Bob Evans Restaurants’ same-store sales increased 3.8% in the quarter, but labor and food costs weighed on the segment's operating income.

NEW ALBANY, OHIO — Bob Evans Farms does not currently have plans to spin off its food processing business. Management reviewed the strategy, but determined the effort would not enhance shareholder value, said Mary Kay Haben, non-executive chairman of the board.

The announcement comes less than three months after a management shake-up that ended with Steve Davis, then the chief executive officer of the company, stepping down. Mr. Davis had been engaged in a proxy battle with Sandell Asset Management, a shareholder of the company, over its strategic direction. The leadership change came shortly after Sandell managed to have four board nominees proposed by the investor elected to Bob Evans Farms’ 12-member board of directors. The proxy battle began in September 2013 when Thomas E. Sandell, c.e.o. of the investment firm, recommended several options he believed would enhance shareholder value and that Mr. Davis resisted.

Other strategic initiatives under consideration by Bob Evans Farms include real estate transactions related to its restaurant business or other changes to the company’s capital structure, and cost savings initiatives. Ms. Haben said a review of Bob Evans’ business showed approximately $35 million in potential annual cost savings.

“Last December, the board of directors concluded that the company would benefit from new leadership and enhanced execution,” Ms. Haben said. “In the wake of that leadership change, the board and management are working together with a high sense of urgency to implement actions to enhance performance and create shareholder value.”

During the company’s third quarter, ended Jan. 23, Bob Evans Farms’ net income was $5,920,000, equal to 25c per share on the common stock, and a decline compared with the same period of the previous year when the company recorded net income of $6,181,000 equal to 24c per share.

Sales for the quarter rose slightly to $357,177,000, which compared with $340,132,000 during the same period of the previous year.

“Our third-quarter results reflect improved net sales in both our Bob Evans Restaurants and BEF Foods business segments,” said Mark Hood, chief financial officer. “The improvement in sales combined with lower sow costs and improved plant efficiencies at BEF Foods led to solid profit growth at BEF Foods in the third quarter. While Bob Evans Restaurants’ same-store sales increased 3.8% in the quarter, higher discounting, food, and labor costs resulted in a decline in the segment’s operating income, demonstrating the challenges we face in turning around performance.”

The company's BEF Foods segment posted a strong quarter with volume up 5.5%.

The food business’ third-quarter results may be one reason the company has decided to actively shop the business unit.

“We had a strong quarter at BEF Foods with overall volume up 5.5%,” said Mike Townsley, president of the business. “Our side dish business, which had been negatively impacted by a supplier dispute last year, grew 21.9% in the quarter. Our sausage volume declined 6.4% as sow costs remained relatively high early in the quarter and we maintained tight discipline over our trade spending.

“From a cost perspective, we continued to improve plant operations during the quarter as our plant network is now operating at higher efficiency levels than the prior year period. However, we have identified and continue to execute upon opportunities to further improve operations. With a newly optimized plant network, significantly lower input costs, and a sales force empowered to strategically employ trade spending to drive sales, we believe BEF Foods will quickly improve its margin structure and deliver a solid return on the significant recent investments in our business.”

Despite the improved performance of the food business, Mr. Hood announced Bob Evans Farms was lowering its earnings guidance for the year from a range of $1.90 to $2.10 to $1.40 to $1.60.

“Lowering guidance is necessary as a result of the underperformance of our restaurant business in the third quarter as well as the expectation that the initiatives being implemented beginning in the fourth quarter will take some time to be fully reflected in improved operating results,” he said.