Join        Login             Stock Quote

Honeywell Set To Benefit From Pension Tailwind

 January 18, 2013 12:34 PM

(By Mani) Honeywell International, Inc. (NYSE:HON) is likely to realize a significant earnings benefit from its pension this year due to a combination of factors that many investors may not recognize.

The company is uniquely positioned to enjoy a decline in pension costs this year compared to other companies that face pension headwinds. Honeywell's pension expense is expected to decline by $50 million to $75 million this year, which, in turn, would shift pension from a drag to EPS in 2012 to a modest contributor to EPS.

"A $50-75mm decline in pension expense moves pension from an earnings drag in 2012 to an operating earnings contributor in 2013 (2-4 cents of EPS income in 2013 vs. an expected 3-4 cents of EPS expense in 2012),"Deutsche Bank analyst John Inch wrote in a note to clients.

[Related -Honeywell International Inc. (HON): Why China Matters To Honeywell?]

This is important given that many other industrial companies are poised to experience pension headwinds in 2013.

Honeywell's pension expense is expected to decline due to reduced interest costs, full-year of benefit from returns on 2012 cash contributions to the pension plan, and superior performance of plan assets.

Service costs, a component of pension expense, which typically increases when interest rates decline, are not expected to increase next year due to shrinkage of Honeywell's pension recipient pool.

"Based on Honeywell's portfolio composition in 2012 we believe the pension plan could handily beat the company's 8% assumed rate of return," Inch noted.

[Related -Honeywell International Inc. (HON): Sales, Margins To Get A “Turbo” Boost]

The majority of the pension assets (about 85 percent) are invested in a combination of stocks and bonds, including Honeywell stock at 8 percent of the total portfolio. Honeywell shares performed solidly last year, providing nearly 20 percent total return.

The balance of the stock portfolio is weighted toward other U.S. large cap stocks and international stocks – both of these asset classes also performed well which bodes well for Honeywell's portfolio.

A gradual increase in interest rates over the next several years should help to narrow Honeywell's U.S. pension plan funding gap (ie, pension plan deficit) which reduces the likelihood of future pension contributions, which averaged over $1 billion annually over the last 3 years.

"In turn, Honeywell should have more money available to allocate to share repurchases and acquisitions that could be highly accretive to operating earnings," Inch said.

New Jersey-based Honeywell, a diversified technology and manufacturing company is expected to report its fourth-quarter earnings on Jan.25. Wall Street expects earnings of $1.09 a share on revenue of $9.52 billion, according to analysts polled by Thomson Reuters.



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

article imageThe Single Best Place To Invest Your Money For Retirement

It was never supposed to be this daunting. At least that's what we were read on...

article imageNegative Blowback From Negative Interest Rates

The Federal Reserve is widely expected to leave interest rates unchanged today. But perhaps standing pat read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.