BOB EVANS FARMS ANNOUNCES FISCAL 2010 YEAR-END RESULTS, ISSUES FISCAL 2011 OUTLOOK

Company announces reported diluted earnings per share of $2.28 and achieves adjusted consolidated operating income guidance for fiscal 2010

Adjusted operating income increases for fifth consecutive year

 

Contacts:

David D. Poplar
Vice President of Investor Relations
(614) 492-4954

 

COLUMBUS, Ohio – June 8, 2010 – Bob Evans Farms, Inc. (NASDAQ: BOBE) today announced financial results for the 2010 fourth fiscal quarter and fiscal year ended Friday, April 30, 2010.

Fiscal 2010 commentary
Chairman and Chief Executive Officer Steve Davis said an ongoing focus on innovation and productivity initiatives in fiscal 2010 enabled the Company to deliver a solid year, despite top-line challenges. “Excluding special items, our fiscal 2010 operating income results were within our guided range,” Davis said. “Productivity initiatives -- particularly in cost of sales, labor and SG&A -- helped offset negative leverage from lower sales and record-high sow costs in our fourth quarter. The food products segment’s profitability for the year exceeded our expectations, due largely to a strong first half and lower full-year sow costs relative to fiscal 2009. Our diluted earnings per share of $2.28 benefited from a lower effective tax rate driven by settlements with taxing authorities and reduced interest expense due to an $80 million debt reduction in fiscal 2010.

“During the last five years, we returned to our shareholders $95 million in dividends and $250 million in share repurchases while reducing total debt by $67 million. We have also increased our adjusted operating income for five consecutive years.”

Fourth-quarter commentary
Davis said the Company’s fourth-quarter results reflect difficult operating conditions in the restaurant segment and higher sow costs in the food products segment. “Adverse February weather exacerbated the sales challenges in our restaurant segment, but our new labor management systems, coupled with effective supply chain management and our actual-versus-theoretical food cost program, helped mitigate the impact from negative same-store sales,” Davis said. “Our food products segment faced record-high sow costs in the quarter, which caused the segment’s profitability to fall below our expectations, but we have completed the transition to a warehouse distribution model, which has a lower cost structure.”

Fiscal 2010 highlights
The Company reported consolidated operating income of $106.4 million in fiscal 2010, compared to $28.4 million in fiscal 2009. The fiscal 2010 results include the negative pretax impact of $4.1 million in net charges. Excluding the negative net impact of these charges, the Company’s fiscal 2010 reported consolidated operating income of $106.4 million would have been approximately $110.5 million, or 6.4 percent of net sales.

The 2009 results include the negative pretax impact of $75.3 million in net charges. Excluding the negative pretax impact of these charges, the Company’s fiscal 2009 reported consolidated operating income of $28.4 million would have been approximately $103.7 million, or 5.9 percent of net sales.

The fiscal 2010 results also include a 53rd week of operations, which contributed an incremental $31.3 million in sales and $6.9 million in operating income.

See “Disclosure regarding non-GAAP financial measures” below for a reconciliation of all non-GAAP measures used in this release.

 

Fiscal 2010 consolidated results
The Company reported consolidated operating income of $106.4 million and net income of $70.3 million in fiscal 2010. The full-year results include the negative impact of:

The full-year results also include the positive impact of:

Excluding this negative total net pretax impact of $4.1 million, the Company’s fiscal
2010 reported operating income of $106.4 million would have been approximately $110.5 million.

The Company reported operating income of $28.4 million and a net loss of $5.1 million in fiscal 2009. These results include the negative impact of:

These pretax charges total $76.3 million.

Partly offsetting the negative impact of these charges in fiscal 2009 was the positive impact of $1.0 million in total pretax gains on the sale of real estate assets, including $0.7 million in the second quarter and $0.3 million in the third quarter. These gains benefited the “SG&A” line of the restaurant segment’s income statement.

Excluding this negative total pretax net impact of $75.3 million, the Company’s fiscal
2009 reported consolidated operating income of $28.4 million would have been approximately $103.7 million.

The Company’s fiscal 2009 tax provision reflects the impact of the $56.2 million goodwill impairment charge, which was not tax deductible. Excluding the goodwill impairment charge, the Company estimates its effective tax rate would have been approximately 29.4 percent.

Fiscal 2010 consolidated income statement summary
Below is a summary of the Company’s consolidated fiscal 2010 income statement, which includes the benefit of a 53rd operating week. This extra week contributed an incremental $31.3 million in sales and $6.9 million in operating income.

