CSX Corp. (NASDAQ:CSX)

The period between 2018 and 2022 demonstrates fluctuations in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibited initial growth, followed by a decline, and then a recovery. The cost of capital remained relatively stable over the five-year period, while invested capital generally increased. However, economic profit remained negative throughout the analyzed timeframe, though with varying magnitudes.

NOPAT Trend

NOPAT increased from US$4,106 million in 2018 to US$4,174 million in 2019, representing a modest gain. A subsequent decrease was observed in 2020, with NOPAT falling to US$3,545 million. The year 2021 saw a recovery to US$4,534 million, and this upward trend continued into 2022, reaching US$4,863 million. This indicates improving operational profitability in the latter part of the period.

Cost of Capital Stability

The cost of capital experienced minor variations, beginning at 14.73% in 2018. It decreased slightly to 14.37% in 2019 and 14.20% in 2020 before increasing to 14.78% in 2021 and 14.81% in 2022. The relative consistency suggests that the company’s risk profile and market conditions remained largely unchanged during this period.

Invested Capital Growth

Invested capital showed a consistent upward trend, increasing from US$34,219 million in 2018 to US$38,278 million in 2022. The growth was not linear, with a larger increase between 2019 and 2020 (US$2,835 million) and more moderate increases in other years. This suggests ongoing investment in the business.

Economic Profit Performance

Economic profit was negative in each year analyzed. The largest negative economic profit occurred in 2020, at -US$1,801 million. The figures for 2018, 2019, 2021, and 2022 were -US$935 million, -US$828 million, -US$1,029 million, and -US$806 million, respectively. While the negative economic profit lessened in 2019 and 2022, the company did not generate returns exceeding its cost of capital during this period. The improvement in 2022, despite remaining negative, aligns with the increase in NOPAT.

In summary, while NOPAT demonstrated a positive trajectory towards the end of the period and invested capital grew, the cost of capital remained substantial enough to result in consistently negative economic profit. The reduction in the magnitude of the economic loss in 2022 is a positive sign, but continued monitoring is warranted to determine if the company can achieve positive economic profit in future periods.

The financial data reveals several key trends concerning profitability over the analyzed five-year period. Net earnings exhibited an initial slight increase from 2018 to 2019, growing marginally from 3,309 million USD to 3,331 million USD. This was followed by a noticeable decline in 2020 down to 2,765 million USD, indicating a downturn in earnings performance during that year. Subsequently, net earnings demonstrated a robust recovery, increasing significantly to 3,781 million USD in 2021 and further to 4,166 million USD in 2022, surpassing earlier results. This indicates a strong rebound and an overall positive trajectory post-2020.

Net operating profit after taxes (NOPAT) exhibits a pattern comparable to net earnings, although at consistently higher absolute values. From 2018 to 2019, NOPAT increased slightly from 4,106 million USD to 4,174 million USD, similar to the initial net earnings rise. In 2020, NOPAT declined noticeably to 3,545 million USD, coinciding with the drop observed in net earnings. Afterwards, there was a marked recovery in 2021, with NOPAT rising to 4,534 million USD and continuing upward to 4,863 million USD in 2022, reflecting improvement in operational profitability.

Net Earnings Trends

- Slight growth from 2018 to 2019

- Decline in 2020, possibly reflecting adverse conditions

- Strong recovery and growth in 2021 and 2022, reaching record highs in the period

Net Operating Profit After Taxes (NOPAT) Trends

- Positive growth early in the period (2018-2019)

- Decrease in 2020 aligned with net earnings downturn

- Significant rebound in 2021 and continued growth in 2022, indicating operational efficiency improvements

Overall Insight

The data suggests resilience in profitability following a challenging 2020, with both net earnings and NOPAT showing strong recovery and growth thereafter. Operational profits consistently exceeded net earnings, implying favorable non-operating factors or financial management contributing positively to net results.

The financial data reflects the progression of income tax expense and cash operating taxes from 2018 to 2022, measured in millions of US dollars.

Income Tax Expense

This item shows a fluctuating but generally increasing trend across the five-year period. The expense declined slightly from 995 million in 2018 to 985 million in 2019, followed by a more noticeable decrease to 862 million in 2020. However, from 2020 onward, there was a significant rise to 1,170 million in 2021 and a further increase to 1,248 million in 2022, surpassing earlier years’ figures.

Cash Operating Taxes

Cash operating taxes exhibit a similar pattern to income tax expense. Starting at 854 million in 2018, the value increased marginally to 862 million in 2019, then decreased moderately to 842 million in 2020. Subsequently, there was a considerable rise to 1,159 million in 2021 and an additional increase to 1,284 million in 2022. The growth in 2021 and 2022 was strong enough to exceed the levels observed prior to 2020.

