The daily onslaught of earnings releases never seems to fail to produce a surprise or two; that's part of what helps keeps this time of the year, so exciting. There were a couple of releases so far this week that caught my eye, and of course, both are slightly off of the beaten path.
Shipping and real estate company Alexander & Baldwin (ALEX), reported a rough quarter after the market closed Monday, and shares paid the price yesterday, falling more than 7%. While revenue rose 5% to $460.2 million, net income fell more than 90% to $1.6 million. Operating income for the ocean transportation business fell 55 percent, which was the primary culprit behind the less than stellar quarter. Excluding one-time items, earnings from continuing operations appear to be in the $.21 range, below the $.25 consensus estimate.
ALEX does not appear to be cheap, as it is trading at 21x 2012 consensus estimates, but the real story, and what may be supporting the share price at these levels, in my opinion, is the company's plan to separate into two operating companies later this year. I continue to hold the shares in anticipation of the potential synergies of this move.
Restaurant chain Bob Evans (BOBE) provided another off-the-beaten-path surprise. In a restaurant landscape dominated by newer concepts, such as Chipotle Mexican Grill (CMG), Buffalo Wild Wings (BWLD) and Panera Bread (PNRA), older brands are sometimes all but forgotten. But this dinosaur put together a decent quarter, earning $0.69 per share, well ahead of the $0.60 consensus estimate.
Revenue for the quarter, which was in-line with the consensus, was flat, but cost-cutting efforts helped push gross margins up 113 basis points (bps) to 7.06%. During the third quarter, the company bought back more than 567 thousand shares, and has reduced shares outstanding by more than 18.5% since 2007.
With a total of 698 restaurants in 31 states, the company has two brands: Bob Evans (555) and Mimi's Café (143). Although the Bob Evans brand is the older of the two, it has been performing better than Mimi's in terms of same-store sales growth. During the third quarter, Bob Evans same-store sales grew 1.6%, while Mimi's fell 3.4%. This is not exactly a growth story at this point; not when revenues are flat, and earnings surprises are courtesy of cost-cutting.
But it is a real estate story. At the end of fiscal 2011, the company owned the real estate for 486 Bob Evans locations, and seven Mimi's locations. In addition, there are two farms, with a total of 967 acres, and an additional 17 acres of improved land adjacent to corporate headquarters (also company owned), in Columbus, Ohio. That's a fairly compelling package of assets considering the company's current enterprise value (EV), which is just north of $1 billion. Included in that EV calculation is a rather light debt load: $135.7 million as of the end of the third quarter.
Admittedly, now is not the optimum time to put a premium value on commercial real estate. But this little profitable dinosaur of a company, with its 2.7% yield, continues to sail under the radar.