The table below contains the fiscal 2010 and fourth-quarter same-store sales results for Bob Evans Restaurants and Mimi’s Café.

SAME-STORE SALES

            
Restaurant Concept

 

SSS Restaurants

 

Feb.

 

March

 

April

 

4Q  FY 2010

 

FY 2010

Bob Evans

560

  -7.3%

 -0.4%

 -4.6%

-4.1%

-3.5%

Mimi’s Café

115

   -7.9%

-5.5%

 -7.9%

-7.1%

-7.2%

COMBINED

675

   -7.4%

 -1.7%

 -5.4%

-4.9%

-4.5%

 

 

The fiscal 2010 results include the impact of the following pretax items:

The fiscal 2009 SG&A expenses include the impact of the following pretax items:

In addition to this year-over-year positive variance, fiscal 2010 benefitted from converting the food products segment to a more efficient warehouse distribution system, which more than offset the negative leverage from declining same-store sales in the restaurant segment.

 

Fiscal 2010 restaurant segment summary
The restaurant segment reported operating income of $85.1 million, or 6.0 percent of net sales, in fiscal 2010, compared to reported operating income of $12.8 million, or 0.9 percent of net sales, in fiscal 2009. The following pretax items affected the restaurant segment’s fiscal 2010 results:

Excluding this negative net pretax impact of $4.5 million, the restaurant segment’s reported fiscal 2010 operating income of $85.1 million would have been $89.6 million, or 6.4 percent of net sales.

The following pretax items affected the restaurant segment’s fiscal 2009 results:

Excluding this negative net pretax impact of $74.9 million, the restaurant segment’s reported fiscal 2009 operating income of $12.8 million would have been $87.7 million, or 6.1 percent of net sales.

Below is a summary of the restaurant segment’s fiscal 2010 income statement, which includes the benefit of a 53rd operating week. This extra week contributed an incremental $25.8 million in sales and $5.7 million in pretax income.

Net sales – The restaurant segment reported net sales of $1.41 billion, a 1.9 percent decrease compared to $1.44 billion in fiscal 2009. Same-store sales at Bob Evans Restaurants were down 3.5 percent in fiscal 2010, with average menu prices up 1.9 percent. At Mimi’s Café, same-store sales decreased 7.2 percent for fiscal 2010, with average menu prices up 2.2 percent. The Company opened two new Mimi’s Café restaurants and closed one Bob Evans restaurant during fiscal 2010.

Cost of sales – The restaurant segment’s cost of sales was 24.2 percent of net sales compared to 25.1 percent of net sales in fiscal 2009. This improvement was primarily the result of lower commodities costs, mix shifts to higher-margin products and lower costs resulting from effective supply chain management.

Operating wages – The restaurant segment’s cost of labor was 39.5 percent of net sales compared to 39.2 percent of net sales in fiscal 2009. The increase was due to deleverage from negative same-store sales, higher health insurance claims and minimum wage increases, partly offset by lower manager bonuses and labor hours.

 

Other operating expenses – The restaurant segment’s other operating expenses were 18.4 percent of net sales in both fiscal 2010 and fiscal 2009, as deleverage from lower same-store sales offset lower utilities and preopening expenses.

SG&A – The restaurant segment’s selling, general and administrative expenses were 6.6 percent of net sales in both fiscal 2010 and fiscal 2009.

The 2010 results include the impact of the following pretax items:

 

The life insurance proceeds partially offset the charges cited above, as well as the negative impact of deleverage from lower sales.

The 2009 results include the impact of the following pretax items:

Fiscal 2010 food products segment summary
Reported operating income for the food products segment was $21.3 million, or 6.7 percent of net sales, in fiscal 2010, compared to $15.6 million, or 5.0 percent of net sales, in fiscal 2009. The fiscal 2010 results include the impact of $1.0 million in pretax cash charges for severance payments and retirement costs, as well as a $1.4 million pretax gain on the sale of an asset. The fiscal 2009 results include the negative impact of the $0.4 million noncash charge for unusable spare parts.

Excluding the net pretax benefit of $0.4 million, the food products segment’s reported fiscal 2010 operating income of $21.3 million would have been approximately $20.9 million. Excluding the negative impact of the $0.4 million noncash charge for unusable spare parts, the food products segment’s reported fiscal 2009 operating income of $15.6 million would have been approximately $16.0 million.

Below is a summary of the food products segment’s fiscal 2010 income statement, which includes the benefit of a 53rd operating week. This extra week contributed an incremental $5.5 million in sales and $1.2 million in operating income.

