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Bob Evans Provides Strategic Initiatives Update and Reports Fiscal 2015 Third-Quarter Results

  • Board of Directors announces the Company will not pursue a sale or spin-off of the BEF Foods business segment at this time
  • JP Morgan retained during the third quarter to assist with continued evaluation of strategic alternatives for the Company's real estate
  • Company's review of its G&A and operating cost structures yields a $35 million annual cost savings opportunity expected to be realized over three years
  • Q3 2015 net sales total $357.2 million, an increase of $17.0 million, or 5.0 percent, compared to the prior year period. GAAP net income of $0.25 per diluted share compared to net income of $0.24 per diluted share in the prior year period. Non-GAAP net income(1) of $0.60 per diluted share compared to $0.31 per diluted share in the prior year period
  • BEF Foods' Q3 2015 non-GAAP operating margin of 10.9 percent improved 870 basis points over the prior year period driven by sales gains, improved plant efficiencies, and lower sow and trim costs
  • Bob Evans Restaurants' Q3 2015 same-store sales increased 3.8 percent
  • Quarterly dividend of $0.31 per share payable on March 23, 2015, to stockholders of record at the close of business on March 9, 2015
  • Company lowers fiscal 2015 GAAP diluted EPS guidance range to $0.70 to $0.90 per share and non-GAAP guidance range to $1.40 to $1.60 per share. Restaurant turnaround efforts are our #1 priority and are underway

NEW ALBANY, Ohio, March 3, 2015 (GLOBE NEWSWIRE) -- Bob Evans Farms, Inc. (Nasdaq:BOBE) today provided an update concerning a range of strategic initiatives the Company has been evaluating. The Company also reported its financial results for the fiscal 2015 third quarter ended Friday, January 23, 2015.

Strategic initiatives – interim update

Commenting on strategic initiatives the Board is addressing, Mary Kay Haben, Non-Executive Chair of the Board, said, "Last December, the Board of Directors concluded that the Company would benefit from new leadership and enhanced execution. In the wake of that leadership change, the Board and management are working together with a high sense of urgency to implement actions to enhance performance and create shareholder value. With these objectives in mind, the Finance Committee of the Board, with the assistance of independent advisors, was charged with conducting a comprehensive review of strategic alternatives. The Finance Committee unanimously reached several conclusions and advised the Board that:

1) Working with Lazard, it thoroughly reviewed the possibility of a separation of the BEF Foods business and concluded that a sale or spinoff of the segment, at this time, would not enhance shareholder value, and that continued focus on operations improvement would deliver greater benefits to our shareholders. Because the Company's tax basis in its BEF Foods business is low, a taxable sale would be accretive only if it occurred at an EBITDA multiple significantly in excess of recent valuations for which food businesses have traded. With input from its outside advisors, the Finance Committee also concluded the annual costs and lost synergies that would result from a tax-free spin-off would be significant. Additionally, the need to allocate the Company's debt between two smaller companies, and the one-time costs and significant management attention that would be required, make such a transaction not advisable at this time.

2) The Company has retained JP Morgan to work with the Finance Committee, in addition to Lazard, in reviewing the potential for real estate transactions or other changes to the Company's capital structure. Working with these advisors, the Finance Committee is continuing to evaluate various alternatives with respect to all, or a portion of, the Company's real estate assets, including a potential REIT spin-off, a sale-leaseback, and other real estate financing transactions; and

3) Working with Deloitte, the Company has reviewed its G&A and certain other cost structures and identified $35 million of potential annual cost savings, which it has already begun to implement and which it expects to realize over a three year time frame. The implementation costs to achieve these savings are expected to be approximately $4 million. Additionally, the Company is putting in place an enterprise-wide lean efficiency team to focus on other savings opportunities in addition to those identified to-date.

"The Board has thoroughly reviewed, and unanimously endorsed, the conclusions and recommendations of the Finance Committee."

CEO search update

Mary Kay Haben continued, "The Board is pleased with the progress of the CEO Search Committee as it identifies and vets CEO candidates. We will provide an update on the search process as soon as it is warranted."

Third-quarter fiscal 2015 results

On a GAAP basis, the Company reported net income of $5.9 million, or $0.25 per diluted share, compared with net income of $6.2 million, or $0.24 per diluted share, in the comparable period last year. On a non-GAAP basis(1), net income was $14.3 million, or $0.60 per diluted share, compared with net income of $8.2 million, or $0.31 per diluted share, in the comparable period last year.

Third-quarter fiscal 2015 commentary

Chief Financial Officer Mark Hood said, "Our third-quarter results reflect improved net sales in both our Bob Evans Restaurants and BEF Foods business segments. The improvement in sales combined with lower sow costs and improved plant efficiencies at BEF Foods led to solid profit growth at BEF Foods in the third quarter. While Bob Evans Restaurants' same-store sales increased 3.8 percent in the quarter, higher discounting, food, and labor costs resulted in a decline in the segment's operating income, demonstrating the challenges we face in turning around performance. We have developed, and are implementing, a restaurant turnaround strategy anchored in farm-fresh food, improvement of our breakfast offering, and completion of the Broasted® Chicken platform rollout. We introduced a new restaurant menu late-February that, along with reduced discounting activity and an increased focus on breakfast, is expected to mitigate food cost pressures beginning in the fourth quarter."

President, BEF Foods, Mike Townsley, said, "We had a strong quarter at BEF Foods with overall volume up 5.5 percent. Our side dish business, which had been negatively impacted by a supplier dispute last year, grew 21.9 percent in the quarter. Our sausage volume declined 6.4 percent as sow costs remained relatively high early in the quarter and we maintained tight discipline over our trade spending. From a cost perspective, we continued to improve plant operations during the quarter as our plant network is now operating at higher efficiency levels than the prior year period. However, we have identified and continue to execute upon opportunities to further improve operations. With a newly optimized plant network, significantly lower input costs, and a sales force empowered to strategically employ trade spending to drive sales, we believe BEF Foods will quickly improve its margin structure and deliver a solid return on the significant recent investments in our business."

