Genus plc, a global leader in animal genetics, recently held their Q2 2024 earnings conference call. While much of the focus revolved around the PRRSv gene edit and its anticipated FDA approval in 2025, a more subtle, yet potentially profound, message emerged from the discussion about their bovine genetics business, ABS. Hidden within the commentary about market challenges and the need for structural profitability improvements lies a potential inflection point in the growth trajectory of their revolutionary Sexcel technology, a sexed semen product that allows farmers to predetermine the sex of their calves.

The excitement surrounding Sexcel's launch seven years ago was palpable. The ability to ensure a higher proportion of female calves, crucial for dairy production, offered a tantalizing prospect for farmers. This translated into years of robust double-digit growth in sexed semen volumes, particularly in mature markets like the US and UK. However, a closer look at the recent earnings call transcript reveals a potential slowing in this meteoric rise. Genus acknowledges that the growth in sexed usage is showing signs of plateauing in these mature markets, attributing it to the already high adoption rate among producers.

While this statement might seem innocuous at first glance, it raises a critical question: is Sexcel reaching market saturation in its most developed territories? If so, what does this mean for the future growth prospects of ABS, a business heavily reliant on the continued expansion of Sexcel?

To understand the potential implications, let's delve into the numbers. In Q2 2024, ABS reported a 6% decline in overall bovine volumes compared to the prior year. While this was partially driven by a sharp contraction in the Chinese dairy herd, the deceleration of sexed volume growth is a worrying trend. Excluding China, bovine volumes still decreased by 2%, a figure significantly lower than the historical growth rates fueled by Sexcel's adoption.

Furthermore, the transcript mentions that the rate of sexed volume growth was 'particularly noticeable' in its slowdown. This suggests that the trend is not merely a blip, but a potential shift in the underlying dynamics of the market.

Bovine Volume Trends

The following chart illustrates the bovine volume trends discussed during the earnings call.

Source: Genus plc Q2 2024 Earnings Call Transcript

If Sexcel's growth is indeed plateauing in mature markets, Genus faces a significant challenge. The ABS Value Acceleration Program, launched to improve structural profitability, takes on added urgency. While the program initially focused on cost reduction and resource optimization, it now needs to address a potential deceleration in its core growth engine.

One hypothesis is that Sexcel has reached a natural limit in terms of market penetration in mature dairy markets. Farmers who were eager to adopt the technology have likely already done so. Further growth in these markets might require convincing the remaining hesitant producers, a potentially more difficult and less profitable proposition.

Another hypothesis is that the slowing growth reflects a temporary economic downturn in the dairy industry. Weak global milk prices are squeezing producer margins, making them more cautious about investing in new technologies, even those with proven benefits like Sexcel. If this is the case, Sexcel's growth might rebound as milk prices recover and farmer profitability improves.

Regardless of the underlying cause, Genus needs to proactively address the potential slowdown in sexed semen growth. Their focus on developing new markets for Sexcel, particularly in regions with lower adoption rates like Asia (excluding China) and Latin America, becomes crucial.

Additionally, Genus should explore avenues to enhance the value proposition of Sexcel beyond its current benefits. This could involve developing new features or applications for the technology, or bundling it with other services and products to create a more compelling offering for producers.

The future of Sexcel, and by extension, the growth trajectory of ABS, hinges on Genus' ability to navigate this potential inflection point. While their PRRSv gene edit understandably garners significant attention, investors would be wise to closely monitor the evolving narrative around Sexcel's growth. The muted message in this earnings call might be a signal that the era of unbridled expansion for this groundbreaking technology is drawing to a close, demanding a strategic shift from Genus to ensure the continued success of their bovine genetics business.

"Fun Fact: The concept of sexed semen has been around for decades, but early methods were often unreliable and expensive. Genus' Sexcel technology, launched in 2017, was a game-changer, offering significantly improved accuracy and affordability, leading to a rapid increase in its adoption by dairy farmers worldwide."