Net sales – The food products segment’s net sales were $315.7 million in fiscal 2010, up 1.4 percent compared to $311.4 million in fiscal 2009. Pounds sold of comparable products increased 7 percent in fiscal 2010 compared to fiscal 2009, driven by new account gains and new authorizations in existing accounts of sausage products and side dishes. Higher levels of promotional discounts provided to retailers reduced the amount of the net sales increase relative to the increase in comparable pounds sold.

Cost of sales – The food products segment’s cost of sales was 55.4 percent of net sales compared to 56.4 percent of net sales in fiscal 2009. The improvement was due to a 6.7 percent decrease in sow costs, which averaged $42 per hundredweight compared to $45 per hundredweight in fiscal 2009.

Operating wages – The food products segment’s cost of labor was 12.2 percent of net sales compared to 11.1 percent of net sales in fiscal 2009. The increase was due primarily to additional expenses associated with increased production at the Company’s Sulphur Springs, Texas, facility and overtime labor hours incurred to meet shipment demand for key accounts during fiscal 2010.

Other operating expenses – The food products segment’s other operating expenses were 5.3 percent of net sales compared to 4.9 percent of net sales in fiscal 2009. This increase was due primarily to additional expenses associated with the expansion of the Company’s Sulphur Springs, Texas, facility. The reported fiscal 2009 results include the $0.4 million noncash charge for unusable spare parts.

SG&A – The food products segment’s SG&A expenses were 17.4 percent of net sales compared to 20.0 percent of net sales in fiscal 2009. The 2010 results include the negative net impact of $1.0 million in pretax cash charges for severance payments and retirement costs, as well as a $1.4 million gain on the sale of an asset. More than offsetting this negative net impact was the lower cost structure associated with the Company’s warehouse distribution system relative to the previous direct-store-delivery (or DSD) system. The Company expects the warehouse distribution system to result in a lower cost structure going forward.

Fourth-quarter consolidated results
The Company reported consolidated operating income of $28.0 million and net income of $20.8 million in the fourth quarter of fiscal 2010. The fourth-quarter results include:

The fourth-quarter fiscal 2010 results also include the positive impact of a $1.4 million pretax gain on the sale of an asset. This affected the “SG&A” line of the food products segment’s income statement.

Excluding this negative net pretax impact of $4.6 million, the Company’s reported fourth-quarter fiscal 2010 operating income of $28.0 million would have been approximately $32.6 million.

The Company reported operating income of $31.0 million and net income of $21.1 million in the fourth quarter of fiscal 2009.

 

Fourth-quarter consolidated income statement summary
Below is a summary of the Company’s consolidated fourth-quarter 2010 income statement, which includes the benefit of a 53rd operating week. This extra week contributed an incremental $31.3 million in sales and $6.9 million in operating income. 

  • SG&A – Selling, general and administrative expenses were $39.1 million, or 8.8 percent of net sales, in the fourth quarter of fiscal 2010, compared to $36.8 million, or 8.5 percent of net sales, in the fourth quarter of fiscal 2009.

    •  

    The 2010 fourth-quarter results include the impact of the following pretax items:

    The net negative impact of the aforementioned items and negative leverage from declining same-store sales offset the benefit of converting the food products segment to a more efficient warehouse distribution system in fiscal 2010.

     

    Fourth-quarter restaurant segment summary
    The restaurant segment reported operating income of $23.5 million, or 6.5 percent of net sales, in the fourth quarter of fiscal 2010, compared to $26.6 million, or 7.5 percent of net sales, in the fourth quarter of fiscal 2009.

    Affecting the restaurant segment’s fiscal 2010 fourth-quarter results were the following pretax items:

    Excluding this negative net pretax impact of $5.3 million, the restaurant segment’s reported fourth-quarter operating income of $23.5 million would have been approximately $28.9 million.

    The restaurant segment reported operating income of $26.6 million in the fourth quarter of fiscal 2009.

    Below is a summary of the restaurant segment’s fourth-quarter 2010 income statement, which includes the benefit of a 53rd operating week. This extra week contributed an incremental $25.8 million in sales and $5.7 million in pretax income. 

     

    The 2010 fourth-quarter results include the impact of the following pretax items:

    The year-over-year increase as a percentage of net sales reflects the net negative impact of the aforementioned items and negative leverage from declining same-store sales.

     

    Fourth-quarter food products segment summary
    Reported operating income for the food products segment was $4.4 million, or 5.6 percent of net sales, in the fourth quarter of fiscal 2010. The fiscal 2010 results include the impact of $0.7 million in pretax cash charges for severance payments and retirement costs, as well as a $1.4 million pretax gain on the sale of an asset.

