Express Scripts Holding Co. (NASDAQ:ESRX)

The period between 2013 and 2017 demonstrates a consistent, though fluctuating, pattern in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) generally increased over the five-year period, while invested capital experienced a decrease followed by a slight increase. The cost of capital remained relatively stable, influencing the overall economic profit calculation.

NOPAT Trend

NOPAT exhibited an upward trend from 2013 to 2016, increasing from US$1,817,712 thousand to US$3,375,341 thousand. However, a decrease was observed in 2017, with NOPAT falling to US$3,274,103 thousand. This suggests a potential stabilization or slight decline in operational profitability in the most recent year.

Cost of Capital

The cost of capital fluctuated modestly throughout the period, ranging from 10.98% to 12.04%. It initially increased from 11.90% in 2013 to 12.04% in 2014, then decreased to 11.07% in 2015 before stabilizing around 11% in the subsequent years. This relative stability indicates consistent financing conditions.

Invested Capital

Invested capital decreased from US$41,289,230 thousand in 2013 to US$35,712,343 thousand in 2016. A modest increase was then noted in 2017, bringing the invested capital to US$37,007,152 thousand. This suggests a period of capital reduction followed by a potential reinvestment or change in capital structure.

Economic Profit

Economic profit remained negative throughout the entire period, indicating that the company’s returns did not exceed its cost of capital. The magnitude of the economic loss decreased from US$-3,094,284 thousand in 2013 to US$-546,616 thousand in 2016, representing a significant improvement. However, economic profit worsened in 2017, increasing the loss to US$-811,020 thousand. This suggests that while the company improved its ability to generate economic profit, recent performance indicates a reversal of that trend.

In summary, while NOPAT generally increased, the consistently negative economic profit suggests that the cost of capital remained a significant hurdle. The decrease in invested capital initially contributed to reducing the economic loss, but the recent increase in economic loss in 2017 warrants further investigation.

Net Income Attributable to Express Scripts

The net income attributable to the company showed a consistent upward trend throughout the five-year period. Starting from approximately 1.84 billion US dollars in 2013, the net income increased annually, reaching about 4.52 billion US dollars by the end of 2017. This represents a more than doubling of net income over the duration analyzed, indicating strong profitability growth.

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures likewise showed an overall increasing trend, rising from roughly 1.82 billion US dollars in 2013 to over 3.27 billion US dollars in 2017. The growth is generally steady, with an especially notable increase between 2015 and 2016. However, unlike net income, NOPAT slightly declined in 2017 compared to the previous year, decreasing from approximately 3.38 billion to 3.27 billion US dollars.

Comparative Insights

Both net income and NOPAT demonstrate sustained profitability improvements over the analyzed timeframe, highlighting effective operational and financial management. The disparity in 2017, where net income continued rising but NOPAT decreased, may suggest changes in operating efficiency, tax impact, or other factors affecting post-tax operating profits.

Provision for Income Taxes

The provision for income taxes exhibits fluctuation over the five-year period. It begins at 1,104,000 thousand US dollars at the end of 2013, then decreases slightly in 2014 to 1,031,200 thousand US dollars. A notable increase occurs in 2015, with the provision reaching 1,364,300 thousand US dollars, followed by a decline in 2016 to 999,500 thousand US dollars. By the end of 2017, there is a significant drop to 397,300 thousand US dollars, marking the lowest figure in the observed timeframe.

Cash Operating Taxes

Cash operating taxes demonstrate more variability with an overall upward trajectory throughout the period. Starting at 1,890,614 thousand US dollars in 2013, the amount decreases to 1,669,615 thousand US dollars in 2014. Subsequently, a sharp increase is observed in 2015, reaching 2,004,540 thousand US dollars. In 2016, cash operating taxes decline again to 1,743,214 thousand US dollars before climbing significantly to 2,292,125 thousand US dollars by the end of 2017, the highest level recorded in the five years.

Comparative Observations

Overall, the provision for income taxes and cash operating taxes do not follow the same trend patterns. While the provision for income taxes peaks in 2015 before steadily declining to its lowest point in 2017, cash operating taxes show a general increasing trend despite year-to-year fluctuations. The divergence between these two tax-related metrics may suggest differences in tax accounting policies, timing differences, or changes in cash flow management relating to tax obligations.

