How global job cuts could boost the BHP share price

The BHP Group Ltd (ASX: BHP) share price could benefit if the company’s plans to cut jobs have the desired effect.

Australia’s biggest company usually makes a large amount of profit. However, the recent FY24 half-year result saw a big decline in profitability after large one-off items, being a write-down of the value of its nickel assets, as well as another increase in the cost of the Samarco disaster.

BHP share price to benefit from job cuts?

According to reporting by the Australian Financial Review, the ASX mining share has started cutting jobs as part of a significant restructuring of its global operations across planning, maintenance, logistics, decarbonisation and heritage protection. Specialist teams are being disbanded to “streamline the business” according to the newspaper.

BHP hasn’t announced how many jobs will be cut, but the idea is that each specific commodity division will “run themselves self-sufficiently” amid a decentralisation of its support services.

A BHP spokesman said:

As part of our continuous improvement in how we approach our work, we have made some changes to better align work activities within assets and support quicker decision making.

It was reported that some jobs in the planning and technical division and the health, safety and environment division have already been cut.

BHP’s mining segment will be in charge of maintenance planning and scheduling, which was previously part of BHP’s global technical arm.

Each mining business will finish this process with a similar structure, but implementation will differ in each case.

At the BMO mining conference, the BHP CEO Mike Henry said:

Our near-term outlook for China remains cautious, and conditional on how quickly and effectively pro-growth policies impact the broader Chinese economy.

He also reportedly said its biggest opportunity to unlock value was increasing productivity within its existing assets.

How would job cuts help boost the company?

If BHP has a price/earnings (P/E) ratio of 10 (for example), that means the BHP share price is trading at 10x its earnings. If it can cut costs and increase its ongoing profit by $1 million, that would theoretically boost the market capitalisation of the business by $10 million. Cutting costs by $10 million could boost the market cap by $100 million.

BHP share price snapshot

Over the past year, the BHP share price has dropped by around 5%.

The post How global job cuts could boost the BHP share price appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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