While almost half of the companies in the S&P 500 have underfunded
pension plans, the shortfalls at Ford and Goodyear pose more of a threat to
future profitability of those companies than is the case with any of the others
in the index, according to a new report from UBS analysts.
David Bianco, a strategist in the investment research group at UBS, notes
that a company’s funded status should be compared with its market capitalization
to truly measure its effect on a balance sheet. That said, the pensions at Ford
and Goodyear are underfunded by roughly $3.3 billion and $1.5 billion,
respectively—or 22 percent of their market caps. This, according to UBS, ranks
as the largest pension shortfall-to-market value ratio among S&P 500
companies.
“Any shortfall in pension funding will require a diversion of future
corporate profits to the fund, and equity capitalization represents the market’s
estimate of future profits,” Bianco noted. “Therefore, this ratio reveals the
relative burden of the deficit.”
On the other end of the spectrum, the pensions at General Motors and Eastman
Kodak are nicely overfunded, and they appear less likely to drag down earnings.
GM is carrying a roughly $8.3 billion pension surplus, which represents an
estimated 59 percent of its market cap, the highest of any company in the
S&P. Eastman Kodak, meanwhile, has a $1.5 billion surplus, which registers
as 24 percent of its market cap, second only to GM.
Filed by Mark Bruno of Financial Week, a sister publication of Workforce
Management. To comment, e-mail editors@workforce.com.
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