Outerwall Inc. (OUTR:US), the owner of Redbox DVD rental machines that’s under pressure from investor Jana Partners LLC, posted profit ahead of estimates and said it plans to boost share buybacks. The stock jumped in late trading.
Adjusted profit was 97 cents a share in the three months ended in September, compared with $1.26 a year earlier, the Bellevue, Washington-based company said in a statement yesterday. That beat the 88-cent average projection by analysts, according to data compiled by Bloomberg.
The company has been targeted by Jana, run by co-founder Barry Rosenstein, after it disappointed investors for two straight quarters. Jana disclosed a 13.5 percent stake in Outerwall on Oct. 4, saying the company is undervalued and it intends to a seek a sale of some or all of its businesses.
Outerwall said yesterday it will return 75 percent to 100 percent of annual free cash flow to investors, which in the near term will be in the form of share repurchases. The company will buy back an additional $150 million of stock, with $100 million to be bought back by the end of the fourth quarter.
Shares of Outerwall gained as much as 8.9 percent to $67.50 in extended trading yesterday, after advancing less than 1 percent to $61.98 at the close in New York. The stock has increased 19 percent this year.
The company forecast adjusted earnings in the fourth quarter of $1.09 and $1.24 a share, compared with the average analyst estimate of $1.18. Revenue is projected to be $585 million to $610 million, compared with the average estimate of $597.5 million.
In the third quarter, sales rose 9.3 percent to $587.4 million, ahead of the average analyst estimate of $575.4 million, as the company changed its marketing strategy at Redbox and rentals improved. Outerwall last month cut its forecast for profit and sales in the quarter, saying its DVD promotional strategy, while bringing in customers, led to more single-night rentals and revenue that was less than forecast.
Rental sales were in line with the company’s expectations and revenue gains were aided by its Coinstar division and the acquisition of EcoATM. The venture, a kiosk business that lets consumers trade in smartphones, tablets and MP3 players for cash, “continued to perform above expectations,” the company said.
Net income was $82.7 million, or $2.95 a share, up from $36.8 million, or $1.14 a share, a year earlier, Outerwall said.
Executives of Jana met with Outerwall management in the days preceding the disclosure of the investor’s stake, to discuss options including a breakup, according to a person with knowledge of the matter. Jana seeks the sale, spinoff or shutdown of the Redbox Instant by Verizon film-streaming venture, which has failed to develop into a credible threat to Netflix Inc. (NFLX:US), as well as the Rubi coffee-vending kiosks, a new venture, that made their debut in 2012, according to the person.
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