A recent visit with Bob Evans (BOBE) management gives us confidence that the company has created a new trend line for growth and earnings. As a paradigm changing company in restaurants they have become a thought leader with a faster entry than other restaurants in the fast casual market. Unlike others starting new concepts, BOBE had the foresight to design take out and bakery into the new store concept in effect creating a fast casual concept while substantially increasing their in house dining experience. The concepts have been so successful and improved same store sales that they have accelerated all stores to be completed in their refresh($225,000 per store) in the next 12 months. Then new store builds will accelerate $2-2.5 mil per store).

In the food segment regional expansion with the newly market leading side dishes has increased velocity of sales for customers. By concentrating on the meat section and breakfast day part in frozen foods the focus has moved away from a primary emphasis on sausage to create double digit growth in their food business. Plant expansion and the vertical integration acquisition of Kettle Creations gave both capacity and margin expansion opportunity. New product introductions into the meat cases of more side dishes in expanding regions give them both a proprietary and somewhat protectable market position. Look for more pasta and rice dishes and addition to the breakfast mix in the freezer case(including sausage).

At multiple roundtables we have hosted the fast casual model has been identified with improving penetration and market share. The Bob Evans off premise focus and the home meal replacement are the focus of the new carry out, bakery and catering offerings. This further leverages the real estate of restaurants like few others in the industry can follow. Day parts are almost even at the restaurants giving them unique opportunities with virtually any new menu items. Combined with a fast growing and distinct food product space Bob Evans is a unique paradigm offering in the packaged food/restaurant space.

On July 25th, Roulston Research held a Restaurants Roundtable with Nelson Marchioli, Former CEO of Denny’s, Former CEO of El Pollo Loco, and Former Senior VP of International Operations & Sales at Burger King Corporation; and William Van Epps, Principal at Van Epps Consulting, Former President and COO at Papa John’s, Former President International at Yorkshire Global Restaurants, and Former President International at AFC Enterprises.  They sat down to talk about future trends in the restaurant industry, including how changing demographics and different strategies will affect future performance.

In recent years, restaurants have had to focus more on demographics and the economy than ever before.  Restaurant companies now depend on people’s disposable income.  When gas prices rise or the economy turns for the worse, people’s disposable income changes, and they will be likely to change where they go out to eat.  One of the ways that the restaurant industry has been able to capitalize on this new trend is through fast casual dining.  These restaurants have average median customer household incomes of about $72 thousand, and thus these customers’ disposable incomes are more resilient to fluctuating gas prices than the customers of the fast food industry.  Due to this, it would not be surprising to see more restaurants try to adopt this style of serving.  Another benefit to this style is that it saves on labor costs, as no servers are necessary.  This also helps improve customer satisfaction, since servers are often the focal point of complaints from customers.  In the future, the presenters believe that there is room for another dominant player in the Mexican fast casual industry with Chipotle, as well as a belief that a pizza chain with this business model will gain a dominant position.  Another recent trend in the restaurant industry is toward franchising more stores.  While this can be beneficial in reducing risk toward the franchisor as well as allowing more rapid growth for a company, it also has its dangers.  For instance, often this will create a disconnect between the franchisor and the stores, leading to slow reaction times in adjusting menus.  Companies like Papa Johns, where a large portion of its stores are company owned, are in better position to adjust to changing market climates, which in turn helps its franchised stores as well.  In theory, it should not matter whether a store is franchise or company owned, since if a franchise store is losing money, it will merely affect future sales of franchise stores, even if it does not hit company revenues directly.  Other topics discussed include breakfast foods, costs associated with the healthcare bill, real estate changes in the industry, and others.  If you would like to listen to the entire podcast, or engage in a 1 on 1 discussion with either Nelson or Bill, please email info@roulstonresearch.com.

Earnings Scout is a proprietary analysis of the rate of change (the delta) in earnings trend expectations. This analysis is differentiated as it identifies divergence of stock price from the rate of change future expectations. The rate of change is a leading indicator of a catalyst for potential price change not measured elsewhere. Contact info@roulstonresearch.com to learn more on how they can create tailored reports so you can maximize your risk-adjusted returns.

• The Household Appliances industry in the S&P 500 consists of one company: Whirlpool.
• The industry accounts for 0.07% of the S&P 500 index.
• In 2012, the household appliances industry outperformed the consumer discretionary sector
(120.22% vs. 23.92%) and the S&P 500, which returned 16.00%.
• In 2013, the industry is outperforming the consumer discretionary sector (30.62% vs. 26.46%)
and the S&P 500, which has a total YTD return of 20.28%.


• Despite the strong run-up in price over the past two years, the household is not grossly
overvalued, but it is a little.
• Based on early 2Q13 earnings reports and 3Q13 guidance, U.S. economic growth should pick
up steam in the 2H of 2013 and that will benefit the household appliances industry.
• However, the positive rate of change to household appliance earnings estimates for have
begun to decelerate as housing trends become less positive and emerging market economies
slow further.
• In addition, rising gasoline prices could lead to the need for more promotional pricing, which
would hurt profit margins in the 2H of 2013.
• Although, we do not expect gasoline prices to move much higher from here ($3.67 / gallon)
because the U.S. economy has not been able to sustain growth for any length time when the
national average for regular unleaded gasoline approaches $4.00.
• We do not see an immediate need to rush out and sell
the industry given its run-up, but we would not recommend
rushing out to purchase at these levels either.


