Bob Evans Farms, Inc.
Aug 30, 2017

Bob Evans Reports First Quarter FY 2018 Results and Raises Guidance

1 All references to the prior year period refer to results from continuing operations for the first quarter of fiscal 2017

Descriptions of measures excluding special items are provided in non-GAAP financial measures and reconciliations of such non-GAAP measures to the most comparable GAAP measure are provided in the tables at the end of this release

NEW ALBANY, Ohio, Aug. 30, 2017 (GLOBE NEWSWIRE) -- Bob Evans Farms, Inc. (NASDAQ:BOBE) today announced its financial results for the fiscal 2018 first quarter ended Friday, July 28, 2017.  On a GAAP basis, the Company reported net income of $7.0 million, or $0.35 per diluted share, compared with net income from continuing operations of $4.6 million, or $0.23 per diluted share, in the corresponding period last year.  Non-GAAP net income was $7.4 million, or $0.37 per diluted share, compared with non-GAAP net income from continuing operations of $4.6 million, or $0.23 per diluted share, in the corresponding period last year.

First-quarter fiscal 2018 commentary
"We are very pleased with the strong start to the fiscal year, delivering significant volume growth in both refrigerated side dishes and sausage during the first quarter," said President and Chief Executive Officer Mike Townsley. "We continued to grow household penetration of refrigerated sides and increased market share by 250 basis points from the year ago period. With the additional capacity and product capabilities provided through the acquisition of Pineland Farms on May 1, 2017, we are well positioned to continue driving robust growth of our refrigerated sides portfolio. Despite a nearly 15 percent increase in sow costs driven by increased domestic and export demand for pork products that impacted sausage margins, we were able to deliver a 38.3% increase in adjusted EBITDA."

First-quarter fiscal 2018 results
Net sales were $109.3 million, an increase of $23.3 million, or 27.1 percent, compared to $85.9 million in the corresponding period last year. The increase in net sales was partially driven by $8.6 million of sales from the Company's recently acquired Pineland business, as well as $5.2 million of sales to Bob Evans Restaurants (BER), which were eliminated in the prior year. Pounds sold for the first quarter increased 53.3 percent (14.6 percent excluding Pineland and BER), while average net selling price per pound declined 17.1 percent compared to the corresponding period last year (3.1 percent excluding Pineland and BER).  The decline in average net selling price reflects an increased mix of food service sales as a result of both the acquisition of Pineland Farms and the inclusion of sales to Bob Evans Restaurants that were eliminated in the prior year period. From a net sales perspective, an 18.1 percent increase in retail side-dish pounds sold (excluding Pineland), a 13.0 percent increase in sausage pounds sold, and a 327.2 percent increase in food service pounds sold (26.6 percent excluding Pineland and BER), partially offset by an 8.3 percent decrease in frozen product pounds sold and a 37.5 percent decrease in the other category, all compared to the comparable 13 week period in the prior year.

Gross profit increased 17.2 percent to $33.4 million in the first quarter of fiscal 2018 from $28.5 million in the first quarter of fiscal 2017. Gross profit margin decreased 260 basis points to 30.6 percent of net sales from 33.2 percent of net sales in the same period in the prior year. The decrease in gross profit margin was primarily driven by a higher mix of food service sales as a result of the acquisition of Pineland Farms and a 14.8 percent increase in average sow prices and a $1.6 million increase in trade spend as a result of higher volume when compared to the prior year.

Operating income increased to $11.1 million in the first quarter of 2018 from operating income from continuing operations of $8.3 million in the first quarter of fiscal 2017. Non-GAAP operating income was $11.8 million, compared to $8.3 million from continuing operations in the corresponding period last year, an improvement of $3.5 million or 42.5 percent.  The improvement was due primarily to the aforementioned increase in pounds sold and net sales; partially offset by higher production costs, increased freight expense resulting from increased pounds sold and a $0.9 million increase in amortization expense associated with the preliminary value of definite-lived intangible assets acquired as part of the Pineland Farms acquisition.

