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
But 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.
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.
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 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.
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
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.
(Additional reporting by Donna Smith in Washington; Editing by Tim Dobbyn and Gerald E. McCormick)