Daily Archives: March 25, 2010

For all of you simpletons that thought that health care reform was a good idea and it was a way to stick it to the rich Americans,  let me explain corporate America to you.

John Deere makes tractors and farming equipment.  Lets use nice round numbers here to keep it simple enough for the simpletons.  Lets say a tractor used to harvest corn cost 10,000 dollars.  A can of corn today is two dollars US.

This same tractor will cost roughly 1,000 dollars a year to maintain and fill with fuel.   All of this is factored into what you pay for corn at the market.

Suddenly the John Deere Manufacturing Corporation has to shell out an addditional 250 million dollars a year for socialized medicine.   The cost of their product,  in this case the tractor that harvests your corn, as well as all associated replacement parts is going to have to go up to make up the difference.

Your can of corn just went up a dollar a can.  Of course the reach of John Deere in the American economy goes much deeper than just a can of corn,  but you should be able to grasp the concept.

The same goes for Caterpillar.  Again for those of you that don’t know,  Caterpillar makes a large percentage of the drive trains that push trucks across America with the goods and foods that you buy every day.  Expect the price of virtually everything to go up exponentially.

Now I ask you,  how could this possibly be good for the American economy?    Bob

A pair of top U.S. industrial companies gave some of the first estimates of what the nation’s healthcare overhaul will cost them, although an Obama administration official called the moves premature.

Deere & Co (DE.N) and Caterpillar Inc (CAT.N) said they are expecting a combined $250 million in charges this year as a result of changes to the $2.5 trillion U.S. healthcare system that President Barack Obama signed into law this week.

But U.S. Commerce Secretary Gary Locke criticized those estimates as premature. The final law is still being tweaked, with the Senate expected to send a revised version of the landmark legislation back to the House of Representatives later on Thursday after eliminating two minor provisions.

“A lot of the regulations on how this will affect big business haven’t even published yet; so for them to come out, I think is premature and irresponsible,” Locke said in an interview on CNBC business television.

Republicans — who had fought the move that was a cornerstone of Democratic President Barack Obama’s domestic policy — jumped on the forecasts as evidence that the change would be damaging to the U.S. economy, which is in a phase of shaky recovery.

“It didn’t take 48 hours before the tax increases in this health care bill started to hit manufacturers and other employers,” said Representative Dave Camp, the top Republican on the tax-writing House Ways and Means Committee. “With over one-half trillion dollars in new taxes, the health care bill is the single largest tax increase in American history. It is a government takeover of health care that families cannot afford and our economy cannot afford.”

At issue in Deere’s and Caterpillar’s forecasts is a provision of the health care reform package that makes a subsidy paid to companies to provide prescription drug coverage to their employees taxable; previously this benefit had not been taxed.

Investors appeared to take the news in stride, as both companies’ shares were up around 2 percent, outpacing the broad Standard & Poor’s 500 index .SPX.

“This is a near-term, quick-hit charge,” said Jeff Windau, an industrial analyst at Edward Jones in St. Louis, who follows both Caterpillar and Deere. “A lot of investors are still looking through to the longer-term question of what’s the economy doing? There’s growth out there and we can handle this one-time charge.”

INVESTOR CONFIDENCE

Despite the political furor around the legislation, Windau said many investors may feel confident that companies that just survived the worst recession since the Great Depression of the 1930s will be able to handle a change in the system.

“Investors have confidence that they can manage these costs as well,” Windau said.

Deere, a maker of farm equipment, said on Thursday it expects its after-tax expenses to rise by about $150 million this year as a result of healthcare reform. [ID:nN25216862]

The Moline, Illinois-based company, which expects the bulk of the costs to come in its current second fiscal quarter, had forecast full-year earnings of about $1.3 billion.

Analysts, on average, had looked for second fiscal quarter profit of $450.6 million, or $1.06 per per share, from Deere, with full-year profit forecast at $1.37 billion, or $3.21 per share, according to Thomson Reuters I/B/E/S.

Caterpillar, the world’s largest maker of earth-moving equipment, said in a filing with the SEC after the close of trading on Wednesday that it expects to record a $100 million after-tax charge in the first quarter related to the new law. [ID:nN24185079]

Analysts, on average, had looked for a first quarter profit at Caterpillar of about $280 million, or 45 cents per share.

Caterpillar and Deere are not the first companies to project their costs related to the reform package, which is high on corporate America’s radar since more than 150 million working-age Americans get health benefits from their employers.

Diversified U.S. manufacturer Honeywell International Inc (HON.N) in January estimated that healthcare reform would trim its first quarter earnings by 4 to 5 cents per share.

That forecast — which came at a time when it was unsure whether health care reform would pass at all, let alone what form it would take — surprised investors, who sent Honeywell shares down despite a fourth-quarter earnings report that topped Wall Street forecasts.

A Honeywell spokesman said on Thursday that the company has not updated the earlier cost estimate and would continue to review the legislation.