Adjusted EBITDA increased 38.3 percent to $19.5 million in the first quarter of fiscal 2018 from $14.1 million in the first quarter of fiscal 2017. As a percentage of net sales, the adjusted EBITDA margin increased 140 basis points to 17.8 percent of net sales.

Net interest expense was $0.5 million in the first quarter, a decrease of $1.0 million, compared to $1.5 million in the corresponding period last year.  The decrease in interest costs was the result of lower average borrowings as compared to last year. The Company's GAAP tax rate for the first quarter of fiscal 2018 was 33.6 percent compared to 32.5 percent in the prior year period. The change in tax rates as compared to the corresponding period last year was primarily driven by the yearly variances in the forecasted annual rate related to the domestic production activities deduction.

Net income increased 54.0 percent to $7.0 million or $0.35 per diluted share in the first quarter of fiscal 2018 from net income from continuing operations of $4.6 million or $0.23 per diluted share in the first quarter of fiscal 2017. Non-GAAP net income increased 62.5 percent to $7.4 million or $0.37 per diluted share in the first quarter of fiscal 2018 from net income from continuing operations of $4.6 million or $0.23 per diluted share in the first quarter of fiscal 2017.

Income Statement Reclassifications:  Historically the cost of sales line in this Consolidated Statement of Net Income has primarily represented the cost of materials, and has excluded depreciation expense, which was presented separately.  In the first quarter of fiscal 2018, the Company changed the presentation of its Consolidated Statements of Income.  The changes were made to conform the Consolidated Statements of Net Income to how management views the business subsequent to the divestiture of Bob Evans Restaurants and to better align with presentation that is consistent with the Company's industry peers.  The primary change was to classify all production costs, including plant wages, depreciation and other plant operating costs, as costs of goods sold.  The Company has also changed its income statement presentation to separately present advertising, selling and distribution costs, consistent with how management views the business.  These changes had no impact on reported operating income or net income, and prior period amounts have been reclassified to conform to the current presentation.

First-quarter 2018 balance sheet highlights
The Company's cash balance and outstanding debt at July 28, 2017 were $15.3 million and $92.6 million, respectively, compared to $210.9 million and $2.7 million on April 28, 2017.  The increase in borrowings and decrease in cash balance were primarily the result of the acquisition of Pineland Farms, which was completed on May 1, 2017, and the payment of a $7.50 per share special dividend on June 16, 2017.

Fiscal year 2018 outlook
Chief Administrative and Chief Financial Officer Mark Hood said, "We are raising our fiscal 2018 Non-GAAP diluted earnings per share guidance from a range of $2.06 to $2.24 that we issued last quarter to a range of $2.10 to $2.30 per share.  As well, we are raising our fiscal 2018 guidance ranges for net sales and adjusted EBITDA. We now expect net sales of $474 million to $486 million and adjusted EBITDA of $104 million to $110 million, respectively."

Guidance Metric FY ‘18
Net sales $474 to $486 million
Adjusted EBITDA $104 to $110 million
Non-GAAP diluted earnings per share $2.10-$2.30
Sow cost (per hundredweight) $48 to $52
Capital expenditures $25 to $30 million
Net interest expense $3.7 to $4.2 million
Tax rate 34.5% to 35.5%
Diluted weighted-average share count  approximately 20.3 million shares
Share repurchase authorization $100 million

This outlook is subject to a number of factors beyond the Company's control, including the risk factors discussed in the Company's fiscal 2017 Annual Report on Form 10‑K and its other subsequent filings with the Securities and Exchange Commission.

Investor Conference Call
The Company will host a conference call today, Wednesday, August 30, 2017 to discuss its fiscal 2018 first quarter results at 8:30 a.m. Eastern Time.

The call can be accessed live over the telephone by dialing (855) 468-0551, or for international callers (484) 756-4323, access code 70201194.  A replay will be available shortly after the call and can be accessed by dialing (855) 859-2056, or for international callers (404) 537-3406, access code 70201194.

Interested parties may also listed to a simultaneous webcast available on the Company's website at http://investor.bobevansgrocery.com/events.cfm.  The webcast will be archived in the same location for approximately 90 days following the call.

