Sandell Asset Management Corporation (“Sandell”), one of the largest shareholders of Bob Evans Farms, Inc. (NASDAQ:BOBE) (“Bob Evans” or the “Company”), commented on the recent Fiscal 2014 Fourth Quarter and Full-Year earnings release from Bob Evans.
"Yesterday’s earnings release, which was delayed due to previously announced ‘weaknesses in internal controls,’ in our opinion illustrates both the mismanagement that has been exhibited by Chairman and CEO Steven Davis at the helm of Bob Evans and the lengths that he and his Board of Directors (the “Board”) will go in order to entrench themselves at the expense of shareholders. We highlight the fact that management is already reducing Fiscal 2015 earnings guidance a mere two and a half months into Fiscal 2015, from its previously announced guidance of $2.80 to $3.00 per share to a dramatically reduced range of $1.90 to $2.20 per share. Of further concern is the array of bewilderingly high expenses that appear to be embedded in this guidance, including:
- $5.5 million of costs “associated with responses to an activist shareholder”
- $2.0 million of costs related to “strengthening the Company’s internal processes and control over financial reporting”
- $8.0 million of “increased performance-based incentive compensation accrued to target levels”
"Shareholders should demand a detailed explanation from management as to the exact composition of these abnormally high costs, which aggregate $15.5 million, or approximately $10.9 million on a tax-effected basis, which translates into approximately $0.46 per share.
"More immediately than the guidance for Fiscal 2015, shareholders need look no further than the poor results delivered by this management team in Fiscal 2014 in order to see that this is a Company in urgent need of effective oversight. Chairman and CEO Steven Davis conveniently cites many “challenges beyond the Company’s control” to explain away the disappointing results at Bob Evans in Fiscal 2014, but these results are due in no small part to a wasteful culture sanctioned by the Company’s Board of Directors as well as the poor decisions made by Mr. Davis, which contributed to many issues that plagued Bob Evans in Fiscal 2014. The direct economic impact stemming from some of these issues include:
- $6.2 million in “start-up costs and lower production efficiency” at the Sulphur Springs facility
- $4.1 million in losses resulting from a “supplier dispute” at BEF Foods
- $9.8 million in additional SG&A expenses due to “additional professional services” and “recruiting, relocation, and severance expenses”
"Notwithstanding the issues that have plagued the Company under the leadership of Steven Davis and his Board, we remain firmly convinced in the significant value that could be delivered to shareholders if the Board was re-constituted with fresh and truly independent Directors. Bob Evans has an iconic brand name and a unique collection of assets with the potential to deliver significant value to shareholders if managed appropriately. We look forward to the upcoming 2014 Annual Meeting, where we intend to solicit proxies and seek election of the eight new, independent, and highly-qualified candidates that we have nominated to the Board of Directors of Bob Evans so that they may begin to implement positive change at the Company and exert the oversight that Bob Evans so urgently needs."