네오젠(NEOG) 2027 회계연도 1분기 실적 발표: 핵심 성장률 8.1% 달성에 가이던스 상향

핵심 요약

• 네오젠은 2027 회계연도 1분기 매출이 2억 2280만달러를 기록하며 8.1%의 자체 핵심 성장률을 나타냈다고 발표했습니다. 주문 시기와 전년도 유통업체 재고 조정에 따른 비교 기저효과가 핵심 성장률에 약 300베이시스포인트 기여했습니다.
• 식품 안전 사업부 매출은 1억 6320만달러로 자체 핵심 기준 8.1% 증가했으며, 동물 안전 사업부 매출은 5960만달러로 역시 자체 핵심 기준 8.0% 증가했습니다.
• 조정 EBITDA는 4160만달러로 증가해 18.7%의 이익률을 기록했으며, 전년 동기 대비 170베이시스포인트 확대되었습니다.
• 잉여현금흐름은 영업활동 현금흐름 증가와 설비투자 감소에 힘입어 전년 동기 대비 약 1800만달러 개선된 470만달러를 기록했습니다.
• 경영진은 2027 회계연도 매출 가이던스를 8억 8500만~8억 9000만달러로, 조정 EBITDA 가이던스를 1억 8100만~1억 8300만달러로 상향 조정했습니다.
• 첫 번째 페트리필름 SKU에 대한 최종 검증이 완료되었습니다. 네오젠은 수개월에 걸쳐 계획된 제조 이전 작업이 다음 달 시작될 것으로 예상하고 있습니다.

주요 재무 실적

사업 및 영업 성과

식품 안전 분야의 성장은 11% 증가한 페트리필름을 비롯한 지표 검사 및 배지 제품군이 견인했습니다. 박테리아 및 일반 위생 제품은 병원체 검출 부문의 두 자릿수 성장에 힘입어 7% 성장했습니다. 해당 사업부의 자체 핵심 성장률에는 주문 시기와 전년도 비교에 따른 혜택이 약 400베이시스포인트 포함되었습니다.

동물 안전 부문의 성장은 4분기 이후 가속화되었습니다. 수의학 기구는 바늘과 주사기 공급 개선의 수혜를 입었으며, 생물안전 부문은 해충 제어 제품에서 견조한 성장을 기록했습니다. 주문 시기는 사업부 자체 핵심 성장률을 약 100베이시스포인트 끌어올렸습니다.

해외 매출은 분기 매출의 51%를 차지했으며, 미국 매출 비중은 49%였습니다. 네오젠은 아시아 태평양 지역의 두 자릿수 성장에 힘입어 전 지역에서 성장을 기록했습니다.

조정 영업비용은 전년 동기 대비 거의 변동이 없었습니다. 연구개발(R&D) 및 일반관리비 투자가 늘어났으나 물류 및 유통 비용 감소, 지역 마케팅 자원 중앙화, 세정제 및 소독제 사업 매각으로 상쇄되었습니다.

네오젠은 상업적 역량, 제품 및 장비 공학, 분석법 개발, 미생물학 개발, 기술 및 기업 시스템에 대한 투자를 지속했습니다. 경영진은 이러한 지출이 장기적 성장을 지원하기 위한 것이며 영업 프로그램은 효율성을 개선하고 있다고 밝혔습니다.

페트리필름 제조 이전은 여전히 주요 영업 우선과제입니다. 17개 SKU 중 첫 번째 품목이 생산, 품질 및 안정성 시험을 마쳤으며, 네오젠의 전환 파트너가 제조한 제품과 동등한 성능을 입증했습니다. 경영진은 이를 상당한 위험 감소 이정표라고 평가했습니다.

경영진 가이던스

네오젠은 2027 회계연도 매출 가이던스를 8억 8500만~8억 9000만달러로, 조정 EBITDA 가이던스를 1억 8100만~1억 8300만달러로 상향 조정했습니다. 이 가이던스에는 유전체학 사업이 여전히 포함되어 있으며, 계획된 매각 절차가 완료된 후 업데이트될 예정입니다.