Third-quarter fiscal 2015 Bob Evans Restaurants segment summary

Bob Evans Restaurants' net sales were $250.4 million, an increase of $9.9 million, or 4.1 percent, compared to net sales of $240.5 million in the corresponding period last year. Same-store sales were 3.8 percent in the quarter, slightly below the national Knapp-Track™ family dining index increase of 3.9 percent.

During the third quarter of fiscal 2015, Bob Evans Restaurants opened two new restaurants located in Simpsonville, KY, and Seffner, FL.

Same-Store Sales
(SSS) Restaurants
November December January 3Q FY '15
557 2.8% 3.8% 5.2% 3.8%

Bob Evans Restaurants' GAAP operating loss was $2.0 million, compared to GAAP operating income of $6.6 million in the corresponding period last year. Bob Evans Restaurants' non-GAAP operating income was $6.1 million, compared to non-GAAP operating income of $8.7 million in the corresponding period last year. The primary drivers of the $2.5 million decrease were: a $3.9 million negative impact of higher food costs due to increased discounting, menu mix changes, increased off-premise sales mix, and higher commodity costs; a $2.0 million negative impact of increased labor and benefit costs driven primarily by healthcare costs and wage rates; $1.3 million of increased operating expense resulting from increased marketing and utility expenses; and $0.8 million of increased S,G&A costs as a result of a $1.2 million incremental discretionary 401k match, offset by $0.4 million of net S,G&A savings. These items were partially offset by $3.7 million of sales leverage and $1.8 million of reduced depreciation expense.

Third-quarter fiscal 2015 BEF Foods segment summary

BEF Foods' net sales were $106.8 million, an increase of $7.2 million, or 7.2 percent, compared to net sales of $99.6 million in the corresponding period last year. The increase resulted from $2.8 million of net sausage pricing and a 21.9 percent increase in side-dish volume, partially offset by lower sausage, food service, and frozen product volume. Overall, total pounds sold increased 5.5 percent compared to the prior year period.

BEF Foods' GAAP operating income was $9.7 million, compared to GAAP operating income of $1.4 million in the corresponding period last year. BEF Foods' non-GAAP operating income was $11.6 million, compared to non-GAAP operating income of $2.2 million in the corresponding period last year. The primary drivers of the $9.4 million increase were: $4.3 million of cost of goods sold favorability resulting from improved production yields, decreased sow and trim costs ($1.2 million), and the favorable impact of sales mix resulting from the growth in our higher-margin refrigerated side dish product line; $1.6 million of labor cost favorability due primarily to reduced headcount as a result of last year's plant network consolidation and improved plant efficiencies; a $1.0 million decline in other operating expenses due primarily to plant startup costs impacting the prior year period; and approximately $2.5 million of sales leverage.

Net interest expense – The Company's non-GAAP net interest expense was $2.9 million in the third quarter of fiscal 2015, an increase of $1.6 million, compared to $1.3 million in the corresponding period last year. In addition to a higher borrowing rate, the year-over-year increase was due to borrowing related to funding of share repurchases and capital expenditures. The borrowing rate on the Company's outstanding debt was 2.42 percent at the end of the third quarter, compared to 1.29 percent at the end of the comparable prior year period.

Taxes – The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. The Company realized a tax benefit of 12.4 percent for the third quarter of fiscal 2015, as compared to a 7.7 percent provision for the prior year period. The decline in the tax rate was primarily driven by the domestic production activities deduction, benefits from a company-owned life insurance policy, Work Opportunity Tax Credits, and the resolution of uncertain tax position reserves. For non-GAAP items, the tax rate was 12.4 percent, reflecting the Company's annual estimated tax rate.

Balance sheet highlights – The Company's cash balance and revolver borrowings at the end of the third quarter of fiscal 2015 were $3.8 million and $444.4 million, respectively. The Company was in compliance with its debt covenants at the end of the third quarter of fiscal 2015. The Company's leverage ratio as defined in its credit agreement was 3.69 at the end of the quarter, down from 3.81 in the prior quarter.

Fiscal year 2015 commentary and outlook

Mark Hood Chief Financial Officer said, "We are lowering our fiscal year 2015 non-GAAP diluted EPS guidance range from $1.90 to $2.10 to $1.40 to $1.60 per share. Lowering guidance is necessary as a result of the underperformance of our restaurant business in the third quarter as well as the expectation that the initiatives being implemented beginning in the fourth quarter will take some time to be fully reflected in improved operating results.

"We have reduced expected same-store sales in the fourth quarter to low-single digits, reflecting a lower than previously forecast weather benefit. While year-over-year increases in cost of goods sold will moderate beginning in the fourth quarter, overall flow-through from increased sales will limit operating margin recovery. BEF Foods' sales in the fourth quarter will be flat to down mid-single digits as a result of the loss of several BEF Foods' food service customers. However, we expect lower sow costs and improved plant efficiencies will help deliver improved operating results in the BEF Foods segment. Additionally, the year-over-year impact of income taxes in the fourth quarter represents a headwind as the decline in expected tax rate in fiscal year 2014 occurred in the fourth quarter as opposed to being spread across the third and fourth quarters in fiscal year 2015."

Hood concluded, "While we are disappointed that second-half fiscal 2015 results will not achieve prior expectations, the turnaround necessary to restore the guest experience and acceptable profit margins is being executed with urgency. The turnaround of Bob Evans Farms Inc. has begun, but considerable work remains to reposition our restaurant competitiveness and drive sustainable same-store sales growth required to return to acceptable levels of profitability and return on capital. We expect the momentum of BEF Foods' turnaround to continue as we drive growth in our refrigerated side dish business and focus on plant and G&A efficiencies. We are focused on reducing costs across the enterprise."

