Bob Evans Reports Fiscal 2017 Third-Quarter Results; Raises Fiscal Year 2017 Guidance

• BEF Foods reports Q3 retail side-dish and sausage pounds sold growth of 13 percent and 3 percent, respectively.  Q3 food service volume grew 19 percent
  
  
• Revenue from continuing operations⁽¹⁾ increases 4.6% to $112.8 million
  
  
• Company reports Q3 2017 GAAP net income of $0.41 per diluted share, non-GAAP net income^(1,3) of $0.75 per diluted share
  
  
• Completion of Pineland Farms Potato Company acquisition expected by May 1, 2017.  $115M acquisition expected to be funded with a new $300 million credit facility.  Company expected to target 1.0 to 2.0x leverage following transaction
  
  
• Previously announced sale of Bob Evans Restaurants to Golden Gate Capital remains on schedule for the end of fiscal 2017.  BER segment classified as discontinued operations.  Net proceeds of transaction expected to be used for repayment of outstanding indebtedness and payment of a special dividend of approximately $150 million ($7.50 per share) within approximately 60 days following closing
  
  
• Company raises fiscal year 2017 non-GAAP⁽²⁾ adjusted diluted EPS guidance range to $2.22 to $2.32, assuming completion of transactions at the end of fiscal 2017
  
  
• Quarterly dividend of $0.34 per share payable on March 27, 2017, to stockholders of record at the close of business on March 13, 2017.  $100 million share repurchase  authorization in place through calendar 2017

⁽¹⁾ On January 24, 2017, the Company entered into a definitive agreement with an affiliate of Golden Gate Capital (“GGC”) pursuant to which the Company agreed to sell its Bob Evans Restaurants business.   The results of operations of Bob Evans Restaurants (“BER”) have been treated as discontinued operations and all GAAP financial statement items for the current and prior periods reflect BER as a discontinued business.   All costs not directly attributable to BER remain in continuing operations.  Assets being sold in the transaction include all assets associated with BER as well as our corporate headquarters.  All assets being sold and liabilities being assumed by GGC are classified as held for sale on the Company’s consolidated balance sheet.

Adjusted or non-GAAP results presented herein include both continuing and discontinued operations and exclude special items for comparability.  Descriptions of measures excluding special items are provided in non-GAAP financial measures and reconciliations of such non-GAAP measures to the most comparable GAAP measures are provided in the tables at the end of this release.

⁽²⁾ The Company is unable to provide GAAP EPS guidance at this time as the Company cannot reliably forecast the timing and magnitude of the gain on the sale of BER, the amount of non-cash costs associated with acceleration of stock based compensation awards and other restructuring, impairment and acquisition and divestiture related costs that may occur, and the income tax effects of these items.

NEW ALBANY, Ohio, March 08, 2017 (GLOBE NEWSWIRE) -- Bob Evans Farms, Inc. (NASDAQ:BOBE) today announced its financial results for the fiscal 2017 third quarter ended Friday, January 27, 2017.  On a GAAP basis, the Company reported net income of $8.2 million, or $0.41 per diluted share, compared with net income of $12.9 million, or $0.62 per diluted share, in the corresponding period last year.  Non-GAAP net income was $15.0 million, or $0.75 per diluted share, compared with net income of $12.9 million, or $0.62 per diluted share, in the corresponding period last year.

• Net sales from continuing and discontinued operations in the third quarter totaled $335.9 million and included $112.8 million from continuing operations and $223.1 million from discontinued operations.  Total net sales in the prior year period totaled $346.5 million and included $107.9 million from continuing operations and $238.6 million from discontinued operations.
   
• GAAP net income in the third quarter of $8.2 million consists of $9.8 million from continuing operations and a $1.6 million loss from discontinued operations.  Non-GAAP net income in the third quarter of $15.0 million includes $10.8 million from continuing operations and $4.2 million from discontinued operations.  GAAP and non-GAAP net income in the prior year period of $12.9 million consisted of $6.4 million from continuing operations and $6.5 million from discontinued operations. 
   
