Bob Evans' stock skyrockets on Dow Jones' record-breaking day

Photo / Tim Greenway Rodney McCrum, president and COO of Pineland Farms Potato Co., right in this 2016 file photo, meets with his daughter Haley Kelley, VP of Marketing & Sales, and Greg Hallett, the sales and marketing manager, to discuss marketing programs in Mars Hill.

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By James McCarthy

Bob Evans Farms (NASDAQ:BOBE) got an initial vote of confidence from investors over its announcement Tuesday that it was selling its national chain of 523 restaurants to a California-based private equity company for $565 million and buying Pineland Farms Potato Co. in Mars Hill for $115 million.

Stock shares of the Ohio-based company jumped more than 20% on Wednesday, making it one of the best performers on the same day that the Dow Jones Industrial Average of 30 major companies (not including Bob Evans) topped 20,000 for the first time on a record-breaking day for the stock market.

The company said it was divesting its restaurants in order to focus on its BEF Foods unit, which is the Bob Evans subsidiary buying Pineland Farms Potato Co. Both transactions are expected to close by April 28.

Bob Evans closed Wednesday at $57.64, up 20.83%, according to MarketWatch.

What Bob Evans is telling its investors

In a Wednesday posting for investors on its website, Bob Evans explained that the sale of its restaurant chain would provide a “meaningful return of capital to shareholders and prudent capitalization of Bob Evans Farms Inc. as a standalone foods business, described as the company’s “fastest growing and most profitable segment.”

It projects that net sales for BEF Foods, in combination with Pineland Farms, would be $470 million in 2018, with an EBITDA of $105 million. On Wednesday, Bill Haggett, chairman and CEO of Pineland Farms Potato Co., told Mainebiz that the company’s 2016 sales were in the range of $50 million to $60 million.

Other details revealed in Bob Evans’ slide presentation about the Pineland Farms Potato Co. acquisition:

The sales agreement includes an “earn-out provision” of up to $25 million for the Libra Foundation and Pineland’s other investors if “certain financial metrics are achieved within 24 months of closing.”
The purchase enables “continued growth and innovation as the leading national producer of dinner side-dish products.”
Adding Pineland’s state-of-the-art facility will provide 180 million pounds of capacity and mitigates the need for near-term capital spending for additional capacity to meet growth targets.
Side-dish product mix expected to increase to nearly two-thirds of annual sales volume by fiscal year 2020, from 56% of sales mix currently.
Sausage sales volume mix expected to decline from 29% presently to 18% by fiscal year 2020.
The acquisition gives BEF Foods the capability to produce and sell cut and shredded potato products in both the retail and food channels.

Bob Evans reported BEF Foods’ refrigerated dinner side dishes — which include mashed potatoes and macaroni and cheese — have captured 50% of the national market, with mashed potatoes being the No. 1 side dish.

It lays out a national strategy to increase sales of its national side dish products and identifies the Northeast as a market with “medium penetration” and strong potential for additional growth due to Pineland Farms’ closer proximity to the major metropolitan markets in that region.