Bob Evans Farms
) reported its fiscal 2014 fourth quarter results on July 8. In the
Q4 press release, the company blamed the following factors for
negatively impacting its results:
- Severe winter weather
- An "activist" investor
- Supplier disruption issues
- Higher than expected plant startup "inefficiencies", and
- Historically high sow costs.
Management also provided fiscal 2015 guidance well below consensus,
prompting analysts to revise their estimates significantly lower
for both 2015 and 2016. This sent the stock to a Zacks Rank #5
Bob Evans Farms owns and operates 561 restaurants in 19 states,
primarily in the Midwest, mid-Atlantic and Southeast regions of the
United States. It also produces and distributes refrigerated and
frozen side dishes, convenience food items and pork sausage under
the 'Bob Evans' and 'Owens' brands.
Fourth Quarter Results
Bob Evans delivered results for its fiscal 2014 fourth quarter on
July 8. Adjusted earnings per share came in at 61 cents, which
actually beat the Zacks Consensus Estimate of 42 cents. However, it
was a "messy" quarter will several adjustments to GAAP earnings.
Net sales from continuing operations fell -2% to $326 million,
which was below the consensus of $333 million. This was driven by a
-4.1% decline in same-store sales. The company estimated that
"adverse severe winter weather"
had an impact of approximately -3.4% on same-store sales. You can
see that the declines did, in fact, moderate as the quarter rolled
- February: -6.7%
- March: -3.6%
- April: -2.7%
Meanwhile, adjusted gross profit declined from 67.3% to 65.8% of
It wasn't just sales that were negatively impacted by weather
though, according to the company. Management stated that
"[s]evere winter weather adversely impacted... cost of sales,
operating wages and other operating expenses
including utilities and snow removal
All-in-all, the company estimated the weather negatively impacted
EPS by approximately $0.21.
But that wasn't all. The company also cited
"[c]osts associated with responses to an activist
(i.e., Thomas Sandell)
; supplemental tax and internal audit staff resources;
strengthening the Company's internal processes and controls over
financial reporting; and recruiting and relocation costs, net of
short-term offsets, adversely impacted results, reducing 4Q 2014
diluted GAAP and non-GAAP EPS by approximately $0.04."
The company also cited supplier disruption issues, higher than
expected plant startup "inefficiencies", and historically high sow
costs as having a negative affect on earnings in the quarter.
Although the company blamed a lot of its issues in fiscal 2014 on
weather and other one-time items, management still
lowered its earnings guidance for fiscal 2015. The company now
expects to earn between $1.90-$2.20 per share, down from previous
guidance of $2.80-$3.00. It also expects full year same-store sales
growth of 1.5%-2.5%.
This prompted significant negative estimate revisions from
analysts, which sent the stock to a Zacks Rank #5 (Strong Sell).
The 2015 Zacks Consensus Estimate is now $1.92, down from $2.52
before the Q4 report. The 2016 consensus is currently $2.40, down
from $3.00 over the same period.
You can see the dramatic drop in consensus estimates in the
company's "Price & Consensus" chart:
Shares of Bob Evans are down more than 6% since the Q4 report, but
the stock does not look like a value at these levels. It trades at
23x 12-month forward earnings, well above its 10-year median of
14x. And its price to book ratio of 3.0 is double its historical
median of 1.5.
The Bottom Line
It appears that Bob Evans has bigger problems than simply the
weather and an "activist" investor. Investors should consider
staying away from this stock at least until its earnings momentum
Todd Bunton, CFA is the Growth & Income Stock Strategist
and Editor of the
Income Plus Investor service
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
BOB EVANS FARMS (BOBE): Free Stock Analysis
To read this article on Zacks.com click here.