OAK BROOK, Ill. -- McDonald's Corp. said yesterday that it plans to buy back $3.5 billion worth of its stock, or 8.9 percent of shares outstanding, over the next three years to bolster its lagging stock price.
The company also said it expects to meet earnings estimates for the third quarter. It is expected to earn 69 cents a share, according to analysts surveyed by First Call Corp., up from 63 cents a year earlier.
The buyback, which is 75 percent larger than the $2 billion, three-year program McDonald's completed last month, demonstrates the hamburger maker's ability to generate free cash as it cuts capital spending, analysts said. The company had $324.9 million in cash as of June 30, according to its latest quarterly filing.
"It shows that they are confident in their earnings visibility," said Timothy Ghriskey, head of value investing for Dreyfus Corp., which held 2.36 million shares as of June.
McDonald's stock rose $2.625, to $59.875, yesterday in trading of 3.34 million shares, more than its recent three-month daily average of 2.26 million. The stock has fallen from a peak of $74.9375 on July 7.
The world's largest fast-food company was the third largest gainer in the Dow Jones industrial average yesterday, accounting for 11.3 points of the index's 80.07 point gain to 8108.84.
McDonald's already has bought $300 million worth of its shares under the new program "because we believe that McDonald's stock price has been particularly attractive recently," Chief Executive Officer Jack Greenberg said in a statement.
The company has told analysts to expect share repurchases worth about $900 million this year, Ghriskey said.
McDonald's has 684.6 million shares outstanding.
The company expects to fund the repurchase program largely from free cash flow while maintaining its credit rating.
Lehman Brothers analyst Mitchell Speiser recently said the company's total free cash -- meaning it's not committed to items such as interest payments or capital spending -- should reach about $353 million in 1998, up from $83.4 million last year.
McDonald's has more than 23,500 restaurants in 113 countries.
Pub Date: 9/29/98