AmerisourceBergen Corp. (NYSE:ABC)

The period between September 30, 2017, and September 30, 2022, demonstrates significant fluctuations in economic profit. Initial years exhibited negative economic profit, followed by a substantial recovery and subsequent growth. Net operating profit after taxes (NOPAT) and invested capital both experienced increases over the period, though NOPAT experienced a dramatic decline in 2020. The cost of capital remained relatively stable, with a slight increase in the final year observed.

Economic Profit Trend

Economic profit began at a negative US$291,450 thousand in 2017 and improved to negative US$172,273 thousand in 2018. It nearly reached parity in 2019 at negative US$1.140 thousand, before experiencing a significant downturn in 2020, resulting in a loss of US$5,312,519 thousand. A strong recovery occurred in 2021, with economic profit reaching US$598,615 thousand, and continued to grow to US$1,092,506 thousand in 2022.

NOPAT Analysis

Net operating profit after taxes increased from US$771,526 thousand in 2017 to US$1,018,004 thousand in 2018 and further to US$1,185,025 thousand in 2019. A substantial decrease was observed in 2020, with NOPAT falling to negative US$4,619,749 thousand. Subsequent years showed a strong rebound, reaching US$1,778,708 thousand in 2021 and US$2,392,410 thousand in 2022.

Invested Capital Analysis

Invested capital generally increased over the period, rising from US$10,870,238 thousand in 2017 to US$12,285,847 thousand in 2018 and US$12,346,959 thousand in 2019. A notable decrease occurred in 2020, falling to US$7,128,161 thousand, before recovering to US$12,902,673 thousand in 2021 and US$13,020,519 thousand in 2022.

Cost of Capital Stability

The cost of capital remained relatively consistent throughout the observed period, fluctuating between 9.61% and 9.98%. It began at 9.78% in 2017, decreased slightly to 9.61% in 2019, and then increased to 9.98% in 2022. These fluctuations appear minor compared to the changes observed in NOPAT and invested capital.

The significant decline in both NOPAT and invested capital in 2020 likely contributed to the substantial negative economic profit observed in that year. The subsequent recovery in both metrics, particularly the strong NOPAT growth in 2021 and 2022, drove the positive economic profit trend in those years. The relatively stable cost of capital suggests that changes in economic profit were primarily driven by operational performance and capital allocation decisions.

Net income (loss) attributable to AmerisourceBergen Corporation

The net income figures exhibit significant volatility over the analyzed periods. Initially, there is a substantial increase from approximately 364 million USD in 2017 to around 1.66 billion USD in 2018, followed by a notable decline to about 855 million USD in 2019. The year 2020 stands out with a dramatic shift into a net loss of approximately 3.41 billion USD, indicating a severe financial setback. However, recovery occurs in subsequent years, with net income rebounding to nearly 1.54 billion USD in 2021 and increasing slightly to approximately 1.70 billion USD in 2022. This trend suggests a sharp but temporary disruption in profitability, with the company managing to restore positive earnings thereafter.

Net operating profit after taxes (NOPAT)

The NOPAT figures mirror the overall pattern observed in net income but show even greater variability. From 2017 to 2019, NOPAT demonstrates consistent growth, increasing from approximately 772 million USD to nearly 1.19 billion USD. In 2020, a significant downturn occurs, with NOPAT plunging into a substantial negative figure of roughly 4.62 billion USD, signaling operational challenges or extraordinary expenses. The company recovers in 2021 and 2022, with NOPAT rising to approximately 1.78 billion USD and further to about 2.39 billion USD, exceeding previous peak levels. This rebound reflects improved operational efficiency or favorable conditions post-2020.

