Is a breakup in store for Bob Evans?

by Monica Watrous
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Bob Evans restaurant
Bob Evans' board is evaluating strategic options for the business.

NEW ALBANY, OHIO — Bob Evans Farms, Inc. on Dec. 6 said its board of directors is working with J.P. Morgan to review and evaluate strategic opportunities for the business. The news, which came in tandem with an encouraging quarterly performance, drew approval from an investor that has been agitating for a spin-off of the company’s packaged foods unit.

Saed Mohseni, Bob Evans
Saed Mohseni, president and c.e.o. of Bob Evans

Saed Mohseni, president and chief executive officer of Bob Evans Farms, during an earnings call with the investment community on Dec. 6 said, “Whether continuing to operate as one brand shared by two businesses or under another structure, Bob Evans Restaurant and Bob Evans Food have made tremendous progress during the past year due to the tireless effort of our 30,000 team members. These businesses are positioned to thrive, regardless of our corporate structure.”

In the second quarter ended Oct. 28, Bob Evans Farms net income was $218,000, equal to 1c per share on the common stock, down from $6,431,000, or 29c per share, in the prior-year period. Results included costs related to the impairment of the note receivable from the 2013 sale of Mimi’s Cafe and costs associated with strategic initiatives. After adjusting for the note impairment, net income in the second quarter was $11,184,000, or 56c per share, which compared with $9,199,000, or 41c per share, in the year-ago quarter.

Net sales, meanwhile, eased to $315,963,000 from year-ago sales of $325,021,000, reflecting continued strong gains in the packaged foods business and improving trends in the restaurant business.

Bob Evans restaurant interior
In the quarter, Bob Evans Restaurants had sales of $219,805,000.

In the quarter, Bob Evans Restaurants had operating income of $13,461,000, slightly up from $13,323,000, with sales of $219,805,000, down from $230,741,000. Same-store sales declined 1.8%, marking an improvement over the first quarter.

“With sequential improvement in guest traffic trends throughout the second quarter and average guest check of $9.72 compared to $9.55 last year, we are pleased to see that guests are responding favorably to our new menu, clear value messaging, and increased customization and upgrade options,” Mr. Mohseni said. “Guest feedbacks continue to improve and suggest that our effort to improve the guest experience are on track. During the second quarter, positive guest comments increased 37%, while negative comments declined 32% compared to last year.”

The Bob Evans Food segment had operating income of $18,679,000, up from $13,997,000, with sales of $96,158,000, up from $94,280,000.

Bob Evans retail sausage
Bob Evans Food retail sausage experienced nearly 8% sales gains.

“Taking closer look at Bob Evans Foods, we once again achieved double-digit side dish pounds sold gains this quarter, as the category grew approximately 14%, along with nearly 8% gain in retail sausage,” Mr. Mohseni said. “We continue investing in the strategy marketing initiatives to drive sales of our high growth refrigerator side dish product line, particularly outside of our core Midwest market.

“During the last 12 months, Bob Evans Food household penetration increased 2 points, equivalent to nearly 5 million additional households and 24% increase compared to last year. As Bob Evans Foods production capabilities have expanded, and as we continue to grow our side dish sales, our marketing strategy has evolved to be more customer acquisition focused approach.”

Back in August, Sandell Asset Management, an investor in Bob Evans Farms with beneficial ownership of approximately 8.1% of the company’s shares, renewed its call, initially made in 2013, for the company to be split up. The investor said it did not believe the company’s stock price reflected the value associated with Bob Evans’ packaged foods business, BEF Foods, a manufacturer of side dishes and sausage products.

Bob Evans retail side dishes
Bob Evans’ packaged foods business, BEF Foods, manufactures side dishes and sausage products.

In response to the Dec. 5 earnings release, Sandell said in a statement it was encouraged to learn Bob Evans’ board is working with J.P. Morgan to explore strategic options, including a potential breakup of the business.

“Until this point, the company had not disclosed matters as basic as the identity of its financial advisers, leading to a great deal of skepticism on the part of many members of the investment community as to the company’s commitment to enhance shareholder value,” Sandell said. “With this greater transparency, it is our belief that Bob Evans may now be able to reach a broader universe of potential partners as it continues to evaluate options to create shareholder value. As a result, Sandell does not at this time intend to pursue a consent solicitation seeking shareholder approval of a precatory proposal advocating increased transparency.

“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 advisers, who may now serve as a point of contact for these many potential partners. 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 adviser.”
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