Bob Evans Reports Fiscal 2017 Second-Quarter Results and Updates Fiscal 2017 Guidance

• Q2 2017 net sales total $316.0 million; GAAP net income of $0.01 per diluted share, non-GAAP net income⁽¹⁾ of $0.56 per diluted share.  A $16.0 million pretax impairment charge ($0.55 per diluted share) related to the note receivable from the 2013 sale of Mimi’s Café is the primary difference between GAAP and non-GAAP results
   
• BEF Foods reports Q2 side-dish and sausage pounds sold growth of 13.7 percent and 7.6 percent, respectively.  Household penetration increases 24 percent during the past year
   
• Bob Evans Restaurants’ sales trend continued to improve as Q2 same-store sales declined 1.8 percent with a new menu design, product upgrades, and improved hospitality continuing to enhance the guest experience
   
• Company lowers fiscal year 2017 GAAP diluted EPS guidance range to $1.54 to $1.72 to reflect the note receivable impairment.  Raises non-GAAP range to $2.15 to $2.30 to reflect improved performance and updated projections
   
• Quarterly dividend of $0.34 per share payable on December 23, 2016, to stockholders of record at the close of business on December 12, 2016.  Current share repurchase authorization extended through December 31, 2017

NEW ALBANY, Ohio, Dec. 05, 2016 (GLOBE NEWSWIRE) -- Bob Evans Farms, Inc. (NASDAQ:BOBE) today announced its financial results for the fiscal 2017 second quarter ended Friday, October 28, 2016.  On a GAAP basis, the Company reported net income of $0.2 million, or $0.01 per diluted share, compared with net income of $6.4 million, or $0.29 per diluted share, in the corresponding period last year.  After adjusting for the note impairment, non-GAAP net income was $11.2 million, or $0.56 per diluted share, compared with net income of $9.2 million, or $0.41 per diluted share, in the corresponding period last year.  For an explanation of certain non-GAAP financial measures used in this release, please refer to the discussion in “Non-GAAP Financial Measures” below.

Second-quarter fiscal 2017 commentary
President and Chief Executive Officer Saed Mohseni said, “BEF Foods delivered another excellent quarter with 13.7 percent volume growth of refrigerated side-dish products and 7.6 percent growth of our sausage business.  Both product lines achieved market share gains during the quarter.  Recent expansion of our side-dish production capacity and continued strategic use of our co-packer network, position us well for meeting peak holiday production demands during the third fiscal quarter.  We are evaluating additional growth opportunities, including investments in our plant network as well as acquisitions, to further improve manufacturing efficiency and production capacities as we aggressively target new product authorizations at our existing retailers, and new retail account authorizations, particularly on the West Coast and with national big-box chains.

“Bob Evans Restaurants’ performance improved during the second quarter as same-store sales trends improved further and positive guest feedback trends reflected continued improvements to the guest experience.  We are encouraged that six states in the chain achieved positive same-store sales during the second quarter, compared to one state in the prior quarter.  Furthermore, the number of individual restaurants generating positive quarterly same-store sales increased 65 percent from the first quarter.  Our new menu, launched September 1, continues to perform as expected.  Although our value offerings have received more prominence in the new menu design, our average check has increased slightly as guests have taken advantage of the flexibility of the new menu to build a dining experience that best meets their appetite and budget.”

Mohseni continued, “The Board continues to evaluate all options to create shareholder value and is working with J.P. Morgan to review and evaluate potential opportunities for value creation.  There is no formal timeline for the completion of the review and there can be no certainty that the review will result in a particular outcome.” 

Second-quarter fiscal 2017 Bob Evans Restaurants segment summary
Bob Evans Restaurants’ net sales were $219.8 million, a decline of $10.9 million, or 4.7 percent, compared to net sales of $230.7 million in the corresponding period last year. Same-store sales declined 1.8 percent with the balance of the net sales decline due to net restaurant closures during the past year. No restaurants were closed and no new restaurants opened during the quarter.  The Company operated 522 restaurants at the end of the quarter.

Bob Evans Restaurants’ GAAP operating income was $13.5 million, compared to GAAP operating income of $13.3 million last year.  Bob Evans Restaurants’ non-GAAP operating income was $13.5 million, compared to $13.6 million last year, a decline of $0.1 million.  The decline in non-GAAP operating income was due to lower sales and increased hourly wage rates along with investment in labor hours to support efforts to improve guest hospitality; partially offset by lower commodity costs, reduced discounting, and lower healthcare costs.  Additionally, the April 2016 sale-leaseback transaction of 143 restaurant properties reduced operating income by approximately $0.4 million due to a $2.7 million increase in rent, partially offset by a $2.3 million decline in depreciation compared to the prior year period. 

Second-quarter fiscal 2017 BEF Foods segment summary
BEF Foods’ net sales were $96.2 million, an increase of $1.9 million, or 2.0 percent, compared to $94.3 million in the corresponding period last year.  Pounds sold increased 6.9 percent while average net selling price per pound declined 4.6 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 through increased trade spending.  From a net sales perspective, a 13.7 percent increase in side-dish pounds sold and a 7.6 percent increase in sausage pounds sold were partially offset by a $4.1 million increase in trade spending (reduces net sales), a 17.4 percent decline in frozen product pounds sold and a 5.8 percent decline in food service pounds sold compared to the corresponding period last year.

