Bob Evans Reports Fiscal 2014 Third-Quarter Results

Company provides fiscal year 2015 diluted GAAP EPS guidance range of $2.80 to $3.00, incorporating the anticipated benefits of the Company's transformational investments and the absence of certain costs impacting 2014 results.  Company raises long-term annual diluted EPS growth guidance range to 10 to 12 percent, reflecting confidence in the Company's operational execution in 2015 and beyond against its transformational investment programs at both Bob Evans Restaurants and BEF Foods

Company remains committed to achieving 300 to 350 basis points of margin improvement in both its Bob Evans Restaurants and BEF Foods business segments by fiscal year 2018 relative to fiscal year 2013; BEF Foods expects its plant network optimization initiatives to deliver an estimated 250 basis points of operating margin improvement in fiscal year 2015

Company expects to complete its current $225 million share repurchase program by the end of fiscal year 2014

Company announces its board of directors has authorized up to $100 million of share repurchases for fiscal year 2015.  By the end of fiscal 2015, the Company is expected to have returned more than $900 million to investors since fiscal 2007 through a disciplined capital allocation program including share repurchases and dividend payments 

Bob Evans Farms, Inc. (NASDAQ: BOBE) today announced its financial results for the fiscal 2014 third quarter ended Friday, January 24, 2014.  Net income was $5.7 million, or $0.22 per diluted share, compared with a net loss of $55.1 million, or $1.96 per diluted share, in the comparable period last year.  For the third quarter of 2014, non-GAAP earnings were $7.8 million, or $0.30 per diluted share, compared with non-GAAP income of $15.8 million, or $0.56 per diluted share, in the comparable period last year.

Third-quarter fiscal 2014 commentary
Chairman and Chief Executive Officer Steve Davis said, "The third quarter of fiscal 2014 was especially challenging due to a number of factors, including:  sustained and severe winter weather of a magnitude not seen in many years, particularly in our core Midwest markets; continued higher than projected sow costs; and higher than projected fiscal 2014 startup inefficiencies following the expansion of the BEF Foods' Sulphur Springs, Texas, plant.  However, we expect these issues will be confined to fiscal 2014, and as such will not impact fiscal 2015 results. 

"With the capital investments and expenses associated with our recent transformational investment programs, including the Farm Fresh Refresh program and BEF Foods' plant expansion projects completed by the end of fiscal year 2014, we expect improved free cash flow and earnings performance beginning in fiscal year 2015.  As a result, today we are announcing:

• an increase in our long-term annual diluted EPS growth guidance range to 10 to 12 percent;
• a preliminary fiscal year 2015 diluted EPS guidance range of $2.80 to $3.00; and
• a newly authorized share repurchase program of up to $100 million for fiscal year 2015."

Davis continued, "At Bob Evans Restaurants, we believe sustained and severe winter weather obscured positive developments within the business.  For example, although Bob Evans Restaurants reported chain-wide same-store sales of ‑1.8 percent for the third quarter, including an estimated adverse severe winter weather impact of approximately 3 percent, our remodeled Florida restaurants were not significantly impacted by severe winter weather and generated same-store sales of 4.4 percent.  We believe this demonstrates the sales lift potential of the Farm Fresh Refresh program along with our compelling value offerings, including the recently introduced $7.99 Knife and Fork Sandwich and our proven Three-Course Dinner platforms. 

"At BEF Foods, third-quarter average sow costs of $72.36 per hundredweight, an increase of more than 23 percent compared to the prior year period, along with higher than projected startup inefficiencies at our Sulphur Springs plant, and the remaining impact of our supplier dispute, had a net negative year-over-year cost impact of approximately $5.2 million during the quarter.  These issues notwithstanding, we continue to expect 250 basis points of margin expansion at BEF Foods during fiscal year 2015 from: efficiencies associated with the recent closure of three production plants; the completion of the Lima, Ohio, and Sulphur Springs plant expansions and anticipated efficiencies related thereto; and ongoing vertical integration projects to optimize manufacturing processes at the Lima plant.  These improvements are critically important as a means for offsetting the impact of high sow costs, which year-to-date have increased approximately $16 million over the prior year.

"We also announced today a strategic realignment and, while admittedly a difficult decision, a reduction of personnel at Bob Evans Restaurants, BEF Foods, and at our corporate office as part of our comprehensive plan to reduce SG&A expense and deliver on our commitment of 300 to 350 basis points of margin improvement by fiscal year 2018.  Adding to the $6 to $7 million of other cost savings we previously identified, these actions, together with the realignment of both Bob Evans Restaurants and Bob Evans Farms Foods, we expect to close the gap to offset the $10 million of overhead costs formerly allocated to Mimi's Cafe.  Unrelated to these actions, Randy Hicks, president of Bob Evans Restaurants has announced he will retire after an exemplary career spanning more than three decades with our Company.  Randy has graciously agreed to continue in his position for several months to facilitate transition to new leadership.  A search process for Randy's replacement is currently underway.