EBITDA and other non-GAAP Financial Measures
We define EBITDA as earnings before interest, taxes, depreciation and amortization including stock compensation. Management uses EBITDA and the other non-GAAP measures included in this release as key metrics in the evaluation of underlying Company performance and in making financial, operating and planning decisions. The Company believes these measures are useful to investors because they increase transparency, assist investors in understanding the underlying performance of the Company and assist in the analysis of ongoing operating trends. We believe EBITDA is frequently used by analysts, investors and other interested parties in their evaluation of the Company's performance as compared to our competitors, many of which present EBITDA measures when reporting their results.  We believe the non-GAAP measures used in this release provide meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of core business operating results. We believe these non-GAAP measures, when viewed in conjunction with U.S. GAAP results and the accompanying reconciliations, enhance the comparability of results against prior periods and allow for greater transparency of financial results and business outlook. The presentation of EBITDA and other non-GAAP measures included in this release should not be considered as an alternative to net income, determined in accordance with U.S. GAAP, as an indicator of the Company's operating performance, as an indicator of cash flows, or as a measure of liquidity. While EBITDA and our other non-GAAP measures are frequently used as measures of operations, they are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

Reconciliations of the Company's projected adjusted diluted EPS and adjusted EBITDA for fiscal year 2018 and the most directly comparable GAAP financial measures are omitted from this release because the Company is unable to provide such reconciliations without unreasonable effort.  In particular, in light of recent transactions referenced in this and prior releases, management is not able to calculate certain amounts necessary to provide corresponding forecasted financial measures calculated in accordance with GAAP and related reconciliations at this time as the Company cannot reliably forecast the timing and magnitude of certain costs associated with the acquisition of Pineland Farms Potato Company and other restructuring, impairment and acquisition and divestiture related costs that may occur, and the income tax effects of these items.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements in this news release that are not historical facts are forward-looking statements. Forward-looking statements involve various important assumptions, risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events. Additional information about the factors and events that could cause actual results to differ materially from those predicted by the forward looking statements, along with certain other risks, uncertainties and assumptions related to the Company and its business, may be found in our Annual Report on Form 10-K for the fiscal year ended April 29, 2017, and in our other filings with the Securities and Exchange Commission. We note these factors for investors as contemplated by the Private Securities Litigation Reform Act of 1995. Predicting or identifying all such risk factors is impossible. Consequently, investors should not consider any such list to be a complete set of all potential risks and uncertainties.  Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect circumstances or events that occur after the date of the statement to reflect unanticipated events.  All subsequent written and oral forward-looking statements attributable to us or any person acting on behalf of the Company are qualified by the cautionary statements in this section.

About Bob Evans Farms, Inc.
Bob Evans Farms, Inc. is a leading producer and distributor of refrigerated potato, pasta and vegetable-based side dishes, pork sausage, and a variety of refrigerated and frozen convenience food items under the Bob Evans and Owens brand names. For more information about Bob Evans Farms, Inc., visit www.bobevansgrocery.com.

BOBE-E
Source: Bob Evans Farms, Inc.

Bob Evans Farms, Inc. 
Earnings Release Fact Sheet (unaudited) 
First quarter Fiscal 2018, Three months ended July 28, 2017 compared to the corresponding period a year ago:

(in thousands, except per share amounts)    Basic EPS Diluted EPS
 Three Months Ended Three Months Ended Three Months Ended
 July 28,
2017
 July 29,
2016
 July 28,
2017
 July 29,
2016
 July 28,
2017
 July 29,
2016
Operating Income as Reported           
Operating income$11,078  $8,265         
Net interest expense460  1,487         
Income from Continuing Operations Before Taxes10,618  6,778         
Provision for income taxes from continuing operations3,569  2,202         
Net Income from Continuing Operations as Reported7,049  4,576  $0.35  $0.23   $0.35  $0.23 
            
Income before taxes from discontinued operations  5,027         
Provision for income taxes from discontinued operations  441          
Income from Discontinued Operations as reported  4,586  $  $0.23  $  $0.23 
            