Summary of performance drivers: fiscal 2015 guidance versus fiscal 2014


1Q (actual)

2Q (actual)

3Q (actual)

4Q
Full
Year
sss% 2015 (guidance) -2.0% 0.0% 3.8% low-single digits 1.0% to 1.5%
sss% 2014 (actual) -0.6% -1.9% -1.8% -4.1% -2.1%
sow costs (per hundredweight) 2015 (guidance) $87.87 $78.82 $67.79 $49 to $54 $70 to $72
sow costs (per hundredweight) 2014 (actual) $63.24 $77.33 $72.36 $78.47 $73.23
estimated Broasted Chicken rollout
(% of restaurants)
6% 39% 42% 48% Note:
100%
expected
4Q FY'16
Guidance Metric FY '15
Consolidated net sales $1.34 to $1.36 billion
Bob Evans Restaurants same-store sales 1.0% to 1.5%
BEF Foods net sales $370 to $380 million
Capital expenditures – FY 2015 $80 to $85 million
Capital expenditures – FY 2016 $80 to $85 million
ERP implementation (included in S,G&A) $3 to $4 million
Depreciation and amortization $81 to $85 million
Net interest expense $10 to $11 million
Tax rate 8% to 12%
Diluted weighted-average share count 23.8 million shares
GAAP earnings per diluted share $0.70 to $0.90
Non-GAAP earnings per diluted share $1.40 to $1.60

This outlook is subject to a number of factors beyond the Company's control, including the risk factors discussed in the Company's fiscal 2014 Annual Report on Form 10-K and its other subsequent filings with the Securities and Exchange Commission.

Investor Conference Call

The Company will host a conference call to discuss its third-quarter fiscal 2015 results at 10 a.m. (ET) on Wednesday, March 4, 2015. The dial-in number is (855) 468-0551, access code 69664846. A replay will be available at (800) 585-8367, access code 69664846.

A simultaneous webcast will be available at investors.bobevans.com/events.cfm. The archived webcast will also be available on the Web site.

(1)Non-GAAP Financial Measures

The Company uses non-GAAP financial measures to monitor and evaluate the ongoing performance of the Company. The Company believes the additional measures are useful to investors for financial analysis. Excluding these items reflects operating results that are more indicative of the Company's ongoing operating performance and improve comparability to prior periods. However, non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. Reconciliations to the applicable GAAP financial measures are included in the attached schedules.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Certain statements in this news release that are not historical facts are forward-looking statements. Forward-looking statements involve various important assumptions, risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events. We discuss these factors and events, along with certain other risks, uncertainties and assumptions, under the heading "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 25, 2014, and in our other filings with the Securities and Exchange Commission. We note these factors for investors as contemplated by the Private Securities Litigation Reform Act of 1995. Predicting or identifying all such risk factors is impossible. Consequently, investors should not consider any such list to be a complete set of all potential risks and uncertainties. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect circumstances or events that occur after the date of the statement to reflect unanticipated events. All subsequent written and oral forward-looking statements attributable to us or any person acting on behalf of the Company are qualified by the cautionary statements in this section.

About Bob Evans Farms, Inc.

Bob Evans Farms, Inc. owns and operates full-service restaurants under the Bob Evans Restaurants brand name. At the end of the third fiscal quarter (January 23, 2015), Bob Evans Restaurants owned and operated 564 family restaurants in 19 states, primarily in the Midwest, mid-Atlantic and Southeast regions of the United States. Bob Evans Farms, Inc., through its BEF Foods segment, is also a leading producer and distributor of refrigerated side dishes, pork sausage and a variety of refrigerated and frozen convenience food items under the Bob Evans and Owens brand names. For more information about Bob Evans Farms, Inc., visit www.bobevans.com.

Broasted is a registered trademark of The Broaster Company, LLC.