• GAAP diluted earnings per share in the third quarter of $0.41 consists of $0.49 from continuing operations and a loss of $0.08 from discontinued operations.  Non-GAAP diluted earnings per share in the third quarter of $0.75 consists of $0.54 from continuing operations and $0.21 from discontinued operations.  GAAP and non-GAAP diluted earnings per share of $0.62 for the prior-year period consisted of $0.31 from continuing operations and $0.31 from discontinued operations.   

Third-quarter fiscal 2017 commentary
President and Chief Executive Officer Saed Mohseni said, “BEF Foods achieved year-over-year market share and pounds sold growth in its key product categories and distribution channels.  Retail channel pounds sold increased nearly 8 percent, with retail side-dish and sausage gains of approximately 13 percent and 3 percent, respectively, driving market share gains in core and national markets.  Food service sales were likewise strong with 19 percent year-over-year pounds sold growth.  We expect completion of our acquisition of Pineland Farms Potato Company by May 1, 2017, and look forward to its contribution to continued sales and profit growth of BEF Foods during fiscal year 2018 and beyond.

“As we said on January 24, 2017, when we announced the upcoming sale of Bob Evans Restaurants and the acquisition of Pineland Farms Potato Company, these transactions represent the beginning of a new era at Bob Evans Farms in which the Company will focus on realizing the full potential of its BEF Foods business.  We are progressing as expected with the sale of Bob Evans Restaurants to Golden Gate Capital, and expect to complete the transaction at the end of the fourth quarter.  The new Bob Evans Farms, further strengthened by the manufacturing and intellectual capital of Pineland Farms Potato Company, is positioned to be a higher profit and higher growth company that is expected to provide better returns to shareholders and an enhanced array of products for a growing national customer base.”

Third-quarter fiscal 2017 summary - continuing operations
Net sales from continuing operations were $112.8 million, an increase of $4.9 million, or 4.6 percent, compared to $107.9 million in the corresponding period last year.  Pounds sold increased 7.6 percent while average net selling price per pound declined 2.8 percent compared to the corresponding period last year.  The decline in average net selling price reflects an increased sales mix of lower-priced, although higher-margin, side-dish products relative to sausage, as well as reduced net sausage pricing.  From a net sales perspective, a 13.1 percent increase in side-dish pounds sold, a 2.8 percent increase in sausage pounds sold, and a 6.1 percent increase in external food service pounds sold were partially offset by a $1.6 million increase in trade spending (reduces net sales), and a 4.3 percent decline in frozen product pounds sold compared to the corresponding period last year.

GAAP operating income from continuing operations was $17.1 million, compared to $11.4 million last year.  Non-GAAP operating income from continuing operations was $19.5 million, compared to $11.4 million in the corresponding period last year, an improvement of $8.1 million.  The improvement was due primarily to the aforementioned increase in pounds sold, the favorable sales mix of higher-margin side dish items, lower SG&A costs, and $1.2 million of lower net sow costs; partially offset by increased advertising expense, and increased freight expense resulting from increased pounds sold.  SG&A expenses totaling $5.8 million ($17.2 million year-to-date), previously identified as “corporate and other” costs, are now included within continuing operations.  Of these costs, $2.0 million ($5.8 million year-to-date) represent costs primarily related to wages and benefits for terminated employees that will no longer be in the Company’s expense base in fiscal 2018.

Third-quarter fiscal 2017 summary - discontinued operations
The Company has classified the results of operations, impairment charges and separation costs related to BER as discontinued operations.

Net sales from discontinued operations were $223.1 million, a decline of $15.5 million, or 6.5 percent, compared to net sales of $238.6 million in the corresponding period last year. Same-store sales declined 2.6 percent with the balance of the net sales decline due to net restaurant closures during the past year. No restaurants were closed and one restaurant opened during the quarter.  The Company operated 523 restaurants at the end of the quarter.

