In the third quarter 2022 Nordson Corporation (NDSN), a manufacturer of adhesives, coatings, and fluids, changed the way it accounts for inventory from the LIFO to FIFO method. Changing to FIFO— especially during a period of rising costs— can increase a company’s profitability since older inventory acquired at a lower cost is used to value cost-of-goods-sold (COGS) on the income statement.

Notably, one reason for making the switch was to improve Nordson’s comparability with peers. However, it doesn’t appear Nordson is interested in improving the comparability of its own financial statements. Though the change reduced cost of sales Nordson did not restate prior period financial statements, stating the impact wasn’t material.

In FY22, Nordson’s YoY Gross margin fell 100 bps. But its fiscal third and fourth quarter gross margin fell 130 and 220 bps, respectively. Nordson’s combined fiscal third and fourth quarter COS as a percentage of revenue was 45.8%, only slightly above the prior 3 and 5-year averages of 45.4% and 45.2%, respectively.

The switch to FIFO prevented further gross margin erosion.