We've seen restaurants calve off operations before. McDonald's Corporation (NYSE:MCD) spun off Chipotle Mexican Grill, Inc. (NYSE:CMG), which in turn turned out a Southeast Asian concept called ShopHouse. And a few years ago, some investors were pushing for the Golden Arches to separate its franchise business from its company-owned stores.
Carrols Restaurant Group, the large Burger King Worldwide Inc (NYSE:BKW) franchisee with more than 300 locations, spun off both its Pollo Tropical and Taco Cabana concepts that are now run under the Fiesta Restaurant Group umbrella.
One-stop shopping But those are restaurants operating restaurants and turning them out to give them a life of their own. There aren't all that many that also run a packaged foods business, and one investor thinks it's high time Bob Evans Farms Inc (NASDAQ:BOBE) separated its chain of restaurants from the part that sells packaged meats, potatoes, and other convenient meal ingredients.
In a filing with the SEC, Sandell Asset Management, which owns 5.1% of the restaurant chain's stock, claims its shares are selling at a discount because it's weighed down by having to serve two masters, neither of which are performing well.
In fiscal 2013, which ended this past April, the BEF Foods division realized almost $377 million in sales, representing 23% of the restaurateur's total revenues, yet it recorded $137 million in operating losses, causing a consolidated loss of $44 million loss for the year, a big swing from the $107 million profit the year before.
Age of empire Sandell says Bob Evans is suffering from a "conglomerate discount," with shares of the restaurant chain trading at a discount not only to its restaurant peers, but to those in the packaged food industry as well. While there are certain benefits to this vertical integration -- the foods division sells some products to its own restaurants as well as to others -- they aren't large enough to overcome the problems, and touting them as management has done is more in the name of preserving the chain's empire-building fantasies than reality.
When you compare Bob Evans' stock performance to that of its closest rival, Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), the competition's stock has soared 248% over the last five years while Bob Evans' shares haven't even doubled.
Cracker Barrel itself has been pestered by an activist shareholder, Sardar Biglari, whose Biglari Holdings has been trying to shake up management, though largely unsuccessfully. Notably, however, Biglari isn't pushing for a divestiture as Sandell is, but that may be because Cracker Barrel's retail business is successful. It generated $517 million in retail sales last year, equal to about 21% of its total $2.4 billion in revenues. The company's also reduced its long-term debt over the last five years from $764 million down to $505 million, while increasing cash on hand from $12 million to $152 million.