Food business hinders Bob Evans earnings

by Keith Nunes
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COLUMBUS, OHIO — Bob Evans Farms, Inc., the restaurant enterprise and food manufacturer, recorded net income of $12,549,000, equal to 41c per share on the common stock, during the first quarter of fiscal 2011, ended July 30. The earnings compared unfavorably to the same period during the previous year when the company earned $16,115,000, or 52c per share.

Sales for the quarter were $343,085,000, a slight decline compared with the first quarter of fiscal 2010 when sales for the quarter were $359,815,000.

“As expected, our first quarter was very challenging,” said Steve Davis, chairman and chief executive officer. “However, cost-savings initiatives helped offset record-high sow costs and negative leverage from lower sales.

“We anticipate significant improvement in the second half of the year. Our food products segment plan calls for sales gains resulting from pricing increases implemented early in the second quarter and cost savings related to manufacturing productivity initiatives. We also expect gradual sequential top-line improvement in the restaurant segment during the second, third and fourth quarters due partly to menu innovation. Accordingly, we are reaffirming our guidance for fiscal 2011.”

The company’s Restaurant business, which consists of the Bob Evans Farms and Mimi’s Cafe brands, had an operating income of $21.4 million during the quarter, a slight increase compared with the first quarter of fiscal 2010 when operating income was $20.4 million.

“In an effort to drive sales, Bob Evans Restaurants shifted a portion of first-quarter advertising dollars from core markets to regions that have been losing share,” Mr. Davis said. "However, this strategy did not improve sales trends. As such, we will now allocate funds based on market contribution, instead of spending disproportionate amounts in underperforming markets. This is more consistent with our historical approach.”

Sales for the Restaurant segment totaled $343.1 million, down 6% from the same period in 2010 when sales were $359.8 million.

Operating income within the Food Products business was $29,000 in the first quarter of fiscal 2011, a significant decline compared with the first quarter of fiscal 2010 when operating income was $4.8 million. Sales within the business unit were $69.5 million in 2011 compared with $69.7 million in 2010.

On Aug. 9, the company closed its Galva, Ill., facility due to overcapacity in its fresh sausage manufacturing plants. The company plans to redistribute production from Galva to its remaining four fresh sausage processing plants in Hillsdale, Mich.; Bidwell, Ohio; Xenia, Ohio; and Richardson, Texas. Galva accounted for 20% of Bob Evans’ total fresh sausage processing capacity.

“We cannot achieve our traditional food products segment operating margins, given our current fixed cost structure and with sow costs at record highs,” Mr. Davis said. “And with diminishing supply in the sow market, we are unable to run our fresh sausage processing facilities at optimal production levels. Accordingly, we must identify and implement cost-savings from manufacturing productivity initiatives to remain competitive in the fresh sausage market.”

Bob Evans said it will record a charge of approximately $2 million in its second quarter, resulting from severance and other costs related to the closing of the Galva facility.
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