Sow prices, expansion pressure Bob Evans’ earnings
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NEW ALBANY, Ohio – Bob Evans Farms, Inc. reported an earnings decline for the second quarter ended Oct. 25 on higher-than-expected increases in sow prices and costs associated with company's remodeling and expansion initiatives.
Net income from the quarter was $6.1 million, or 23 cents per share, compared to $11.3 million, or 40 cents per share, in the year ago quarter, according to the company. Income from net sales declined to $332.6 million, including discontinued operations from the sale of Mimi’s Cafe.
The company reported $9 million in increased sow costs in the BEF Foods segment compared to the year ago quarter. Sow costs averaged $77.33 per hundredweight in the second quarter of fiscal 2014, compared to $43.22 per hundredweight for the comparable period in 2013. The company expects sow prices to average $65 to $70 for the remainder of the fiscal year.
"The confidence we have in our ability to successfully execute our growth strategies, and reap the benefits of our recent transformational growth investments in Bob Evans Restaurants and BEF Foods, is reflected in our announcement of an incremental $50 million for share repurchases," said Steve Davis, chairman and CEO. "This increase brings our expected share repurchase activity to $225 million for fiscal 2014, and our forecasted year-end fiscal 2014 leverage ratio to approximately three times adjusted debt to EBITDAR, our previously announced target. We believe a three times leverage ratio is a prudent level of leverage that will allow us to invest in our businesses, return meaningful capital to shareholders, and maintain flexibility for acquisitions.
"Furthermore, our updated fiscal 2014 non-GAAP earnings per share guidance range of $2.60 to $2.65 including the accretive effect of the share repurchase, reflects our confidence the Company's transformational investments will transition from generating net costs during the first half of the fiscal year, to generating net benefits during the second half of fiscal 2014," Davis added. "The new workforce management initiative and accelerated Farm Fresh Refresh remodeling program at Bob Evans Restaurants, and the Lima, Ohio, and Sulphur Springs, Texas, plant expansion projects at BEF Foods, are fundamental to achieving our five-year 300 to 350 basis point operating margin improvement goal in each of our businesses by fiscal year 2018."
Also impacting results was a dispute with a supplier. BEF Foods' primary side dish supplier, who is also a competitor, cut off the BEF Foods' product supply before the holiday season, resulting in lost sales. The company said it no longer expects to be impacted by the supplier-related issues after December 2013 as the Lima, Ohio, facility comes fully online. BEF Foods estimates the year-to-date impact of the dispute cost approximately $1.3 million.
"At BEF Foods, we completed major plant expansion projects at our Lima, Ohio, refrigerated side dish manufacturing facility, as well as at our ready-to-eat production facility located in Sulphur Springs, Texas," Davis said. "We also announced the closure of our Richardson, Texas, fresh sausage production plant, reducing our fresh sausage plant network to two facilities with sufficient capacity to meet our anticipated volume needs. The cumulative effect of the BEF Foods' plant closures, capacity additions, and other efficiency initiatives we have announced during the last two years is expected to add approximately 250 basis points to the segment's operating margin during fiscal 2015.
"Unfortunately, we were also negatively affected by a $0.9 million profit impact due to lost sales, and increased costs associated with a supplier dispute related to BEF Foods' side dish business. Despite the impacts of record high sow costs which negatively impacted the quarter by approximately $9 million on a year-over-year basis, growth and transformational investment-related expenses, and our supplier dispute, we remain committed to driving our growth strategies and achieving our long-term 8 to 12 percent average adjusted annual non-GAAP earnings growth guidance."
The company reported net sales of $92.1 million, up 10.6 percent, compared to net sales of $83.3 million in the comparable year ago period. The company attributed the increase to its product mix. The supplier dispute negatively impacted net sales by approximately $2.4 million, the company reported.
Same-store sales in the Bob Evans Restaurants segment edged 1 percent higher for the second half of fiscal 2014. Improvements from the Farm Fresh Refresh remodels and value offerings drove sales, according to the company.