BOBE–E

Bob Evans Farms, Inc.
Earnings Release Fact Sheet (unaudited)
Third quarter Fiscal 2015, three months ended January 23, 2015, compared to the corresponding period a year ago:
Note: amounts are in thousands, except per share amounts
Three Months Ended Basic EPS
Three Months Ended
Diluted EPS
Three Months Ended
Jan 23, 2015 Jan 24, 2014 Jan 23, 2015 Jan 24, 2014 Jan 23, 2015 Jan 24, 2014
Operating Income (Loss) as Reported
Bob Evans Restaurants (1,985) 6,578
BEF Foods 9,658 1,376
Total operating income from continuing operations 7,673 7,954
Net interest expense 2,406 875
Per-tax Income from continuing operations 5,267 7,079
Expense (Benefit) for income taxes (653) 544
Income from continuing operations as reported 5,920 6,535 $ 0.25 $ 0.25 $ 0.25 $ 0.25
Total operating and pre-tax loss from discontinued operations (461)
Income tax benefit 107
Loss from discontinued operations as reported (354) (0.01) (0.01)
Net income as reported 5,920 6,181 $0.25 $0.24 $0.25 $0.24
Adjustments
Bob Evans Restaurants
Impairments including from Assets Held for Sale 1,746 1,769
Severance 1,007 493
Loss (Gain) on Sale of Assets 1,296 (234)
Strategic Initiatives and Other 1,134 58
CEO Separation 2,946
8,129 2,086
BEF Foods
Impairments including from Assets Held for Sale
Severance 265 795
Loss on Sale of Assets 432 61
Strategic Initiatives and Other 346
CEO Separation 890
1,933 856
Discontinued Operations
Adjustment to discontinued operations 461
461
Total adjustments
Impairments including from Assets Held for Sale 1,746 1,769
Severance 1,272 1,288
Loss (Gain) on Sale of Assets 1,728 (173)
Strategic Initiatives and Other 1,480 58
CEO Separation 3,836
Adjustment to discontinued operations 461
10,062 3,403
Non-GAAP operating income from continuing operations
Bob Evans Restaurants 6,144 8,664
BEF Foods 11,591 2,232
Total non-GAAP operating income 17,735 10,896
Continuing Operations
Adjustments to net interest expense 471 419
Non-GAAP net interest expense 2,877 1,294
Non-GAAP pre-tax income from continuing operations 14,858 9,602
Adjustments to income tax provision 1,194 782
Non-GAAP income tax provision 541 1,326
Non-GAAP net income from continuing operations 14,317 8,276 $ 0.61 $ 0.31 $ 0.60 $ 0.31
Discontinued Operations
Adjustments to income tax benefit 143
Non-GAAP income tax provision 36
Non-GAAP loss from discontinued operations (36)
Non-GAAP net income 14,317 8,240 $ 0.61 $ 0.31 $ 0.60 $ 0.31
Shares Outstanding 23,515 26,336 23,746 26,377
Fiscal 2015, nine months ended January 23, 2015, compared to the corresponding period a year ago:
Nine Months Ended Basic EPS
Nine Months Ended
Diluted EPS
Nine Months Ended
Jan 23, 2015 Jan 24, 2014 Jan 23, 2015 Jan 24, 2014 Jan 23, 2015 Jan 24, 2014
Operating Income (Loss) as Reported
Bob Evans Restaurants 6,442 24,972
BEF Foods 10,307 3,876
Total operating income from continuing operations 16,749 28,848
Net interest expense (income) 6,225 859
Per-tax Income from continuing operations 10,524 27,989
Expense (Benefit) for income taxes (419) 6,825
Income from continuing operations as reported 10,943 21,164 $ 0.47 $ 0.78 $ 0.46 $ 0.78
Total operating and pre-tax loss from discontinued operations (641)
Income tax benefit 153
Loss from discontinued operations as reported (488) (0.02) (0.02)
Net income as reported 10,943 20,676 $0.47 $0.76 $0.46 $0.76
Adjustments
Bob Evans Restaurants
Impairments including from Assets Held for Sale 3,323 13,512
Severance/Restructuring 1,292 1,253
Loss (Gain) on Sale of Assets 1,401 (1,534)
Activism, Strategic Initiatives and Other 5,899 43
CEO Separation 2,946
14,861 13,274
BEF Foods
Impairments including from Assets Held for Sale 3,000
Severance/Restructuring 929 2,562
Loss on Sale of Assets 445 113
Activism, Strategic Initiatives and Other 1,846 23
CEO Separation 890
4,110 5,698
Discontinued Operations
Adjustment to discontinued operations 641
641
Total adjustments
Impairments including from Assets Held for Sale 3,323 16,512
Severance/Restructuring 2,221 3,815
Loss (Gain) on Sale of Assets 1,846 (1,421)
Activism, Strategic Initiatives and Other 7,745 66
CEO Separation 3,836
Adjustment to discontinued operations 641
18,971 19,613
Non-GAAP operating income from continuing operations
Bob Evans Restaurants 21,303 38,246
BEF Foods 14,417 9,574
Total non-GAAP operating income 35,720 47,820
Continuing Operations
Adjustments to net interest expense 1,374 1,500
Non-GAAP net interest expense 7,599 2,359
Non-GAAP pre-tax income from continuing operations 28,121 45,461
Adjustments to income tax provision 3,288 5,647
Non-GAAP income tax provision 2,869 12,472
Non-GAAP net income from continuing operations 25,252 32,989 $ 1.08 $ 1.22 $ 1.06 $ 1.22
Discontinued Operations
Adjustments to income tax benefit 199
Non-GAAP income tax provision 46
Non-GAAP loss from discontinued operations (46)
