Bob Evans Reports Fiscal 2015 Fourth-Quarter and Full-Year

• Q4 2015 net sales total $332.4 million, an increase of $6.0 million, or 1.8 percent.  GAAP net income of $0.24 per diluted share.  Non-GAAP net income ⁽¹⁾ of $0.56 per diluted share   
• Fiscal year 2015 net sales total $1,349.2 million, an increase of $20.6 million, or 1.6 percent.  GAAP net income of $0.70 per diluted share.  Non-GAAP net income ⁽¹⁾ of $1.63 per diluted share  
• Bob Evans Restaurants’ Q4 2015 same-store sales increased 2.1 percent  
• BEF Foods reports record quarterly operating profit, non-GAAP operating margin of 14.9 percent  
• Company establishes fiscal year 2016 non-GAAP diluted EPS guidance range of $1.75 to $1.95  
• Company repurchased $50 million (1.1 million shares) to-date in fiscal 2016, expects to repurchase an additional $100 million in balance of fiscal 2016  
• Company intends to pursue a sale-leaseback of HQ and industrial properties, and either a REIT conversion and tax-free spinoff or sale-leaseback of a portion of its restaurant real estate locations  
• Cost reductions of $14 million expected to be realized in fiscal 2016 as part of multi-year plan to lower costs by $35 million  
• Quarterly dividend of $0.31 per share payable on June 15, 2015, to stockholders of record at the close of business on June 1, 2015

               NEW ALBANY, Ohio, June 16, 2015 (GLOBE NEWSWIRE) --  Bob Evans Farms, Inc. (Nasdaq: BOBE ) today announced its financial results for the fiscal 2015 fourth quarter ended Friday, April 24, 2015.  On a GAAP basis, the Company reported net income of $5.6 million, or $0.24 per diluted share, compared with net income of $13.0 million, or $0.53 per diluted share, in the corresponding period last year.  On an adjusted basis ⁽¹⁾ , net income from continuing operations was $13.2 million, or $0.56 per diluted share, a 12.1 percent increase compared with net income of $11.8 million, or $0.48 per diluted share, in the corresponding period last year.  

Fourth quarter commentary Chief Financial Officer Mark Hood said, “During the fourth quarter and into early fiscal 2016, we continued to intensify our focus on execution and efficiency in all aspects of our operations at Bob Evans.  While there is much work to be done to achieve the full potential of Bob Evans, we are encouraged by our early progress.  We made several decisions during the fourth quarter and in the first quarter of the new fiscal year to better position our businesses for sustainable profitable growth in the years ahead.  In May we completed closure of 18 underperforming Bob Evans Restaurants, with two additional closures expected later this year.  We also reduced our cost structure by $14 million, by amongst other initiatives, eliminating approximately 60 positions. 

“We amended our revolving credit agreement to enable the Company to continue returning capital to shareholders while also having the financial flexibility necessary to complete turnaround efforts in our businesses.   During the early weeks of fiscal 2016 we repurchased $50 million of Company stock, reflecting our confidence in our ability to create shareholder value through execution of our operating plans and disciplined capital allocation. 

“We also engaged CBRE Group, Inc. to pursue one or more sale-leaseback transactions for our New Albany, Ohio, headquarters and BEF Foods facilities at Lima, Ohio, and Sulphur Springs, Texas.  We expect to use the net proceeds from these transactions to fund share repurchases under the Company’s existing $150 million share repurchase authorization.  Additionally, we announced that the Company intends to pursue a strategic transaction for a select portion of our restaurant properties which could take the form of either a sale-leaseback transaction or a tax-free spin-off and REIT conversion.  The structure, size, and timing of any transaction will depend on a number of factors, including the performance of Bob Evans’ business segments, and in particular the restaurant segment, market values for restaurant real estate, trading performance of publicly traded real estate companies, interest rates, and U.S. economic conditions.  Either of the forms of a transaction is expected to enable the Company to reduce its investment in lower-return assets, and we expect that in structuring a transaction we would seek to maintain our flexibility to pursue a separation of the foods and restaurant segments at some point in the future if advisable at that time.  We expect to conclude the assessment of alternative paths for our restaurant real estate over the next several months and that either option will enable us to enhance shareholder value through our capital deployment strategies as we execute the turnaround of our businesses.”    

