Bob Evans Farms Inc. announced its financial results for the fiscal 2014 second quarter ended Friday, October 25, 2013. The company reported consolidated GAAP operating income from continuing operations of $23.5 million. Operating profit in the second quarter of fiscal 2014 was reduced by approximately $11.0 million, or approximately $0.27 per diluted share, due to a higher than expected year-over-year increase in sow prices and other short-term cost impacts.
Bob Evans Restaurants' net sales were $240.5 million, down 2.4 percent compared to net sales of $246.3 million in the corresponding period last year, of which $1.6 million, or approximately 60 basis points, is related to the closure of six restaurants since the end of the second quarter of fiscal 2013. Same-store sales declined by 1.9 percent, which lagged the Midscale Family Segment, according to The NPD Group's Sales Track Weekly.
During the second quarter, the Farm Fresh Refresh remodeling program resulted in 411 closed restaurant days, compared to 290 in the corresponding period last year, equating to an estimated $0.2 million, or a 10 basis point negative same-store sales impact. Operating income was negatively impacted by $2.4 million of incremental depreciation and $0.3 million due to closed restaurant days and other remodeling-related costs.
During the quarter, an outside supplier, who is also a competitor, unexpectedly cut off refrigerated side dish sales to the Company in advance of the key holiday period costing the company approximately $0.9 million. The Company had expected this supplier to produce seasonal side dishes as they have customarily done. As a result of the supplier's actions, the Company was forced to cut customer orders during the quarter. The $0.9 million is composed of approximately $0.5 million of profitability related to the cut sales orders, as well as $0.2 million related to price increases from the supplier prior to the sales cutoff, and $0.2 million of associated legal fees.
BEF Foods' net sales were $92.1 million, an increase of 10.6 percent, compared to net sales of $83.3 million in the corresponding period last year. The increase was primarily due to mix. Total pounds sold increased slightly. Net sales were unfavorably impacted by approximately $2.4 million resulting from the actions of the disruptive supplier.
Chairman and Chief Executive Officer Steve Davis said, "The confidence we have in our ability to successfully execute our growth strategies, and reap the benefits of our recent transformational growth investments in Bob Evans Restaurants and BEF Foods, is reflected in our announcement of an incremental $50 million for share repurchases. This increase brings our expected share repurchase activity to $225 million for fiscal 2014, and our forecasted year-end fiscal 2014 leverage ratio to approximately three times adjusted debt to EBITDAR, our previously announced target. We believe a three times leverage ratio is a prudent level of leverage that will allow us to invest in our businesses, return meaningful capital to shareholders, and maintain flexibility for acquisitions.
"Furthermore, our updated fiscal 2014 non-GAAP earnings per share guidance range of $2.60 to $2.65 including the accretive effect of the share repurchase, reflects our confidence the Company's transformational investments will transition from generating net costs during the first half of the fiscal year, to generating net benefits during the second half of fiscal 2014. The new workforce management initiative and accelerated Farm Fresh Refresh remodeling program at Bob Evans Restaurants, and the Lima, Ohio, and Sulphur Springs, Texas, plant expansion projects at BEF Foods, are fundamental to achieving our five-year 300 to 350 basis point operating margin improvement goal in each of our businesses by fiscal year 2018."
Davis continued, "At Bob Evans Restaurants, we completed 66 Farm Fresh Refresh restaurant remodels and opened our second Bob Evans Express location at our corporate headquarters. Additionally, we restructured and strengthened the Bob Evans Restaurants marketing team to more effectively leverage the sales growth opportunities enabled by the Farm Fresh Refresh program and our new restaurant prototype design. Finally, we opened a restaurant in Finneytown, Ohio, that embodies the important elements of the Farm Fresh Refresh remodeling program, while also incorporating new, more modern, design elements that will ultimately reduce building construction costs by an estimated 10 to 15 percent.
"At BEF Foods, we completed major plant expansion projects at our Lima, Ohio, refrigerated side dish manufacturing facility, as well as at our ready-to-eat production facility located in Sulphur Springs, Texas. We also announced the closure of our Richardson, Texas, fresh sausage production plant, reducing our fresh sausage plant network to two facilities with sufficient capacity to meet our anticipated volume needs. The cumulative effect of the BEF Foods' plant closures, capacity additions, and other efficiency initiatives we have announced during the last two years is expected to add approximately 250 basis points to the segment's operating margin during fiscal 2015. Unfortunately, we were also negatively affected by a $0.9 million profit impact due to lost sales, and increased costs associated with a supplier dispute related to BEF Foods' side dish business. Despite the impacts of record high sow costs which negatively impacted the quarter by approximately $9 million on a year-over-year basis, growth and transformational investment-related expenses, and our supplier dispute, we remain committed to driving our growth strategies and achieving our long-term 8 to 12 percent average adjusted annual non-GAAP earnings growth guidance."
Source: Bob Evans Foods Inc.