Bob Evans Reports Fiscal 2015 Second-Quarter Results

• Q2 2015 net sales total $333.3 million, an increase of $0.7 million, or 0.2 percent, compared to prior year period results. GAAP net income of $0.25 per diluted share compared to net income of $0.23 per diluted share in the prior year period. Adjusted net income⁽¹⁾ of $0.36 per diluted share compared to $0.35 per diluted share in the prior year period
     
• Company narrows fiscal 2015 diluted EPS guidance range to $1.90 to $2.10 to reflect a moderate extension of the Broasted^® Chicken platform rollout to Q2 2016 and expected commodity cost increases
     
• Bob Evans Restaurants reports fiscal November same-store sales (through 11/26) of 0.8 percent, marking three consecutive months of positive same-store sales. Q3 QTD same-store sales through Thanksgiving Day (11/27) were 2.7 percent. 
     
• Combined Thanksgiving Eve and Thanksgiving Day same-store sales increased 25 percent
     
• Bob Evans Restaurant locations offering the Broasted Chicken platform continued driving same-store sales at the lunch and dinner day parts; outperforming restaurants without the platform by 130 and 690 basis points at lunch and dinner, respectively during Q2 2015 
     
• Improved plant efficiencies contribute to a 280 basis point improvement in BEF Foods' Q2 2015 adjusted operating margin. Side-dish volume up 9% over prior year as sales momentum builds ahead of key winter holiday selling season
     
• Quarterly dividend of $0.31 per share payable on December 15, 2014, to stockholders of record at the close of business on December 1, 2014
    
• Board of Directors' Finance Committee is engaged in a comprehensive, fresh review of strategic, financial and capital allocation plans; Company has been working with advisory firms to assist in driving sustainable productivity and operating cost improvements to achieve 300 to 350 basis point long-term operating margin improvement goal by fiscal 2018 and has also retained Deloitte to complete a comprehensive review of the Company's S,G&A structure

NEW ALBANY, Ohio, Dec. 2, 2014 (GLOBE NEWSWIRE) -- Bob Evans Farms, Inc. BOBE today announced its financial results for the fiscal 2015 second quarter ended Friday, October 24, 2014. On a GAAP basis, the Company reported net income of $6.0 million, or $0.25 per diluted share, compared with net income of $6.1 million, or $0.23 per diluted share, in the comparable period last year. On an adjusted basis⁽¹⁾, net income was $8.6 million, or $0.36 per diluted share, compared with net income of $9.5 million, or $0.35 per diluted share, in the comparable period last year.

Second-quarter fiscal 2015 commentary

Chief Executive Officer Steve Davis said, "Performance at Bob Evans Restaurants and BEF Foods continues to improve as we leverage the recent multi-year investment programs in both businesses. At Bob Evans Restaurants, 'Carryout Acceleration' and 'Own Our Nights' are two key programs paving the way for successful introduction of the Broasted Chicken platform as well as for an improved guest experience and sales trends overall. These programs are not only improving execution in the parts of the business most relevant to the Broasted Chicken rollout; they are driving performance across the entire system where our Sweet and Stacked breakfast offerings and Slow-Roasted lunch and dinner platforms continue to perform well. As we have noted previously, Broasted Chicken is one of several initiatives expected to drive positive same-store sales. Our Slow-Roasted and Sweet and Stacked platforms are also vital elements of our menu innovation program.  

"At Bob Evans Restaurants, the Broasted Chicken platform rollout continues to leverage the Farm Fresh Refresh program's positive impact on our dine-in and off-premise capabilities. The new platform drove meaningful same-store sales growth during the lunch and dinner day parts with second quarter same-store sales outperformance of 130 and 690 basis points at lunch and dinner, respectively, compared to restaurants that have not yet introduced the platform. Off-premise same-store sales increased 21.3 percent in restaurants offering Broasted Chicken, while off-premise same-store sales at all other locations grew 10.7 percent."

Davis continued, "At BEF Foods, we are well positioned to meet our customers' needs during the peak holiday selling season. We are also continuing our efforts to improve the operating efficiency of our plants. Our $1.6 million year-to-date investment in outside consulting services to drive plant operating efficiency gains subsequent to our recent plant expansions has paid off as operating inefficiencies were reduced to $1.3 million during the second quarter, a $1.0 million improvement from the first quarter.