Net Income as Reported7,049  9,162  $0.35  $0.46  $0.35   $0.46 
            
Adjustments to Continuing Operations           
Severance/Restructuring(291)          
Integration costs557           
Separation costs434           
Total Adjustments to Continuing Operations700           
            
Adjustments to Discontinued Operations           
Store closure costs  807         
Litigation settlement costs  (278)        
Total Adjustments to Discontinued Operations  529         
            
Non-GAAP Operating Income from Continuing Operations11,778  8,265         
Non-GAAP net interest expense460  1,487         
Non-GAAP income from continuing operations before taxes11,318  6,778         
Adjustments to tax expense from continuing operations315           
Non-GAAP provision for income taxes from continuing operations3,884  2,202         
Non-GAAP Net Income from Continuing Operations7,434  4,576  $0.37  $0.23  $0.37  $0.23 
             
Non-GAAP Income from Discontinued Operations Before Taxes  5,556         
Adjustments to tax expense from discontinued operations  141         
Non-GAAP provision for income taxes from discontinued operations  582         
Non-GAAP Net Income from Discontinued Operations  4,974  $  $0.25  $  $0.25 
            
Non-GAAP Net Income$7,434  $9,550  $0.37  $0.48  $0.37  $0.48 
            
Weighted Average Shares Outstanding    20,162  19,792  20,218  19,964 
                 

First quarter Fiscal 2018, Three months ended July 28, 2017 compared to the corresponding period a year ago:

(in thousands)  
  Three Months Ended
  July 28, 2017 % of
Sales
 July 29, 2016 % of
Sales
Operating Income from Continuing Operations, as reported        
         
Net Sales $109,265    $85,941   
Cost of goods sold 75,851  69.4% 57,420  66.8%
Gross Margin 33,414  30.6% 28,521  33.2%
             
Advertising and marketing costs 3,063  2.8% 3,239  3.8%
Selling costs 4,447  4.1% 3,713  4.3%
Distribution costs 5,364  4.9% 3,949  4.6%
General and administrative costs 8,561  7.9% 9,316  10.9%
Amortization of intangible assets 901  0.8% 39  %
Impairment, restructuring and other exit costs   %   %
Operating Income 11,078  10.1% 8,265  9.6%
           
Non-GAAP Adjustments to Continuing Operations          
           
General and administrative (700)        
Total Adjustments 700         
           
Non-GAAP Operating Income from Continuing Operations          
           
Net Sales $109,265      $85,941    
Cost of sales 75,851  69.4% 57,420  66.8%
Gross Margin 33,414  30.6% 28,521  33.2%
             
Advertising and marketing 3,063  2.8%  3,239  3.8%
Selling costs 4,447  4.1% 3,713  4.3%
Distribution costs 5,364  4.9% 3,949  4.6%
General and administrative 7,861  7.3% 9,316  10.9%
Amortization of intangible assets 901  0.8% 39  %
Impairment, restructuring and other exit costs   %   %
Total non-GAAP operating income $11,778  10.8% $8,265  9.6%
         
Depreciation and amortization from Continuing Operations 7,446    5,136   
Stock compensation expense from Continuing Operations 297    724   
Adjusted EBITDA $19,521    $14,125   
             

Consolidated Statements of Net Income

 Three Months Ended
 July 28, 2017 July 29, 2016
Net Sales$109,265  $85,941 
Cost of goods sold75,851  57,420 
Gross Margin33,414  28,521 
Advertising and marketing costs3,063  3,239 
Selling costs4,447  3,713 
Distribution costs5,364  3,949 
General and administrative costs8,561  9,316 
Amortization of intangible assets901   39 
Impairment, restructuring and other exit costs   
Operating Income11,078   8,265 
Net interest expense460  1,487 
Income from Continuing Operations Before Income Taxes10,618  6,778 
Provision for income taxes3,569  2,202 
Income from Continuing Operations 7,049  4,576 
Income from Discontinued Operations, net of Income Taxes  4,586 
Net Income$7,049  $9,162 
    
Earnings Per Share — Income from Continuing Operations   
Basic$0.35  $0.23 
Diluted $0.35  $0.23 
    
