Western Digital Corp. (NASDAQ:WDC)

Net Operating Profit After Taxes (NOPAT)

The NOPAT has shown significant volatility over the six-year period. It started at 782 million USD in 2018 and sharply declined to a negative value of 15 million USD in 2019. This was followed by a modest recovery to 38 million USD in 2020 and a substantial increase to 793 million USD in 2021. The upward trend continued more robustly in 2022 with NOPAT reaching 1840 million USD, before experiencing a drastic drop to negative 1604 million USD in 2023. This pattern indicates fluctuating profitability with considerable losses in the most recent year.

Cost of Capital

The cost of capital has remained relatively stable over the analyzed period, fluctuating narrowly between 12.26% and 15.34%. It was lowest in 2020 at 12.26%, then increased steadily to peak at 15.34% in 2022 before slightly decreasing to 14.69% in 2023. This relatively narrow range suggests that the company’s risk and capital expenses have not dramatically changed, though a slight upward trend is observed towards the latter years.

Invested Capital

Invested capital shows a consistent downward trend from 22,667 million USD in 2018 to 18,928 million USD in 2023. This decline is gradual and steady, reflecting either asset disposals, reduced investments, or increased efficiency in capital allocation. The company appears to be optimizing or downsizing its invested capital base over this timeframe.

Economic Profit

Economic profit remains negative throughout the entire period, indicating that the company has not generated returns exceeding its cost of capital. Although economic profit improved slightly from a low of -2925 million USD in 2019 to -1192 million USD in 2022, it deteriorated sharply to -4384 million USD in 2023. This pattern suggests persistent value destruction, with a marked worsening in the most recent year despite prior improvements.

Overall Trends and Insights

The financial data depicts a company facing significant operational challenges and value creation issues over the six-year span. While there are sporadic improvements in operational profitability (notably in 2021 and 2022), the negative economic profit and sharp decline in NOPAT in 2023 highlight underlying difficulties. The relatively stable cost of capital combined with declining invested capital suggests attempts at capital management, but these efforts have not translated into consistent economic gains. The company needs to address the sharp volatility in profitability and sustained negative economic profit to enhance shareholder value.

Net Income (Loss)

The net income demonstrates significant volatility over the six-year period. Initially, there was a positive net income of $675 million in 2018, followed by a sharp decline resulting in a net loss of $754 million in 2019. The net loss continued in 2020 but to a lesser extent, amounting to $250 million. A recovery is observed in 2021 with net income rebounding to $821 million, further increasing to $1,500 million in 2022. However, in 2023, the trend reverses dramatically with a substantial net loss of $1,706 million. This pattern indicates instability in profitability with notable peaks and troughs.

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures largely mirror the trends seen in net income, showing considerable fluctuations. Starting with a positive $782 million in 2018, NOPAT turned slightly negative in 2019 at -$15 million. A modest recovery occurs in 2020 with a positive $38 million, followed by a strong improvement to $793 million in 2021. The peak value is recorded in 2022 at $1,840 million, indicating optimal operational efficiency and profitability that year. Yet, similar to net income, 2023 sees a significant decline to a negative $1,604 million, which suggests operational challenges or extraordinary expenses affecting the company's core profitability.

Income Tax Expense

The income tax expense exhibited a significant decline from 1,410 million USD in June 2018 to 467 million USD in June 2019. This downward trend continued with further reductions to 204 million USD in July 2020 and 106 million USD in July 2021. However, there was a notable increase to 623 million USD in July 2022, followed by a sharp decrease to 146 million USD in June 2023. Overall, the figures indicate volatility in the income tax expense with periods of substantial reduction interspersed with a sudden spike in 2022.

Cash Operating Taxes

Cash operating taxes experienced a drastic drop from 1,932 million USD in June 2018 to 181 million USD in June 2019. After this steep decline, cash operating taxes showed a fluctuating but generally increasing trend, rising to 369 million USD in July 2020, 417 million USD in July 2021, and peaking at 574 million USD in July 2022. In the most recent period ending June 2023, cash operating taxes decreased to 243 million USD. This pattern suggests variability with an initial sharp decrease followed by a gradual upward movement and a slight pullback towards the end of the period.

Total Reported Debt & Leases

The total reported debt and leases exhibit a consistent downward trend from June 29, 2018, to July 1, 2022, decreasing from $11,344 million to $7,339 million. However, there is a marginal increase observed in the period ending June 30, 2023, where the figure rises slightly to $7,354 million. This overall reduction suggests an effort to deleverage or refinance liabilities over the years, with stabilization noted in the most recent year.

