The call for the company to spin off its food processing business from its restaurant business grows louder with the election of four new board members.

NEW ALBANY, OHIO — A difficult first quarter and the election of four new board members promoted by Sandell Asset Management, an investor pressuring Bob Evans Farms to spin off its food processing business, highlights the challenges faced by the company.

During the first quarter ended July 25, the company incurred a loss of $1,016,000. The results stand in contrast to the first quarter of the previous year when the company earned $8,376,000, equal to 30c per share on the common stock.

Sales were $86,190,000 for the quarter, a slight increase compared with the previous year when sales were $84,898,000.

“ … Both Bob Evans Restaurants and Bob Evans Farms Food remain challenged by macroeconomic factors,” said Steve Davis, chairman and chief executive officer, in a conference call with securities analysts on Aug. 27. “At Bob Evans Restaurants the continued promotional competitive environment along with weak consumer confidence with our core lower-middle and middle income guests in the Midwest remains a challenge. At Bob Evans Farms Foods, sausage input costs, including sows and pork trim, negatively impacted first-quarter results by $6.7 million.”

During the quarter, Bob Evans Restaurants same-store sales declined 2%. Within the food business, sales increased 1.5% compared with the prior year. The company’s sausage business experienced a 19% decline in sausage pounds sold.

The company reaffirmed its earnings per share guidance of $1.90 to $2.20 for the year, but noted second-quarter earnings per share are expected to be lower than the prior year.

“We continue to expect the third and fourth quarters to show significant year-over-year improvements,” said Mark Hood, chief financial officer.

At the same time the company is dealing with difficult market conditions, management must also contend with a battle over the direction of the company that is taking place in its board room. Mr. Davis is committed to keeping the food service and foods businesses together while shareholders led by Sandell Asset Management have proposed spinning off the food business.

On Aug. 26, it was announced that four board nominees proposed by Sandell were elected to Bob Evans’ 12-member board at the company’s annual meeting.

“We appreciate the support, input and feedback that we have received from our stockholders over the past several months,” Mr. Davis said. “We look forward to a smooth integration of our newest directors into the board, as we continue to subject our financial and strategic plans to rigorous review to enhance value for all stockholders.”

Tom Sandell, c.e.o. of Sandell Asset Management, said the election results underscore the call for change among Bob Evans shareholders.

“While we had initially expected an additional one of our nominees to be joining the board and though we reserve our rights to challenge these preliminary results, the fact remains that with seven out of 12 members added since April, this will be a thoroughly refreshed and reconstituted board,” he said. “It is now time for all the directors on the board to work in a cohesive and expeditious manner to unlock the significant value embedded at the company and implement the many operational improvements that are needed at Bob Evans. We look forward to having an ongoing constructive dialogue with the company and fully expect the entire board of directors to embrace the highest standards of corporate governance.”