Hood continued, “I am also pleased to report that the Company successfully completed remediation of all material weaknesses in internal controls during the fourth quarter.  Furthermore, with the beginning of fiscal year 2016, we have successfully launched phase one of our ERP systems implementation.  This implementation will provide new tools to manage costs and control execution of our businesses.  

“As for our CEO search process, the CEO Search Committee of the Board of Directors remains engaged in a careful and thorough process to identify and appoint the right new chief executive officer to lead the company forward.  The committee is balancing a sense of urgency with a mandate for identifying the right leader of Bob Evans for the long term.  While the search effort continues, the Company's operational turnaround initiatives are being executed and the strategic review and planning process undertaken by the Board and management continue on course.  

“At Bob Evans Restaurants, we are pleased with the early results of our actions to turnaround the business.  Our objectives are: to achieve profitable same-store sales growth with a significantly lower guest discount rate than the Company employed for the last two years; to reduce our foods costs while increasing the quality of our offerings; and to decrease our labor costs by better managing our scheduling and hourly rates.

“In the fourth quarter, same-store sales increased 2.1 percent while we reduced our guest discount rate by more than 25 percent.  Carryout and catering sales remain strong and we are focused on increasing dine-in frequency.  Food costs benefitted from favorable menu mix shifts resulting from the recent redesign of the menu; a more balanced day part marketing message, including renewed emphasis on breakfast; and the change in our guest discounting strategy.  We moderated the year-over-year increase in direct labor costs during the fourth quarter and remain focused on achieving further improvements.  We intend to begin implementation of a new point-of-sale and back office system in fiscal 2016, and believe these critical tools will enable us to achieve further improvements in both food and labor costs. 

“As we look ahead, the entire Bob Evans Restaurants team remains focused on delivering same-store sales growth and improved profits. Our goal is to consistently deliver a superior guest experience such that Bob Evans Restaurants becomes the place you enthusiastically recommend to family and friends.  We are confident we are implementing the right strategies to make this a reality.”   

President, BEF Foods, Mike Townsley, said, “BEF Foods achieved record quarterly operating profit as we drove double-digit growth of our refrigerated side-dish business, and leveraged the benefit of lower sow costs and improved plant efficiencies.  Our retail sausage business, with volume up 11.1 percent over the prior year, drove 44 percent of our profit improvement due to year-over-year net sow cost favorability (gross sow cost impact less sausage-related trade spending).  Our refrigerated side-dish business, which now represents nearly 50 percent of our overall BEF Foods’ sales, gained more than five percentage points of sales mix and remains the primary growth driver for BEF Foods.  During fiscal 2016, we expect to begin a $20+ million expansion of our Lima, Ohio, refrigerated side-dish facility to provide the capacity necessary to meet forecasted growth. 

“As we look ahead, we are focused on continuing to drive double-digit growth in our industry-leading refrigerated side-dish business. We will invest increased marketing and trade dollars to drive growth, while defending our market position in our core regional sausage markets.  We will continue to strategically reduce lower-margin foodservice revenue when it can be replaced with higher-margin branded-retail product volume.  We will continue our successful lean manufacturing programs to improve plant efficiency and begin realizing the benefits of our ERP implementation.  This system implementation will significantly upgrade the analytical tools we have to support manufacturing and sales performance.  Our Lima, Ohio, refrigerated side-dish plant was part of the day one fiscal 2016 'go live' ERP process, with our remaining three plants slated for implementation later in fiscal 2016.”

