a major derisking milestone for the program.

As a reminder, Petrifilm, similar to the overwhelming majority of our products, is not regulated by the FDA. Our sales of FDA-regulated products totaled less than $10 million in fiscal year '26, with almost the entirety of that amount being comprised of several animal safety products, including those manufactured by unaffiliated third parties. We continue to approach this transition with a high degree of rigor and discipline. Our objective is a seamless transition for customers, maintaining the supply reliability and product performance they expect from Petrifilm. I'll now turn the call over to Bryan to cover our results.

R. Riggsbee

Thank you, Mike, and thanks to everyone participating in the call today. I'm pleased to provide an overview of our financial results for the first quarter of fiscal year 2027. We delivered first quarter revenue of $222.8 million, representing core growth of 8.1%. This continued momentum is driven by the positive progress of our focus on commercial excellence. I would like to call out 2 items which benefited core growth in the first quarter by approximately 300 basis points. During the first quarter, we saw a positive impact from the timing of certain orders, which we had expected in the second quarter.

In addition, the first quarter of fiscal year 2026 was negatively impacted by inventory adjustments at 2 large distributors. At the segment level, our Food Safety business delivered $163.2 million in revenue for the quarter, representing 8.1% core growth, which included a benefit of approximately 400 basis points from the items previously mentioned. Key product lines in Food Safety performed well, led by the continued strength in our indicator testing and culture media products, including Petrifilm, which were up 11% and solid growth in our bacterial and general sanitation products, which grew 7%, including double-digit growth in pathogen detection.

From a market perspective, food safety is not tied directly to food production, but understanding what's generally happening with food production can be useful from a high-level trend perspective. Recent earnings calls for food producers seem to suggest a slight improvement in general volume trends, but the commentary is mixed with consumers remaining under pressure from inflation. Although higher food production volumes can positively influence demand, evolving regulatory requirements have the potential to increase food safety testing independently of production growth.

Our Animal Safety segment delivered $59.6 million in revenue with core growth of 8%, including a benefit of approximately 100 basis points from the timing of certain customer orders. This growth represents a significant acceleration from the fourth quarter and was led by our veterinary instruments product category with strong growth in needles and syringes from improved supply and our biosecurity product category, which had strong growth in insect control products.

From a macro perspective, signs in the Animal Safety end market continue to be encouraging. Although farmers are facing some elevated input costs, namely fuel and fertilizer, herd size in the U.S. remains at multi-decade lows and pricing is favorable. The USDA still anticipates improvements in the U.S. herd size in coming years based upon favorable prices supporting investment. For Neogen in total, U.S. revenue was 49% of sales in the quarter and our international revenue was 51%. As anticipated, the positive impact of currency moderated from the fourth quarter with the strengthening of the U.S. dollar index. We saw growth in each of our regions, led by double-digit growth in Asia Pacific.

Gross margin in the first quarter was 47.4% and adjusted gross margin was 49.8%, which is an increase of 30 basis points year-over-year on an adjusted basis. The adjusted gross margin expansion was due to the benefit from higher revenue, offset by our deliberate investments to accelerate our focus in operational excellence and inventory optimization. Adjusted operating expenses in the quarter were approximately flat on a year-over-year basis. Investment in R&D and G&A functions was offset by a reduction in sales and marketing expenses, primarily from lower logistics and distribution expenses, the centralization of regional marketing resources and the divestiture of our cleaners and disinfectants business.

Despite the overall decline in sales and marketing expenses in the quarter, we made targeted investments in our commercial capabilities, including key account and channel management. On a sequential basis, the largest increase in spend was in R&D, where we made investments in product and instrumentation engineering as well as in assay and microbiological development. Adjusted EBITDA was $41.6 million in the quarter, representing a margin of 18.7% and 170 basis points of expansion. We delivered this margin improvement while investing in the things Mike mentioned to position the company for the future, commercial capabilities, high-impact innovation and enabling technology and enterprise systems.

First quarter adjusted net income and adjusted earnings per share were $17.5 million and $0.08, respectively. Importantly, free cash flow of $4.7 million in the quarter represented a year-over-year improvement of approximately $18 million. This improvement was driven by both higher operating cash flow and reduced CapEx as we move closer to the completion of the Petrifilm manufacturing transition.

