Ford Stock Had Its Worst Day Since April. It’s the Risk of Making Investors Do Math.
Ford reported an $8.2 billion gain on its Rivian investment for the fourth quarter.
Courtesy Ford
Ford Motor
stock got hammered Wednesday, but the reason for the drop isn’t obvious. Perhaps Ford simply made investors do too much math.
Ford shares dropped 7.9%, far worse than the 1% drops in both the S&P 500 and Dow Jones Industrial Average.
It was the stock’s worst day since April 29, 2021. Shares fell more than 9% that day as investors digested news of a semiconductor shortage as well as disappointing—and confusing—full-year financial guidance from the U.S. auto maker.
Confusion over guidance might be at the heart of Wednesday’s big drop, too.
In a news release Tuesday evening, Ford announced a series of special charges that investors should expect when the company reports fourth-quarter numbers in early February. The headline from the Tuesday news release was an $8.2 billion fourth-quarter gain on Ford’s Rivian Automotive (RIVN) investment. Ford owns about 100 million shares in the electric-truck maker. Most of the other items in the Tuesday release qualify as accounting minutiae.
Ford did, however, update its full-year financial guidance, and that could be what investors responded to.
“Ford will reclassify its [roughly] $900 million first-quarter 2021 non-cash gain on the Rivian investment as a special item—a step Ford said in October it would take after Rivian’s IPO,” reads part of the release. “The reclassification means the gain from first-quarter 2021 will not be included in Ford’s full-year adjusted EBIT [earnings before interest and tax] or adjusted EPS.”
It’s a mouthful, but essentially, Ford’s guidance for 2021 operating profit is now $9.6 billion to $10.6 billion. That’s $900 million less than the old range of $10.5 billion to $11.5 billion. While it seems like a guidance cut at first glance, Ford effectively just moved the $900 million around.
That’s one explanation for the Wednesday stock drop. Ford also noted special items for debt retirement, tax accounting, and pension accounting. The net of all the other charges is a gain of roughly $5.4 billion. Another big number, but nothing that has much to do with the company’s long-term value, cash balances, or ongoing business operations.
In the end there might have been just too much for investors to get their minds around, adding a little uncertainty to Ford stock. And one thing investors hate is uncertainty.
Write to Al Root at [email protected]
