Bob Evans Reports Fiscal 2016 Third-Quarter Results

• Q3 2016 net sales total $346.5 million.  GAAP and non-GAAP net income⁽¹⁾ of $0.62 per diluted share, represents an increase of 148 percent and 3 percent, respectively, compared to the prior-year period.  GAAP and non-GAAP consolidated operating income increase 135 percent and 2 percent, respectively, compared to the prior-year period
  
  
• BEF Foods’ Q3 2016 non-GAAP operating income increases 33 percent compared to the prior-year period.  Refrigerated side-dish and sausage pounds sold increase 16 and 11 percent, respectively 
  
  
• Bob Evans Restaurants’ Q3 2016 non-GAAP operating income declines 14 percent compared to the prior-year period.  Breakfast sales stabilize following product upgrades; continued enhancements underway across all dayparts to drive improved sales trends  
  
  
• Company raises fiscal year 2016 non-GAAP diluted EPS guidance range from $1.85 to $2.00, to $1.90 to $2.00 
  
  
• Company repurchases $51.7 million (1.3 million shares) during Q3 2016 and $14.6 million (0.4 million shares) during Q4 through February 29, 2016, bringing year-to-date fiscal 2016 share repurchases to $171.3 million (3.9 million shares)
  
  
• Quarterly dividend of $0.34 per share payable on March 14, 2016, to stockholders of record at the close of business on February 29, 2016
  

NEW ALBANY, Ohio, March 01, 2016 (GLOBE NEWSWIRE) -- Bob Evans Farms, Inc. (NASDAQ:BOBE) today announced its financial results for the fiscal 2016 third quarter ended Friday, January 22, 2016.  On a GAAP basis, the Company reported net income of $12.9 million, or $0.62 per diluted share, compared with net income of $5.9 million, or $0.25 per diluted share, in the corresponding period last year.  On a non-GAAP basis, net income was $12.9 million, or $0.62 per diluted share, compared with net income of $14.3 million, or $0.60 per diluted share, in the corresponding period last year.  

Third-quarter fiscal 2016 commentary
President and Chief Executive Officer Saed Mohseni said, “BEF Foods delivered another strong quarter with 33 percent year-over-year non-GAAP operating income growth and continued double-digit pounds-sold growth of both its refrigerated side-dish and sausage product lines.  During its transformation over the last several years, BEF Foods’ plant network has been optimized as nine production facilities have been reduced to four.  Furthermore, its sales mix has become more profitable and its margin structure has become more stable as our higher-margin, nationally-distributed refrigerated side-dish product line continues to grow faster than our regional sausage business which is subject to more input cost volatility.  BEF Foods continues to successfully execute its strategy of replacing lower-margin food service sales with higher-margin branded retail sales.  With our refrigerated side dish manufacturing facility operating near peak capacity this past holiday season, I am pleased to report the expansion of our Lima, Ohio, plant is on-schedule and on-budget.  We expect to bring the new capacity on-line this summer in preparation to meet holiday demand later this calendar year.

“While BEF Foods’ performance reflects the impact of a successful transformation process, Bob Evans Restaurants is earlier in its turnaround.  A third-quarter same-store sales decline of 3.6 percent reflects a 6.5 percent decline in transactions, partially offset by 2.9 percent of pricing and favorable menu mix.  We expected sales challenges as we rationalize our pricing and discounting strategies and work to improve the guest experience.  However, we are encouraged by the results of our recent efforts to significantly improve the quality of our breakfast offerings, along with implementing new initiatives to elevate the guest experience and redefine the price-value relationship at Bob Evans Restaurants.  Earlier this year, a few months after launching our upgraded breakfast menu, Bob Evans Restaurants was named ‘Favorite Breakfast Chain’ by Market Force Information^®.  We are moving in the right direction and there is much more to come. Breakfast sales have stabilized and we are working to implement similar improvements across all dayparts.  

“At the corporate level, we continued to make progress with our real estate monetization initiatives as we closed on a $30 million mortgage of our corporate support center early in the fourth quarter and reached an agreement for a $200 million sale-leaseback of up to 145 restaurant properties that we expect to close by the end of the fiscal year.  Additionally, we have realized nearly $12 million of cost savings fiscal year-to-date, as part of our three-year plan to reduce annual corporate and other expenses by $35 million.  We expect to achieve total fiscal 2016 savings of $18 million, equating to an annual savings rate of nearly $30 million.”

Third-quarter fiscal 2016 Bob Evans Restaurants segment summary
Bob Evans Restaurants’ net sales were $238.6 million, a decline of $11.8 million, or 4.7 percent, compared to net sales of $250.4 million in the corresponding period last year. Same-store sales declined 3.6 percent in the quarter, with the balance of the net sales decline due to net restaurant closures.  Bob Evans opened one new restaurant during the third quarter and has closed 20 restaurants fiscal year-to-date. 

Bob Evans Restaurants’ GAAP operating income was $14.5 million, compared to GAAP operating income of $14.2 million in the corresponding period last year.  Bob Evans Restaurants’ non-GAAP operating income was $14.5 million, or 6.1 percent of sales, compared to $16.8 million, or 6.7 percent of sales, in the prior year, a decline of $2.3 million.  The decline resulted from an approximately $3.9 million margin impact of lower sales combined with the net impact of a $0.4 million increase in food cost rate; a $2.3 million increase in labor and benefit cost rate driven primarily by an increase in average hourly wage rates, partially offset by a reduction in health insurance costs and direct labor hours; a $0.8 million decline in other operating expenses driven primarily by lower utility costs; a $2.3 million decline in S,G&A costs (excluding property gains) due primarily to a decline in severance and bonus compensation costs; a $1.0 million decline in depreciation expense; and a $0.2 million gain net of impairment on the sale of nonoperating restaurants. 