"In conclusion, while we encountered a number of challenges during the quarter, and for the year, including a sustained and severe winter weather impact; the referenced supplier dispute and the net effect of higher year-over-year sow costs, we remain committed to realizing the expected returns from our transformational growth investments both in the Bob Evans Restaurants and BEF Foods business segments and further delivering on our earnings growth through the expected achievement of our five-year 300 to 350 basis point margin expansion goal through fiscal 2018.  Correspondingly, we anticipate that further success on these initiatives will continue to foster returns to our shareholders through earnings growth, share repurchase and dividend programs."

Third-quarter fiscal 2014 consolidated results
Operating profit in the third quarter of fiscal 2014 was reduced by approximately $10.9 million, or approximately $0.35 per diluted share, compared to the prior year period, due to sustained and severe winter weather, higher than projected sow costs, and other short-term cost impacts as detailed below.

Item affecting Bob Evans restaurants:

• Approximately $5.6 million related to unfavorable weather, including: the profit flow-through effect of $7.2 million of lost sales, equating to $3.6 million of profitability associated with the lost sales; $0.5 million in unfavorable labor expenses; $0.3 million of unfavorable food costs; and $1.2 million in unfavorable other operating expenses which includes snow removal, utilities, facility repair and other maintenance related items.

Items affecting BEF Foods:

• $4.5 million in the cost of sales line due to increased sow costs in the BEF Foods segment compared to last year's third quarter, mostly offset by a $3.2 million reduction of trade spending and $0.7 million of increased pricing.During the third quarter of fiscal 2014, sow costs averaged $72.36 per hundredweight compared to $58.72 per hundredweight for the comparable period last year.
• $2.5 million resulting from a supplier dispute related to BEF Foods' refrigerated side dish business, primarily resulting from the margin impact of lost sales related to the supplier dispute.The Company's former primary side dish supplier, who is also a competitor, unexpectedly stopped providing the Company with product in advance of the holiday season, causing lost sales through December as product supply was terminated.The Company no longer sources product from the supplier.
• $2.1 million in startup costs and lower production efficiency at the newly expanded Sulphur Springs facility compared to last year and $1.7 million higher than contemplated in the Company's January 21, 2014, updated guidance.The Company expects startup issues to moderate during the fourth quarter and to be fully operating at planned efficiencies during fiscal 2015.

Items affecting both Bob Evans Restaurants and BEF Foods:

• $1.7 million in the SG&A line related to additional professional services, primarily costs related to activist shareholder responses and strengthening the Company's internal processes and controls over financial reporting.
• $1.6 million of bonus accrual favorability as performance did not meet payout requirements.

The Company uses non-GAAP financial measures to monitor and evaluate the ongoing performance of the Company.  The Company believes that the additional measures are useful to investors for financial analysis as 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.  Please see the table in this release for a reconciliation of non-GAAP measures to GAAP results.  Results in the following discussion are presented on a non-GAAP basis excluding the items noted above.

Third-quarter fiscal 2014 Bob Evans Restaurants segment summary

Operating income – Bob Evans Restaurants' non-GAAP operating income was $8.7 million, compared to non-GAAP operating income of $19.5 million in the corresponding period last year. The decrease was due to:  an approximately $3.6 million profit impact of lost sales resulting from sustained and severe winter weather; $4.0 million of incremental depreciation including $2.5 million related to the Farm Fresh Refresh remodeling program; $1.3 million of increased professional expenditures related to activist shareholder responses and strengthening the Company's internal processes and controls over financial reporting and other SG&A related expenses including training, legal costs, and relocation; approximately $0.7 million of operating wage rate variance including $0.5 million related to severe winter weather; $1.9 million of unfavorable cost of sales rate variance primarily impacted by increased pork, bakery, and beef costs including $0.3 million of waste related to severe winter weather; and other operating expenses including $1.2 million of snow removal, utilities, facility repair and other severe winter weather-related items.  The aggregate impact of these items was partially offset by incentive compensation favorability. 

Bob Evans Restaurants' net sales were $240.5 million, down 2.0 percent compared to net sales of $245.5 million in the corresponding period last year.  Same-store sales declined by 1.8 percent, below the Knapp-Track™ family dining index of -1.0 percent for the same period.  In Florida, where weather did not materially impact sales during the quarter, Bob Evans Restaurants achieved same-store sales of 4.4 percent, significantly better than the Knapp-Track™ family dining index of 0.8 percent in the state. 

Unusually sustained and severe winter weather is estimated to have impacted net sales by $7.2 million and same-store sales by approximately 3 percent.  Excluding the estimated impact of such weather, the Company believes same-store sales would have been positive reflecting the successful Thanksgiving holiday.

	Same-Store Sales (SSS) Restaurants	November	December	January	3Q  FY '14	February
Total System	554	0.4%	-1.7%	-4.7%	-1.8%	-6.7%
Florida	47	2.1%	6.0%	5.7%	4.4%	1.2%
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