Overall, both income tax expense and cash operating taxes suffered declines in 2020, possibly reflecting economic conditions or operational factors impacting taxable income or tax payments during that year. The subsequent two years show recovery and robust increases, indicating higher taxable profits or changes in tax rates or policies. Notably, cash operating taxes slightly outpaced income tax expense in the last two years, which could suggest timing differences or changes in tax payment structures.

Total reported debt & leases

The total reported debt and leases demonstrated an overall increasing trend across the observed periods. Starting at $15,060 million at the end of 2018, the figure rose steadily to $18,604 million by the end of 2022. There was a noticeable increment from 2019 to 2020, followed by a slight decline in 2021, and then an uptick again in 2022 reaching the highest value in the series.

Shareholders’ equity, attributable to CSX

Shareholders’ equity showed fluctuations during the five-year period. Beginning at $12,563 million in 2018, it decreased to $11,848 million in 2019. Subsequently, the equity improved, peaking at $13,490 million in 2021, before declining again to $12,615 million in 2022. This pattern suggests variable equity performance with no consistent growth trajectory.

Invested capital

Invested capital displayed a consistent growth pattern over the period examined. The value increased incrementally from $34,219 million in 2018 to $38,278 million in 2022. The growth was steady with modest year-to-year increases, indicating a gradual expansion of the capital base over time.

The period between 2018 and 2022 demonstrates a fluctuating, yet generally improving, financial performance as measured by economic value added metrics. Economic profit remained negative throughout the observed timeframe, but exhibited some degree of volatility. Invested capital consistently increased over the five years. The economic spread ratio, calculated from these figures, reveals the relationship between returns generated and the cost of capital.

Economic Profit

Economic profit began at negative US$935 million in 2018, improved to negative US$828 million in 2019, then experienced a substantial decline to negative US$1,801 million in 2020. A partial recovery occurred in 2021, with economic profit reaching negative US$1,029 million, followed by a further improvement to negative US$806 million in 2022. While consistently negative, the magnitude of the loss decreased from 2020 to 2022.

Invested Capital

Invested capital showed a consistent upward trend throughout the period. Starting at US$34,219 million in 2018, it increased to US$34,802 million in 2019, US$37,637 million in 2020, US$37,644 million in 2021, and reached US$38,278 million in 2022. The rate of increase slowed between 2020 and 2021, but resumed in the final year.

Economic Spread Ratio

The economic spread ratio was negative across all years, indicating that returns generated were less than the cost of capital. The ratio began at -2.73% in 2018, improved to -2.38% in 2019, then deteriorated significantly to -4.79% in 2020. It partially recovered to -2.73% in 2021 and further improved to -2.11% in 2022. The trend suggests a narrowing gap between returns and the cost of capital, particularly in the latter two years of the observed period.

The combined trends suggest that while the company continues to operate at an economic loss, the rate of loss is diminishing. The increasing invested capital, coupled with the improving economic spread ratio, indicates a potential for future profitability if these trends continue. However, sustained negative economic profit warrants continued monitoring and strategic evaluation.

The economic profit margin exhibited considerable fluctuation between 2018 and 2022. While negative throughout the observed period, the magnitude of the negative margin varied significantly, indicating inconsistent profitability when considering the cost of capital.

Economic Profit Margin Trend

The economic profit margin began at -7.63% in 2018 and decreased to -6.93% in 2019, suggesting a slight improvement in economic profitability. However, 2020 witnessed a substantial decline to -17.02%, representing the most significant negative margin within the analyzed timeframe. A partial recovery occurred in 2021, with the margin improving to -8.22%, followed by a further improvement to -5.43% in 2022. This indicates a trend towards reduced economic losses, though profitability remains negative.

The fluctuations in the economic profit margin appear to correlate with changes in revenue. The decrease in revenue from 2018 to 2020 coincided with the most substantial deterioration in the economic profit margin. The subsequent revenue increases in 2021 and 2022 were accompanied by improvements in the economic profit margin, although the margin did not return to the levels observed in 2018 and 2019.

Relationship to Revenue

A negative correlation between revenue and the economic profit margin is suggested. While increased revenue generally led to a less negative margin, the substantial revenue decline in 2020 resulted in a significantly worse economic profit margin. This suggests that revenue alone does not guarantee economic profitability, and cost of capital considerations are crucial.

The economic profit figures themselves demonstrate a similar pattern. The largest negative economic profit occurred in 2020, aligning with the lowest revenue and the most negative economic profit margin. The reduction in economic loss observed in 2021 and 2022 mirrors the revenue recovery during those years.

Economic Profit

The absolute value of economic profit decreased from US$935 million in 2018 to US$806 million in 2022, indicating a reduction in the magnitude of economic loss. However, the company consistently failed to generate economic profit during the period, meaning returns did not exceed the cost of capital.