Layoffs & Earnings

All: How do layoffs effect earnings? If a company does layoffs just before earnings announcement, do the layoffs have any positive effect on earnings, other than cost cutting going forward? Are there any “restructuring charges” or “write-offs” that can be attributed to layoffs? Thank you!

Sometimes the commentary will indicate charges for severance

So if a company is reporting earnings tomorrow and doing layoffs today, that’s not a good thing, is it? Meaning, the company is trying to meet/exceed earnings from The Street?

IF they’re reporting tomorrow, the numbers are already set. They’re reporting numbers for a period that ended a month ago, so avoiding salary next week doesn’t help until the next reporting period.

Makes sense. Other than that, is there no way to really boost earnings with layoff announcements…

“announcements” themselves can’t boost earnings, but they can boost stock prices. the reason cutting people could boost earnings is because you’re no longer spending money on salary. If you can generate the same amount of sales, without those dead-weight salary expenses, then your earnings will be higher. Still, when you fire someone, it only saves you money in the future, not the past.

Companies like to bundle bad news. For one thing, it makes lawsuits harder to file because one stock drop is attributable to multiple factors. For another, if you have bad news on Tuesday then why wait until Thursday to have more bad news.

How many if these companies actually follow through with their big layoff announcements? Is there any research? Eg, when UBS says it’s laying off 9 000 workers - does it actually happen? Or do they just sack a heap and that’s that. My gut feeling is that while plenty of folk do get the axe, the big headline number is just that.

Keep in mind a layoff isn’t just salary. A person uses software such as Bloomberg which could be 20k/person. If it’s 2000k workers who use Bloomberg that a 40million saving. UBS can then say going forward we expect a savings of xxx because of expense efficiency…

Initially laying off is gonna be a big expense with the severance pay payouts. But going forward it will obviously result in savings

Announcing restructuring charges (large parts of which are layoffs) allows the Co. to take the entire charge in the quarter of announcement. In subsequent quarters this has a positive effect on earnings as no severance charges are hitting EPS (despite cash payments that may be made) and cost savings are being realized. Additionally, to the extent that the full restructuring charge isn’t taken (e.g. layoffs less than expected), you can reverse the restructuring accrual into earnings (doesn’t happen materially too often though). Always interesting the analysis of restructuring charges because many analyst consider it one-time and add it back to earnings but to that extent, you may consider the liability for restructuring as debt.

Many companies aren’t doing severance anymore