Non-GAAP net income 25,252 32,943 1.08 1.22 1.06 1.22
Shares Outstanding 23,487 26,970 23,717 27,063
Third quarter Fiscal 2015, three months ended January 23, 2015, compared to the corresponding period a year ago:
(Note that the prior year excludes discontinued operations)
Consolidated Results
Three Months Ended
Bob Evans Restaurants
Three Months Ended
Jan 23, 2015 % of Sales Jan 24, 2014 % of Sales Jan 23, 2015 % of Sales Jan 24, 2014 % of Sales
Operating income as reported
Net sales 357,177 340,132 250,389 240,506
Cost of sales 124,544 34.9% 118,381 34.8% 69,134 27.6% 62,676 26.1%
Operating wage and fringe benefit expenses 109,116 30.5% 103,904 30.6% 98,317 39.3% 92,342 38.4%
Other operating expenses 49,096 13.7% 48,451 14.2% 41,882 16.7% 40,221 16.7%
Selling, general and administrative expenses 46,345 13.0% 39,350 11.6% 27,348 10.9% 21,155 8.8%
Depreciation and amortization expense 20,403 5.7% 22,092 6.5% 15,693 6.3% 17,534 7.3%
Impairment of assets held for sale —% —% —% —%
Total as Reported 7,673 2.2% 7,954 2.3% (1,985) (0.8)% 6,578 2.7%
Adjustments
Net sales
Cost of sales
Operating wage and fringe benefit expenses (230) 49 (230)
Other operating expenses (378) (378)
Selling, general and administrative expenses (9,454) (2,991) (7,521) (2,086)
Depreciation and amortization expense
Impairment of assets held for sale
Total adjustments 10,062 2,942 8,129 2,086
Non-GAAP operating income
Net sales 357,177 340,132 250,389 240,506
Cost of sales 124,544 34.9% 118,381 34.8% 69,134 27.6% 62,676 26.1%
Operating wage and fringe benefit expenses 108,886 30.5% 103,953 30.6% 98,087 39.1% 92,342 38.4%
Other operating expenses 48,718 13.6% 48,451 14.2% 41,504 16.6% 40,221 16.7%
Selling, general and administrative expenses 36,891 10.3% 36,359 10.7% 19,827 7.9% 19,069 7.9%
Depreciation and amortization expense 20,403 5.7% 22,092 6.5% 15,693 6.3% 17,534 7.3%
Impairment of assets held for sale —% —% —% —%
Total non-GAAP operating income 17,735 5.0% 10,896 3.2% 6,144 2.5% 8,664 3.6%
BEF Foods
Three Months Ended
Jan 23, 2015 % of Sales Jan 24, 2014 % of Sales
Operating income as reported
Net sales 106,788 99,626
Cost of sales 55,410 51.9% 55,705 55.8%
Operating wage and fringe benefit expenses 10,799 10.1% 11,562 11.6%
Other operating expenses 7,214 6.8% 8,230 8.3%
Selling, general and administrative expenses 18,997 17.8% 18,195 18.3%
Depreciation and amortization expense 4,710 4.4% 4,558 4.6%
Impairment of assets held for sale —% —%
Total as Reported 9,658 9.0% 1,376 1.4%
Adjustments
Net sales
Cost of sales
Operating wage and fringe benefit expenses 49
Other operating expenses
Selling, general and administrative expenses (1,933) (905)
Depreciation and amortization expense
Impairment of assets held for sale
Total adjustments 1,933 856
Non-GAAP operating income
Net sales 106,788 99,626
Cost of sales 55,410 51.9% 55,705 55.8%
Operating wage and fringe benefit expenses 10,799 10.1% 11,611 11.7%
Other operating expenses 7,214 6.8% 8,230 8.3%
Selling, general and administrative expenses 17,064 15.9% 17,290 17.4%
Depreciation and amortization expense 4,710 4.4% 4,558 4.6%
Impairment of assets held for sale —% —%
Total non-GAAP operating income 11,591 10.9% 2,232 2.2%
Third quarter Fiscal 2015, six months ended January 23, 2015, compared to the corresponding period a year ago:
(Note that the prior year excludes discontinued operations)
Consolidated Results
Nine Months Ended
Bob Evans Restaurants
Nine Months Ended
Jan 23, 2015 % of Sales Jan 24, 2014 % of Sales Jan 23, 2015 % of Sales Jan 24, 2014 % of Sales
Operating income as reported
Net sales 1,016,796 1,002,181 731,691 725,557
Cost of sales 354,019 34.8% 338,626 33.8% 196,510 26.9% 185,249 25.5%
Operating wage and fringe benefit expenses 319,158 31.4% 308,721 30.8% 287,992 39.3% 277,517 38.3%
Other operating expenses 148,165 14.6% 146,833 14.7% 126,677 17.3% 123,547 17.0%
Selling, general and administrative expenses 118,596 11.7% 109,170 10.9% 67,990 9.3% 58,451 8.1%
Depreciation and amortization expense 59,851 5.9% 57,603 5.7% 45,822 6.3% 46,441 6.4%
Impairment of assets held for sale 258 —% 12,380 1.2% 258 —% 9,380 1.3%
Total as Reported 16,749 1.6% 28,848 2.9% 6,442 0.9% 24,972 3.4%
Adjustments
Net sales
Cost of sales
Operating wage and fringe benefit expenses (452) 502 (452) 453
Other operating expenses (642) 107 (642)
Selling, general and administrative expenses (17,619) (7,252) (13,509) (4,398)
Depreciation and amortization expense 51 51
Impairment of assets held for sale (258) (12,380) (258) (9,380)
Total adjustments 18,971 18,972 14,861 13,274
Non-GAAP operating income
Net sales 1,016,796 1,002,181 731,691 725,557
Cost of sales 354,019 34.8% 338,626 33.8% 196,510 26.9% 185,249 25.5%
Operating wage and fringe benefit expenses 318,706 31.3% 309,223 30.8% 287,540 39.3% 277,970 38.4%
