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Shares of Bob Evans Farms, Inc. (BOBE - Free Report) rallied 7% in the trading session on Aug 30, after the company reported better-than-expected first-quarter fiscal 2018 results.

Per management, Bob Evans reported “strong sales performance in both sides and sausage and good profit performance despite higher than forecasted sow costs.”

Recent Developments

In May 2017, Bob Evans completed the sale of its restaurant business — Bob Evans Restaurants — to private equity firm Golden Gate Capital for $565 million. Additionally, the company expanded its packaged food business with the acquisition of Pineland Farms Potato Company for $115 million using the funds raised from the sale of its restaurant business.

Through the transactions, the company has been successfully repositioned as high growth, high margin pure-play packaged food business with strong cash flow.

Earnings and Revenues Discussion

Bob Evans’ fiscal first-quarter adjusted earnings of 37 cents per share surpassed the Zacks Consensus Estimate of 35 cents by 5.7%. Moreover, the bottom line jumped 60.9% year over year on higher revenues.

Net sales of $109.3 million were up 27.1% year over year. The uptick was partially driven by $8.6 million of sales from the company's recently acquired Pineland business and $5.2 million of sales to Bob Evans Restaurants (“BER”), which was eliminated in the prior year. Also, the top line came above the Zacks Consensus Estimate of $102.3 million by 6.8%.

While pounds sold for the fiscal first quarter increased 53.3% year over year (14.6% growth excluding Pineland and BER), average net selling price per pound declined 17.1% from prior-year quarter. This downturn in average net selling price is reflective of an increased mix of food service sales due to the company’s recent transactions.

Margins Expand

Adjusted operating income improved 42.5% year over year to $11.8 million in the reported quarter. Also, adjusted operating income margin expanded 120 basis points (bps) to 10.8% of net sales. The improvement came on the back of increase in pounds sold and net sales, partially offset by higher production costs, increased freight expense and amortization expense.

Meanwhile, adjusted EBITDA (earnings before interest, tax, depreciation and amortization) in the quarter rose 38.3% year over year to $19.5 million. The adjusted EBITDA margin expanded 140 bps to 17.8% (of net sales).

Bob Evans Farms, Inc. Price and EPS Surprise

Fiscal 2018 Outlook Lifted

Bob Evans raised its fiscal 2018 guidance. For the year, the company now projects adjusted EPS in the range of $2.10 to $2.30, up from its previous expectation of $2.06 to $2.24.

Net sales for the fiscal year are projected in the band of $474 to $486 million (previously expected in the range of $464 to $476 million).

Additionally, the company now expects adjusted EBITDA for fiscal 2018 to be between $104 million and $110 million compared with its previously guided range of $102 to $108 million.

However, sow costs are anticipated to continue to be higher. In fact, the company raised its sow cost outlook from $43-$46 (per hundredweight) to $48-$52.

Zacks Rank & Stocks to Consider

Bob Evans currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader Retail and Wholesale sector include Big Lots, Inc. (BIG - Free Report) , Bravo Brio Restaurant Group, Inc. (BBRG - Free Report) and Papa John's International, Inc. (PZZA - Free Report) holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the trailing four quarters, Big Lots, Bravo Brio and Papa John’s pulled off an average positive earnings surprise of 81.1%, 28.27% and 5.1%, respectively.

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