BOBE

Bob Evans Farms, Inc. (BOBE)

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Bob Evans Farms (BOBE)

2013 Earnings Call

June 05, 2013 10:00 am ET

Executives

Scott C. Taggart - Vice President, Investor Relations

Paul F. DeSantis - Chief Financial Officer, Principal Accounting officer, Treasurer and Assistant Corporate Secretary

Steven A. Davis - Chairman and Chief Executive Officer

Analysts

Michael W. Gallo - CL King & Associates, Inc., Research Division

Brian J. Bittner - Oppenheimer & Co. Inc., Research Division

Michael Halen - Sidoti & Company, LLC

David Carlson - KeyBanc Capital Markets Inc., Research Division

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Wayne Archambo

Presentation

Operator

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bob Evans Farms 2013 Fourth Quarter Earnings Results Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Scott Taggart, Vice President, Investor Relations. Mr. Taggart, you may begin your conference.

Scott C. Taggart

Thank you, and good morning from Columbus, Ohio. This is Scott Taggart, Vice President of Investor Relations. I'd like to welcome you to Bob Evans Farms Year-End Fiscal 2013 Conference Call. With me this morning are Steve Davis, our Chairman and Chief Executive Officer; Paul DeSantis, our Chief Financial Officer; and Ed Mitchell, our Vice President and Corporate Controller. Our call today begins with a summary of our performance from Paul; and then Steve will go into further detail regarding developments within each of our segments. After that, we will open the call for questions.

Please note 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 our actual results to differ materially from these forward-looking statements. Our recent filings with the Securities and Exchange Commission include a discussion of these risk factors. We caution investors not to place undue reliance on forward-looking statements, which speak only as of the date of this conference call, and we undertake no obligation to update these statements.

Also, we will reference non-GAAP financial measures. We have provided a reconciliation of the non-GAAP information to the most directly comparable GAAP financial measures in our earnings release, posted on the Investor Relations section of our corporate website at bobevans.com and filed with the Securities and Exchange Commission on Form 8-K.

And now here's Paul DeSantis with a review of last year's results and a look ahead at fiscal 2014. Paul?

Paul F. DeSantis

Thanks, Scott. Good morning, everyone. I'm pleased to report that our non-GAAP EPS reached $0.71 for the quarter and both business segments reported net sales growth. Bob Evans Restaurants same-store sales were up 0.5% for the quarter, driven by the Refresh program, value offerings and expanded sales layers. In terms of the Farm Fresh Refresh program, during the quarter, an additional 25 Bob Evans Restaurants moved into the category of restaurants refreshed for more than 1 year. This brings the total to 80 restaurants refreshed for more than 1 year. Overall, net sales of these restaurants is up 1.8% for the quarter compared to a decline of 0.6% at non-refreshed restaurants, demonstrating the sustained result of the refreshed restaurants more than 1 year out. For the quarter, we also saw the net sales increase at restaurants refreshed less than a year by 2.2%.

During the fiscal year 2013, we opened 2 new restaurants and closed 7. 5 of the 7 were closed during the fourth quarter as a result of cluster profitability and return analysis done in anticipation of refreshing other local restaurants. We do not anticipate closing any additional restaurants in relation to the Refresh program. Also on May 28, we opened a new restaurant in New Albany, Indiana and expect open 3 more during fiscal 2014.

For the fourth quarter in a row, BEF Foods chalked up strong sales growth. Overall, volume was up 21% for the quarter. The side dish business grew volume at more than 20% supported by a particularly strong Easter season. The food service business, again, grew volume at more than 40% on the strength of sales to third parties and continued in-sourcing gains at Bob Evans Restaurants. Third-party sales from Kettle Creations accounted for 16 percentage points of the food service volume growth. Net sales grew approximately 26% for the entire BEF Foods business, primarily driven by the volume increase. Overall, the Kettle Creations acquisition accounted for $1.8 million of the net sales increase and 4.2 percentage points of the volume increase.

Capital spending for the year was approximately $125 million, slightly below the low end of our range. The reason for the lower spend was the timing of payments for our key BEF Foods plant expansion. We expect the project and associated spending to be completed on time by the end of the second quarter of fiscal 2014.

For the fourth quarter, both our restaurant and food segments are carrying additional overhead allocations in SG&A as a result of the company providing transition services to Mimi’s Café at less than cost. For the quarter, Bob Evans Restaurants had $700,000 of costs associated with it and BEF Foods had $300,000. I will discuss our response to these costs in a moment.

As a result of our transformational and restructuring activities, including the February 15, 2013 sale of Mimi’s Café; the acquisition of Kettle Creations; the consolidation of ready-to-eat production at Sulphur Springs, Texas; the conversion of the restaurant operating company to limited liability company; the sale of the corporate campus and other facilities; the early payment of the company's private placement notes and other restructuring activities, there are a number of large and complex items that are recorded in our financial statement. The goal of our GAAP to non-GAAP adjustment is to highlight the performance of our businesses by adjusting out the items not associated with ongoing activity and applying a reasonable tax rate. We've detailed the GAAP to non-GAAP reconciliations in the press release and encourage you to read it and the accompanying table.

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