Shares of Ford Motor Company (NYSE: F) traded down Wednesday after the company had previewed a number of non-recurring items that it expects to report with its fourth-quarter earnings.
From kl. 13 ET, Ford's shares had fallen about 7.2% from Tuesday's closing price.
At first glance, Ford's preview, which was released after the US markets closed on Tuesday, was good news. The company said it will report a $ 8.2 billion gain in the fourth quarter on its stake in Rivian Automotive (NASDAQ: RIVN), which was published at the end of last year. Ford said it would also realize an accounting gain of $ 3.5 billion from its annual revaluation of the pension fund and a tax benefit of $ 3.6 billion in its global restructuring.
That all sounds good, right? So why has the stock fallen?
This will require some explanation. Back in the first quarter of 2021, Ford reported a gain of about $ 900 million on its Rivian investment based on the valuation used in the then private start-ups' latest round of financing. At the time, Ford recognized that gain as income, not as a one-time entry.
So, during Ford's third-quarter earnings call in October, Ford CFO John Lawler said that when Rivian was listed, Ford would retroactively recategorize that $ 900 million gain as a non-recurring item, not as revenue.
In yesterday's press release, Ford reminded investors of this recategorization plan - noting that it will affect the guidance Ford gave during the same third-quarter call, saying its full-year adjusted earnings before interest and taxes would be between $ 10.5 billion and $ 11.5 billion because that range assumed that the $ 900 million would still count as revenue at the end of the year.
But because Rivian was listed before the end of the year, it will not be counted as part of Ford's 2021 income. Simply put, Ford has essentially revised its full-year earnings guidance lower due to an accounting change related to the timing of Rivian's initial public offering.
The change does not affect Ford's long-term investment case in any meaningful way. But because traders and algorithms see yesterday's news as a "guidance cut," Ford's stock is getting smarter today.
Car investors can look forward to Ford's fourth-quarter earnings report and the full year on February 3, after US markets close, where - we hope - Ford will make it clear to Wall Street that this accounting change had no significant effect on its economy .
This article represents the opinion of the author, who may disagree with the "official" recommendation position for a Motley Fool premium advisory service. We are motley! Questioning an investment dissertation - even one of our own - helps us all think critically about investing and make decisions that help us become wiser, happier and richer.