Bob Evans Farms Exec Insights: Consumer Trends, Food Product & Service Growth

On Wednesday, Bob Evans Farms, Inc. (NASDAQ:BOBE) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.

Consumer Trends

Will Slabaugh – Stephens: Wonder if you could talk about your consumer, both on the Mimi side and more so on Bob Evans side in the Midwest. What they’ve been telling you in recent months and how that fits into softening consumer we’ve been seeing in the industry since March?

Steven A. Davis – Chairman and CEO: It’s no secret. You see the same trends that we do with what’s happening with the economy and alike. What that means is we just have to stay on value as I said during the conference call. We’ve got value platforms for lunch and dinner on Bob Evans. We mentioned that we’re going to be launching a breakfast value platform, all this is consumer value friendly and P&L friendly. Then the same thing needs to happen on Mimi’s Cafe. The team is in process working on something very similar to what Bob’s put together, which is a great way to bundle value. Value does not always mean low price, lot of people are looking more food for the dollar and that’s how they define value, and so you got to have both. So that’s what we’re doing on both brands and then Carry Out has been a strong drive for us. Carry Out has a great value. Consumers are looking to economize both on time and also on the amount of food. So you got 10 meals under $20 from Bob Evans and you got 10 meals under $25 from Mimi’s Cafe. So, we’re hitting value hard and we don’t see that changing anytime soon and we’re just continuing to innovate around value.

Will Slabaugh – Stephens: On the value message there and introducing a new value offering in breakfast, thinking about how you more or less, highlighted some things that were a great value around lunch and dinner. Is this going to be mainly new items and how you think about checks growth or degradation around that?

Steven A. Davis – Chairman and CEO: It’s been interesting as when you look at our 10 meals under $6, I think only one of those with the new item. The 3-Course $9.99 Dinner that we put together, that was all pantry items. We actually had the stake. We just didn’t sell a lot of it. Quite frankly it was buried on the menu. We put it front and center, guests like it, they like the value. Then in terms of check we always sit down and ask ourselves, okay, if somebody trades this out for a regular item, what’s the impact on the P&L. Then we also have in our heads the incremental number we have to sell in order to offset any additional degradation, and then we are also very careful about what are we – just like the 10 under 6 we did the $0.99 side dish and then 50% of the people added that on. Then pushing, pushing beverages hard, what we are finding is that when you provide that value, you got an opportunity to add on beverages, which you are aware is very profitable. So it’s mixing all of those things together and making sure that you get a great value, but also its P&L friendly.

Will Slabaugh – Stephens: Then just lastly, I wonder if you could update us on potential acquisitions in the food segment?

Paul DeSantis – CFO, Treasurer and Assistant Corporate Secretary: Sure, we don’t – we are not going to comment on any kind of specific acquisitions, but we are going to go back and say that, you know, as we do with everything else we take a very disciplined approach to what we’re doing and we look and make sure that something will have a good fit for us either to help us boost our top line, help us boost our profitability or both. So doing the right kind of acquisition takes time and we’re in the process.

Food Product & Service Growth

Stephen Anderson – Miller Tabak: Just taking a look at your forecast for food products that implies a top line growth of about 8% to 14% if my calculation is correct. Given that food products has been basically flat lined in the last three years. How do you suggest to ramp up that growth rate? Is this going to be through acquisitions, is it going to be through new product launches or new points of distribution or any combination of that, given what’s going on in continued softness in the grocery channel?

Steven A. Davis – Chairman and CEO: Well, as we said on the call there are three areas of business that we’re going after in the grocery store. One is the (processed) business and some of the changes that we announced, or future changes with respect to our manufacturing network are going to put us in a better position to compete and put more marketing and trade dollars against the driving top line. So that’s going to be a change for us. In some of the side dishes, we’ve had great success with that business and our ready-to-eat sausage has been growing nicely and we’ve been getting some good traction from our frozen items as well. The area that’s really starting to grow for us is what we’re calling our in-sourcing and food service operations, which obviously is not in the grocery channel, but is going to give us the incremental sales, but it’s also going to help our plants run more efficiently.

Stephen Anderson – Miller Tabak: Have you seen any kind of growth in terms of number of accounts in food service in the last year or so?

Steven A. Davis – Chairman and CEO: The answer is yes, and the thing about food service account is like it’s – they got to test their way to success, but when you land when usually you got nice addition to the business because usually you’re talking some chain of restaurants and some part of a day part, mostly protein focus is where we’re hunting.