BEF Foods’ GAAP operating income was $18.7 million, compared to $14.0 million last year.  Prior year GAAP operating income included a $3.6 million charge to reflect the loss on the sale-leaseback of the Sulphur Springs manufacturing facility.  BEF Foods non-GAAP operating income was $18.7 million, compared to $17.6 million in the corresponding period last year, an improvement of $1.1 million.  The improvement was due primarily to increased volume, $2.5 million of lower sow costs, favorable sales mix, and lower SG&A costs; partially offset by $4.1 million of increased trade spending, increased freight expenses, and an increase in advertising expenses.  Additionally, the October 2015 sale-leaseback transaction of two industrial properties reduced operating income by approximately $0.6 million due to a $1.0 million increase in rent, partially offset by a $0.4 million decline in depreciation compared to the prior year period.

Second-quarter fiscal 2017 Corporate and Other summary  
Corporate and Other GAAP operating costs were $30.7 million, compared to $15.9 million last year.  Corporate and Other GAAP operating costs include the $16.5 million combined impact of the following items excluded from non-GAAP results:  $16.0 million related to the impairment of the note receivable from the 2013 sale of Mimi’s Café; and $0.5 million related to costs associated with strategic initiatives.  Corporate and Other non-GAAP operating costs were $14.2 million, compared to $15.9 million last year, a decline of $1.7 million.  The decline was due primarily to lower legal and professional fees, partially offset by increased incentive compensation costs and depreciation and amortization resulting from technology-related capital expenditures. 

Second-quarter fiscal 2017 net interest expense – GAAP net interest expense was $1.7 million in the second quarter, a decline of $1.2 million, compared to $2.9 million in the corresponding period last year. Second-quarter non-GAAP net interest expense excludes the impact of $1.1 million of interest accretion related to the impairment of the note receivable from the 2013 sale of Mimi’s Café.  The borrowing rate on the Company’s outstanding debt was 2.28 percent at the end of the second quarter, compared to 1.95 percent for the prior year period.

Second-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 a GAAP tax benefit of 179.9 percent for the quarter, compared to tax expense of 24.8 percent for the prior year period. The change in the tax rate was driven primarily by the impact of lower pretax income due to the impairment of a note receivable booked during the quarter.  Year-to-date, the Company recognized GAAP tax expense of 18.7 percent, compared to 24.6 percent for the prior year.  For non-GAAP items, the tax rate was 25.8 percent for the quarter, reflecting the Company’s annual non-GAAP estimated tax rate adjusted for the impact of second-quarter discrete items.  Year-to-date, the Company’s non-GAAP estimated tax rate adjusted for the impact of discrete items was 24.4 percent.

Second-quarter fiscal 2017 balance sheet highlights – The Company’s cash balance and outstanding debt at the end of the quarter were $4.9 million and $361.8 million, respectively, compared to $5.4 million and $471.4 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 3.00.   

Fiscal year 2017 outlook
Chief Administrative and Chief Financial Officer Mark Hood said, "We have updated our GAAP and non-GAAP fiscal 2017 EPS guidance ranges.  We have reduced our GAAP diluted EPS guidance range to $1.54 to $1.72, from $2.00 to $2.17 previously, to reflect the impairment of the note receivable from the 2013 sale of Mimi’s Café, partially offset by improved operating performance in the first half of fiscal 2017.  We have raised our non-GAAP diluted EPS guidance range to $2.15 to $2.30, from $2.05 to $2.20 previously.

“While we continue to expect full-year negative low-single digit to flat same-store sales at Bob Evans Restaurants, we have adjusted our restaurant commodity pricing outlook to negative low-single digit to flat for the year, from approximately flat previously.  As for BEF Foods, we have lowered our sow cost forecast to $42 to $45 per hundredweight, from $50 to $53 previously, to reflect expectations for the remainder of the fiscal year.  As a consequence of lower projected sow costs, we expect lower sausage pricing (resulting from increases in trade spending to reflect an increased competitive pricing environment from lower sow costs) and have lowered our BEF Foods sales outlook to $390 to $410 million, from $400 to $420 million previously.  At the corporate level, we have added GAAP tax rate guidance of 18% to 19% for fiscal 2017 as a result of the impact of the Mimi’s Café note impairment on taxable income, and increased our non-GAAP tax rate guidance 50 basis points to 24% to 25% to reflect the impact of higher taxable income on our tax preference items.  We are also maintaining our focus on lowering corporate and other costs required to support our businesses.”

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 second-quarter fiscal 2017 results at 8:30 a.m. (ET) on Tuesday, December 6, 2016.  The dial-in number for the conference call is (855) 468-0551, access code 7719466.  A replay will be available at (800) 585-8367, access code 7719466.

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 29, 2016, 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 28, 2016), Bob Evans Restaurants owned and operated 522 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.

BOBE-E

Source: Bob Evans Farms, Inc.