Bob Evans Reports Fiscal 2016 Second-Quarter Results; Board Approves $100 Million Increase in Current Share Repurchase Authorization

• Q2 2016 net sales total $325.0 million.  GAAP net income of $0.29 per diluted share,   non-GAAP net income⁽¹⁾ of $0.41 per diluted share, representing increases of 16 percent and 14 percent, respectively.  GAAP consolidated operating income increased nearly 27 percent and non-GAAP consolidated operating income increased 19 percent compared to the prior-year period
   
• Company reaffirms fiscal year 2016 non-GAAP diluted EPS guidance range of $1.85 to $2.00 
  
  
• BEF Foods’ Q2 2016 non-GAAP operating income increases 176 percent compared to the prior-year period.  Retail pounds sold increase 12.6 percent.  Refrigerated side dish products comprised more than 50 percent of total pounds sold, an historic high  
  
  
• Bob Evans Restaurants’ Q2 2016 non-GAAP operating income declines 34 percent compared to the prior-year period.  New menu and products being introduced to drive sales and profit growth 
  
  
• Company repurchased $44.4 million (1.0 million shares) during Q2 2016 and $27.0 million (0.6 million shares) during Q3 through November 30, 2015, bringing fiscal 2016 share repurchases to $131.9 million (2.9 million shares) 
  
  
• Board approves $100 million increase in share repurchase authorization to $250 million, from $150 million previously 
  
  
• Board approves a 9.7 percent quarterly dividend increase to $0.34 per share payable on December 14, 2015, to stockholders of record at the close of business on November 30, 2015

NEW ALBANY, Ohio, Dec. 01, 2015 (GLOBE NEWSWIRE) --  Bob Evans Farms, Inc. (NASDAQ:BOBE) today announced its financial results for the fiscal 2016 second quarter ended Friday, October 23, 2015.  On a GAAP basis, the Company reported net income of $6.4 million, or $0.29 per diluted share, compared with net income of $6.0 million, or $0.25 per diluted share, in the corresponding period last year.  On an adjusted basis⁽¹⁾, non-GAAP net income was $9.2 million, or $0.41 per diluted share, compared with net income of $8.6 million, or $0.36 per diluted share, in the corresponding period last year.  

Second quarter fiscal 2016 commentary
Executive Chairman Doug Benham said, “Our teams continue focusing their efforts on improvements in both of our businesses and execution of strategic initiatives.  BEF Foods had another successful quarter with double-digit pounds sold percentage gains in both refrigerated dinner side dishes and sausage and is poised for a strong holiday selling season. 

“At Bob Evans Restaurants, second-quarter same-store sales performance did not meet our expectations. Turnarounds are often choppy, and our second quarter restaurant sales results reflect that.  We continue testing and evaluating promotional and menu strategies to drive sustainable and profitable sales growth.  We are committed to the overall strategy we outlined last quarter:  improving the quality of our food offerings; lowering overall discounting that was historically used to drive transactions; and optimizing our menu design and investments in labor to deliver a better guest experience.  We recently relaunched a more profitable three-course dinner platform system-wide to address weakness at dinner; began rolling out further product enhancements to our breakfast menu, including a new coffee blend and improved hot cakes and omelets; and introduced Broasted^® Chicken Tenders in our restaurant locations where the Broasted Chicken platform has been rolled out (55% of system).  All of these actions are designed to drive increased transactions and sales gains by elevating our food quality and guest experience.

“At the corporate level, we identified an additional $5 million of cost savings opportunities during the second quarter; bringing expected fiscal 2016 savings to nearly $20 million, equating to an annual savings rate of $28 million.  We also completed a $51.6 million sale-leaseback transaction of two BEF Foods manufacturing facilities and are progressing with the previously announced initiatives to monetize our corporate headquarters and up to $200 million of restaurant properties.  During the quarter, we also amended our credit facility to enable the sale-leaseback of the restaurant properties and eliminate the $150 million limit on fiscal 2016 share repurchases.

Benham concluded, “We remain confident in the continued success of BEF Foods and our expectations for a turnaround of Bob Evans Restaurants.  This confidence is reflected not only in our reaffirmation of fiscal 2016 earnings guidance, but by recent board approval of a $100 million increase in the Company’s share repurchase authorization and a 9.7% increase in the quarterly dividend.  We were also pleased to announce two weeks ago that effective January 1, 2016, Saed Mohseni will join Bob Evans Farms to assume the role of president and chief executive officer. Saed brings a strong track record as a restaurant operator with an intense focus on raising the quality of the overall guest experience.  Saed’s passion and more than 30 years of experience in these areas will be critical enablers of Bob Evans Restaurants’ turnaround and continued profitable growth at BEF Foods.  On behalf of Bob Evans’ board, management, and team members, I welcome Saed to Bob Evans.”