Other operating expenses 147,523 14.5% 146,940 14.7% 126,035 17.2% 123,547 17.0%
Selling, general and administrative expenses 100,977 10.0% 101,918 10.1% 54,481 7.4% 54,053 7.4%
Depreciation and amortization expense 59,851 5.9% 57,654 5.8% 45,822 6.3% 46,492 6.4%
Impairment of assets held for sale —% —% —% —%
Total non-GAAP operating income 35,720 3.5% 47,820 4.8% 21,303 2.9% 38,246 5.3%
BEF Foods
Nine Months Ended
January 23,
2015
% of Sales January 24,
2014
% of Sales
Operating income as reported
Net sales 285,105 276,624
Cost of sales 157,509 55.3% 153,377 55.5%
Operating wage and fringe benefit expenses 31,166 10.9% 31,204 11.3%
Other operating expenses 21,488 7.5% 23,286 8.4%
Selling, general and administrative expenses 50,606 17.8% 50,719 18.3%
Depreciation and amortization expense 14,029 4.9% 11,162 4.0%
Impairment of assets held for sale —% 3,000 1.1%
Total as Reported 10,307 3.6% 3,876 1.4%
Adjustments
Net sales
Cost of sales
Operating wage and fringe benefit expenses 49
Other operating expenses 107
Selling, general and administrative expenses (4,110) (2,854)
Depreciation and amortization expense
Impairment of assets held for sale (3,000)
Total adjustments 4,110 5,698
Non-GAAP operating income
Net sales 285,105 276,624
Cost of sales 157,509 55.3% 153,377 55.5%
Operating wage and fringe benefit expenses 31,166 10.9% 31,253 11.3%
Other operating expenses 21,488 7.5% 23,393 8.5%
Selling, general and administrative expenses 46,496 16.3% 47,865 17.2%
Depreciation and amortization expense 14,029 4.9% 11,162 4.0%
Impairment of assets held for sale —% —%
Total non-GAAP operating income 14,417 5.1% 9,574 3.5%
Reconciliation of GAAP to Non-GAAP EPS Guidance
Fiscal year 2015 (all amounts on a per share basis)
GAAP earnings per diluted share $0.70 to $0.90
Non-GAAP adjustments through nine months ended January 23, 2015 $0.60
Q4 Expected Non-GAAP adjustments (related to Strategic Initiatives) $0.10
Non-GAAP earnings per diluted share $1.40 to $1.60
Consolidated Results
Three Months Ended
January 23, 2015 % of sales January 24, 2014 % of sales
(as adjusted) (as adjusted)
Net sales $ 357,177 $ 340,132
Cost of sales 124,544 34.9% 118,381 34.8%
Operating wage and fringe benefit expenses 109,116 30.5% 103,904 30.5%
Other operating expenses 49,096 13.7% 48,451 14.2%
Selling, general and administrative expenses 46,345 13.0% 39,350 11.6%
Depreciation and amortization expense 20,403 5.7% 22,092 6.5%
Impairment of assets held for sale —% —%
Operating income 7,673 2.1% 7,954 2.3%
Net interest expense 2,406 0.7% 875 0.3%
Income before income taxes 5,267 1.5% 7,079 2.1%
(Benefit) provision for income taxes (653) (0.2)% 544 0.2%
Income from continuing operations 5,920 1.7% 6,535 1.9%
Loss from discontinued operations, net of income taxes —% (354) (0.1)%
Net Income $ 5,920 1.7% $ 6,181 1.8%
Earnings per share - Net income
Basic $ 0.25 $ 0.24
Diluted $ 0.25 $ 0.24
Cash dividends paid per share $ 0.310 $ 0.310
Weighted average shares outstanding
Basic 23,515 26,336
Dilutive Shares 231 41
Diluted 23,746 26,377
Shares outstanding at quarter end 23,644 25,686
The number of dilutive shares outstanding at January 23, 2015 that were not included in the computation of dilutive earnings per share, because to do so would have been antidilutive, were 34,419 shares for the three months ended January 23, 2015.
Income taxes related to continuing operations, as a percentage of pre-tax income, were (12.4)% vs 7.7%.
Three Months Ended
Bob Evans Restaurants BEF Foods
January 23, 2015 January 24, 2014 January 23, 2015 January 24, 2014
Net sales $ 250,389 $ 240,506 $ 106,788 $ 99,626
Cost of sales 69,134 27.6% 62,676 26.1% 55,410 51.9% 55,705 55.8%
Operating wage and fringe benefit expenses 98,317 39.3% 92,342 38.4% 10,799 10.1% 11,562 11.6%
Other operating expenses 41,882 16.7% 40,221 16.7% 7,214 6.8% 8,230 8.3%
Selling, general and administrative expenses 27,348 10.9% 21,155 8.8% 18,997 17.8% 18,195 18.3%
Depreciation and amortization expense 15,693 6.3% 17,534 7.3% 4,710 4.4% 4,558 4.6%
Impairment of assets held for sale —% —% —% —%
Operating income (loss) $ (1,985) (0.8)% $ 6,578 2.7% $ 9,658 9.0% $ 1,376 1.4%
Consolidated Results
Nine Months Ended
January 23, 2015 % of sales January 24, 2014 % of sales
(as adjusted) (as adjusted)
Net sales $ 1,016,796 $ 1,002,181
Cost of sales 354,019 34.8% 338,626 33.8%
Operating wage and fringe benefit expenses 319,158 31.4% 308,721 30.8%
Other operating expenses 148,165 14.6% 146,833 14.7%
Selling, general and administrative expenses 118,596 11.7% 109,170 10.9%
Depreciation and amortization expense 59,851 5.9% 57,603 5.7%
Impairment of assets held for sale 258 —% 12,380 1.2%
Operating income 16,749 1.6% 28,848 2.9%
Net interest expense 6,225 0.6% 859 0.1%
Income before income taxes 10,524 1.0% 27,989 2.8%
