Bob Evans Farms, Inc. BOBE stumbled more than 20% in pre-market trading session on Mar 4. It seems that the negative market sentiment after the company announced the halt of the sale or spin off its food-products business – BEF Foods – led to the slide.
The company made the announcement along with fiscal third quarter 2015 results on Mar 3 after the market close. Additionally, weak quarterly results – wherein both earnings and sales missed the respective Zacks Consensus Estimate – and a lowered guidance dented investors’ confidence.
Why No Spin-off?
Bob Evans, along with its advisor Lazard, concluded that spinning off the BEF Foods business would not enhance shareholder value. The board’s finance committee decided that the division would have to fetch a substantially higher selling price, and Bob Evans would incur considerable one-time costs associated with the transaction. The food-products division accounts for almost 30% of Bob Evans' total sales.
However, the company stated that it was evaluating strategic options for all or part of its real-estate assets. Nevertheless, the company had also hired JP Morgan and is still evaluating strategic options for its real-estate assets, including a potential conversion to a real estate investment trust and a sale-leaseback.
Further, financial consultant, Deloitte, recommended $35 million in potential cost savings through reduced general and administrative expenses and other costs. Bob Evans expects to realize these cost savings over the span of three years.
Poor Third-Quarter Results
Bob Evan’s fiscal third-quarter 2015 earnings of 60 cents fell short of the Zacks Consensus Estimate of 69 cents, mainly due to lower-than-expected revenues. Revenues of $357.1 million also missed the consensus mark by 0.5%. Bob Evans also cut the fiscal 2015 full-year earnings forecast to $1.40–$1.60 per share from $1.90–$2.10, due to weak demand at its restaurants.
Some well-placed stocks in the same industry include Dave & Buster's Entertainment, Inc. PLAY, Cracker Barrel Old Country Store, Inc. CBRL and Ignite Restaurant Group, Inc. IRG.
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