Chief Administrative Officer and Chief Financial Officer Mark Hood said, “We posted strong operating results at BEF Foods for the fourth consecutive quarter.  BEF Foods’ non-GAAP operating income increased 176 percent to $17.6 million.  This increase is a result of a 12.6 percent increase in retail pounds sold, with double-digit growth in both our refrigerated side dish and sausage categories, combined with lower sow costs net of trade ($3.4 million) and improved plant operating efficiencies.  We are on track with our key initiatives in fiscal 2016, including ERP implementation in our plants and the expansion of our refrigerated side-dish manufacturing facility.  We look forward to further leveraging the momentum we have created at BEF Foods.

“Bob Evans Restaurants remains in the early innings of its turnaround as we continue to focus on opportunities to drive profitable transaction growth.  Our teams continue to better manage food, labor, and other operating costs.  We believe continued evolution of our discounting practices and value positioning through an improved menu and new product news, along with a shift in marketing spend from broadcast media to local and digital media, will improve sales and profits.”

Second-quarter fiscal 2016 Bob Evans Restaurants segment summary
Bob Evans Restaurants’ net sales were $230.7 million, a decline of $10.4 million, or 4.3 percent, compared to net sales of $241.2 million in the corresponding period last year.  Same-store sales declined 3.2 percent in the quarter, with the balance of the net sales decline due to net restaurant closures.  Bob Evans closed two restaurants during the second quarter, for a total of 20 fiscal 2016 restaurant closures year-to-date.

Bob Evans Restaurants’ GAAP operating income was $13.3 million, compared to $20.6 million in the corresponding period last year.  Bob Evans Restaurants’ non-GAAP operating income was $13.6 million, compared to $20.8 million in the prior year, a decline of $7.1 million.  The decline resulted from approximately $3.6 million of sales deleverage combined with the net impact of a $0.3 million increase in food cost rate, primarily as a result of higher egg prices (an approximate $2 million impact); a $2.7 million increase in labor and benefit cost rate driven primarily by increased average wage rates and health insurance costs, net of direct labor hours savings; a $0.8 million increase in other operating expenses driven by increased repair and maintenance and service contract expenses, net of lower occupancy and utility costs; a $0.5 million decline in S,G&A; a $0.1 million decline in depreciation expense; and $0.3 million of costs related to restaurant impairment. 

Second-quarter fiscal 2016 BEF Foods segment summary
BEF Foods’ net sales were $94.3 million, an increase of $2.2 million, or 2.3 percent, compared to $92.1 million in the corresponding period last year. Overall, total pounds sold increased 5.1 percent compared to the prior-year period.  From a net sales perspective, a 15.1 percent increase in sausage pounds sold and a 14.2 percent increase in side-dish pounds sold were partially offset by a $3.2 million increase in trade spending (reduces net sales), as well as a 26.8 percent decline in foodservice pounds sold.  

BEF Foods’ GAAP operating income was $14.0 million, compared to $6.4 million in the year ago period.  BEF Foods’ non-GAAP operating income was $17.6 million, compared to $6.4 million in the prior year, an improvement of $11.2 million.  The improvement resulted from approximately $6.5 million of favorable sales mix, $3.4 million of net sow cost favorability, and $1.3 million resulting from sales leverage and plant efficiencies partially offset by increased advertising and S,G&A.

Second-quarter fiscal 2016 Corporate and Other summary
Corporate and Other’s GAAP operating costs were $15.9 million, compared to $18.0 million in the year ago period.  Corporate and Other’s non-GAAP operating costs were $15.9 million, compared to $14.2 million in the prior year, an increase of $1.6 million due to $0.7 million of increased S,G&A costs associated primarily with losses related to deferred compensation plan investments and ERP support costs, partially offset by cost savings initiatives; and $0.9 million resulting from increased depreciation and amortization expense related primarily to ERP capital expenditures.

Second-quarter fiscal 2016 net interest expense – The Company’s non-GAAP net interest expense was $2.4 million in the second quarter, a decline of $0.3 million, compared to $2.7 million in the corresponding period last year.  The borrowing rate on the Company’s outstanding debt was 1.95 percent at the end of the second quarter, compared to 2.16 percent at the end of the comparable prior-year period.   

Second-quarter fiscal 2016 taxes – The Company’s provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. The Company recognized GAAP tax expense of 24.8 percent for the second quarter, as compared to 11.3 percent for the prior-year period. The increase in the tax rate was driven primarily by discrete items booked in the second quarter of fiscal year 2015 related to the work opportunity tax credit and officers life insurance proceeds.  This increase impacted second-quarter diluted non-GAAP earnings per share by approximately $0.08. Year-to-date, the Company recognized GAAP tax expense of 24.6 percent, as compared to 4.5 percent for the prior-year, equating to a diluted non-GAAP earnings per share impact of approximately $0.14. The non-GAAP tax rate was approximately 28 percent for the second quarter, reflecting the Company’s annual non-GAAP estimated tax rate.