(Benefit) provision for income taxes (419) —% 6,825 0.7%
Income from continuing operations 10,943 1.1% 21,164 2.1%
Loss from discontinued operations, net of income taxes —% (488) —%
Net Income $ 10,943 1.1% $ 20,676 2.1%
Earnings per share - Net income
Basic $ 0.47 $ 0.76
Diluted $ 0.46 $ 0.76
Cash dividends paid per share $ 0.930 $ 0.895
Weighted average shares outstanding
Basic 23,487 26,970
Dilutive Shares 230 93
Diluted 23,717 27,063
Shares outstanding at quarter end 23,644 25,686
The number of dilutive shares outstanding at January 23, 2015 that were not included in the computation of dilutive earnings per share, because to do so would have been antidilutive, were 40,627 shares for the nine months ended January 23, 2015.
Income taxes related to continuing operations, as a percentage of pre-tax income, were (4.0)% vs 24.4%.
Nine Months Ended
Bob Evans Restaurants BEF Foods
January 23, 2015 January 24, 2014 January 25, 2015 January 24, 2014
Net sales $ 731,691 $ 725,557 $ 285,105 $ 276,624
Cost of sales 196,510 26.9% 185,249 25.5% 157,509 55.3% 153,377 55.5%
Operating wage and fringe benefit expenses 287,992 39.3% 277,517 38.3% 31,166 10.9% 31,204 11.3%
Other operating expenses 126,677 17.3% 123,547 17.0% 21,488 7.5% 23,286 8.4%
Selling, general and administrative expenses 67,990 9.3% 58,451 8.1% 50,606 17.8% 50,719 18.3%
Depreciation and amortization expense 45,822 6.3% 46,441 6.4% 14,029 4.9% 11,162 4.0%
Impairment of assets held for sale 258 —% 9,380 1.3% —% 3,000 1.1%
Operating income (loss) $ 6,442 0.9% $ 24,972 3.4% $10,307 3.6% $ 3,876 1.4%
Consolidated Balance Sheets
(in thousands)
Unaudited
January 23, 2015
April 25, 2014
Assets
Current Assets
Cash and equivalents $ 3,824 $ 7,826
Accounts receivable, net 28,103 30,688
Inventories 25,409 25,243
Deferred income taxes 17,927 18,656
Federal and state income taxes receivable 21,317 25,824
Prepaid expenses 4,338 4,281
Current assets held for sale 5,205 3,308
Total Current Assets 106,123 115,826
Property, Plant and Equipment 1,619,712 1,588,790
Less accumulated depreciation 762,774 715,867
Net Property, Plant and Equipment 856,938 872,923
Other Assets
Deposits and other 4,416 3,442
Long-term note receivable 17,948 16,243
Long-term investments 31,842 31,972
Goodwill 19,634 19,634
Other intangible assets 3,153 3,270
Long-term assets held for sale 2,251
Total Other Assets 76,993 76,812
Total Assets $ 1,040,054 $ 1,065,561
Liabilities and Stockholders' Equity
Current Liabilities
Credit facility borrowings $ — $ 458,898
Current portion of long-term debt 409
Accounts payable 29,569 29,064
Accrued property, plant and equipment purchases 4,884 5,841
Accrued non-income taxes 14,523 17,843
Accrued wages and related liabilities 25,157 21,574
Self-insurance reserves 20,999 19,874
Deferred revenue 18,217 12,967
Other accrued expenses 27,183 33,024
Total Current Liabilities 140,941 599,085
Long-Term Liabilities
Deferred compensation 39,579 35,731
Federal and state income taxes 4,731 4,959
Deferred income taxes 27,504 32,829
Deferred rent and other 6,594 6,534
Credit facility borrowings and other long term debt 447,582 835
Total Long-Term Liabilities 525,990 80,888
Stockholders' Equity
Common stock, $.01 par value; authorized 100,000 shares; issued 42,638 shares at January 23, 2015, and April 25, 2014 426 426
Capital in excess of par value 222,381 225,562
Retained earnings 838,641 849,619
Treasury stock, 18,994 shares at January 23, 2015, and 19,175 shares at April 25, 2014, at cost (688,325) (690,019)
Total Stockholders' Equity 373,123 385,588
Total Liabilities and Stockholders' Equity $ 1,040,054 $ 1,065,561
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Nine Months Ended
January 23, 2015 January 24, 2014
Operating activities:
Net income $ 10,943 $ 20,676
Less loss from discontinued operations 488
Income from continuing operations 10,943 21,164
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 59,851 57,603
Impairment of assets held for sale 258 12,380
(Gain) / Loss on disposal and impairment of held and used fixed assets 4,615 4,124
(Gain) on long-term investments (204) (1,865)
Deferred compensation 5,633 2,178
Stock based compensation 2,158 5,165
Accretion on long-term note receivable (1,374) (1,500)
Deferred income taxes (4,596) (1,867)
Amortization of deferred financing costs 749 223
Cash provided by (used for) assets and liabilities:
Accounts receivable 2,585 (2,076)
Inventories (166) (1,642)
Prepaid expenses (57) 1,116
Accounts payable 505 (491)
Federal and state income taxes 4,279 8,524
Accrued wages and related liabilities (97) (5,416)
Self-insurance 1,125 1,184
Accrued non-income taxes (3,320) 322
Deferred revenue 5,250 4,252
Other assets and liabilities (6,927) 2,504
Net cash provided by operating activities 81,210 105,882
Investing activities:
