Expand Energy Corp. (NASDAQ:EXE)

The financial performance, as measured by economic profit, demonstrates a declining trend over the observed period. Initially strong profitability diminished significantly, culminating in a substantial loss in the final year. This analysis details the observed patterns in net operating profit after taxes, cost of capital, invested capital, and the resulting economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a considerable decrease from US$6,263 million in 2021 to US$3,737 million in 2022, representing a 40.5% reduction. This decline continued into 2023, with NOPAT falling to US$2,933 million. A significant shift occurred in 2024, as NOPAT reported a loss of US$723 million, indicating a substantial deterioration in operational profitability.

Cost of Capital

The cost of capital exhibited a moderate increasing trend from 9.83% in 2021 to 10.23% in 2023. However, it decreased slightly to 9.90% in 2024. While the increases were not dramatic, the rising cost of capital contributed to the diminishing economic profit, particularly as NOPAT declined.

Invested Capital

Invested capital increased consistently throughout the period. From US$7,990 million in 2021, it rose to US$10,988 million in 2022, then to US$11,924 million in 2023, and reached US$22,822 million in 2024. This substantial increase in invested capital, coupled with declining NOPAT, significantly impacted economic profit.

Economic Profit

Economic profit mirrored the overall trend of declining performance. Starting at US$5,477 million in 2021, it decreased to US$2,641 million in 2022 and further to US$1,713 million in 2023. The most pronounced change occurred in 2024, with economic profit becoming negative at US$-2,982 million. This indicates that the company’s returns on invested capital were no longer exceeding the cost of capital.

The combination of decreasing NOPAT and increasing invested capital, alongside a relatively stable cost of capital, resulted in a substantial decline in economic profit. The negative economic profit in 2024 suggests that the company is destroying value for its investors.

The financial data reveals a downward trend in the profitability indicators over the four-year period.

Net Income (Loss)

The net income shows a consistent decline from US$ 6,328 million at the end of 2021 to US$ -714 million by the end of 2024. This represents a significant deterioration in profitability, moving from a strong positive net income to a negative result, indicating losses in the latest period.

Net Operating Profit After Taxes (NOPAT)

Similarly, NOPAT also declines steadily from US$ 6,263 million in 2021 to US$ -723 million in 2024. The trend mirrors net income, demonstrating a substantial decrease in operational profitability after accounting for taxes. The transition into negative territory further highlights operational difficulties by the end of the period.

Overall, both key profit metrics exhibit a marked deterioration, signaling challenges in maintaining profitability and operational effectiveness over the time span analyzed. The consistent yearly declines suggest possible adverse factors influencing earnings and operations, culminating in losses by the fourth year.

Income Tax Expense (Benefit)

The income tax expense shows significant volatility over the analyzed periods. Initially, there is a benefit recorded in 2021 with a negative value of -106 million USD, which sharply increases in magnitude to -1285 million USD in 2022, indicating a substantial tax benefit or credit during that year. However, this trend reverses in 2023, where the figure shifts to a positive tax expense of 698 million USD, suggesting a considerable tax liability incurred that year. In 2024, the amount again reverses to a tax benefit of -127 million USD, though less pronounced than in 2022. This pattern reflects substantial fluctuations in taxable income, tax adjustments, or changes in tax policy affecting the company’s tax position annually.

Cash Operating Taxes

The cash operating taxes demonstrate a generally rising trend from 2021 to 2023, starting at 18 million USD in 2021 and increasing to 82 million USD in 2022, then reaching a peak at 293 million USD in 2023. This steady increase may indicate growing profitability or changes in tax payments related to operating activities. However, in 2024, there is a sharp decline to 24 million USD, which could reflect a reduction in taxable income, tax credits applied, or operational changes affecting tax payments. Overall, the cash tax payments show a pattern of growth followed by a significant drop.

The financial data for the four-year period reveals notable fluctuations and significant growth in the company's capital structure components.

Total Reported Debt & Leases

This item shows considerable variability. Initially, debt increased substantially from 2,316 million USD at the end of 2021 to 3,212 million USD in 2022. Subsequently, it decreased to 2,127 million USD in 2023 before surging dramatically to 5,825 million USD by the end of 2024. The sharp rise in 2024 represents a notable increase, more than doubling the 2023 figure, which may indicate aggressive financing or capital expenditure efforts during that year.

