The Wendy's Company’s WEN board of directors recently authorized a $1.4 billion share repurchase program. The company intends to repurchase shares with the existing cash on its balance sheet and cash flow from operations.
Share price increased 3.3% in response to the news.
Further, the company intends to use the net proceeds — approximately $925 million — from its recently completed securitization refinancing and the expected proceeds of nearly $350 million (after tax) from the third phase of its system optimization initiative for the repurchase. Additionally, the after-tax proceeds of roughly $50 million from the sale of its bakery operations will fund the repurchase. (Read: Wendy's to Focus on Core Restaurants, Sells Bakery Business)
As part of the new authorization, Wendy’s begun an $850 million share repurchase program on Jun 3. This includes a modified Dutch Auction tender offer to repurchase up to $639 million of its common stock at a price range of $11.05 to $12.25 a share. The $850 million stock buyback program also includes a separate purchase of up to $211 million of the company's common stock from Trian Group, its major shareholder with 24.8% stake. Trian expects to reduce its ownership position in the Wendy’s to between 17% and 19.68% over the next few months.
The company intends to repurchase the remaining $550 million of its $1.4 billion share repurchase authorization before the end of 2016, as funds become available from its system optimization initiative.
Updated 2015 Outlook
Wendy’s also updated the 2015 outlook to reflect the impact of its recently completed refinancing, the sale of its bakery operations and the newly authorized $1.4 billion share repurchase program.
The company currently expects 2015 adjusted earnings per share of roughly 31 cents to 33 cents, down from the prior guidance of 33 cents to 35 cents. This represents an increase of 10% to 17% from the 2014 earnings figure.
The company now expects 2015 adjusted EBITDA of approximately $375 million to $385 million, down from the earlier outlook of $390 million to $400 million
Wendy’s now expects capital expenditures of approximately $240 million to $250 million, down from the prior outlook of $250 to $260 million, mainly due to the sale of its bakery operations .
Updated Long-Term Outlook
Over the long term, the company expects high single-digit earnings per share growth in 2016 and high teens earnings per share growth in 2017. Primarily due to the expected benefit of the company's share repurchase plans, beginning in 2018, earnings per share growth is likely to exceed 20%.
The company expects to sell 100 restaurants under its Canadian system optimization initiative by 2015-end and around 540 U.S. restaurants by the middle of 2016 as part of its system optimization initiative. The company continues to expect flattish adjusted EBITDA in 2016, followed by low single-digit adjusted EBITDA growth in 2017 and high single-digit adjusted EBITDA growth in 2018.
Wendy’s also expects significantly lower annual capital expenditure requirements, beginning 2016, primarily as a result of its system optimization initiative.
The company also targets to reimage 60% of Wendy's’ North America system-wide restaurants by 2020-end.
Wendy’s currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the restaurant industry are BJ's Restaurants, Inc. BJRI, Ruby Tuesday, Inc. RT and Zoe's Kitchen, Inc. ZOES. All these stocks sport a Zacks Rank #1 (Strong Buy).
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