Express Scripts Holding Co. (NASDAQ:ESRX)

The period between 2013 and 2017 demonstrates a consistent pattern of negative economic profit, although the magnitude of the loss decreased and then increased slightly over the observed timeframe. Net operating profit after taxes exhibited an overall upward trend, while the cost of capital remained relatively stable. Invested capital fluctuated, contributing to the changes in economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$1,817,712 thousand in 2013 to US$3,375,341 thousand in 2016, representing substantial growth. However, a decrease was observed in 2017, with NOPAT falling to US$3,274,103 thousand. This suggests a potential plateauing of operational profitability towards the end of the period.

Cost of Capital

The cost of capital experienced a slight increase from 13.54% in 2013 to 13.71% in 2014, followed by a decline to 12.47% in 2016. It remained relatively stable at approximately 12.5% in both 2015 and 2017. The overall stability indicates consistent financing conditions during this period.

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. These fluctuations in invested capital likely influenced the economic profit calculations.

Economic Profit

Economic profit remained negative throughout the period, ranging from a loss of US$3,773,619 thousand in 2013 to a loss of US$2,417,361 thousand in 2015. A significant improvement was observed in 2016, with the loss decreasing to US$1,078,086 thousand. However, economic profit deteriorated slightly in 2017, increasing the loss to US$1,364,380 thousand. This suggests that while operational performance improved, the return on invested capital did not consistently exceed the cost of capital.

The convergence of increasing NOPAT and a relatively stable cost of capital contributed to the diminishing economic losses between 2013 and 2016. The slight reversal in 2017 warrants further investigation to determine the underlying causes and potential implications for future profitability.

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 moderating, negative trend over the five-year period. Initially, the ratio is significantly negative, and gradually moves closer to zero, but remains negative throughout the observed timeframe.

Economic Spread Ratio Trend

In 2013, the economic spread ratio is -9.14%. This figure improves to -8.65% in 2014, indicating a slight reduction in the negative spread. The improvement continues in 2015, reaching -6.46%. A more substantial positive shift is observed between 2015 and 2016, with the ratio moving to -3.02%. However, the trend plateaus and reverses slightly in 2017, with the ratio increasing in negativity to -3.69%.

The economic profit consistently registers as a negative value across all years examined. While the magnitude of the economic profit loss decreases from 2013 to 2016, it increases again in 2017. This movement in economic profit aligns with the observed trend in the economic spread ratio.

Invested Capital

Invested capital exhibits a decreasing trend from 2013 to 2016, moving from 41,289,230 to 35,712,343. A slight increase is then noted in 2017, with invested capital reaching 37,007,152. This fluctuation in invested capital may contribute to the changes observed in the economic spread ratio, although the primary driver appears to be the improvement in economic profit.

The convergence of the economic spread ratio towards zero suggests a diminishing gap between the return generated on invested capital and the cost of that capital. However, the continued negative values indicate that the company is still destroying economic value, albeit at a slower rate in 2016 than in earlier years. The slight reversal in 2017 warrants further investigation to determine the underlying causes.

The economic profit margin exhibited a consistent, though moderating, negative trend between 2013 and 2017. While remaining negative throughout the period, the magnitude of the loss decreased initially before stabilizing and experiencing a slight increase in the final year.

Economic Profit Margin Trend

In 2013, the economic profit margin stood at -3.63%. This figure improved to -3.31% in 2014, representing a decrease in the negative margin. The improvement continued in 2015, reaching -2.38%. A more substantial reduction occurred in 2016, with the margin falling to -1.07%. However, in 2017, the economic profit margin increased slightly to -1.36%, indicating a potential plateau or reversal of the prior improving trend.

The movement in economic profit margin closely mirrors the trend in economic profit. Economic profit decreased from negative US$3,773,619 thousand in 2013 to negative US$1,078,086 thousand in 2016. The increase in the negative economic profit margin in 2017, to negative US$1,364,380 thousand, suggests a weakening in the generation of economic profit relative to revenue.

Revenue Analysis

Revenues experienced a slight decline from US$104,098,800 thousand in 2013 to US$100,064,600 thousand in 2017. The largest single-year decrease occurred between 2013 and 2014, with a reduction of US$3,211,700 thousand. Revenue remained relatively stable between 2015 and 2017, fluctuating within a narrow range. The concurrent decline in economic profit margin and revenue suggests that revenue generation is not fully offsetting the costs associated with achieving economic profit.

The observed trend suggests that while the company has made progress in reducing its economic loss relative to revenue, the recent stabilization and slight deterioration in the economic profit margin, coupled with declining revenues, warrant further investigation. A deeper analysis of the underlying cost structure and revenue drivers is recommended to understand the factors contributing to these trends.