Investing.com -- S&P Global Ratings has downgraded Michigan-based Neogen Corp (NASDAQ: NEOG ).’s issuer credit rating from ’BB+’ to ’BB-’, citing increased leverage and a negative outlook. The downgrade is a result of ongoing integration issues with 3M Co. (NYSE: MMM )’s food safety business and significant macroeconomic challenges, which have weakened Neogen’s financial metrics beyond S&P’s previous expectations.

S&P anticipates that Neogen’s adjusted debt to EBITDA will exceed 4x in fiscal 2025 and will remain above 3x in fiscal 2026. As a result, the ratings agency has also lowered its issue-level rating on Neogen’s refinanced senior secured debt to ’BB’ from ’BBB-’, which includes an upsized revolving credit facility due in 2030. The issue-level rating on the company’s senior unsecured notes was also reduced to ’B+’ from ’BB’.

The negative outlook for Neogen reflects the risk that further challenges with the integration of the 3M food safety business and ongoing macroeconomic issues, such as global trade uncertainties and a heightened risk of inflation, could keep leverage above 4x in 2026 and beyond.

Neogen’s underperformance in revenue and profitability for fiscal 2025 has led to a decline in expected revenue of about 4.3%, compared to S&P’s previous expectation of low-single-digit percent growth. This is attributed to integration issues in key production lines from the 3M facility, delays in the integration of the Petrifilm product line, a softening animal safety segment, significant adverse foreign currency fluctuations, and the lingering impact of prior shipping delays.

S&P expects Neogen’s revenue to decline by 10% in 2026 due to the company’s strategic aim to refine its focus on the higher-margin and growth food safety end market and undertake divestitures. The food safety vertical is expected to return to modest low-single-digit percent growth in fiscal 2026.

Neogen’s EBITDA margin is expected to improve significantly in 2026. Costs were high in 2025 due to restructuring expenses resulting from the integration of the 3M production facilities and higher freight costs. However, the EBITDA margin is expected to improve by about 200 basis points in 2026 due to profitability improvement measures. This includes expected strategic divestitures of lower-margin product lines, higher production volume in the sample collection product line, and improved production efficiency.

Neogen’s leverage is expected to be 4.3x in 2025 and above 3x in the subsequent years. This is despite the company having paid down about $100 million in debt in April. The increased leverage is attributed to lower-than-expected revenue and EBITDA due to an unforeseen increase in freight costs and continued integration issues with the 3M food safety product lines.

S&P could further lower its ratings on Neogen if its operating performance deteriorates to the extent that debt to EBITDA remains above 4x due to further delays in integrating its 3M food safety business, an inability to control potential cost increases due to macroeconomic headwinds, or the adoption of a more aggressive expansion strategy. Conversely, S&P could revise the outlook to stable if Neogen successfully integrates the 3M food safety business and lowers its restructuring costs, resulting in improved margins and leverage remaining below 4x.

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