Fourth-quarter fiscal 2015 Bob Evans Restaurants segment summary Bob Evans Restaurants’ net sales were $238.2 million, an increase of $7.2 million, or 3.1 percent, compared to net sales of $231.0 million in the corresponding period last year.  Same-store sales increased 2.1 percent in the quarter, slightly below the national Knapp-Track™ family dining index increase of 2.3 percent. 

During the fourth quarter of fiscal 2015, Bob Evans Restaurants opened four new restaurants and closed one restaurant. 

Bob Evans Restaurants’ GAAP operating loss was $9.2 million, compared to GAAP operating income of $2.2 million in the corresponding period last year.  Bob Evans Restaurants’ non-GAAP operating income was $3.7 million; a decrease of $0.4 million compared to $4.2 million in the year ago period.  Approximately $2.5 million of increased profit from sales leverage was offset by a $0.7 million increase in food cost rate and a $3.0 million increase in labor and benefit cost rates driven primarily by management wages as the Company operated with fewer open positions, higher hourly wages as a result of a mix shift in direct labor, and increased benefit costs.  Additionally, a $1.7 million decline in depreciation expense was partially offset by a $0.9 million incremental investment in advertising .  

Fourth-quarter fiscal 2015 BEF Foods segment summary BEF Foods’ net sales were $94.2 million, a decrease of $1.1 million, or 1.2 percent, compared to net sales of $95.3 million in the corresponding period last year. Overall, total pounds sold increased 0.9 percent compared to the prior year period.  A 13.1 percent increase in side-dish volume and 11.1 percent increase in sausage volume were offset by a 44.1 percent decline in foodservice volume and a $6.3 million increase in trade spending.    

BEF Foods’ GAAP operating income was $10.1 million, compared to GAAP operating income of $2.1 million in the year ago period.  BEF Foods’ non-GAAP operating income was $14.0 million, compared to $3.3 million in the prior year, an improvement of $10.7 million.  Approximately $0.5 million of deleverage from lower net sales driven by foodservice and increased trade spending previously discussed, was offset by $11.2 million in cost of goods sold favorability resulting largely from $8.7 million of lower sow costs, a higher sales mix of retail items, and improved production yields.

Fourth-quarter fiscal 2015 net interest expense – The Company’s net interest expense was $2.4 million in the fourth quarter of fiscal 2015, an increase of $1.3 million, compared to $1.2 million in the corresponding period last year.  The borrowing rate on the Company’s outstanding debt was 2.18 percent at the end of the fourth quarter, compared to 1.54 percent at the end of the comparable prior year period.   

Fourth-quarter fiscal 2015 t axes – The Company recorded a tax benefit of $7.1 million (477 percent) for the fourth quarter of fiscal 2015, as compared to a tax benefit of $6.7 million (214 percent) for the prior year period. The change in the tax rate was driven primarily by the impact of final fiscal year permanent items against lower than projected pretax earnings and the expiration of the statute of limitations on several uncertain tax position reserves.  The non-GAAP tax rate for the fiscal 2015 fourth quarter was 11.2 percent, reflecting the impact of permanent items on income when adjusted for nonrecurring items.

Fiscal year 2015 consolidated operating results On a GAAP basis, the Company reported net income of $16.6 million, or $0.70 per diluted share, compared with net income of $33.7 million, or $1.26 per diluted share, in the prior year.  On an adjusted basis ⁽¹⁾ , net income from continuing operations was $38.4 million, or $1.63 per diluted share, compared with net income of $44.7 million, or $1.68 per diluted share, in the prior year.  

Fiscal year 2015 Bob Evans Restaurants segment summary Bob Evans Restaurants’ net sales were $969.9 million, an increase of $13.3 million, or 1.4 percent, compared to net sales of $956.6 million last year.  Same-store sales increased 0.9 percent, slightly below the national Knapp-Track™ family dining index increase of 1.1 percent. 

During fiscal 2015, Bob Evans Restaurants opened seven new restaurants and closed one restaurant.