Earnings Per Share — Income from Discontinued Operations   
Basic$  $0.23 
Diluted$  $0.23 
    
Earnings Per Share — Net Income   
Basic$0.35  $0.46 
Diluted$0.35  $0.46 
    
Cash Dividends Paid Per Share$7.84  $0.34 
    
Weighted Average Shares Outstanding   
Basic20,162  19,792 
Dilutive shares56  172 
Diluted20,218  19,964 
      

Consolidated Balance Sheets

 Unaudited
July 28, 2017
 April 28, 2017
Assets
Current Assets   
Cash and equivalents$15,275  $210,886 
Accounts receivable, net34,910  28,071 
Inventories22,170  17,210 
Federal and state income taxes receivable3,297  2,895 
Prepaid expenses and other current assets9,152  6,833 
Current assets held for sale3,334  3,334 
Total Current Assets88,138  269,229 
Property, plant and equipment290,780  244,554 
Less accumulated depreciation128,172  113,814 
Net Property, Plant and Equipment162,608  130,740 
Other Assets   
Deposits and other1,970  2,118 
Rabbi trust assets22,724  22,353 
Goodwill101,299  19,634 
Other intangible assets, net34,629   39 
Deferred income tax assets5,291  5,131 
Total Other Assets165,913  49,275 
Total Assets$416,659  $449,244 
        
Liabilities and Stockholders' Equity
Current Liabilities   
Current portion of long-term debt$425  $428 
Accounts payable20,080  13,424 
Accrued property, plant and equipment purchases684  1,283 
Accrued non-income taxes1,678  3,353 
Accrued wages and related liabilities5,222  16,404 
Self-insurance reserves5,510  7,878 
Current taxes payable32,308  27,954 
Current reserve for uncertain tax provision1,481  1,481 
Other accrued expenses11,916  17,905 
Total Current Liabilities79,304  90,110 
Non-Current Liabilities   
Deferred compensation18,621  17,277 
Reserve for uncertain tax positions1,810  1,795 
Deferred income tax liabilities17,868  50 
Other non-current liabilities29,656  6,097 
Credit facility borrowings and other non-current debt92,168  2,267 
Total Non-Current Liabilities160,123  27,486 
Stockholders' Equity   
Common stock, $.01 par value; authorized 100,000 shares; issued 42,638 shares at July 28, 2017, and April 28, 2017426  426 
Capital in excess of par value258,169  260,619 
Retained earnings780,208  931,315 
Treasury stock, 22,707 shares at July 28, 2017, and 22,842 shares at April 28, 2017, at cost(861,571) (860,712)
Total Stockholders' Equity177,232  331,648 
Total Liabilities and Stockholders' Equity$416,659  $449,244 
        

Consolidated Statements of Cash Flows

 Three Months Ended
 July 28, 2017 July 29, 2016
Operating activities:   
Net income$7,049  $9,162 
    
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization7,446   17,574 
(Gain) Loss on disposal of fixed assets(28) 276 
Gain on rabbi trust assets(372) (281)
Loss on deferred compensation662  279 
Share-based compensation297  1,440 
Accretion on long-term note receivable  (558)
Deferred income taxes  184 
Amortization of deferred financing costs77  406 
Cash provided by (used for) assets and liabilities:   
Accounts receivable(831) (1,130)
Inventories(1,744) (846)
Prepaid expenses and other current assets(1,550) (2,084)
Accounts payable4,432  81 
Federal and state income taxes3,260  (13,520)
Accrued wages and related liabilities(11,611) (10,156)
Self-insurance(2,825) (530)
Accrued non-income taxes(1,675) (1,263)
Deferred revenue  (1,354)
Other assets and liabilities(6,606) (5,584)
Net cash used in operating activities(4,019) (7,904)
Investing activities:   
Acquisition of Pineland Farms Potato Company(115,811)  
Purchase of property, plant and equipment(3,887) (18,985)
Proceeds from sale of property, plant and equipment7  2,109 
Deposits and other85  (206)
Net cash used in investing activities(119,606) (17,082)
Financing activities:   
Cash dividends paid(156,224) (6,724)
Gross proceeds from credit facility borrowings and other long-term debt90,000  97,272 
Gross repayments of credit facility borrowings and other long-term debt(102) (71,784)
Cash paid for taxes on share-based compensation(5,660) (640)
Excess tax benefits from share-based compensation  (1,632)
Net cash (used in) provided by financing activities(71,986) 16,492 
Net cash used in operations(195,611) (8,494)
Cash and equivalents at the beginning of the period210,886  12,896 
Cash and equivalents at the end of the period$15,275  $4,402 
        