"We expect BEF Food's margins to improve during the third and fourth quarters as the Company leverages lower forecasted sow costs, and increased expected plant efficiency with increased sales volume. While we have modestly lowered our sow cost guidance to reflect recent sow cost trends, we remain cautious with our pricing and trade spending strategies. Trade spending was reduced $1.3 million during the first half of the fiscal year to enable strategic incremental trade expenditures during the remainder of the year to capture volume through increased advertising and other trade expenditures.

"We are also working with leading global professional services firms to assist us in developing sustainable productivity and operating cost improvements to achieve our 300 to 350 basis point long-term operating margin improvement goal by fiscal 2018. In addition, we have retained Deloitte to complete a comprehensive review of the Company's S,G&A structure. We believe there are meaningful opportunities to improve our cost structure and enhance performance at all levels. Working with independent experts enables us to drill down and accelerate the process. Furthermore, as part of our focus on cost efficiencies, the Company is exiting its interest in a private aircraft.

"Finally, the Finance Committee of the Board, three of whose five members were newly elected to the Board at the 2014 annual meeting and all of whom are independent, is engaged in a fresh, comprehensive review of the Company's strategic, financial and capital allocation plans, including ideas that have been proposed by the Company's stockholders. To assist in the process, the Committee has unanimously determined to engage Lazard to serve as independent financial advisor. The Board, external advisors and management are aligned and working cooperatively together to drive shareholder value and achieve our current-year and long-term earnings objectives."  

Second-quarter fiscal 2015 Bob Evans Restaurants segment summary

Bob Evans Restaurants' net sales were $241.2 million, an increase of $0.7 million, or 0.3 percent, compared to net sales of $240.5 million in the corresponding period last year. Same-store sales were flat in the quarter, slightly trailing the national Knapp-Track™ family dining index increase of 0.3 percent. In Bob Evans Restaurants' top three Knapp-Track™ regions – East North Central, South Atlantic, and Mid-Atlantic – which comprise 82 percent of the chain as measured by restaurant count, same-store sales results outperformed the regional Knapp-Track™ family dining indices by 10 to 180 basis points.

Bob Evans Restaurants' non-GAAP operating income was $9.6 million, compared to non-GAAP operating income of $13.6 million in the corresponding period last year. The primary drivers of the $4.0 million decline were: a $4.1 million negative impact of higher food costs, with approximately $3.6 million attributable to menu mix and increased commodity costs, with the remainder primarily attributable to discounted sales; a $0.6 million negative impact of operating expense associated primarily with increased service contract expenses; partially offset by approximately $1.3 million of labor cost favorability due to the Company's ongoing efforts to optimize restaurant staffing through its workforce management process, although $0.9 million of incremental training and labor costs associated with the Broasted Chicken platform rollout and Carryout Acceleration programs resulted in a net labor benefit of $0.4 million; and approximately $0.3 million of sales leverage.

Second-quarter fiscal 2015 BEF Foods segment summary

BEF Foods' net sales were $92.1 million, flat compared to the prior year period as a 9.0 percent increase in side-dish volume was offset by lower sausage sales. $3.0 million of increased sausage pricing and $0.3 million of reduced trade spending was offset by a 4.5 percent decline in total pounds sold resulting primarily from a 16.4 percent decline in sausage pounds sold that was partially offset by the side-dish volume growth. Adjusting for the sale of the Company's Irvine, California, production facility during the second quarter of fiscal 2014, net sales would have increased 1.6 percent on a dollar basis, and volume would have declined 1.6 percent.

BEF Foods' non-GAAP operating income was $3.2 million, compared to non-GAAP operating income of $0.6 million in the corresponding period last year. The primary drivers of the $2.6 million increase were: $2.5 million of favorability resulting primarily from lower advertising expenses and reduced headcount; $1.9 million of cost of goods sold favorability resulting from the effect of a higher sales mix of non-sausage products net of increased sow and trim costs ($0.8 million) and increased freight-in costs to plants; $0.2 million of other operating expense favorability from reduced insurance costs and repair and maintenance expenses; partially offset by $1.1 million of incremental depreciation as a result of plant expansions in the prior year, and $0.8 million of increased labor costs also related to the plant expansions.

