Bob Evans Farms, Inc. (BOBE)
Second Quarter 2009 Earnings Call
November 12, 2008, 10:00 a.m. ET
Steven A. Davis – Chairman, Chief Executive Officer
Donald J. Radkoski – Chief Financial Officer
Tod P. Spornhauer – Senior Vice President - Finance
Michael Gallo – CL King and Associates
Brad Ludington – Keybanc Capital
Amy Greene – Avondale Partners
Steve Anderson – MKM Partners
Michael Wolleben – Sidoti and Company
Greg Ruedy – Stephens Incorporated
Will Hamilton – SMH Capital
Michael [Tolidano] – DGHD
Previous Statements by BOBE
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Good morning and thank you for joining us today for the Bob Evans second quarter 2009 conference call. This is Dave Poplar and I’m here with Steve Davis, Chairman of the Board and Chief Executive Officer, and Don Radkoski, Chief Financial Officer. Also joining us today is Tod Spornhauer, Senior Vice President of Finance and Controller.
We will start with some prepared remarks and then we’ll open up the call for questions. Let me first remind you that our comments today contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include projections regarding anticipated future results. A number of risks and uncertainties could cause actual results to differ materially from these forward looking statements. Please refer to our recent filings with the Securities and Exchange Commission for a discussion of these risk factors.
We caution investors not to place undue reliance on these forward-looking statements which speak only as of the date of this presentation. We undertake no obligation to update our forward-looking statements to reflect future events or circumstances.
With that I’ll now turn the call over to Steve.
Steven A. Davis
Thanks, Dave, and good morning, everyone. Thank you for joining us as we discuss our second quarter financial results. Let me begin by saying we are very disappointed with our second quarter results. While we have several reasons for our weaker than expected performance we won’t make excuses for it. What we’ll do is tell you as much as we can about the primary factors that caused a decline in our profitability for the second quarter, as well as our outlook and strategies going forward.
I’m going to start with a few highlights and then Tod will provide us with the financial details on the quarter. As you saw in our release yesterday, we have lowered our guidance for fiscal 2009 and Don will provide you with more information about our exceptions underlying our new earnings per share estimates of $1.75 to $1.85. After that I’ll have an update on the progress with our BEST Brand Builders and then we’ll be happy to take your questions.
Our reported diluted earnings per share for the second quarter of fiscal 2009 was $0.37 a share compared to $0.45 in the second quarter of fiscal 2008. This represented a 17.8% decline.
Reported operating income was $20.3 million in the second quarter of fiscal 2009, a 21.9% decrease compared to $26 million in the second quarter of fiscal 2008.
In our restaurant segment Bob Evans saw a string of eight consecutive quarters of positive same-store sales broken with same-store sales down slightly a half a percent in the quarter. At Mimi’s Cafe our average same-store sales were down 8.3% consistent with trends at the end of the first quarter.
While net sales were up 11.6% in our food products segment during our 27th consecutive quarter positive comparable pounds sold our operating income was down a disappointing 85% due to a dramatic increase in sow costs which nearly tripled in a 35-day period early in the second quarter and increased 27% compared to the second quarter last year. Tod will explain these issues in more detail now as he reviews the quarter’s financial highlights. Tod?
Tod P. Spornhauer
Thanks, Steve, and good morning, everyone. I’m going to take a few minutes to walk through the income statement to help explain our second quarter financial performance. Our consolidated net sales for the quarter were $435.5 million, up 2.3% compared to $426.3 million in the second quarter of fiscal 2008. The increase reflects new restaurant openings at Mimi’s Cafe and strong sales in the food products segment.
Consolidated cost of sales was $137.2 million or 31.5% of net sales in the second quarter of 2009 compared to $128 million or 30% of net sales in the second quarter of 2008. The higher cost of sales ratio was the result of a year-over-year increase in sow costs which averaged $51 per hundred weight compared to $40 per hundred weight in the second quarter of 2008. While we had expected sow costs to increase the speed and magnitude of the increase were much greater than we had anticipated. The impact of the sow cost increase was somewhat mitigated by lower cost of sales in our restaurant segment, which benefited from our productivity initiative.
Consolidated operating wages were $150.4 million or 34.5% of net sales in the second quarter of 2009 compared to $149.5 million or 35.1% of net sales in the second quarter of 2008. This improvement is primarily the result of effective restaurant segment labour management that more than offset the negative leverage from same-store sales declines in both of our restaurant concepts.
Other operating expenses were $71.2 million compared to $79 million in the second quarter of fiscal 2008, down six basis points as a percentage of net sales. The improvement is due mostly to positive leverage provided by strong sales in the food products segment. In addition, a $1.2 million reduction in restaurant marketing expense partially offset higher utilities costs in that segment. As you may recall, we recorded a $1.9 million higher restaurant marketing expense in the first quarter this year due to a shift in timing of our media spend. As expected, $1.2 million of that $1.9 million incremental marketing expense reversed in this second quarter.