February 3, 2015 / 12:48 PM / 3 years ago

UPDATE 2-Wendy's to sell 500 outlets to franchisees to cut spending

3 Min Read

* Sale to generate $400mln-$475 mln in pretax proceeds

* Estimates 4th-qtr revenue of $502 mln vs est $509.1 mln

* Forecasts 2015 adj profit of $0.33-$0.35/shr vs est $0.39

* Shares touch more than 7-yr high of $11.50 (Adds details and analyst comment, updates shares)

Feb 3 (Reuters) - Wendy's Co, the No. 3 U.S. hamburger chain by sales, said it would sell about 500 restaurants to franchisees and reduce company ownership of its outlets to about 5 percent by mid-2016.

The company's shares rose as much as 10.5 pct to a more than seven-year high of $11.50 in early trading.

Wendy's, known for its square beef burgers and thick "Frosty" milkshakes, has been selling company-owned restaurants to franchisees to cut costs and fund a long-term image overhaul.

The company, which sold 237 restaurants to franchisees in 2014, owned 957 of 6,515 Wendy's branded restaurants as of Dec. 28.

The sale of the 500 restaurants is expected to generate pretax proceeds of $400 million to $475 million and significantly reduce capital expenditure requirements, Wendy's said in a statement on Tuesday.

The company said it plans to use the proceeds and improved cash flow to recapitalize its balance sheet, and then take on debt to return "substantial cash to shareholders" in 2015.

Wendy's returned $375 million to shareholders through dividends and share repurchases in 2014, Buckingham Research Group analyst Matthew DiFrisco wrote in a note, adding that he expected the company to return $1 billion more.

Wendy's, like market leader McDonald's Corp, has been struggling in an increasingly competitive fast-food market, losing out to casual dining restaurants such as Chipotle Mexican Grill Inc and Panera Bread Co, which offer consumers a wider choice of healthy options.

Same-restaurant sales at company-owned restaurants rose 1.9 percent in the fourth quarter from a year earlier, less than the 2.4 percent increase estimated by analysts polled by research firm Consensus Metrix.

The company also estimated revenue of $502 million for the quarter ended Dec. 28, below analysts' average forecast of $509.1 million, according to Thomson Reuters I/B/E/S.

Wendy's estimated fourth-quarter net income of $23.3 million, or 6 cents per share, attributable to the company. Excluding items, profit was estimated at 10 cents per share, in line with the average analyst estimate.

The company forecast a 2015 adjusted profit of 33-35 cents per share, below analysts' average estimate of 39 cents. The forecast includes the previously announced sale of its 100 remaining restaurants in Canada to franchisees.

Wendy's said it and its franchisees would build 80 restaurants in 2015 and remodel 450.

The company's shares were up 5.4 percent at $10.98 on the Nasdaq on Tuesday. (Reporting by Nayan Das and Sruthi Ramakrishnan in Bengaluru; Editing by Simon Jennings)

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