Pension costs to weigh on some packaging earnings

Pension fund expenses this year will weigh on earnings of several major U.S. packaging companies because of a drop in the stock market last year that reached nearly 40 percent.

Since a company's pension fund assets often have more than 50 percent stocks, a decline in the stock market can force an employer to pay more into the pension to maintain adequate funding for its retirees.

KeyBanc analyst Christopher Manuel, noting that the Standard & Poor's 500 stock index ended 2008 down 38 percent, said the resulting effect constitutes "a significant drag to earnings" for Philadelphia-based Crown Holdings Inc., Perrysburg, Ohio-based Owens-Illinois Inc., Lake Forest, Ill.-based Pactiv Corp. and Hartsville, S.C.-based Sonoco Products Co.

Manuel also said in his client note that resulting incremental cash contributions next year could be most significant for Broomfield, Colo.-based Ball Corp., Owens-Illinois and Pactiv, though recent legislation and prefunding credits may make the impact less severe.

There will be relatively insignificant pension expense increases for Ball, Crystal Lake, Ill.-based AptarGroup Inc., Delaware, Ohio-based Greif Inc., Akron, Ohio-based Myers Industries Inc. and Stamford, Conn.-based Silgan Holdings Inc., all of which have relatively minimal exposure to last year's stock market collapse due to the small size of their pension plans, Manuel said.

In midday trading, shares of packaging companies were mixed, with Greif shares up 89 cents, or 2.8 percent, to $32.31 and shares of Pactiv down 29 cents to $22.79.