Layoffs Are Fueling a Big Bounce in Petroleo Brasileiro SA Petrobras Stock Today

By Markets Fool.com

What: Shares of Petrobras jumped as much as 13.9% by 10:45 a.m. ET on Thursday after it was reported that the company would announce a round of voluntary layoffs later this year.

Continue Reading Below

So what: According to a Brazilian newspaper, Petrobras will lay off up to 12,000 workers, of 15% of its workforce, as part of a program to reduce costs. That plan is expected to be announced later this year along with the company's business plan for 2016-2020. That plan, according to earlier reports, will see the company cut its capital spending by 20% over the five-year period in response to weak oil prices and the company's weakened financial position.

Petrobras' financial woes have been mounting over the past year after it was rocked with a scandal involving political kickbacks and price fixing, on top of issues with project delays. That has only compounded the company's problems managing its gargantuan $130 billion in debt, which is becoming harder to bear given the deep downturn in the oil price. Clearly, it has to address spending in order to get its financial situation under control and investors see the layoffs as a step in the right direction.

Now what: While Petrobras appears to be taking tangible steps forward to address its weakening financial situation, it still has a long road ahead of it. The company not only needs to cut costs, but it needs a massive infusion of new cash. One part of that plan consists of assets sales -- it is planning to unload $14 billion in assets this year, though so far no meaningful asset sales have materialized. On top of that, it needs the oil price to stabilize at a much higher level in order to generate more cash flow out of its assets as well as to justify its offshore development projects. Suffice it to say, the company needs a lot to go right in the very near term in order to survive over the long term.

The article Layoffs Are Fueling a Big Bounce in Petroleo Brasileiro SA Petrobras Stock Today originally appeared on Fool.com.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Continue Reading Below