In another sign that the economy may not be firing on all cylinders, telecom company Lumen Technologies (NYSE:LUMN) just announced an effort to restructure its business for growth. Unfortunately, that means many valuable employees will lose their jobs. However, with the severe losses that LUMN stock has incurred in recent years, the Lumen layoffs may be a necessity.
According to Fierce Telecom, Lumen will lay off 4% of its workforce. Undergirding the decision was the company’s debt load, which stands at nearly $20 billion. With around 30,000 employees as of Sept. 30, the math means that 1,200 workers will be impacted by the layoffs.
With this plan, the telecom specialist expects to pay severance and related costs of between $55 million and $65 million. “We’ve made the difficult decision to reshape and resize Lumen for growth,” said CEO Kate Johnson.
Combined with “additional optimization initiatives,” the Lumen layoffs should create annualized savings of approximately $300 million. Management disclosed that the reorg should be “substantially completed” by the end of the fourth quarter of this year.
Per the company’s press release, Lumen will also close the sale of its Europe, Middle East and Africa (EMEA) business today. This transaction should “generate approximately $1.5 billion in net after tax proceeds, which Lumen anticipates will be used for debt reduction.”
Difficult Days Ahead for LUMN Stock Despite Lumen Layoffs
On paper, Lumen had little choice but to resize the company for the current demand profile. With massive debt against an annual revenue trend that has been in decline since 2018, the Lumen layoffs may have been a foregone conclusion. Still, that doesn’t make the path forward for LUMN stock easy by any means.
To its credit, Lumen is doing everything it can to right the ship. Recently, management announced an agreement with creditors that hold more than $7 billion of Lumen’s (and its subsidiaries’) outstanding debt. Per Fierce Telecom, the “transaction will extend a large portion of its debt maturities and remove questions about the company’s compliance with debt covenants.”
And to be fair, not all the news surrounding LUMN stock is negative. CEO Kate Johnson disclosed “strong growth” in Lumen’s Quantum fiber enablement. However, subscriber growth in this segment failed to hit expectations. The firm’s non-fiber broadband customers also fell to 1.9 million in the third quarter from nearly 2.3 million.
On top of that, the Q3 print itself was a mixed bag. Per MarketWatch, Lumen revealed an adjusted loss of 9 cents per share, badly missing analysts’ target for EPS of 4 cents. While quarterly revenue of $3.64 billion did exceed expectations, those sales were also down 17% year-over-year (YOY).
Why It Matters
Citi analyst Michael Rollins recently gave a “sell” rating to Lumen shares, citing concerns about a longer and more costly turnaround initiative. Overall, analysts peg LUMN stock as a moderate sell on TipRanks, albeit with a $2.42 price target. That price prediction implies roughly 132% upside potential.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.