Turning to the balance sheet. We ended the quarter with approximately $774 million of debt and a total cash balance of $172 million. We remain fully compliant with all debt covenants and believe we are well positioned to further strengthen our balance sheet as free cash flow continues to improve. We took advantage of our cash balance to pay down $20 million of our term loan in June, followed by an additional $10 million we paid at the end of September. We're also continuing to advance treasury opportunities to free up global cash to lower our required cash balances to operate the business and support further debt repayment. We continue to work towards completing the previously announced divestiture of our genomics business.

The transaction is moving through the review process with the regulatory authorities in Australia and New Zealand from whom we expect to receive a final decision by the end of December. As a reminder, we intend to use the expected net proceeds of approximately $140 million, primarily for debt reduction. We believe this would put our net leverage below 3x at closing and closer to 2.5x by the end of the fiscal year.

Now I'd like to discuss our guidance for fiscal year 2027. While it is still early in the fiscal year, we are raising our revenue guidance to $885 million to $890 million. We are also raising our adjusted EBITDA guidance to $181 million to $183 million to reflect the higher expected revenue. The genomics business continues to be included in our guidance, which we will update following the closing of the divestiture. Contemplated in our increased revenue guidance is the expectation we had entering the fiscal year that the second quarter would see the lowest level of core growth. Given the timing items mentioned earlier, which impact the year-over-year comparisons, we believe that looking at the first half in total is most reflective of the current trajectory of the business.

We expect core growth in the first half to be in the range of approximately 3.5%, which is generally consistent with how we've thought about the full year. For adjusted EBITDA margin, our expectation is for the first half of the year to be in line with the first quarter. We intend to continue to invest in our business this fiscal year, prioritizing investments in R&D and our commercial infrastructure to support long-term growth. As our guidance continues to imply, we still believe we will be able to expand adjusted EBITDA margins through progress in our key operational efficiency programs.

The investment in transformation initiatives we've discussed is underway, which includes investments in enterprise capabilities, technology solutions and automation across the organization. This level of investment has been in line with our expectations, and we are maintaining our view that both our GAAP cash flow from operations and our free cash flow will increase meaningfully on a year-over-year basis. We are off to an encouraging start to the year, and we'll remain focused on execution and restoring investor credibility. I'll now hand the call back to Mike for some final thoughts.

Mikhael Nassif

Thanks, Bryan. Our objective remains straightforward: strengthen Neogen's leadership in food safety, grow consistently above market over time and deliver industry-leading profitability. We are making progress across the business, including commercial wins, a customer-focused innovation pipeline, improved inventory management, greater operating discipline and continued advancement of the Petrifilm manufacturing transition. There's more work ahead, but the foundation is getting stronger. Our teams understand the priorities, have clear ownership of the opportunities and constraints in front of them and are operating with greater transparency, accountability and urgency.

My confidence in the trajectory of our business and in the team we have in place remains high. I want to thank our employees around the world for their dedication to our mission and their continued commitment to our customers. We know what we need to do, and we are focused on consistent execution. And with that, I'll now turn things over to the operator to begin the Q&A session.

Operator

[Operator Instructions] Your first question comes from the line of Brandon Vazquez with William Blair.

質疑応答

Brandon Vazquez

Congrats on a nice quarter. I wanted to start quick on the EBITDA margin guidance and some of the comments you're seeing, maybe just to clarify because there's a bunch of moving pieces here. The EBITDA margins in the quarter were up 170 bps year-over-year. But if I'm doing my math correctly here on a full year basis, at the midpoint of the range, largely flat. Can you just talk about some of the moving pieces where the incremental investments are, if that's correct? And then clarify, Bryan, I think you had said the first half margins would be similar to Q1. Did I hear that correctly because that would kind of imply a sub-20% EBITDA margin in the second quarter. So just any clarification there?

R. Riggsbee

Yes. Thanks for the question, Brandon. Yes, the commentary is that the first -- the second quarter or the first half will be in line with what we saw in Q1. I think when you look at the guide for the full year, and we had highlighted this on the call when we gave the full year guidance that our EBITDA margins for the year would basically be roughly similar to what they were in fiscal year '26. So I think that's consistent with where we were previously from a margin perspective. And as we thought about the full year and the way that plays out, I think some of the investments that we're making in Q1, we talked about some of the -- excuse me, in the first half, some of the investments we made in Q1 with things like national sales meeting, et cetera, are a bit of a -- were a bit of a headwind. And then as we move through the year, we'll see the impact of some of the improvements in our margin expansion program. This would be things like inventory write-offs, sample collection, which has become -- has seen significant improvement through the course of last year, and we'll see it in the back half of the year. So those things are more back half weighted, and that's the way -- that's the profile we had expected for the year.

