Ever seen shares of a stock jump when the company announces massive layoffs? It happens pretty frequently.
Layoff announcements are usually accompanied by restructuring plans. If investors expect the changes to improve the company's performance, they may snap up shares. If they do, the share price rises. This was the case with sewing-machine maker Singer, 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 made a similar announcement, its stock fell by nearly 6%. When Coca-Cola announced plans to lay off 4,000 or more in 2000, its stock took a hit, too. And more recently, after Sun Microsystems announced plans to lay off more than 10% of its workforce, its stock got whacked by almost 5%.
On the other hand, Kodak stock later rose on news of further layoffs. The direction of the stock all depends on whether the market believes the layoffs are a promise of greater operational efficiency, or a sign of a long-term downturn in the business.
Coca-Cola is an Inside Value recommendation.