Second-quarter fiscal 2016 balance sheet highlights – The Company’s cash balance and revolver borrowings at the end of the second quarter of fiscal 2016 were $5.4 million and $471.4 million, respectively, compared to $3.7 million and $465.0 million, respectively, in the prior year.  The Company was in compliance with its debt covenants at the end of the second quarter.  The increase in borrowings was primarily the result of the Company’s $44.4 million share repurchase activity during the second quarter, partially offset by increased net income, lower capital expenditures, and other changes in operating cash flow.  The Company’s leverage ratio as defined in its credit agreement was 3.12 at the end of the quarter, down from 3.22 in the prior quarter, and 3.81 in the prior-year period.

Fiscal year 2016 outlook
Chief Administrative Officer and Chief Financial Officer Mark Hood said, "While we are reaffirming our fiscal 2016 diluted non-GAAP EPS guidance range of $1.85 to $2.00, our underlying assumptions have changed.  BEF Foods’ expected performance has increased, and we have identified additional fiscal 2016 cost savings opportunities.  However, favorability in those areas is offset by lower than expected same-store sales performance at Bob Evans Restaurants as we continue to execute the turnaround in a macroeconomic environment where consumer spending appears to have slowed and competitive promotional activity is becoming more prevalent.

“As noted previously, our guidance includes the estimated impact of monetization of our headquarters building and select industrial properties, but does not include the impact of a potential restaurant real estate transaction.” 

Summary of performance drivers:  fiscal 2016 guidance versus fiscal 2015

This outlook is subject to a number of factors beyond the Company’s control, including the risk factors discussed in the Company’s fiscal 2015 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 to discuss its second-quarter fiscal 2016 results at 10 a.m. (ET) on Wednesday, December 2, 2015.  The dial-in number is (855) 468-0551, access code 77827034.  A replay will be available at (800) 585-8367, access code 77827034.

A simultaneous webcast will be available at http://investors.bobevans.com/events.cfm. The archived webcast will also be available on the Web site.

⁽¹⁾Non-GAAP Financial Measures
The Company uses non-GAAP financial measures to monitor and evaluate the ongoing performance of the Company.  The Company believes the additional measures are useful to investors for financial analysis.  Excluding these items reflects operating results that are more indicative of the Company’s ongoing operating performance and improve comparability to prior periods.  However, non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures.  Reconciliations to the applicable GAAP financial measures are included in the attached schedules. 

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. We discuss these factors and events, along with certain other risks, uncertainties and assumptions, under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 24, 2015, 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.  Any strategic transaction with respect to our headquarters or a portion of our restaurant real estate remains subject to evaluation by the Board and there can be no assurance if and when any such transaction will be undertaken or consummated.  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. owns and operates full-service restaurants under the Bob Evans Restaurants brand name.  At the end of the second fiscal quarter (October 23, 2015), Bob Evans Restaurants owned and operated 547 family restaurants in 18 states, primarily in the Midwest, mid-Atlantic and Southeast regions of the United States. Bob Evans Farms, Inc., through its BEF Foods segment, is also a leading producer and distributor of refrigerated 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.bobevans.com. 

Broasted^® is a registered trademark of The Broaster Company, LLC.

BOBE–E

Bob Evans Farms, Inc. 
Earnings Release Fact Sheet (unaudited) 
Second quarter Fiscal 2016, three months ended October 23, 2015, 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
	October 23, 2015				October 24,  2014				October 23, 2015				October 24, 2014				October 23, 2015				October 24, 2014
Operating Income (Loss) as Reported
Bob Evans Restaurants	$	13,323			$	20,627
BEF Foods	13,997				6,356
Corporate and Other	(15,886		)		(17,971		)
Operating Income	11,434				9,012
Net interest expense	2,883				2,203
Income Before Income Taxes	8,551				6,809
Provision for income taxes	2,120				770
Net Income as reported	6,431				6,039				$	0.29			$	0.26			$	0.29			$	0.25
Adjustments
Bob Evans Restaurants
Severance/Restructuring	318				—
Activism, Strategic Initiatives and Other	—				137
	318				137
BEF Foods
Loss on Sale of Assets	3,606				—
Activism, Strategic Initiatives and Other	—				17
	3,606				17
Corporate and Other
Activism, Strategic Initiatives and Other	—				3,725
	—				3,725
Total adjustments
Severance/Restructuring	318				—
Loss on Sale of Assets	3,606				—
Activism, Strategic Initiatives and Other	—				3,879
	3,924				3,879
Non-GAAP operating income (loss)
Bob Evans Restaurants	13,641				20,764
BEF Foods	17,603				6,373
Corporate and Other	(15,886		)		(14,246		)
Total non-GAAP operating income	15,358				12,891
Adjustments to net interest expense	(480		)		458
Non-GAAP net interest expense	2,403				2,661
Non-GAAP  Income Before Taxes	12,955				10,230
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