Pension Issues Could Reach Beyond Old-Line Industries
09 Janeiro 2009 - 6:42PM
Dow Jones News
When investors try to determine which U.S. companies face
worrisome pension obligations, they ought to search beyond
manufacturers with bulging retiree rolls.
Although old-line manufacturers from automakers to chemical
producers are certainly among the companies that bear watching for
pension problems, companies as diverse as newspaper and television
broadcaster E.W. Scripps (SSP) and boat and bowling equipment maker
Brunswick Corp. (BC) could be potential risks, too, according to
analysts.
That's because such companies carry a high level of pension
obligations relative to their size. Although different
methodologies are used -- some analysts compare obligations to the
market capitalization of a company, others compare it to the book
value of the business -- the theory is the same: Pension size
doesn't matter as much as the heft of the company carrying it.
"When pension issues emerge, investors tend to flock to the
usual suspects, like the auto industry or companies with a large
absolute amount of pension assets," says Michael A. Moran, a
strategist in Goldman Sachs Group Inc.'s (GS) global markets
institute. "But looking at the size of a plan relative to the size
of a company is very important. Materiality needs to be a part of
the analysis."
Sharp market declines and falling interest rates have combined
to batter traditional defined benefit pension funds. This may lead
some companies to make hefty contributions to their pension plans
this year, which could hurt earnings and discourage investors.
Goldman and Credit Suisse Group (CS) have come up with
remarkably similar lists of companies that could suffer in 2009
from pension shortfalls generated in the rough markets in 2008. The
rosters don't confer a definitive scarlet letter on those included
because the analysts' models generalize their calculations to apply
to a wide universe of companies, when in reality each corporation
uses different actuarial and accounting assumptions that could
result in better outcomes.
But because most companies follow a Dec. 31 fiscal year, and
won't issue annual reports revealing 2008 pension data for at least
another few weeks, the analysts' models are the closest thing
investors have for an initial screening tool to begin sifting for
trouble.
By Moran's reckoning, the companies with the highest pension
obligations relative to their sizes include not only automakers
like General Motors Corp. (GM) and Ford Motor Co. (F), but also
technology consulting firm Unisys Corp. (UIS); office supplies
retailer OfficeMax Inc. (OMX); E.W. Scripps and Brunswick; telecom
company Qwest Communications International Inc. (Q); and food
packaging company Pactiv Corp. (PTV), among others.
Credit Suisse's David Zion's research has similarly picked out
GM, Ford, Unisys, Brunswick, Scripps and OfficeMax.
With the exception of Qwest and Unisys, companies mentioned by
the two analysts didn't immediately return phone calls. Qwest
declined to comment, saying it would update investors on its
pension obligations during its year-end earnings release on Feb 10;
Unisys said it is still determining its pension expense and
obligations and will also update investors on its status on a Feb.
10 earnings call.
Actuaries at consulting firms agree that the biggest question
that comes into play when trying to sniff out potential pension
minefields is the size of the plan relative to the sponsoring
company. But while there could be problem companies lurking off the
beaten path, they say the bulk of the firms encountering pension
headwinds are going to be in the expected places.
"Where you look are at industries that have been around a long
time, that have had very large labor forces at one time, but the
companies may be smaller now than they once were. That means
manufacturing, chemicals, and other similar old-line industries,"
says Michael Archer, chief actuary at Towers Perrin, who declined
to name any specific companies at risk. "Their pension plans didn't
get smaller, so the companies still have those obligations at the
same time that their revenues have declined."
-By Lynn Cowan, Dow Jones Newswires; 301-270-0323;
lynn.cowan@dowjones.com
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