    Excluding this net pretax benefit of $0.7 million, the food products segment’s reported fourth-quarter operating income of $4.4 million would have been about $3.7 million.

    The food products segment reported operating income of $4.4 million, or 5.8 percent of net sales, in the fourth quarter of fiscal 2009.

    Below is a summary of the food products segment’s fiscal 2010 income statement, which includes the benefit of a 53rd operating week. This extra week contributed an incremental $5.5 million in sales and $1.2 million in operating income.

    Net sales – The food products segment’s net sales were $79.8 million in the fourth quarter of fiscal 2010, up 4.4 percent compared to $76.5 million in the fourth quarter of fiscal 2009. Pounds sold of comparable products increased 4 percent in fiscal 2010 compared to fiscal 2009, driven by new account gains and new authorizations in existing accounts of sausage products and side dishes. Higher levels of promotional discounts provided to retailers reduced the amount of the net sales increase relative to the increase in comparable pounds sold.

    Cost of sales – The food products segment’s cost of sales was 60.0 percent of net sales in the fourth quarter of fiscal 2010, compared to 56.3 percent of net sales in the fourth quarter of fiscal 2009. The higher cost of sales relative to the fourth quarter of fiscal 2009 was due to a 10 percent increase in sow costs, which averaged $56 per hundredweight compared to $51 per hundredweight in fiscal 2009.

    Operating wages – The food products segment’s cost of labor was 11.4 percent of net sales in the fourth quarter of fiscal 2010 compared to 10.5 percent of net sales in the fourth quarter of fiscal 2009. The increase was due primarily to additional expenses associated with increased production at the Company’s Sulphur Springs, Texas, facility and higher health insurance claims.

    Other operating expenses – The food products segment’s other operating expenses were 4.9 percent of net sales in the fourth quarter of fiscal 2010 compared to 4.2 percent of net sales in the fourth quarter of fiscal 2009. This increase was due primarily to additional expenses associated with the expansion of the Company’s Sulphur Springs, Texas, facility.

    SG&A – The food products segment’s SG&A expenses were 14.9 percent of net sales in the fourth quarter of fiscal 2010 compared to 20.5 percent of net sales in the fourth quarter of fiscal 2009. The year-over-year decrease was primarily the result of the lower cost structure associated with the Company’s warehouse distribution system, as well as the net benefit of a $1.4 million gain on the sale of an asset, partly offset by a $0.7 million pretax cash charge for severance payments and retirement costs.

     

    Fiscal year 2011 outlook
    The Company’s estimate for reported fiscal 2011 operating income is approximately $105 to $110 million. This outlook relies on a number of important assumptions, including same-store sales estimates and the risk factors discussed in the Company’s securities filings.

    The Company expects the following factors to have a significant negative impact on its fiscal 2011 results relative to fiscal 2010:

    Reported fiscal 2010 operating income of $106.4 million includes the negative impact of $4.1 million in special items. Excluding the $6.9 million benefit of the 53rd operating week and the negative impact of $4.1 million in special items, fiscal 2010 reported operating income would have been $103.7 million.

    Particular assumptions for the Company’s full year include the following:

    The net sales estimate includes the Company’s expectation for both restaurant concepts to realize gradual improvement in same-store sales results throughout the year, with flat to slightly positive quarterly comps at both Bob Evans Restaurants and Mimi’s Café by the end of fiscal 2011.

    The Company’s net sales estimate also includes the following assumptions:

    Food products operating margin – The Company expects a food products segment operating margin of approximately 4.5 to 6 percent for the full year, but significantly lower in the first quarter. Specifically, the Company anticipates that its food products operating margin will be approximately breakeven in the first quarter due primarily to substantively higher year-over-year sow costs and costs associated with manufacturing productivity initiatives.

    Beginning in the second quarter, the Company expects to realize substantive improvements in its food products margins from:

    Included in this estimate are average sow costs of approximately $55 to $60 per hundredweight for the full year.

     

    The Company plans to build three new Bob Evans restaurants and no new Mimi’s Café restaurants during fiscal 2011. The Company plans to rebuild two Bob Evans restaurants and no Mimi’s Café restaurants in fiscal 2011. The Company plans to remodel 40 to 50 Bob Evans restaurants and about 10 Mimi’s Café restaurants.

    The Company’s Board of Directors has authorized a $25 million share repurchase program during fiscal 2011.

    Company to host analyst and investor meeting on Wednesday, June 9, 2010
    The Company plans to host a meeting for analysts and investors to discuss its 2010 results and 2011 outlook on Wednesday, June 9, from noon to approximately 5 p.m. (ET). The meeting, which will be available simultaneously as a conference call and webcast, will take place at the Company's headquarters in Columbus, Ohio.