GAAP pretax loss from discontinued operations was $4.6 million, compared to GAAP pretax income from discontinued operations of $6.6 million last year.  Non-GAAP pretax income from discontinued operations was $2.5 million, compared to $6.6 million last year, a decline of $4.1 million.  The decline in non-GAAP pretax income from discontinued operations was due to lower sales and increased hourly wage rates and investment in labor hours to support efforts to improve guest hospitality; partially offset by lower commodity costs, lower healthcare costs and reduced discounting.

Third-quarter fiscal 2017 net interest expense - GAAP and non-GAAP net interest expense from continuing operations was $2.1 million in the third quarter, a decline of $0.3 million, compared to $2.4 million in the corresponding period last year.  The borrowing rate on the Company’s outstanding debt was 2.52 percent at the end of the third quarter, compared to 2.18 percent for the prior year period.  All borrowings are included in continuing operations; interest related to the headquarters mortgage is included within discontinued operations.

Third-quarter fiscal 2017 taxes - The Company’s 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 recognized GAAP tax expense for continuing operations of 34.3 percent for the third quarter of fiscal 2017, as compared to 29.2 percent for the prior year period. The change in the tax rate was driven primarily by the yearly variances in the forecasted annual tax rate related to officer’s life insurance and the domestic productions activities deduction.  Year-to-date, the Company recognized GAAP tax expense for continuing operations of 34.3 percent, compared to 31.0 percent for the prior year.  For non-GAAP items, the tax rate was 37.7 percent for continuing operations, reflecting the Company’s non-GAAP annual estimated tax rate adjusted for the impact of third quarter discrete items.  Year-to-date, the Company’s non-GAAP estimated tax rate for continuing operations adjusted for the impact of discrete items was 35.4 percent.  Discontinued operations are presented net of income tax expense or benefit.

Third-quarter fiscal 2017 balance sheet highlights - The Company’s cash balance and outstanding debt at the end of the quarter were $2.4 million and $330.1 million, respectively, compared to $6.3 million and $496.0 million at the end of the corresponding period last year.  The Company was in compliance with its debt covenants at the end of the quarter.  The decrease in borrowings was primarily the result of the use of proceeds from recent real estate monetization transactions and operating cash flow to reduce debt, partially offset by share repurchases, capital expenditures, and dividend payments.  On a pro-forma basis, assuming the 2016 sale-leaseback transactions occurred at the beginning of fiscal 2016, the Company’s quarter-end leverage ratio was 2.66.

Fiscal year 2017 outlook
Chief Administrative and Chief Financial Officer Mark Hood said, “We have raised our consolidated non-GAAP diluted earnings per share range to $2.22 to $2.32, from $2.15 to $2.30 per share previously, to reflect the impact of lower net sow costs and continued focus on operating efficiency.   We are unable to provide GAAP EPS guidance at this time as the Company cannot reliably forecast the timing and magnitude of the gain on the sale of BER, the amount of non-cash costs associated with acceleration of stock based compensation awards and other restructuring, impairment and acquisition and divestiture related costs that may occur, and the income tax effects of these items.  Remaining guidance items are presented for continuing operations.  The sale of BER, acquisition of Pineland Farms Potato Company, and establishment of our new credit facility remain on-track for completion.”

This outlook is subject to a number of factors beyond the Company’s control, including the risk factors discussed in the Company’s fiscal 2016 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 2017 results at 8:30 a.m. (ET) on Wednesday, March 8, 2017.  The dial-in number for the conference call is (855) 468-0551, access code 69455358.  A replay will be available at (800) 585-8367, access code 69455358.