Stockholders’ Equity

Equity displays a consistent upward trajectory across the four years. Starting at 5,671 million USD in 2021, it rose to 9,124 million USD in 2022, further to 10,729 million USD in 2023, and reached 17,565 million USD in 2024. This steady increase suggests ongoing profitability, retained earnings growth, or equity financing activities contributing to a strengthening balance sheet position.

Invested Capital

Invested capital also shows an upward trend, increasing from 7,990 million USD in 2021 to 10,988 million USD in 2022, then to 11,924 million USD in 2023, and substantially rising to 22,822 million USD in 2024. The steep increase in 2024 aligns with the spike in total debt and equity, indicating expanded asset investment or acquisitions funded by a combination of debt and equity.

Overall, the company has significantly expanded its financial base over the period, with substantial increases in both equity and debt, particularly evident in 2024. The growth in invested capital aligns with these financing changes, suggesting intensified investment activity. The pattern of debt fluctuations coupled with steady equity growth implies a strategic approach to capital structure management, balancing debt leverage with equity enhancement.

The economic spread ratio demonstrates a declining trend over the four-year period. Initially positive, it transitioned to a negative value by the end of 2024. This shift correlates with changes in economic profit and invested capital.

Economic Spread Ratio

In 2021, the economic spread ratio stood at 68.55%. This indicates a substantial difference between the company’s return on invested capital and its cost of capital. A significant decrease was observed in 2022, with the ratio falling to 24.03%. This decline continued in 2023, reaching 14.36%. By 2024, the ratio became negative at -13.07%, suggesting that the company’s return on invested capital was less than its cost of capital.

The economic spread ratio’s movement is closely tied to the performance of economic profit and the level of invested capital. While economic profit decreased from US$5,477 million in 2021 to -US$2,982 million in 2024, invested capital increased substantially from US$7,990 million in 2021 to US$22,822 million in 2024. This combination of declining profitability and increasing capital employed contributed to the erosion of the economic spread ratio.

Economic Profit & Invested Capital Relationship

The initial high economic spread ratio in 2021 was supported by strong economic profit and a relatively lower invested capital base. As economic profit diminished over the subsequent years, and invested capital grew, the economic spread ratio contracted. The negative ratio in 2024 signifies that the returns generated from the expanded capital base were insufficient to cover the cost of that capital.

The trend suggests a weakening of the company’s ability to generate returns exceeding its cost of capital. Further investigation into the drivers of declining economic profit and increasing invested capital is warranted.

The economic profit exhibited a declining trend over the observed period. Initially strong, economic profit decreased significantly from 2021 to 2024, culminating in a negative value in the most recent year. This shift is mirrored in the economic profit margin, which demonstrates a substantial decrease over the same timeframe.

Economic Profit

Economic profit began at US$5,477 million in 2021. It decreased to US$2,641 million in 2022, and further to US$1,713 million in 2023. By 2024, economic profit had become negative, reaching US$-2,982 million. This represents a considerable erosion of profitability from an economic perspective.

Revenues

Revenues increased substantially from US$7,301 million in 2021 to US$14,123 million in 2022. However, revenues then experienced a marked decline, falling to US$6,047 million in 2023 and further decreasing to US$4,259 million in 2024. The revenue decrease in the latter two years does not appear to be fully offset by cost management, given the concurrent decline in economic profit.

Economic Profit Margin

The economic profit margin started at a high of 75.02% in 2021. It decreased to 18.70% in 2022, then increased to 28.32% in 2023. In 2024, the economic profit margin became negative, reaching -70.03%. This indicates a significant deterioration in the ability to generate economic profit from each dollar of revenue. The negative margin in 2024 suggests that the cost of capital exceeds the economic profit generated.

The divergence between revenue trends and economic profit trends warrants further investigation. While revenue increased significantly in 2022, the subsequent decline in both revenue and economic profit, coupled with the negative economic profit margin in 2024, suggests potential issues with cost control, operational efficiency, or capital allocation. The substantial decrease in the economic profit margin, particularly the move into negative territory, is a key area of concern.