Dive Brief:
- Bob Evans reported earnings per share that beat analysts' expectations for the first quarter at $9.2 million, or $0.46 per share, over $4.3 million, or $0.19 per share, last year.
- Sales came in at $306 million, which missed Wall Street’s predictions and were $15 million below last year’s results.
- The decline was primarily due to a more than 4% dip in the company's restaurant sales. The food division’s side-dish business increased sales by 12.5%, and the sausage business grew nearly 5%.
Dive Insight:
Bob Evans' earnings report illustrates the drive behind investors' recent push for the company to spin off its packaged foods division. Investors cite the valuation of other similar packaged food companies, such as
B&G Foods, ConAgra and Hormel, and recent transactions in the industry that have commanded mid- to high-teens multiples of EBITDA.
The company's packaged food unit covers side dishes, with 51% of sales, followed by retail sausage (23%), food service (19%, including 7% of sales attributed to Bob Evans Restaurants), frozen (4%) and other (3%). The growth potential is there, as prepared foods are a fast-growing category and command much of the unit's sales. Frozen accounts for a much smaller percentage, but it too could be poised for a turnaround just in time for a sale of Bob Evans' food business.
Grocery stores are also eating away at fast food sales as grocery prices continue their steady decline. Meanwhile, restaurant food prices are increasing, by 0.2% in July and 2.8% over the previous 12 months. That only extends the current gap between at-home and restaurant food prices.
The U.S. may be out of a recession, but price is still a major guiding factor in consumers' food purchase decisions. If this gap continues to widen, Bob Evans could see its top-line growth droop further for the restaurant segment of its business. Profitability is important to investors, but without sustained top-line growth, the call for a spinoff of the foods business could become louder over time.