When Layoffs Are Good News

Ever wonder why shares of a stock sometimes jump when the company announces massive layoffs? Well, layoff announcements are usually accompanied by restructuring plans. If investors expect the changes to improve the company's performance, they may snap up shares, driving the price up. This was the case with sewing-machine maker Singer (OTC BB: SNGR.PK), which announced a few years ago that was laying off 28% of its workforce and that it would be closing some plants to integrate its production units with those of a recent acquisition. Shares shot up 17% that day.

News like this doesn't always pump up share prices, though. When Eastman Kodak (NYSE: EK  ) made a similar announcement a few years ago, its stock fell nearly 6%. (A little later, Kodak stock rose on news of further layoffs.) It all depends whether the market thinks the layoffs are a promise of greater operational efficiency or a sign of a long-term downturn in the business.

In more recent examples, Motorola (NYSE: MOT  ) announced layoffs of about 1,000 people last month, but its stock budged only about 1% -- that's because the layoffs weren't surprising, as they related to a spinoff the company was executing. Then there's brokerage Charles Schwab (NYSE: SCH  ) , whose stock was falling steadily for most of the first half of this year. It announced several rounds of layoffs beginning this past summer, and the stock has since leveled off to some degree as investors keep an eye on it.

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