Outerwall Inc., owner of the Redbox DVD rental dispensers, rose to a record after saying it will buy back more than 20 percent of its stock.
The company, based in Bellevue, Washington, advanced 12 percent to $71.40 at the close in New York, its highest since its July 1997 initial public offering. After the close of trading yesterday, Outerwall made the announcement, which was accompanied by quarterly results and a series of management changes, including the naming of a former Warner Bros. executive to lead Redbox.
Outerwall, under pressure from activist investor Jana Partners LLC to generate more value for shareholders, has said it will return 75 percent to 100 percent of annual free cash flow to investors, which in the near term would be in the form of share repurchases. Jana disclosed a 13.5 percent stake in Outerwall on Oct. 4, calling the company undervalued and saying it would seek the sale of some or all of its businesses.
“They’re buying back a lot of their stock, and come tomorrow, you’re going to see huge demand for their shares,” Michael Pachter, an analyst at Wedbush Securities in Los Angeles, said yesterday. “You don’t have many companies with more than 20 percent of their shares being available for buyback in such a short period.” Pachter has an outperform rating on the stock.
Outerwall began a tender offer for $350 million of its shares today. That would come on top of the $195 million in stock repurchased last year. The new buyback represented about 22 percent of the total shares outstanding, based on the company’s market value of $1.62 billion yesterday.
Outerwall also said yesterday that Mark Horak, most recently president of the Americas at Warner Bros. Home Entertainment, will become president of Redbox on March 17.
In December, Outerwall exited its Rubi coffee, Crisp Market and Star Studio ventures, it said yesterday, taking a $29.5 million charge in the quarter.
The company, which also operates the Coinstar change-counting machines, said James H. Gaherity will become president of that division, succeeding Mike Skinner, who is leaving. Maria Stipp, who served as chief new ventures officer and interim president of ecoATM since October, has been appointed president of that unit.
Outerwall reported profit in the fourth quarter of $1.68 a share, on an adjusted basis, compared with $1.01 a year earlier. That beat the $1.24-cent average projection by analysts, according to data compiled by Bloomberg. Sales rose 5.4 percent to $593.7 million, trailing the $596.7 million average analyst estimate.
Net income fell 0.9 percent to $22.7 million, or 82 cents a share, from a year earlier.
During the quarter, the company’s most frequent customers increased their rentals beyond their average of four a quarter and paid more for Blu-ray titles, Chief Executive Officer J. Scott Di Valerio said yesterday in an interview.
“These people are some of our most loyal customers and people who love content,” he said. “We’ve also continued to increase the number of unique credit and debit-card transactions, reflective of new customers.”
In the quarter ending March, Outerwall forecast profit of 77 cents to 97 cents a share, on revenue of $570 million to $600 million. Analysts on average had projected $1.29 a share, on sales of $612.1 million.