Shareholders’ Equity

Shareholders’ equity experienced a decline from $11,531 million in June 29, 2018, to $9,551 million as of July 3, 2020. Subsequently, equity improved significantly, reaching a peak of $12,221 million by July 1, 2022. There is a minor decrease in the following year, ending June 30, 2023, at $11,723 million. This pattern indicates a recovery phase after initial pressure on equity, reflecting improved retained earnings or other comprehensive income components in the latter years.

Invested Capital

Invested capital displays a steady decline throughout the observed timeframe, moving from $22,667 million in June 29, 2018, down to $18,928 million by June 30, 2023. The decrease appears gradual and continuous, suggesting divestment or capital efficiency measures. The reduction in invested capital alongside decreasing debt levels may indicate a strategic shift towards optimizing the capital structure or asset base.

The financial metrics for the period from mid-2018 to mid-2023 reveal considerable fluctuations and trends that are significant for the assessment of performance.

Economic Profit

The economic profit displays a persistent negative value throughout the observed period, indicating that the company consistently failed to generate returns above its cost of capital. Starting at negative 2,407 million USD in June 2018, economic profit worsened to negative 2,925 million USD by June 2019. Although there was some recovery in the subsequent years—falling to negative 2,375 million USD in 2020, negative 2,127 million USD in 2021, and further improving to negative 1,192 million USD in 2022—a sharp deterioration occurred in 2023, plunging to negative 4,384 million USD. This sharp downturn suggests a significant drop in value creation during the latest fiscal year.

Invested Capital

Invested capital experienced a downward trend over the six-year span. Beginning at 22,667 million USD in mid-2018, it steadily declined to 21,085 million USD in 2019, then further to 19,684 million USD in 2020. The figure remained relatively stable around 19,579 to 19,768 million USD in 2021 and 2022, before decreasing again to 18,928 million USD in 2023. This reduction in invested capital may reflect divestitures, asset dispositions, or other capital management strategies aimed at optimizing the asset base.

Economic Spread Ratio

The economic spread ratio, which measures the spread between return on invested capital and the cost of capital, also remained negative throughout the period under review. Starting at negative 10.62% in 2018, it deteriorated further to negative 13.87% in 2019. A modest improvement occurred in 2020 and 2021 with ratios of negative 12.07% and negative 10.86% respectively, followed by a more pronounced improvement to negative 6.03% in 2022. However, a sharp decline to negative 23.16% in 2023 corresponds with the plunge observed in economic profit, indicating a dramatic compression of value spread and a high cost of capital relative to returns during that year.

Overall, the data indicates ongoing challenges in generating economic profits and maintaining a positive spread over the cost of capital. Despite some intermittent improvements, the latest fiscal year reflects a significant setback, both in terms of economic profit and spread ratio, accompanied by a declining invested capital base. These patterns may warrant further investigation into operational efficiencies, cost structures, and capital allocation policies to improve future performance.

Revenue Trends

The net revenue demonstrated a fluctuating pattern over the six-year period. It started at 20,647 million USD in 2018, followed by a significant decline to 16,569 million USD in 2019. The revenue stabilized around the 16,000 to 17,000 million USD range through 2020 and 2021, with figures of 16,736 million USD and 16,922 million USD, respectively. An increase was observed in 2022, reaching 18,793 million USD, before experiencing a sharp decline in 2023 to 12,318 million USD.

Economic Profit Analysis

Economic profit remained negative throughout the entire period, indicating consistent economic losses. The losses worsened from -2,407 million USD in 2018 to the lowest point of -2,925 million USD in 2019. Thereafter, there was an improvement trend until 2022, where the economic loss reduced to -1,192 million USD. However, in 2023, there was a significant decline, with the loss sharply increasing to -4,384 million USD, marking the worst performance in this timeframe.

Economic Profit Margin

The economic profit margin mirrored the negative economic profit results. It started at -11.66% in 2018, worsened to -17.66% in 2019, and then improved year-over-year until 2022, reaching -6.34%. The margin deteriorated drastically in 2023, falling to -35.59%, indicating a severe decline in profitability relative to revenue.

Summary of Insights

Overall, the financial performance shows volatility with respect to revenue and profitability. While net revenue showed some recovery between 2021 and 2022, it substantially fell again in 2023. Economic profit and its margin indicate persistent losses each year, with some recovery until 2022 but a notable downturn in 2023. The pronounced increase in economic losses and margin deterioration in 2023 suggests operational or market challenges that significantly impacted financial results during that year.