Wendy’s to Buy Back $1.4 Billion of Shares, Raising Expectations

Wendy Stock BuybackOn Wednesday, June 3, The Wendy’s Company (NASDAQ/WEN) revised up its earnings growth target and announced a $1.4-billion share buyback program. (Source: Wendy’s, June 3, 2015.)

Wendy’s revised their earnings guidance in an upward direction for future years. Growth in earnings per share (EPS) stayed between 10% and 17% in 2015 and high single digits in 2016. In 2017, EPS growth is expected to be in the high teens instead of the high single digits predicted in May. In 2018, EPS growth is revised from the mid-to-high teens to over 20%.

The upward revisions are partly due to its share buyback program. Wendy’s said the initial share repurchase would be $850 million. The $639 million “Dutch Auction” tender offer of the initial repurchase is commencing today. The remaining $211 million will be from the company’s largest shareholder, Trian Partners.

There would also be an additional $550 million in share repurchases before the end of 2016, making the total share repurchase program $1.4 billion.

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Wendy’s Updates on Sale of Bakery Operations and Securitization

Wendy’s also updated on the sale of its bakery operations. The sale is now closed, with pre-tax proceeds around $80.0 million. Proceeds would be close to $50.0 million after tax.

Wendy’s has completed its $2.275-billion securitized financing facility within a leverage ratio of approximately six times net debt to 2014 adjusted EBITDA. Part of the proceeds from the sale of these notes would be used towards returning cash to shareholders.

The company also lowered its capital spending forecasts by about $5.0 million for each of the next three years. This is mainly due to the sale of its bakery operations.

Restaurants of the fast food chain are expected to go strong. The same restaurant sales are expected to grow 2.5% to three percent at company-operated restaurants. Their margin is expected to be between 16.5% and 17.0%, higher than the 15.8% in 2014.

The announcement by Wendy’s sent its shares up 3.33% to $11.47 on Wednesday. The company’s stock price has gone up more than 40% in the previous 12 months.