2Q 2013 Household Appliances Earnings Estimates

Expected Report Date



2Q13 Est.

(90 days ago)

90 Day

Estimate Change






Source: The Earnings Scout


Earnings Scout is a proprietary analysis of the rate of change (the delta) in earnings trend expectations. This analysis is differentiated as it identifies divergence of stock price from the rate of change future expectations. The rate of change is a leading indicator of a catalyst for potential price change not measured elsewhere. Contact info@roulstonresearch.com to learn more on how they can create tailored reports so you can maximize your risk-adjusted returns.

  • The distributors industry in the S&P 500 consists of one company: Genuine Parts.
  • The industry accounts for 0.09% of the S&P 500 index.
  • In 2012, the distributors industry underperformed the consumer discretionary sector (7.24% vs. 23.92%) and the S&P 500, which returned 16.00%.
  • In 2013, the industry is outperforming the consumer discretionary sector (34.35% vs.25.81%) and the S&P 500, which has a total YTD return of 18.88%.


  • While outperforming in 2013, the distributors industry has only moderate pricing power due to sluggish trends across the global economy, and in particular in the industrial sector.
  • The automotive segment of Genuine Parts’ business could be a bright spot; however, the company’s industrial, electrical and office supply end-markets have the chance of disappointing.



2Q 2013 Distributors Earnings Estimates


Expected Report Date

2Q13 Estimate

2Q13 Est. (90 days ago)

90 Day Estimate Change

Genuine Parts





Source: The Earnings Scout


On June 27th, Roulston Research held a Consumer Packaged Goods Conference Call with John Machuzick and Daryl Brewster. Mr. Machuzick spent 35 years at General Mills, serving as a Senior VP and President of Bakeries and Foodservice during his time with the company. After General Mills merged with Pillsbury in 2001, he took charge of streamlining the integration of the two companies and helped turn around the deterioration that was taking place. Mr. Brewster worked in the consumer goods sector for 30 years at companies including Campbells, Nabisco, Kraft, and Krispy Kreme. He currently leads Brookside Management, a boutique advisory firm that focuses on providing senior-level counsel to the consumer products and retail industries. Topics and trends that were addressed by Mr. Machuzick and Mr. Brewster include more widespread GMO labeling, gluten-free foods growing in popularity beyond consumers who require them, mergers and acquisitions in the CPG industry, and whether companies can successfully run brand name and private label businesses together.

The issue of genetically modified food has been a hot topic in Europe for quite some time, but it is now picking up steam in America. Both speakers agree that this is a long term issue but is not likely to become a big governmental issue. They agree that GM foods lead to greater crop yields and have not been found to have any harmful effects. Any changes to the current system would take years to implement, e.g. Whole Foods is requiring that all of their foods be labeled for GMOs by 2018. Another recent trend is more widespread availability of gluten-free foods. About one percent of the US population has Celiac Disease, which is essentially severe gluten intolerance. In addition, a significant portion of the population is gluten sensitive. There are also many people who eat gluten free diets simply because they believe it is healthier, and this is becoming more prevalent. As a result, more companies are offering gluten-free options, and companies that focus on those products are doing well. Private label food companies have also been doing well. In recent years, their quality has increased, and they are growing about 5% per year. ConAgra’s acquisition of Ralcorp gives them access to several categories of private label products including pasta, cereal, and snack foods. However, the speakers have concerns about how that will affect their business. In the past, they said, companies have had a difficult time focusing on both brand name and private label products. ConAgra’s situation is slightly different, though, as the company does not make brand name versions of their private label products, so there will be no self competition. Due to the Ralcorp acquisition, mergers and acquisitions have been an important topic in the CPG industry. The speakers expect there to not be any big deals in the near future, but rather small, strategic acquisitions that build competencies and categories within existing business. They see room for growth in several different categories including beverages, healthy snacks, yogurt, fresh food, and pet food. The speakers also discussed, Amazon in the food industry, Dean Foods, B&G Foods, and several players in the coffee industry including Starbucks and Green Mountain Coffee Roasters. If you are interested in listening to the podcast from the event or engaging John or Daryl in a one-on-one discussion, please contact info@roulstonresearch.com.

Initial Tesla strategy called for introducing 3 levels of vehicles:

  1. High price/low volume vehicle (initial launch)
  2. Mid price/mid volume vehicle (Tesla S-recent product)
  3. Low price/high volume vehicle (TBD)

Tesla CEO, Elon Musk, has accurately stated that he views increased competition in the Electric Car field as a positive for Tesla.  The sooner electric vehicles become more mainstream, the greater the opportunities become to acquire additional financing/investors and to substantially increase your potential buyer database.