Total Reported Debt & Leases

The total reported debt and leases show a fluctuating trend over the five-year period. The value decreased slightly from approximately 14.27 billion USD at the end of 2013 to about 13.86 billion USD in 2014. However, from 2014 onward, the debt increased steadily, reaching around 16.25 billion USD by the end of 2017. This reflects a rising leverage position in the latter years.

Total Express Scripts Stockholders’ Equity

Stockholders’ equity demonstrates a declining trend from 2013 through 2016, dropping from roughly 21.84 billion USD in 2013 to about 16.24 billion USD in 2016. This decline represents a significant reduction in equity over this period. Notably, in 2017, there is a reversal of this downward trend with equity increasing to about 18.12 billion USD, suggesting a partial recovery or accumulation of retained earnings or capital injection during that year.

Invested Capital

Invested capital also declined consistently from 2013 to 2016, moving from approximately 41.29 billion USD to around 35.71 billion USD. In 2017, a modest increase to about 37.01 billion USD is observed. This trend indicates a contraction in the total capital employed by the company initially, followed by a slight expansion towards the end of the period.

The economic spread ratio demonstrates a consistent, though fluctuating, improvement over the five-year period. Initially negative, the ratio moved closer to zero, indicating a diminishing gap between the return on invested capital and the cost of capital. However, the rate of improvement slowed and even reversed in the final year observed.

Economic Spread Ratio Trend

The economic spread ratio began at -7.49% in 2013 and improved to -1.53% in 2016. This represents a substantial, though not linear, reduction in the negative spread. The most significant improvement occurred between 2015 and 2016. However, in 2017, the ratio worsened to -2.19%, suggesting a potential reversal of the positive trend.

Economic profit also exhibited a trend of decreasing losses. While remaining negative throughout the period, the magnitude of the loss diminished year over year, aligning with the improvement in the economic spread ratio. The reduction in economic profit loss was most pronounced between 2015 and 2016, mirroring the largest improvement in the economic spread ratio.

Invested Capital

Invested capital decreased from US$41,289,230 thousand in 2013 to US$35,712,343 thousand in 2016, before increasing slightly to US$37,007,152 thousand in 2017. This decrease in capital employed may have contributed to the initial improvement in the economic spread ratio, as a lower capital base requires a smaller return to achieve profitability.

The interplay between economic profit, invested capital, and the economic spread ratio suggests a period of improving financial performance, followed by a potential setback in the most recent year. The increase in invested capital in 2017, coupled with a worsening economic spread ratio, warrants further investigation to determine the underlying causes and potential implications for future performance.

The economic profit margin exhibited a consistent, albeit decelerating, improvement over the five-year period. Initially negative and substantial, the margin moved closer to zero, indicating a reduction in the economic loss experienced by the entity.

Economic Profit Margin Trend

In 2013, the economic profit margin stood at -2.97%. This represents a significant economic loss relative to revenue. The margin improved to -2.67% in 2014, suggesting a modest decrease in the magnitude of the loss. The rate of improvement accelerated between 2014 and 2016, with the margin reaching -0.55% in 2016. However, the improvement slowed in 2017, with the margin settling at -0.81%.

The absolute value of economic profit also demonstrates a similar trend. While remaining negative throughout the period, the economic profit decreased in magnitude from approximately -3.09 billion in 2013 to -0.81 billion in 2017. This reduction in economic loss aligns with the observed improvement in the economic profit margin.

Revenue Stability

Revenues remained relatively stable throughout the period, fluctuating between 100.06 and 104.10 billion. This stability suggests that the changes in the economic profit margin are primarily driven by changes in the underlying economic profit, rather than significant shifts in revenue generation.

The deceleration in margin improvement during 2017 warrants further investigation. While the trend remains positive, the slower pace suggests potential challenges in further reducing economic losses or achieving positive economic profit. Continued monitoring of these metrics is recommended to assess the sustainability of the improving trend.