BEF Foods total pounds sold, by category            
Fiscal 2018          
Category Q1  Q2 Q3 Q4 YTD
Sides 43.5%         43.5% 
Sausage 17.1%        17.1% 
Food Service 35.3%        35.3%  
Frozen 2.6%        2.6% 
Other 1.5%        1.5% 
           
Fiscal 2017          
Category Q1 Q2 Q3 Q4 FY 2017
Sides 51.4%  52.5%  52.5%  54.0%  52.6% 
Sausage 21.2%  21.9%  24.9%  22.3%  22.7% 
Food Service - External 11.6%  10.7%  10.1%  11.1%  10.8%  
Food Service - Sales to discontinued operations 8.3%  9.0%  7.7%   7.7%  8.1% 
Frozen 3.9%  3.4%  2.7%  3.0%  3.2% 
Other 3.6%  2.5%  2.1%  1.9%  2.6% 
                

Income Statement Reclassification - Quarterly Fiscal 2017 and Full Year Fiscal 2016

(in thousands)            
  Three Months Ended Twelve Months Ended
  July 29, 2016 October 28,
2016
 January 27,
2017
 April 28,
2017
 April 28,
2017
 April 29,
2016
Operating Income as Reported            
Net Sales $85,941  $96,158  $112,820  $99,923  $394,842  $387,616 
Cost of sales 57,419  62,881  72,983  64,617  257,900  259,410 
Gross Margin 28,522  33,277  39,837  35,306  136,942  128,206 
             
Operating Expenses:            
Advertising and marketing costs 3,239  3,543  2,626  1,906  11,314  8,990 
Selling costs 3,714  4,099  4,640  3,844   16,297  16,484 
Distribution costs 3,949  4,674  5,115  5,004  18,742  17,523 
General and administrative costs 9,316  9,521  7,910  10,672  37,418  47,400 
Amortization of intangible assets 39  39  39  39  157  157 
Impairment, restructuring and other exit costs   16,169  2,386  4,333  22,888  4,578 
Total operating expenses 20,257   38,045  22,716  25,798  106,816  95,132 
Operating Income $8,265  $(4,768) $17,121  $9,508  $30,126  $33,074 
             
Non-GAAP Adjustments            
Operating expenses:            
Impairment, restructuring and other exit costs   (16,169) (2,386) (4,333) (22,888) (4,578)
Total Adjustments   (16,169) (2,386) (4,333) (22,888) (4,578)
             
Non-GAAP Operating Income             
Net Sales $85,941  $96,158  $112,820  $99,923  $394,842  $387,616 
Cost of sales 57,419  62,881  72,983  64,617  257,900  259,410 
Gross Margin 28,522  33,277  39,837  35,306  136,942  128,206 
             
Operating Expenses:            
Advertising and marketing costs 3,239  3,543  2,626  1,906  11,314  8,990 
Selling costs 3,714  4,099  4,640  3,844   16,297  16,484 
Distribution Costs 3,949  4,674  5,115  5,004  18,742  17,523 
General and administrative costs 9,316  9,521  7,910  10,672  37,418  47,400 
Amortization of intangible assets 39  39  39  39  157  157 
Impairment, restructuring and other exit costs            
Total operating expenses 20,257   21,876  20,330  21,465  83,928  90,554 
Non-GAAP operating income $8,265  $11,401  $19,507  $13,841  $53,014  $37,652 
                         

 

Contact:

Scott Van Winkle

Managing Director, ICR

(617) 956-6736

scott.vanwinkle@icrinc.com

Source: Bob Evans Farms, Inc.

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