The competition will most likely come from existing auto companies that are capable of re-allocating resources (people and dollars) to developing the electric car.  Start up company Fisker has been the company most equally aligned to Tesla, but they are having serious financial problems and currently attempting to convince a Chinese company to take over the operations.  Fisker CEO has already resigned, workers let go and the company will probably file for bankruptcy any day now.

The battlefield is really going to be in the mid-volume to high volume segment as these companies will need adequate volume to allow them to distribute start up and production costs across a broader range (thereby allowing for lower cost per unit).

Chevy Volt, Nissan Leaf and Toyota RAV-4 are available in limited supplies and a Mercedes B-Class Hatchback is scheduled for a 2014 launch in the US.  Due to the very limited technology advancements available today, these products are low volume and in the compact/sub-compact segments.

The most efficient means for manufacturers to advance the technology needed for mass production, is through a collaboration of efforts.  Tesla did share technology with Mercedes in the development of the B-Class Hatchback and it is common knowledge that Toyota sold its production facility in Fremont, Ca. to Tesla.  Toyota maintains a presence in the Fremont facility and both companies are determining how best to utilize available resources for a win-win scenario.

In the auto industry, competition is always good for the consumer and is truly a motivating factor for manufacturers in future product development.  Elon Musk is absolutely correct in stating increased competition will provide opportunities for Tesla to gain greater awareness in the market and improve their name recognition as they move into higher volume production.  Of course, as competition increases, one has to ensure their products pricing, quality and customer service are equal to or greater than the competition.  Well-established companies like Mercedes, GM, Toyota, Nissan and Ford have access to tremendous resources that could very easily relegate Tesla to a niche product vehicle.


Alan DeCarr spent over 37 years at Toyota Motor Sales in a variety positions. Most recently he was Group Vice President of Toyota Logistics Services (TLS), Inc. where he was responsible for all TLS operations in the United States, which include Toyota, Lexus and Scion vehicle delivery to dealers; new vehicle processing and accessory installation; Toyota Transport operations; and the export of North American-produced vehicles to overseas destinations. Previously, Mr. DeCarr held the position of Group Vice President, Sales, for the Toyota Division, where his responsibilities included dealer and field operations for TMS, coordination of private distributors interface, corporate retail dealer development, and public companies. After joining Toyota in 1971, Mr. DeCarr held numerous field-office and corporate-headquarter positions in both the Toyota and Lexus Divisions. Senior field office positions have included assistant general manager at Toyota’s Los Angeles and San Francisco Regions and general manager at the Cincinnati Region. He currently is principal of DeCarr Consulting Group where consults with the automotive industry on a variety of different issues.

Roulston Research recently held their Food Retail Conference Call on April 19th with Lee Armbuster and Robert Anderson. Lee Armbuster is the Former President of Shop ‘N Save, Former Corporate VP of General Merchandise and National Procurement & Distribution at SUPERVALU, and Former President at Laneco with over 25 years of retail executive experience within the formats of Supercenters, Supermarkets, Mass Retail and Drug/Pharmacy. Robert Anderson is the President of Store Brand Consulting and Former Vice President and General Merchandising Manager of Private Label at Wal-Mart. The presenters highlight some key trends including what is happening to the center of the store, areas of inner circles that typically lose money, mergers & acquisitions, and important considerations when looking at companies’ operational and strategic strategies that have effected and changed the food retail industry. Also mentioned are the advantages and disadvantages of some of the traditional food retail channels and a unique take on the definition of value explained in the presenters three tier private label program explanation.

Both speakers had a positive outlook for private labeling. Private labeling has done well in 2 of the previous 3 recessions (minus the last one). Private brands continue to grow year after year as consumers view private brands, such as great value as good as name brand products. The ConAgra acquisition of Ralcorp is viewed positively by the presenters. It positions ConAgra as one of the top CPG companies by diversifying their categories where their competition wasn’t operating. Ralcorp is viewed as a company with great management and strong brands that will help ConAgra sustain market share. When looking at the non traditional channel vs. the traditional channel of food retailing, a good place to start would be the extreme value space. Companies such as Dollar General and Family Dollar are offering a nontraditional strategy to fend off the likes of Wal-Mart and other extreme value players. Family Dollar is place their food items in the back of the store in hope of enticing consumers to buy general merchandise as they make their way to the food segment and Dollar General is rolling out their food market approach, as more and more companies offer move towards offering the same items. However, as general merchandising companies in the extreme value space add more food items, their will be an increase in higher labor cost and higher (SG&A) expense leading to a lower EBIT. Traditional retailers will maintain profitability if they can sustain a differentiation strategy. A good example would be Kroger’s pricing for relationship strategy, which prices items that delights the consumer to a level that eclipses other potential barriers to being a primary customer based on interest, location, and demographic, offering more of a custom based offering from each to store to foster relationships. Companies that are covered and not mentioned above include Kol Foods in the organic market, General Mills, Target, SuperValu, Trader Joes and more. If you are interested in listening to the podcast from the event or engaging Robert or Lee in a 1 on 1 discussion, please contact info@roulstonresearch.com.