Chicago, IL - McDonald's Corp. said it would buy back $3.5 billion of its common stock by the end of 2001 in a repurchase plan 75% larger than the one it completed last month.
The move, along with an announcement that third-quarter earnings would be in line with forecasts on Wall Street, pushed the stock of the world's largest restaurant chain sharply higher.
The value of the buyback represents about 9% of the company's outstanding stock based closing share price of $57.25 and 685 million shares outstanding.
"The strength of the company's global business and growing cash flow allows us to increase share repurchase and continue with plans for opening about 2,000 restaurants per year over the next several years," Chief Executive Jack Greenberg said in a statement.
McDonald's stock closed up 2 3/4 to 59 13/16 in New York Stock Exchange trading.
The new plan is 75% larger than the company's $2 billion buyback that was completed ahead of schedule last month. The company said it has bought back 152 million shares of common stock for about $4.8 billion over the past decade.
"Because we believe McDonald's stock price has been particularly attractive recently, we have already purchased nearly $300 million of stock under the new program," Greenberg said. A former accountant, Greenberg took over the helm at McDonald's as chairman and CEO on Aug. 1. with the task of beefing up performance as growth slows in the United States.
"That's a big number for McDonald's," said Morgan Stanley Dean Witter analyst Howard Penney, who rates the stock a strong buy with a price target of $85. "McDonald's has turned itself around. They're making a lot of money."
Penney noted that many multinational companies like Coca-Cola Co. have warned investors that 1998 earnings will be hurt by global economic turmoil.
"There's a lot of troubling cross currents in the international marketplace," Penney said. "Logically, McDonald's is getting asked a lot of questions. (Their) international business is performing pretty strongly given what's happening overseas."
McDonald's said last week its international business continues to grow, expecting sales outside the United States to rise 13 to 14% in constant currencies.
But analyst Dean Haskell at Everen Securities said profits in Asia will continue to be weak over the next three or four quarters, following a steep decline in the second quarter.
"Clearly, the buyback would positively impact fourth quarter earnings per share and fiscal 1999," he said. "But we're not raising our estimates because of the global easing of demand."
McDonald's has about 23,500 restaurants in 113 countries, most of them operated as independent franchises.
The company, based in Oak Brook, Ill., also said it expects profits to meet investors' expectations for the third quarter. According to First Call, which tracks estimates, 17 analysts expect the company to earn 69 cents a share in the quarter, up from 63 cents a share a year earlier.
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