Brandon Vazquez

Okay. That's helpful. Mike, on the operational side, you had said a couple of words or phrases here that we haven't heard in a very long time at Neogen, things like competitive conversions and strategic account wins. Maybe can you just first talk a little bit about are you guys in a share-taking position at this point already? It's hard for us to know what kind of end market growth is these days. So underlying, as you look at the business, just to confirm, are you guys already taking share? Where are you seeing those incremental wins? Because it's been a long time since we've seen some competitive conversions from you guys.

Mikhael Nassif

Yes. Thanks, Brandon. And we have Joe Freels with us, and I'll ask him to give a bit more details. But I would say, in general, we're very happy with how the commercial team is adopting a new way of working. And under Joe's leadership, we've really accelerated how tactical we are in sharpening our focus on not only competitive wins, but just going after key accounts and supporting our customers. So I'm very happy with the progress that we're making. And I'd like to ask Joe to give you a bit more details around how we're doing that.

Joe Freels

Yes, Brandon, one of the key areas is around global strategic accounts. For us, those are the accounts that do business in more than one region around the globe. These are trusted brands that are on the shelves of the grocery store in the market that you're probably very familiar with. And we're changing -- we've had a very somewhat fragmented model where we have individual reps by region or category in the past. And now we're -- we've changed that to a dedicated team where you have one singular accountable person for each one of these strategic customers individually. And so we're starting to see some early evidence that that's working, 6.2% growth in Q1. That puts us on a path to do better than 8% on the year. So we're really pleased with how some of these efforts are starting to prove results.

Operator

Your next question comes from the line of Subbu Nambi with Guggenheim Securities.

Subhalaxmi Nambi

Another strong quarter of indicator testing and bacteria general sanitation growth. What are you assuming for growth from these 2 segments as we move through the year? And what are the drivers you see to keep those segments at high-single-digit percentages?

Joe Freels

Yes. Thanks, Subbu, for that question. It's a lot of what we're bringing to bear with the commercial operating model, just greater focus on the right segments, making sure that we're focusing our efforts in the right places of the market. And also, as we think about the opportunities, it's really important not only to work the right opportunities, but to not work the wrong opportunities. And so with just a greater degree of focus and execution from the team, Mike had mentioned, we've installed some new KPI reviews that are driving a much more rigorous rhythm within the commercial organization. So you start to add those things together that makes us feel good about where we are in terms of being able to continue to drive growth in those particular product lines and segments.

Subhalaxmi Nambi

Okay. Helpful, Mike. And with the manufacturing transition, can you remind us through the current thinking on how you're planning to manage inventory and the 3M agreement as you get up and running? How are you ensuring you effectively manage inventory and costs given the inventory management has been an issue in the past, but I'm sure with the new management, it's a different story. So I would love to hear your current thinking.

Mikhael Nassif

Yes, Subbu, thank you. Yes, absolutely. We completely revamped how Neogen looks at inventory. And in fact, as part of our S&OP process and the other things that we spoke about earlier, we're seeing promising progress in managing that inventory and getting to a better position. Still some work to do, but we like what we're seeing and how the organization is adopting that. With regards to Petrifilm transition, there's really 4 gating items that we are mindful of as we move forward. One, customer continuity. We have to make sure that our customers do not have any impact with regards to the transition. Number two is safety stock. So we've got existing safety stock, but also as we build new safety stock, we want to make sure that we economically don't put ourselves in a position where we have to write off unnecessarily. So we got to make sure that, that's thoughtful.

Third, supplier management. As you can imagine, as we transition, there's a lot of new suppliers and things we have to work through. And I think the last one is really disciplined sequencing. So these are 17 SKUs. And as you can imagine, it's not with the right team and focus, which we have, we're going to be successful at doing it, but it is a number of SKUs that we have to be thoughtful about doing that over a period of time. So those are the 4 conditions that we're going to be monitoring SKU by SKU as we go through this new phase of moving Petrifilm from the third party to our facility in Lansing.

Operator

Your next question comes from the line of Bob Labick with CJS Securities.

Bob Labick

Congratulations on the results and also on the first full SKU validation. And I just want to kind of continue down the discussion you're just having there. Can you tell us how the kind of model will be impacted and for how long in terms of running duplicative costs or excess costs and when we see margin improvement where it comes? And I guess finally, kind of the last biggest wildcards for the remaining SKU transitions.

