BOBE

Bob Evans Farms, Inc. (BOBE)

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Industry: Consumer Services
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Bob Evans Farms, Inc. (BOBE)

Q4 2014 Earnings Conference Call

July 09, 2014 10:00 AM ET

Executives

Scott Taggart - VP of IR

Mark Hood - CFO

Steve Davis - Chairman and CEO

Analysts

Brian Bittner - Oppenheimer

Chris O'Cull - KeyBanc

Steve Anderson - Miller Tabak

Michael Lemke - Imperial Capital

Steve Loukas - Frontfour Capital

Michael Rome - Seaview Capital

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Bob Evans Farms 2014 Fourth Quarter Conference Call. At this time all participants are in a listen-only model. Later we will conduct a question-and-answer session and instructions will be given at that time. Please note today’s conference is being recorded. I will now hand the conference over to Mr. Scott Taggart, Vice President, Investor Relations. Sir, please go ahead.

Scott Taggart

Thank you and good morning from New Albany, Ohio. This is Scott Taggart, Vice President of Investor Relations. I would like to welcome you to Bob Evans Farms' fourth quarter fiscal 2014 conference call. With me this morning are Steve Davis, our Chairman and Chief Executive Officer and Mark Hood, our Chief Financial Officer. Our call today begins with summary of our performance from Mark, and then Steve will discuss 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 Mark Hood with the review of last year’s results and a look ahead at fiscal 2015. Mark?

Mark Hood

Thanks, Scott and good morning everyone. I am excited to take on my new responsibility at Bob Evans Farms as Company transitions from an investment phase to executing on growth initiatives with a strong brand and revitalized asset base in both segments. Our Company has the tools in place to drive stockholder value. We reported fourth quarter fiscal 2014 non-GAAP earnings per share from continue operations of $0.48 per diluted share. Compared to our last year, our results were down by $0.21 per diluted share. There were three large items that drove the decrease, the effects of which we do not except to continue into fiscal 2015.

First, our core Midwest markets experienced severe winter weather that continued into February and March. Winter weather especially impacted high volume weekends as the storm swept from west to east across our footprint. We estimate this impacted results by approximately 7.6 million and had a same-store sales impact of approximately 340 basis points. Recall, not only our sales and related profitability lost, we also experienced additional labor inefficiencies, food waste, cost for snow removal and due to the extreme cold, the additional cost for maintenance issues relating to prolonged freezing temperatures.

Second, also contributing to the shortfall was a slower than expected start-up at our expanded Sulphur Springs facility. Following plant closures at Springfield and Bidwell, Ohio, we consolidated all production volume to our newly expanded Sulphur Springs facility where we configured production processes to support the consolidated volume. The start-up complexity was higher than anticipated, resulting in higher waste and labor costs amounting to 2.8 million.

Third, higher sausage material cost including 6.6 million of sow and trim costs, lowered results, although we increased net pricing by approximately 3.5 million by reducing trade spending by 1.6 million and increasing prices by 1.9 million, the net impact was still 3.1 million.

A fourth quarter item which will have 2015 carryover is higher legal and professional spending which increased by 3 million with 1.7 million related to cost associated with responses to an activist stockholder and 1.3 million for supplemental staff resources and strengthening the Company’s internal processes and controls over financial reporting. These costs were offset by 3.1 million of bonus and other performance related favorability as the Company results did not meet its performance based incentive targets.

Compared to our third quarter guidance, weather impacted EPS by $0.21. Higher sausage material cost net of pricing had a $0.09 impact. Higher than expected start-up inefficiencies at Sulphur Springs had an $0.08 impact and higher legal and professional spending had an $0.08 impact. Combined, these items decreased diluted EPS by approximately $0.46. This decrease was partially offset by performance based compensation savings of $0.09 and tax favorability of $0.28 per share.

I want to address the delay in releasing fourth quarter fiscal 2014 results. Delaying in earnings in an SEC filing is an action that was not taken wisely. However given the additional review and assessment tasks resulting from ongoing remediation of material weaknesses and the Company’s internal controls related to deferred income tax and fixed asset accounting, it was the right action to take to ensure the integrity of our financial reporting.

Beyond the inherent value of improved internal processes and controls our investments related to supplementing staff resources and strengthening the Company’s internal processes and controls over financial reporting yielded quantifiable benefits as we realized 5.7 million of tax benefits, 3 million of which is included in discontinued operations during the fourth quarter. And we expect to generate annual tax benefits beginning in fiscal 2015 of approximately 1.6 million related to a refined calculation of section 199 deductions for domestic production activities resulting from BEF Foods’ product sales. We also expect these investments to result in greater focus on execution of tax and business planning strategies in fiscal 2015 and beyond.

We ended fiscal year 2014 with non-GAAP diluted EPS from continuing our operations of $1.68 per share. Our fiscal 2014 capital expenditures totaled 191 million as we completed key transformation of projects at both Bob Evans Restaurants and BEF Foods. Depreciation of 79.5 million an increase of approximately 10 million compared to the prior year was in line with our expectations.

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