Third-quarter fiscal 2016 BEF Foods segment summary
BEF Foods’ net sales were $107.9 million, an increase of $1.1 million, or 1.0 percent, compared to $106.8 million in the corresponding period last year.  Pounds sold increased 8.8 percent while average net selling price per pound declined 7.8 percent compared to the prior year period.  The decline in average net selling price reflects an increased sales mix of lower-priced side-dish products relative to sausage, as well as reduced net sausage pricing (through increased trade spending) to remain price-competitive in a lower sow cost environment.  From a net sales perspective, a 16.1 percent increase in side-dish pounds sold and an 11.1 percent increase in sausage pounds sold were partially offset by an $8.2 million increase in trade spending (reduces net sales) and a 10.8 percent decline in foodservice pounds sold.  

BEF Foods’ GAAP operating income was $20.6 million, compared to $15.3 million in the year ago period.  BEF Foods’ non-GAAP operating income was $20.6 million, or 19.1 percent of sales, compared to $15.5 million, or 14.5 percent of sales, in the prior year, an improvement of $5.1 million.  The improvement resulted from approximately $3.4 million of favorable sales mix, and $2.3 million resulting from decreased S,G&A costs, plant efficiencies, and sales leverage; partially offset by $0.6 million of increased net sow cost ($8.2 million of increased trade spending  partially offset by $7.6 million of sow cost favorability).

Third-quarter fiscal 2016 Corporate and Other summary
Corporate and Other’s GAAP operating costs were $17.0 million, compared to $21.8 million in the year ago period.  Corporate and Other’s non-GAAP operating costs were $17.0 million, compared to $14.5 million in the prior year, an increase of $2.5 million due to $1.5 million of increased S,G&A costs associated with increased bonus and stock compensation and ERP support costs, partially offset by cost savings; and $1.0 million resulting from increased depreciation and amortization expense related to ERP capital expenditures.

Third-quarter fiscal 2016 net interest expense – The Company’s GAAP net interest expense of $2.4 million was flat compared to the prior-year period.  The borrowing rate on the Company’s outstanding debt was 2.18 percent at the end of the quarter, compared to 2.42 percent at the end of the prior-year period.   

Third-quarter fiscal 2016 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 and non-GAAP tax expense of 17.6 percent for the quarter, as compared to a GAAP benefit of 12.4 percent and non-GAAP expense of 3.6 percent for the prior-year period.  This increase reduced third-quarter diluted non-GAAP earnings per share by approximately $0.11.  The increase in the tax rate was driven primarily by the impact of yearly variances in the forecasted annual rate, as well as discrete items booked in the third quarter of fiscal year 2015.  The year-to-date non-GAAP tax rate was approximately 25 percent, reflecting the Company’s annual non-GAAP estimated tax rate.  Due primarily to recent federal legislation providing a five-year extension to the Work Opportunity Tax Credit (WOTC) program, the year-to-date tax rate was reduced by approximately 230 basis points. 

Third-quarter fiscal 2016 balance sheet highlights – The Company’s cash balance and revolver borrowings at the end of the quarter were $7.7 million and $492.9 million, respectively, compared to $3.8 million and $444.4 million, respectively, in the prior year.  The Company was in compliance with its debt covenants at the end of the quarter.  The increase in borrowings was primarily the result of share repurchases, capital expenditures, and dividend payments; partially offset by operating cash flow and proceeds from the sale of nonoperating restaurant properties.  The Company’s leverage ratio as defined in its credit agreement was 3.15 at the end of the quarter, a decrease from 3.69 in the prior-year period.  The impact of share repurchases, net of interest cost, increased third-quarter diluted non-GAAP earnings per share by approximately $0.05.  

Fiscal year 2016 outlook
Chief Administrative and Chief Financial Officer Mark Hood said, "We are increasing our non-GAAP diluted EPS guidance range from $1.85 to $2.00, to $1.90 to $2.00.  This change reflects third quarter performance that exceeded our estimates along with an updated outlook for BEF Foods’ and Bob Evans Restaurants’ operating performance during the fourth quarter.  We expect sow costs net of trade spending to be a headwind compared to the fourth quarter of fiscal 2015 and we continue to expect restaurant same-store sales growth will decline by low-single digits. 

“As noted previously, our guidance includes the estimated impact of monetization of our corporate support center and select industrial properties, but does not include the impact of a potential restaurant real estate transaction which we believe will close late in the fourth quarter and have only a small impact on fiscal year 2016 results.” 

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 third-quarter fiscal 2016 results at 10 a.m. (ET) on Wednesday, March 2, 2016.  The dial-in number is (855) 468-0551, access code 48270452.  A replay will be available at (800) 585-8367, access code 48270452.

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 restaurant real estate remains subject to closing conditions and there can be no assurance of such a closing.  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 22, 2016), Bob Evans Restaurants owned and operated 548 family restaurants in 18 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. 

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Source: Bob Evans Farms, Inc.