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

⁽³⁾Non-GAAP Financial Measures
Our non-GAAP measures are used by analysts, investors and other interested parties to compare our performance with the performance of other companies that report similar non-GAAP measures. We believe these non-GAAP measures provide meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of core business operating results. We believe the non-GAAP measures, when viewed in conjunction with U.S. GAAP results and the accompanying reconciliations, enhance the comparability of results against prior periods and allow for greater transparency of financial results and business outlook. In addition, we use non-GAAP data internally to assess performance and facilitate management's internal comparison of our financial performance to that of prior periods, as well as trend analysis for budgeting and planning purposes. The presentation of our non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. Furthermore, our non-GAAP measures may not be comparable to similarly titled measures reported by other companies and may have limitations as an analytical tool.

Reconciliations of the Company’s projected adjusted diluted EPS for fiscal year 2017 and the most directly comparable GAAP financial measures are omitted from this release because the Company is unable to provide such reconciliations without unreasonable effort.  In particular, in light of the pending transactions referenced in this release, management is not able to calculate certain amounts necessary to provide corresponding forecasted financial measures calculated in accordance with GAAP and related reconciliations at this time as the Company cannot reliably forecast the timing and magnitude of the gain on the sale of BER, the amount of non-cash costs associated with acceleration of stock based compensation awards and other restructuring, impairment and acquisition and divestiture related costs that may occur, and the income tax effects of these items.

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. The risks and uncertainties in connection with such forward-looking statements related to the proposed transactions include, but are not limited to, the occurrence of any event, change or other circumstances that could delay the closing of either the sale of BER or the acquisition of Pineland Farms; the possibility of non-consummation of the proposed transactions and the termination of the respective transaction agreements; the failure to satisfy any of the conditions to the respective transaction agreements; adverse effects on the Company’s common stock because of the failure to complete either of the proposed transactions; the Company’s businesses experiencing disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees and business partners; significant transaction costs related to the proposed transactions; and the dependence on the proposed special dividend following the consummation of the sale of BER.  Additional information about the factors and events that could cause actual results to differ materially from those predicted by the forward looking statements, along with certain other risks, uncertainties and assumptions related to the Company and its business, may be found in our Annual Report on Form 10-K for the fiscal year ended April 29, 2016, our Quarterly Report on Form 10-Q for the quarter ended January 27, 2017, 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., through its BEF Foods segment, is 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.  Bob Evans Farms, Inc. also owns and operates full-service restaurants under the Bob Evans Restaurants brand name.  At the end of the third fiscal quarter (January 27, 2017), Bob Evans Restaurants owned and operated 523 family restaurants in 18 states, primarily in the Midwest, mid-Atlantic and Southeast regions of the United States.  The Company announced a definitive agreement for the sale of Bob Evans Restaurants in a press release dated January 24, 2017.  For more information about Bob Evans Farms, Inc., visit www.bobevans.com.

BOBE-E

Source: Bob Evans Farms, Inc.

Non-GAAP Financial Measures

Our non-GAAP measures are used by analysts, investors and other interested parties to compare our performance with the performance of other companies that report similar non-GAAP measures. We believe these non-GAAP measures provide meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of core business operating results. We believe the non-GAAP measures, when viewed in conjunction with U.S. GAAP results and the accompanying reconciliations, enhance the comparability of results against prior periods and allow for greater transparency of financial results and business outlook. In addition, we use non-GAAP data internally to assess performance and facilitate management's internal comparison of our financial performance to that of prior periods, as well as trend analysis for budgeting and planning purposes. The presentation of our non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. Furthermore, our non-GAAP measures may not be comparable to similarly titled measures reported by other companies and may have limitations as an analytical tool.

Reconciliations of the Company’s projected adjusted diluted EPS for fiscal year 2017 and the most directly comparable GAAP financial measures are omitted from this release because the Company is unable to provide such reconciliations without unreasonable effort.  In particular, in light of the pending transactions referenced in this release, management is not able to calculate certain amounts necessary to provide corresponding forecasted financial measures calculated in accordance with GAAP and related reconciliations at this time as the Company cannot reliably forecast the timing and magnitude of the gain on the sale of BER, the amount of non-cash costs associated with acceleration of stock based compensation awards and other restructuring, impairment and acquisition and divestiture related costs that may occur, and the income tax effects of these items.