Stephen Anderson – Miller Tabak: Also going back to the core concept, given the softness you saw in second half of the quarter what gives you the confidence to see growth in the 1% to 3% range? Is this what you’ve seen so far in May?

Paul DeSantis – CFO, Treasurer and Assistant Corporate Secretary: We’re not going to tell you what the number is for May, we’ll just tell you that it turned positive. We saw right probably around April when gas prices started to top out and then with the lot of intensity around the competition with dinner offerings, I mean I was watching television last night, just about everybody in casual dining has some $10 to $15 offer. So, the big competition is in the dinner space and that was a soft spot for us. Our 10 under 6 did a nice job, but that was getting the very valued conscious consumer, almost akin to what QSR gets with a Value Menu. So we needed something more like a Combo Meal which is what our 3-Course Dinner for $9.99 puts together for us. We saw a nice turnaround on the business in dinner. If we get dinner right, lunch is moving in the right direction, breakfast is solid, so that’s what we strive for.

Stephen Anderson – Miller Tabak: Do you know, or you’re thinking of who you’re taking any kind of share from or is this a new set of customers?

Paul DeSantis – CFO, Treasurer and Assistant Corporate Secretary: I think it’s a combination of both. You would like to think it’s all incremental but this is a share of stomach battle. I don’t think the category is going to grow at astronomical rates, so, yeah you’re going to have to take it from somebody else. But we’re just going to do what we do best and take care of our guests and provide them great value in all three day parts and we think we can deliver against our numbers.

Will Slabaugh – Stephens: Wonder if you could talk about your consumer, both on the Mimi side and more so on Bob Evans side in the Midwest. What they’ve been telling you in recent months and how that fits into softening consumer we’ve been seeing in the industry since March?

Steven A. Davis – Chairman and CEO: It’s no secret. You see the same trends that we do with what’s happening with the economy and alike. What that means is we just have to stay on value as I said during the conference call. We’ve got value platforms for lunch and dinner on Bob Evans. We mentioned that we’re going to be launching a breakfast value platform, all this is consumer value friendly and P&L friendly. Then the same thing needs to happen on Mimi’s Cafe. The team is in process working on something very similar to what Bob’s put together, which is a great way to bundle value. Value does not always mean low price, lot of people are looking more food for the dollar and that’s how they define value, and so you got to have both. So that’s what we’re doing on both brands and then Carry Out has been a strong drive for us. Carry Out has a great value. Consumers are looking to economize both on time and also on the amount of food. So you got 10 meals under $20 from Bob Evans and you got 10 meals under $25 from Mimi’s Cafe. So, we’re hitting value hard and we don’t see that changing anytime soon and we’re just continuing to innovate around value.

Will Slabaugh – Stephens: On the value message there and introducing a new value offering in breakfast, thinking about how you more or less, highlighted some things that were a great value around lunch and dinner. Is this going to be mainly new items and how you think about checks growth or degradation around that?

Steven A. Davis – Chairman and CEO: It’s been interesting as when you look at our 10 meals under $6, I think only one of those with the new item. The 3-Course $9.99 Dinner that we put together, that was all pantry items. We actually had the stake. We just didn’t sell a lot of it. Quite frankly it was buried on the menu. We put it front and center, guests like it, they like the value. Then in terms of check we always sit down and ask ourselves, okay, if somebody trades this out for a regular item, what’s the impact on the P&L. Then we also have in our heads the incremental number we have to sell in order to offset any additional degradation, and then we are also very careful about what are we – just like the 10 under 6 we did the $0.99 side dish and then 50% of the people added that on. Then pushing, pushing beverages hard, what we are finding is that when you provide that value, you got an opportunity to add on beverages, which you are aware is very profitable. So it’s mixing all of those things together and making sure that you get a great value, but also its P&L friendly.

Will Slabaugh – Stephens: Then just lastly, I wonder if you could update us on potential acquisitions in the food segment?

Paul DeSantis – CFO, Treasurer and Assistant Corporate Secretary: Sure, we don’t – we are not going to comment on any kind of specific acquisitions, but we are going to go back and say that, you know, as we do with everything else we take a very disciplined approach to what we’re doing and we look and make sure that something will have a good fit for us either to help us boost our top line, help us boost our profitability or both. So doing the right kind of acquisition takes time and we’re in the process.