Net interest expense – The Company's non-GAAP net interest expense was $2.7 million in the second quarter of fiscal 2015, an increase of $2.1 million, compared to $0.6 million in the corresponding period last year. The year-over-year increase was due to borrowing related to funding of share repurchases and capital expenditures in the second half of fiscal 2014. The borrowing rate on the Company's outstanding debt was 2.16 percent at the end of the second quarter, compared to 1.43 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's effective income tax rate was 11.3 percent for the quarter, as compared to 28.6 percent for the corresponding period a year ago. The decrease in the tax rate was driven primarily by an increase in the domestic production activities deduction, benefits from a Company owned life insurance policy recorded in the second quarter, and discrete items related to prior year Work Opportunity Tax Credits, state refunds received, and other items. For non-GAAP items, the tax rate was 26.1 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 second quarter of fiscal 2015 were $3.7 million and $465.0 million, respectively. The Company was in compliance with its debt covenants at the end of the second quarter of fiscal 2015. The Company's leverage ratio as defined in its credit agreement was 3.81 at the end of the quarter, up from 3.69 in the prior quarter.

Fiscal year 2015 commentary and outlook

"We are narrowing our fiscal 2015 diluted EPS guidance range to $1.90 to $2.10. Bob Evans Restaurants' same-store sales guidance reflects an extended roll-out schedule for the Broasted Chicken platform to ensure continued strong operational execution and prudent management of implementation expenses. From a development perspective, we expect to open a total of 7 Bob Evans Restaurant locations, and up to 10 Bob Evans Express locations, during fiscal 2015. Food costs are expected to rise 60 to 80 basis points during the second half of fiscal 2015 compared to the prior year due to increased commodity prices and continued off-premise sales mix growth. We also expect continuation of increased health care costs during the second half of fiscal 2015. Offsetting these factors, third and fourth quarter sow cost guidance has been reduced to $73 to $78 per hundredweight, from $80 to $90 per hundredweight, and our full fiscal year estimate is now $78 to $82 per hundredweight, reflecting recent sow cost trends and current predictions from our supply chain experts. Our expected depreciation expense and tax rate assumptions have also been reduced for fiscal 2015, and we continue to focus on reducing our tax rate through effective tax planning strategies.

"We also recently committed to a plan to sell our ownership interest in an aircraft jointly owned with the Greif Corporation. The sale is expected to be completed prior to the end of the current fiscal year and may result in a loss on disposal of $1.7 to $2.2 million. Finally, we expect to spend approximately $2 million during the second half of fiscal 2015 for services provided by advisory firms to review strategic initiatives, and assist in driving sustainable productivity improvements and cost efficiencies," said Chief Financial Officer Mark Hood. 

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 second-quarter fiscal 2015 results at 10 a.m. (ET) on Wednesday, December 3, 2014. The dial-in number is (855) 468-0551, access code 34994177. A replay will be available at (800) 585-8367, access code 34994177.

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 second fiscal quarter (October 24, 2014), Bob Evans Restaurants owned and operated 562 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

The number of dilutive shares outstanding at October 24, 2014 that were not included in the computation of dilutive earnings per share, because to do so would have been antidilutive, were 42,354 shares for the three months ended October 24, 2014.

Income taxes related to continuing operations, as a percentage of pre-tax income, were 11.3% vs 28.6%.

The number of dilutive shares outstanding at October 24, 2014 that were not included in the computation of dilutive earnings per share, because to do so would have been antidilutive, were 43,953 shares for the six months ended October 24, 2014.

Income taxes related to continuing operations, as a percentage of pre-tax income, were 4.5% vs 30.0%.

Consolidated Balance Sheets

Consolidated Statements of Cash Flows (unaudited)

Bob Evans Restaurants openings and closings, by quarter

Future quarters represent estimates for fiscal 2015

Bob Evans Restaurants same-store sales analysis (18-month core; 557 restaurants)

Bob Evans Restaurants key restaurant sales data (core restaurants only)

BEF Foods historical sow cost review (average cost per hundredweight)

BEF Foods total pounds sold review

BEF Foods total pounds sold, by category

BEF Foods net sales review (dollars in thousands)