What happened
Shares of Ford Motor Company (F 1.38%) were trading down on Wednesday, after the company previewed a series of one-time items it expects to report with its fourth-quarter earnings.
As of 1 p.m. ET, Ford's shares were down about 7.2% from Tuesday's closing price.
So what
At first glance, Ford's preview, released after the U.S. markets closed on Tuesday, was good news. The company said it will report a fourth-quarter gain of $8.2 billion on its stake in Rivian Automotive (RIVN 1.96%), which went public late last year. Ford said it will also realize a $3.5 billion accounting gain from its annual pension-fund remeasurement, and a $3.6 billion tax benefit related to its global restructuring.
That all sounds good, right? So why is the stock down?
This will take a little bit of explaining. Back in the first quarter of 2021, Ford reported a roughly $900 million gain on its Rivian investment, based on the valuation used in the then-private start-up's most recent funding round. At the time, Ford recognized that gain as income, not as a one-time item.
Then, during Ford's third-quarter earnings call in October, Ford CFO John Lawler said that once Rivian went public, Ford would retroactively recategorize that $900 million gain as a one-time item, not as income.
Ford's investment in Rivian has grown handsomely, but a related accounting move seems to have triggered a sell-off today. Image source: Ford Motor Company.
In yesterday's press release, Ford reminded investors of that recategorization plan -- and noted that it will affect the guidance Ford gave during that same third-quarter call, when it said its full-year adjusted earnings before interest and tax would come in between $10.5 billion and $11.5 billion, because that range assumed that the $900 million would still count as income at year-end.
But because Rivian went public before year-end, it won't be counted as part of Ford's 2021 income. Put simply, Ford has essentially revised its full-year earnings guidance lower because of an accounting change related to the timing of Rivian's initial public offering.
The change doesn't affect the long-term investment case for Ford in any meaningful way. But because the traders and algorithms are seeing yesterday's news as a "guidance cut," Ford's stock is getting clobbered today.
Now what
Auto investors can look ahead to Ford's fourth-quarter and full-year earnings report on Feb. 3 after the U.S. markets close, during which -- we hope -- Ford will make clear to Wall Street that this accounting change had no material effect on its finances.
