NEW YORK – Sandell Asset Management Corp. said it will not pursue a consent solicitation from shareholders of Bob Evans Farms Inc. that would have proposed the board of directors publicly commit to the separation of BEF Foods and Bob Evans Restaurants. Sandell made the announcement after Bob Evans retained JP Morgan as financial advisors tasked to evaluate all options for creating shareholder value, including a split of BEF Foods and Bob Evans Restaurants.
“Given what we believe are the many potential financial and strategic partners that could participate in a host of alternatives to create shareholder value, we are pleased that the Company has chosen to formally disclose its financial advisors, who may now serve as a point of contact for these many potential partners,” Sandell said in a statement. “As we have previously indicated, we would be open to many alternatives that would maximize shareholder value, even if the ultimate alternative did not involve a separation and delivered value different from those that we have estimated, as long as it was the result of a robust and transparent process aided by a reputable financial advisor.”
Saed Mohseni, president and CEO of Bob Evans, said that while the board continues to evaluate all options to create shareholder value, there were no guarantees about the outcome of JP Morgan’s review.
“There is no formal timeline for the completion of the review and there can be no certainty that the review will result in a particular outcome,” Mohseni said in a statement.
The development came as Bob Evans released its second quarter earnings results. On a GAAP, for the quarter ended Oct. 28, 2016, the company reported net income of $0.2 million, or $0.01 per diluted share, compared with net income of $6.4 million, or $0.29 per diluted share, in the second quarter of 2015. After adjusting for the note impairment, non-GAAP net income was $11.2 million, or $0.56 per diluted share, compared with net income of $9.2 million, or $0.41 per diluted share, in the year-ago quarter.
On a segment basis, Bob Evans Restaurants reported net sales of $219.8 million, down 4.7 percent compared to net sales of $230.7 million in the year-period. Same-store sales declined 1.8 on net restaurant closures during the past year. Bob Evans said no restaurants were closed and no new restaurants opened during the quarter. The company operated 522 restaurants at the end of the quarter.
GAAP operating income for the second quarter was $13.5 million, compared to GAAP operating income of $13.3 million last year. Bob Evans Restaurants’ non-GAAP operating income was $13.5 million, compared to $13.6 million last year. The company attributed the decline in non-GAAP operating income to lower sales and higher hourly wage rates, along with investment in labor hours to support efforts to improve customer service. The result was partially offset by lower commodity costs, reduced discounting and lower healthcare costs.
Mohseni credited the segment’s performance to improved same-store sales trends and positive guest feedback.
“We are encouraged that six states in the chain achieved positive same-store sales during the second quarter, compared to one state in the prior quarter,” he said. “Furthermore, the number of individual restaurants generating positive quarterly same-store sales increased 65 percent from the first quarter. Our new menu, launched Sept. 1, continues to perform as expected. Although our value offerings have received more prominence in the new menu design, our average check has increased slightly as guests have taken advantage of the flexibility of the new menu to build a dining experience that best meets their appetite and budget.”
Net sales at BEF Foods climbed 2.0 percent to 96.2 million in the second quarter, compared to $94.3 million a year ago.
GAAP operating income for the quarter was $18.7 million, compared to $14.0 million last year. Prior year GAAP operating income included a $3.6 million charge to reflect the loss on the sale-leaseback of the Sulphur Springs, Texas, manufacturing facility, the company said.
BEF Foods’ non-GAAP operating income was $18.7 million, compared to $17.6 million a year ago. The company attributed the $1.1 million improvement to increased volume, $2.5 million of lower sow costs, favorable sales mix and lower SG&A costs, which partially were offset by $4.1 million of increased trade spending, increased freight expenses and an increase in advertising expenses.
The October 2015 sale-leaseback transaction of two industrial properties also reduced operating income by approximately $0.6 million due to a $1.0 million increase in rent, partially offset by a $0.4 million decline in depreciation compared to the prior year period, according to Bob Evans.
Additionally, pounds sold at BEF Foods increased 6.9 percent while average net selling price per-pound declined 4.6 percent compared to the year-ago quarter. The company said the lower average net selling price reflected an increased sales mix of lower-priced, higher-margin side-dish products relative to sausage, as well as reduced net sausage pricing through increased trade spending.
From a net sales perspective, the company said, a 13.7 percent increase in side-dish pounds sold and a 7.6 percent increase in sausage pounds sold were partially offset by a $4.1 million increase in trade spending, a 17.4 percent decline in frozen product pounds sold and a 5.8 percent decline in food service pounds sold compared to the second quarter last year.
“BEF Foods delivered another excellent quarter with 13.7 percent volume growth of refrigerated side-dish products and 7.6 percent growth of our sausage business,” Mohseni said. “Both product lines achieved market share gains during the quarter. Recent expansion of our side-dish production capacity and continued strategic use of our co-packer network, position us well for meeting peak holiday production demands during the third fiscal quarter.
“We are evaluating additional growth opportunities, including investments in our plant network as well as acquisitions, to further improve manufacturing efficiency and production capacities as we aggressively target new product authorizations at our existing retailers, and new retail account authorizations, particularly on the West Coast and with national big-box chains.”