Purchase of property, plant and equipment (58,921) (157,275)
Proceeds from sale of property, plant and equipment 9,696 6,900
Deposits and other (246) (14)
Net cash used in investing activities (49,471) (150,389)
Financing activities:
Cash dividends paid (21,921) (24,220)
Proceeds from long-term debt 316,253 402,794
Principal payments on long-term debt (327,995) (231,399)
Payments of debt issuance costs (1,279) (2,039)
Purchase of treasury stock (114,049)
Proceeds from issuance of stock awards and treasury stock 478 12,866
Cash paid for taxes on employee stock option exercises (1,790) (4,691)
Excess tax benefits from stock-based compensation 513 2,132
Net cash (used in) provided by financing activities (35,741) 41,394
Net cash (used in) operations (4,002) (3,113)
Net cash (used in) operating activities of discontinued operations (488)
Net cash (used in) discontinued operations (488)
Cash and equivalents at the beginning of the period 7,826 9,010
Cash and equivalents at the end of the period $ 3,824 $ 5,409
Bob Evans Restaurants openings and closings, by quarter
Fiscal
Year
Beginning
Total
Q1 Q2 Q3 Q4* Full Year Closings Ending
Total
2015 561 1 2 4 7 568
2014 560 1 1 1 1 4 3 561
2013 565 2 2 7 560
2012 563 2 2 4 2 565
2011 569 2 2 8 563
*Represents estimate for fourth quarter fiscal 2015
Bob Evans Restaurants same-store sales analysis (18-month core; 557 restaurants)
Fiscal 2015 Fiscal 2014 Fiscal 2013
Total Pricing /
Mix
Traffic Total Pricing /
Mix
Traffic Total Pricing /
Mix
Traffic
May (1.6) 1.5 (3.1) (0.9) 3.0 (3.9) 0.7 2.2 (1.5)
June (2.0) 2.4 (4.4) 0.3 3.0 (2.7) (0.3) 1.9 (2.2)
July (2.3) 1.6 (3.9) (1.0) 3.8 (4.8) 2.3 0.9 1.4
Q1 (2.0) 1.8 (3.8) (0.6) 3.3 (3.9) 1.0 1.6 (0.6)
August (2.5) 1.0 (3.5) (0.7) 4.2 (4.9) 1.5 0.9 0.6
September 1.8 1.0 0.8 (2.0) 3.8 (5.8) (0.4) 1.4 (1.9)
October 0.4 1.0 (0.6) (2.9) 2.2 (5.0) 1.6 3.1 (1.5)
Q2 0.0 1.1 (1.1) (1.9) 3.3 (5.2) 1.0 1.9 (0.9)
November 2.8 1.0 1.8 0.4 2.2 (1.8) 2.1 2.8 (0.7)
December 3.8 1.0 2.8 (1.7) 2.2 (3.9) (0.5) 2.7 (3.2)
January 5.2 1.0 4.2 (4.7) 2.2 (6.9) 3.1 2.7 0.4
Q3 3.8 1.0 2.8 (1.8) 2.2 (3.9) 1.6 2.8 (1.2)
February (6.7) 1.9 (8.6) (4.0) 3.1 (7.1)
March (3.6) 1.5 (5.1) 3.6 3.5 0.1
April (2.7) 1.5 (4.2) 1.7 3.4 (1.7)
Q4 (4.1) 1.6 (5.8) 0.5 3.4 (2.8)
Fiscal year 0.5 1.3 (0.7) (2.1) 2.6 (4.7) 1.0 2.4 (1.4)
Bob Evans Same Store Sales Day Part Performance
Third-quarter Fiscal 2015 SSS% Day Part Performance - Total Chain
Day Part On-Premise Off-Premise Total
Breakfast 0.7% 20.0% 2.7%
Lunch 1.1% 21.1% 3.9%
Dinner 0.6% 22.4% 4.8%
Total 0.8% 21.3% 3.8%
Third-quarter Fiscal 2015 SSS% Day Part Performance - Restaurants offering Broasted Chicken
Day Part On-Premise Off-Premise Total
Breakfast 0.1% 18.1% 2.4%
Lunch 1.3% 20.7% 4.4%
Dinner 2.8% 25.5% 8.0%
Total 1.4% 22.2% 5.0%
Third-quarter Fiscal 2015 SSS% Day Part Performance - Restaurants without Broasted Chicken
Day Part On-Premise Off-Premise Total
Breakfast 1.1% 22.0% 3.0%
Lunch 1.0% 21.5% 3.4%
Dinner (1.4)% 17.8% 1.6%
Total 0.4% 20.2% 2.8%
Bob Evans Restaurants key restaurant sales data (core restaurants only)
Bob Evans Restaurants
Average annual store sales ($) - FY14 $ 1,706,000
Q3 FY2015 day part mix (%):
Breakfast 31%
Lunch 39%
Dinner 30%
Q3 FY2015 dine-in check average per guest ($):
Breakfast $ 9.12
Lunch $ 9.70
Dinner $ 9.72
Q3 FY2015 dine-in check average per guest ($): $ 9.51
Q3 FY2015 dine-in check average per ticket ($): $ 18.56
Q3 FY2015 carry-out check average per ticket ($): $ 16.78
BEF Foods historical sow cost review (average cost per hundredweight)
Fiscal Year Q1 Q2 Q3 Q4 Average
2015 $ 87.87 $ 78.82 $ 67.79 $ 77.75
2014 $ 63.24 $ 77.33 $ 72.36 $ 78.47 $ 73.23
2013 $ 54.19 $ 43.22 $ 58.72 $ 59.07 $ 53.87
2012 $ 57.06 $ 67.82 $ 60.56 $ 60.41 $ 61.58
2011 $ 59.52 $ 60.47 $ 51.16 $ 59.05 $ 57.17
BEF Foods total pounds sold review
Fiscal Year Q1 Q2 Q3 Q4 Average
2015 (6.1)% (4.5)% 5.5% (1.5)%
2014 13.0% 0.2% (11.1)% (6.9)% (2.4)%
2013 7.2% 16.1% 13.1% 21.4% 14.6%
2012 (2.7)% 3.1% 0.9% (1.3)% 0.1%
2011 (1.1)% (14.7)% (7.9)% (4.6)% (7.1)%
BEF Foods total pounds sold, by category
Fiscal 2015
Category Q1 Q2 Q3 Q4
Sausage 19.3% 20.5% 26.2%
Sides 42.0% 45.9% 47.0%
Food Service - External 24.0% 17.9% 12.8%
Food Service - Intersegment 6.0% 6.1% 5.5%
Frozen 4.6% 5.0% 4.1%
Other 4.1% 4.6% 4.4%
Fiscal 2014
Category Q1 Q2 Q3 Q4
Sausage 22.3% 23.5% 29.5% 21.5%
Sides 39.4% 40.2% 40.7% 43.9%
Food Service - External 25.1% 22.3% 17.3% 19.6%
Food Service - Intersegment 4.6% 5.2% 4.2% 6.1%
Frozen 5.0% 5.1% 4.8% 4.8%
Other 3.6% 3.7% 3.5% 4.1%
BEF Foods net sales review (dollars in thousands)
Q3 2015 Q3 2014
Gross sales $ 125,327 $ 115,946
Less: promotions (17,822) (15,520)
Less: returns and slotting (717) (800)
Net sales $ 106,788 $ 99,626

CONTACT: Scott C. Taggart Vice President, Investor Relations (614) 492-4954Source:Bob Evans Farms, Inc.