Bob Evans reports higher income, lower net sales

by Staff
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COLUMBUS, Ohio – Bob Evans Farm Inc. reported consolidated operating income of $107.9 million in fiscal 2012. Earnings per diluted share the year were $2.45. FY 2011 consolidated operating income was $88.5 while earnings per diluted share were reported at $1.78. Consolidated non-GAAP net sales totaled $1.65 billion in FY 2012, a 1.8 percent decrease, compared to $1.68 billion in FY2011.

The company reported 4Q FY 2012 consolidated operating income of $28.8 million. Earnings per diluted share for fourth quarter fiscal 2012 were reported at $0.76. It reported consolidated operating income of $27.8 million in the fourth quarter of fiscal 2011. 4Q FY2012 consolidated non-GAAP net sales were $406.5 million, a 2.9 percent decrease, compared to $418.7 million in the fourth quarter of fiscal 2011.

Bob Evans’ Foods segment garnered market share gains in sausage and side-dish categories during fiscal 2012; continued plant optimization initiatives and summer product launches are expected to drive profitable growth in side dish and frozen categories.

"We achieved the higher end of our EPS guidance range this year,” said Steve Davis, chairman and chief executive officer. “We are particularly pleased with this performance as it caps three years of repositioning each of our businesses for profitable top-line growth. Importantly, we also continued to reduce debt and return capital to shareholders in the form of dividends and share repurchases, while investing in important growth projects.

Last week, Bob Evans’ Foods segment announced its latest plant optimization initiative concerning expansion of its Sulphur Springs, Texas, plant. “This initiative will enable us to better serve the customers of our high-potential side-dish and frozen-products businesses, while also providing significant annual cost savings,” Davis said. “We believe the initiative will increase annual operating income by approximately $7 to $8 million beginning in fiscal 2015. We expect savings of $4 to $5 million during fiscal 2014, which will be the transition year for the project.

“Our plant optimization initiatives have helped us offset the cumulative impact of more than $70 million in sow cost increases since 2009,” he continued. “We believe these initiatives will allow us to compete effectively, and maintain margins in the future.

Davis said the Foods segment faced the dual challenges of continued sow cost increases and a highly promotional competitive environment this year. As a result, margins were adversely impacted. “Nonetheless, we are focused on transforming the Foods segment to deliver top-line and bottom-line growth, even under challenging market conditions,” Davis said. “The Foods segment is evolving to meet the needs of its customers who are increasingly seeking healthy, convenient products that cater to their time-constrained, on-the-go lifestyles. The Foods segment currently supplies more than 24,000 retail locations, and we believe it has the potential to serve at least 36,000 locations within the next five years. Furthermore, we continue to pursue inorganic growth opportunities to grow the Foods segment profitably.”

The FY 2012 Foods segment’s non-GAAP operating income was $19.7 million, or 6.3 percent of net sales, in fiscal 2012, compared with non-GAAP operating income of $25.8 million, or 8.1 percent of net sales, in fiscal 2011.

The Foods segment's net sales were $314.7 million in fiscal 2012, down 1.6 percent, compared to $320.0 million in fiscal 2011. Total lbs. sold were essentially flat, while an increase in promotional discounts of $4.4 million, primarily in response to competitive pressures to protect market share, contributed to the decline in net sales. Promotional discounts and other selling allowances affect the income statement as a reduction to the gross sales line.

The Foods segment's cost of sales was 57.5 percent of net sales in fiscal 2012, compared to 54.7 percent of net sales in fiscal 2011. The increase was due primarily to higher sow costs relative to the prior year. Sow costs averaged $61.58 per hundredweight in fiscal 2012, compared to $57.17 in fiscal 2011.

In the company’s Foods segment, increased promotional spending, primarily in response to competitive pressures to protect market share, negatively affected results. However, during the fourth quarter Bob Evans received an authorization from its largest customer for shipment of one of the new varieties of our frozen breakfast burritos that was launched in January.

“We believe the effort we have put into rebuilding our frozen foods presence is beginning to pay off,” Davis said. “Along with our high-growth side dish business, we believe our new products pipeline in frozen products is set to facilitate growth in market segments that align well with our customers' focus on value, quality, and convenience."

On May 29, 2012, the company announced its intention to close two Foods' production plants in the second quarter of fiscal year 2014. It anticipates a total annual pretax benefit of approximately $7 million to $8 million.

Bob Evans Farms, Inc. owns and operates full-service restaurants under the Bob Evans and Mimi's Cafe brand names. It is also a leading producer and distributor of pork sausage and a variety of complementary convenience food items under the Bob Evans and Owens brand names.

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