경영진은 전년 동기 대비 비교 기저효과와 1분기 주문 시점 영향으로 2분기 자체 핵심 성장률이 해당 회계연도 중 가장 낮을 것으로 예상하고 있습니다. 상반기 자체 핵심 성장률은 약 3.5%로 예상되며, 이는 회사의 연간 전망치 전반과 부합하는 수준이라고 밝혔습니다.

상반기 조정 EBITDA 이익률은 1분기의 18.7% 수준을 유지할 것으로 예상됩니다. 경영진은 연간 조정 EBITDA 이익률이 2026 회계연도와 거의 비슷할 것으로 지속 전망하고 있으며, 영업 실적 개선은 하반기에 집중될 것으로 보입니다.

회사는 GAAP 영업활동 현금흐름과 잉여현금흐름 모두 전년 동기 대비 의미 있게 증가할 것으로 기대하고 있습니다.

네오젠은 유전체학 사업 매각을 통해 약 1억 4000만달러의 순매각 대금을 확보해 주로 부채 상환에 사용할 수 있을 것으로 예상합니다. 호주와 뉴질랜드의 규제 당국 승인에 따라 경영진은 12월 말까지 최종 결정이 내려질 것으로 예상하고 있습니다. 회사는 이번 거래를 통해 순차입금비율을 거래 완료 시점에는 3배 미만, 회계연도 말에는 2.5배 수준으로 낮출 수 있다고 밝혔습니다.

리스크 및 주시해야 할 점

• 1분기 자체 핵심 성장률 중 약 300베이시스포인트는 주문 시기와 대형 유통업체 2곳의 전년도 재고 조정 영향에서 기인했습니다.
• 소비자들은 인플레이션 압박을 지속적으로 받고 있으며, 식품 제조업체들은 생산량에 대해 다소 엇갈린 전망을 내놓았습니다.
• 경영진은 유리한 가축 가격과 수십 년 만에 가장 낮은 수준인 미국의 사육 두수를 언급했으나, 농가들은 높은 연료 및 비료 비용 부담에 직면해 있습니다.
• 수개월이 소요되는 페트리필름의 제조 이전 과정에서는 고객 연속성, 안전 재고, 신규 공급업체, 17개 SKU의 순차적 적용 등에 대한 세심한 관리가 필요합니다.
• 페트리필름 전환이 진행됨에 따라 이중 제조 비용은 정점을 찍은 후 감소할 것으로 예상됩니다.
• 연구개발(R&D), 상업 인프라, 자동화 및 기업 시스템에 대한 지속적인 투자는 단기적인 이익률 확대를 제한할 수 있습니다.

애널리스트 Q&A 주요 내용

경영진은 초기 상업적 성과가 더 엄격해진 영업 KPI 점검, 규율 있는 파이프라인 관리, 경쟁사 고객 전환, 전담 글로벌 전략 고객 조직 덕분이라고 설명했습니다. 글로벌 전략 고객 매출은 1분기에 6.2% 성장했으며, 경영진은 이 부문이 연간 8% 이상의 성장을 달성하는 궤도에 올랐다고 밝혔습니다.

페트리필름 수익성에 대해 경영진은 이전이 완료되면 이중 비용이 감소할 것으로 보고 있습니다. 2028 회계연도까지 전환을 마친 후, 네오젠은 도출된 영업 개선 사항을 실행할 계획이며 2029 회계연도에 200~300베이시스포인트의 이익률 개선을 기대하고 있고, 그다음 해에 완전히 적용될 것으로 예상합니다.

네오젠은 초분광 이미징 분야의 초기 단계 기업인 히날레아(Hinalea)와의 전략적 협력에 대해서도 언급했습니다. 경영진은 조기 진단 및 고객의 검사 워크플로우 단순화 등 식품 안전 전반에서 활용 가능성이 크다고 보고 있으며, 파트너십과 기술 라이선싱이 혁신 전략의 일환으로 유지될 것이라고 설명했습니다.

실적 발표 콘퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

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.

질의응답

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.