    Those not planning to attend in person may:

    About Bob Evans Farms, Inc.
    Bob Evans Farms, Inc. owns and operates full-service restaurants under the Bob Evans and Mimi’s Café brand names. At the end of the fourth fiscal quarter (April 30, 2010), Bob Evans owned and operated 569 family restaurants in 18 states, primarily in the Midwest, mid-Atlantic and Southeast regions of the United States, while Mimi’s Café owned and operated 146 casual restaurants located in 24 states, primarily in California and other western states. Bob Evans Farms, Inc. is also a leading producer and distributor of pork sausage and a variety of complementary homestyle convenience food items under the Bob Evans and Owens brand names.  For more information about Bob Evans Farms, Inc., visit the company’s Web site at www.bobevans.com .

    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, 2009 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.

    Consolidated Financial Results (unaudited)

    (Thousands, except per share data)














    Three Months Ended

    Twelve Months Ended



    Apr. 30, 2010

    Apr. 24, 2009

    Apr. 30, 2010

    Apr. 24, 2009










    Net Sales








    Restaurant Segment

    $362,855

    $354,527

    $1,411,092

    $1,439,090

    Food Products Segment

    79,799

    76,470

    315,712

    311,422

      Total

    $442,654

    $430,997

    $1,726,804

    $1,750,512




















    Operating Income








    Restaurant Segment

    $23,539

    $26,555

    $85,144

    $12,796

    Food Products Segment

    4,436

    4,444

    21,270

    15,571

      Total

    $27,975

    $30,999

    $106,414

    $28,367




















    Net Interest Expense

    $2,300

    $2,791

    $10,088

    $12,306










    Income Before Income Taxes

    $25,675

    $28,208

    $96,326

    $16,061










    Provisions for Income Taxes

    $4,911

    $7,134

    $25,998

    $21,207










    Net Income

    $20,764

    $21,074

    $70,328

    ($5,146)




















    Earnings Per Share








    Basic

    $  0.68

    $  0.69

    $  2.29

    ($  0.17)

    Diluted

    $  0.68

    $  0.69

    $  2.28

    ($  0.17)




















    Average Shares Outstanding








    Basic

    30,436

    30,704

    30,775

    30,744

    Diluted

    30,566

    30,744

    30,890

    30,744

     

    Disclosure regarding non-GAAP financial measures
    The Company uses adjusted operating income as a measure for comparing its performance to prior periods and competitors, and believes it is useful because it provides investors and other interested parties a means to evaluate the Company’s performance relative to its past performance, without regard to unusual charges and gains. Adjusted operating income is not a recognized GAAP term.

     

    GAAP to Non-GAAP Reconciliation of Operating Income (unaudited)

    (Thousands, except per share data)














    Three Months Ended

    Twelve Months Ended



    Apr. 30, 2010

    Apr. 24, 2009

    Apr. 30, 2010

    Apr. 24, 2009










    Operating income as reported:








    Restaurant

    $23,539

    $26,555

    $85,144

    $12,796

    Food Products

    4,436

    4,444

    21,270

    15,571

      Total

    27,975

    30,999

    106,414

    28,367




















    Adjustments:








    Impairment - Restaurant

    4,677

    0

    6,195

    74,406

    Severance - Restaurant

    646

    0

    789

    801

    Severance - Food Products

    691

    0

    996

    0

    Legal settlement - Restaurant

    0

    0

    0

    675

    Life insurance gains - Restaurant

    0

    0

    (2,487)

    0

    Inventory obsolescence - Food Products

    0

    0

    0

    450

    Gain on asset sale - Food Products

    (1,362)

    0

    (1,362)

    0

    Gain on asset sale - Restaurants

    0

    0

    0

    (1,032)

    Adjusted operating income with FY 2010 on a 53 weeks basis:








    Restaurant

    28,862

    26,555

    89,641

    87,646

    Food Products

    3,765

    4,444

    20,904

    16,021

      Total

    32,627

    30,999

    110,545

    103,667










    Impact of 53rd week on operating income:








    Restaurant

    (5,736)

    0

    (5,736)

    0

    Food Products

    (1,156)

    0

    (1,156)

    0

    Adjusted operating income on a 52 week basis:








    Restaurant

    23,126

    26,555

    83,905

    87,646

    Food Products

    2,609

    4,444

    19,748

    16,021

      Total

    25,735

    30,999

    103,653

    103,667