R. Riggsbee

Yes, Bob, thanks for the question. I think the first comment is really just around the way the duplicative costs will work. You've seen that it's up on a year-over-year basis. We would expect that to peak and then start to subside as we move through the year and complete the transition. In terms of the margin improvement, I think what we've said is that once we're transitioned over through fiscal year '28, we will begin implementing some of the operational improvements that we've identified through the transition process, and we would expect to see margin improvement, 200 to 300 basis points in the FY '29. I think that would be the first full fiscal year or in the first fiscal year, we would be working on the improvements. And then in the second year, we would expect that to be fully implemented.

Mikhael Nassif

Yes. And Bob, with regards to your question on wildcards, we understand the importance of Petrifilm to the food safety industry, to our customers and to Neogen. And as such, this is our #1 priority. And we have contemplated all scenarios as much as we can with the right mitigations to ensure that our customers do not feel the impact of this. And number two, we don't inadvertently put a financial impact to Neogen.

Bob Labick

Okay. Great. And then just on the Hinalea Imaging announcement, are there more opportunities for partnerships like this? And are you thinking of this as kind of R&D and innovation? Will there be ongoing payments to them or co-investments? Or how will this partnership kind of play out over the next couple of years?

Mikhael Nassif

Yes. So I look forward to those that will be at the Investor Day tomorrow to listen to Jeremy to share with you how we're thinking about innovation. Certainly, for us, partnerships and technology licensing that advances the food safety testing is one of the ways that we're going to drive innovation. And Hinalea is a great example of that. They've got a market-leading position when it comes to low-cost hyperspectral images that we believe can play across multiple platforms. And why is that important? When you think about a regular camera that records 3 bands of light, red, green and blue, a hyperspectral sensor can capture almost 100 or more building a detailed sort of fingerprint of every pixel of an image.

So what that means is that we can detect things a lot earlier. And more importantly, it simplifies the downstream testing that our customers have to do. And so this is one of many technologies that we're exploring and looking at. And as we identify the right partners and we believe they really can drive value in the industry, we will look to move that forward as part of our innovation plan. And just another plug for Investor Day. We will have one of those cameras tomorrow for the demo. So for those of you that are going to be able to make it in person, you'll actually get to see a live camera, one of the few in the world that I believe.

Operator

Your next question comes from the line of David Westenberg with Piper Sandler.

Unknown Analyst

This is [ Sky ] on for Dave. First, on overall food safety growth, and you called out double-digit growth in Asia Pacific. What are you seeing with end customer demand there? How broad-based was the performance? And which markets or customer segments offer the greatest opportunity for further growth for the remainder of 2027 and beyond?

Joe Freels

Yes. In terms of customer segments, we're focusing across ready-to-eat, dairy, protein, et cetera. I mean we've got such a broad customer base for us. It's not really about creating new markets. It's about building share of wallet within the current markets in which we play. So as we look out through the year, I think Bryan had shared sort of the growth expectations for first half and for full fiscal year. But as we continue to execute on the commercial side of the house with our discipline and rigor cadence focus, we expect to continue on the current path.

Unknown Analyst

Okay. Great. And maybe just on your point to the commercial discipline. I know you've mentioned the sales KPIs. And can you talk a little bit more about the sales model? Kind of what are the early signs you're seeing that these changes are improving customer coverage? Is there cross-selling or other sales productivity that you call out?

Joe Freels

Yes. Great. Well, I guess the first thing I would say is this is the fifth consecutive quarter of core growth for Neogen. So that's certainly a great start. Q1 performance, I think, is also a good indicator of where we are. In terms of the sales operating model, it's really about how do we focus more upon bringing value to our customers and the things that are strategically important to them versus just simply being a product supplier. So that's particularly shown at the corporate accounts level or the strategic accounts level that I spoke about earlier, where we're aligning enterprise-wide with what our customers really care about deeply and making sure that we're aligning ourselves as a solutions provider and a partner in food safety rather than just a product provider.

So with those kind of in mind, and you had mentioned the KPI reviews, that's just about accountability, frankly, in the commercial organization. You have to have visibility and transparency to where we are in real time, and that allows the team to hold themselves accountable and ensure that we can countermeasure and resolve in real time versus waiting on results and reacting after the fact.

Operator

There are no further questions at this time. I will now turn the call back to Bill for closing remarks.

Bill Waelke

We'd like to thank everyone for participating in the call today. And as always, please reach out with any questions, and have a great rest of the day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.