Bob Evans Restaurants’ GAAP operating loss was $2.8 million, compared to GAAP operating income of $27.1 million last year.  Bob Evans Restaurants’ non-GAAP operating income was $25.0 million, compared to operating income of $42.4 million last year, a decline of $17.4 million.  Approximately $5.0 million of profitability from sales leverage was offset by a $10.4 million increase in food cost rate due primarily to commodity inflation, menu mix shifts, and higher guest discounting; and an $11.0 million increase in labor and benefit cost rates driven primarily by an increase in management salaries as a result of fewer open positions, higher hourly wages as a result of a mix shift in direct labor, and an increase in benefit costs.  Additionally, the benefit of $2.4 million of reduced depreciation expense was offset by $3.4 million of increased operating costs due primarily to increased advertising and utility costs.  

Fiscal year 2015 BEF Foods segment summary BEF Foods’ net sales were $379.3 million, an increase of $7.3 million, or 2.0 percent, compared to net sales of $372.0 million last year.  Overall, total pounds sold decreased 0.9 percent compared to the prior year.  A 13.0 percent increase in side-dish volume and $14.7 million of increased sausage pricing were offset by $3.5 million of increased trade spending and a 25.5 percent decline in foodservice volume, a 7.6 percent decline in sausage volume, and a 7.2 percent decline in frozen product volume.  

BEF Foods’ GAAP operating income was $20.4 million, compared to GAAP operating income of $6.0 million last year.  BEF Foods’ non-GAAP operating income was $28.4 million, compared to $12.9 million in the corresponding period last year, an improvement of $15.5 million.  The improvement resulted from $2.3 million of profitability from sales leverage; $11.8 million cost of goods sold favorability resulting from a higher sales mix of retail products, $3.9 million from lower sow costs, and $2.7 million from improved production yields; a $3.0 million reduction of plant operating expenses due to improved plant efficiencies; and a $1.4 million decrease in S,G&A expenses.  These items were partially offset by a $3.0 million increase in depreciation and amortization costs resulting from recent plant expansions.  

Fiscal year 2015 net interest expense – The Company’s net interest expense was $8.6 million for fiscal 2015, an increase of $6.6 million, compared to $2.0 million last year.  The borrowing rate on the Company’s outstanding debt was 2.18 percent at the end of fiscal 2015, compared to 1.54 percent at the end of fiscal 2014.   

Fiscal year 2015 taxes – The Company recorded a tax benefit of $7.5 million (83 percent) for fiscal 2015, as compared to a tax provision of $0.1 million (0.5 percent) in fiscal 2014. The effective income tax rate in fiscal 2015 was substantially different than the statutory rate due to the Company’s domestic production activities deduction and the utilization of tax credits.  The effective income tax rate in fiscal 2014 was substantially different than the statutory rate due to the utilization of tax credits, the Company’s domestic production activities deduction, and favorable state tax reserve releases.  The non-GAAP tax rate for fiscal 2015 was 10.5 percent, reflecting the impact of permanent items on income when adjusted for nonrecurring items.

Fiscal year 2015 balance sheet highlights – The Company’s cash balance and revolver borrowings at the end of the fourth quarter of fiscal 2015 were $6.4 million and $447.6 million, respectively.  The Company was in compliance with its debt covenants at the end of fiscal 2015.  The Company’s leverage ratio as defined in its credit agreement was 3.37 at the end of the quarter, down from 3.69 in the prior quarter.

Fiscal year 2016 outlook Mark Hood, Chief Financial Officer said, "Fiscal 2015 was a year of significant change.  Our reconstituted Board of Directors has helped us chart a new path forward focused on the turnaround of our restaurant and retail foods businesses, and establishing a corporate culture of efficiency.  We enter fiscal 2016 with an improving outlook, a relentless focus on restoring our brand positioning, and a sense of urgency to improve our profits.

