Express Scripts Holding Co. (NASDAQ:ESRX)

An analysis of the economic profit from 2013 to 2017 reveals a persistent inability to generate returns exceeding the cost of capital. However, a sustained improvement in the economic profit trajectory is evident through 2016, as the deficit narrowed significantly before experiencing a slight reversal in the final year of the period.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a strong upward trend for the majority of the period, increasing from 1.82 billion US$ in 2013 to a peak of 3.38 billion US$ in 2016. This represents a substantial growth in operational profitability. A minor decline occurred in 2017, with NOPAT settling at 3.27 billion US$.

Invested Capital and Cost of Capital

Invested capital followed a downward trajectory from 2013 to 2016, decreasing from 41.29 billion US$ to 35.71 billion US$, suggesting a reduction in the capital base required to support operations. The cost of capital remained relatively stable, fluctuating within a narrow range between 12.48% and 13.72%, with a general trend toward lower rates following 2014.

Economic Profit Trends

Economic profit remained negative throughout the entire five-year period, indicating that the company did not achieve its required rate of return on invested capital. Despite the negative values, the economic loss decreased steadily from 3.78 billion US$ in 2013 to 1.08 billion US$ in 2016. This improvement was driven by the simultaneous increase in NOPAT and the decrease in invested capital. The trend reversed in 2017, as economic profit declined back to negative 1.37 billion US$, coinciding with a slight increase in invested capital and a decrease in NOPAT.

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 analysis of economic value added metrics reveals a period of sustained negative economic profit, although the magnitude of these losses diminished significantly over the first four years of the observed period before experiencing a slight reversal in the final year.

Economic Profit Trends

Economic profit remained negative throughout the five-year duration, indicating that the company did not generate returns above its cost of capital. A consistent recovery trend was observed from 2013, when losses were 3.78 billion US dollars, improving steadily to a peak of -1.08 billion US dollars by 2016. This improvement trend was interrupted in 2017, as economic profit widened to -1.37 billion US dollars.

Invested Capital Dynamics

Invested capital exhibited a general downward trend from 2013 through 2016, decreasing from 41.29 billion US dollars to 35.71 billion US dollars. This contraction suggests a reduction in the capital base utilized to generate returns. In 2017, this trend reversed, with invested capital increasing to 37.01 billion US dollars.

Economic Spread Ratio Performance

The economic spread ratio remained negative for the entirety of the period, confirming that the cost of capital consistently exceeded the return on invested capital. The ratio showed marked improvement from -9.15% in 2013 to -3.03% in 2016, mirroring the trajectory of the economic profit. However, in alignment with the 2017 increase in invested capital and decrease in economic profit, the spread ratio deteriorated to -3.70%.

Between 2013 and 2017, the entity consistently reported negative economic profit, indicating that returns did not exceed the cost of capital employed. Despite the persistent deficit, a general trend of recovery was observed from 2013 through 2016, characterized by a significant narrowing of losses before a slight deterioration in 2017.

Economic Profit Trajectory

Economic losses decreased steadily from US$ 3,778,304 thousand in 2013 to a period low of US$ 1,081,751 thousand in 2016. This trend reflects a substantial improvement in value creation efficiency over four years. However, this progress was partially offset in 2017, as the economic profit deficit widened again to US$ 1,368,196 thousand.

Revenue Performance

Revenues remained relatively stagnant over the analyzed period, fluctuating within a narrow range between approximately US$ 100 billion and US$ 104 billion. The absence of significant top-line growth indicates that the improvements in economic profit observed until 2016 were likely driven by operational cost reductions or optimized capital management rather than revenue expansion.

Economic Profit Margin Analysis

The economic profit margin mirrored the trend of the absolute economic profit, improving from -3.63% in 2013 to -1.08% in 2016. This upward trajectory suggests a closing gap between the actual return on invested capital and the required rate of return. The shift to -1.37% in 2017 aligns with the increase in economic losses, marking a decline in the entity's ability to approach a positive economic value added state.