“We expect low-single digit same-store sales improvement for Bob Evans Restaurants beginning in the second quarter through the remainder of fiscal 2016, with full year gains of 1.5 to 2.5 percent, as we balance reduced guest discounting, the benefits of further menu development, the impact of commodity cost increases (including eggs) and measures to increase operational efficiencies.  BEF Foods net sales in fiscal 2016 are expected to be in the $380 to $400 million range.  Our refrigerated side-dish business will lead double-digit growth of our retail business; however, lower foodservice revenues and increased trade spending will limit overall sales growth.  We also expect BEF Foods to realize benefits of lower sow costs (net of increased trade spending) and further plant efficiency improvements.  Fiscal 2016 will include a 53 ^rd week.  We expect this additional week to contribute approximately $0.10 per diluted share.

“Our capital expenditure budget of $80 to $85 million includes three significant investments:  1)  a new point-of-sale system which when fully implemented in fiscal 2017 is expected to provide annual savings of $12 million; 2) the addition of a fourth production line at our Lima, Ohio, facility to sustain double digit sales growth in our refrigerated dinner sides business; and 3) phase two of our ERP implementation to improve customer and product profitability analytics.”

Hood continued, “From a corporate perspective, we will continue optimizing our cost structure, as we work not only to accelerate the opportunities we identified in 2015, but to also develop added savings and efficiencies.  These actions are expected to deliver a 25 to 35 percent increase in operating income.  However, we expect increased interest expense and a higher tax rate in fiscal 2016 will limit EPS growth to 7 to 20 percent.  The expected tax rate increase in fiscal 2016 has approximately a $0.40 negative impact on expected fiscal 2016 diluted earnings per share.  During the first quarter of fiscal 2016, we have repurchased $50 million, or 1.1 million shares of our stock, and expect to purchase an additional $100 million during the balance of fiscal 2016.  Additionally, we expect to complete one or more sale and leaseback transactions relating to our New Albany, Ohio, headquarters and two BEF Foods manufacturing facilities in the second or third quarter.  Our guidance does not include the impact of a potential restaurant real estate transaction.”

Summary of performance drivers:  fiscal 2016 guidance versus fiscal 2015

This outlook is subject to a number of factors beyond the Company’s control, including the risk factors discussed in the Company’s fiscal 2015 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 fourth-quarter fiscal 2015 results at 10 a.m. (ET) on Wednesday, June 17, 2015.  The dial-in number is (855) 468-0551, access code 52874991.  A replay will be available at (800) 585-8367, access code 52874991.  

A simultaneous webcast will be available at http://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 24, 2015, 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.  Any strategic transaction with respect to our headquarters, our BEF Foods Facilities or a portion of our restaurant real estate remains subject to evaluation by the Board and there can be no assurance if and when any such transaction will be undertaken or consummated.  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 fourth fiscal quarter (April 24, 2015), Bob Evans Restaurants owned and operated 567 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 April 24, 2015 that were not included in the computation of dilutive earnings per share, because to do so would have been antidilutive, were 129,738 shares for the three months ended April 24, 2015.

Income taxes related to continuing operations, as a percentage of pre-tax income, were (477.27)% vs (214.1)%.

The number of dilutive shares outstanding at April 24, 2015 that were not included in the computation of dilutive earnings per share, because to do so would have been antidilutive, were 124,766 shares for the twelve months ended April 24, 2015.

Income taxes related to continuing operations, as a percentage of pre-tax income, were (83.2)% vs 0.5%.

Consolidated Balance Sheet  

Consolidated Statements of Cash Flow  

Bob Evans Restaurants openings and closings, by quarter:  

Bob Evans Restaurants same-store sales analysis (18-month core; 552 restaurants)  

Bob Evans Restaurants same-store sales Day Part Performance  

Key restaurant sales data (core restaurants only)

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

BEF Foods total pounds sold, by category  

BEF Foods net sales review (dollars in thousands)