Provision (benefit) for income taxes

The provision for income taxes exhibits significant volatility across the observed periods. Initially, there was a positive provision amounting to 553,403 thousand USD in 2017, followed by a substantial negative provision of -438,469 thousand USD in 2018, indicating a tax benefit during that year. In 2019, the provision returned to a positive amount of 112,971 thousand USD. The year 2020 saw a drastic shift with a large tax benefit of -1,894,273 thousand USD, which is an anomaly compared to other years. Subsequently, the provision reverted to positive amounts, recording 677,251 thousand USD in 2021 and a slightly decreased but still substantial 516,517 thousand USD in 2022. Overall, these fluctuations suggest unpredictable tax outcomes, potentially influenced by changes in tax laws, one-time adjustments, or varying profitability impacts.

Cash operating taxes

Cash operating taxes generally demonstrate a more stable yet somewhat varied trend relative to the provision for income taxes. Starting at 288,588 thousand USD in 2017, there was a notable increase to 403,869 thousand USD in 2018. However, 2019 witnessed a sharp decline to 121,219 thousand USD, followed by a negative figure of -316,612 thousand USD in 2020, indicating a refund or tax credit situation in that year. In the subsequent years, 2021 and 2022, the amounts reverted to positive territory at 385,676 and 371,488 thousand USD, respectively, showing consistent tax payments in these periods. The pattern suggests that actual cash tax payments are subject to fluctuations, possibly reflecting timing differences, tax planning measures, or the impact of deferred tax assets and liabilities.

Total reported debt & leases

The total reported debt and leases exhibited a rising trend from 2017 to 2018, increasing from approximately 3.7 billion to 4.8 billion US dollars. This amount remained relatively stable in 2019 and 2020 around 4.6 billion before experiencing a significant spike in 2021, reaching approximately 7.8 billion. In 2022, the debt level decreased to about 6.7 billion, yet remained substantially higher than the levels observed prior to 2021.

Total stockholders’ equity (deficit)

Stockholders' equity showed steady growth from 2017 to 2018, increasing from about 2.1 billion to 2.9 billion US dollars, and remained close to this level in 2019. However, there was a sharp decline in 2020, resulting in a deficit position of approximately -1.0 billion US dollars. The equity recovered slightly in 2021, reaching a positive 223 million, but reverted to a negative equity balance of approximately -212 million in 2022. This pattern reflects significant volatility and financial stress within the period analyzed.

Invested capital

Invested capital increased steadily from 2017 through 2019, rising from roughly 10.9 billion to 12.3 billion US dollars. In 2020, it declined sharply to about 7.1 billion, representing a significant reduction. The invested capital then rebounded notably in 2021, climbing back to approximately 12.9 billion, and showed marginal growth in 2022, reaching about 13.0 billion. This fluctuation indicates a substantial reallocation of capital resources particularly around 2020.

The economic spread ratio exhibited significant fluctuations over the observed period. Initially negative, the ratio demonstrated improvement before experiencing a substantial decline, followed by a strong recovery and continued positive trend.

Economic Spread Ratio

In 2017, the economic spread ratio was -2.68%, indicating that the company’s return on invested capital was below its cost of capital. This deficit narrowed to -1.40% in 2018, suggesting a slight improvement in profitability relative to invested capital. The ratio nearly reached parity in 2019 at -0.01%, but then experienced a dramatic decrease in 2020, falling to -74.53%. This substantial decline suggests a significant underperformance relative to the cost of capital during that year.

A marked turnaround occurred in 2021, with the economic spread ratio rising sharply to 4.64%, signifying that the company generated returns exceeding its cost of capital. This positive trend continued into 2022, with the ratio further increasing to 8.39%, indicating a robust and improving economic performance.

The economic spread ratio’s volatility suggests considerable shifts in the company’s operational efficiency and/or the cost of capital over the period. The substantial negative value in 2020 warrants further investigation to understand the underlying factors contributing to the significant underperformance. The subsequent recovery and positive trend in 2021 and 2022 indicate successful strategic adjustments or favorable market conditions.

Relationship to Economic Profit and Invested Capital

The economic spread ratio’s movement closely mirrors the trend in economic profit. Negative economic profit values in 2017, 2018, 2019, and 2020 correspond with negative or near-zero economic spread ratios. Conversely, positive economic profit in 2021 and 2022 aligns with positive and increasing economic spread ratios.

While invested capital generally increased from 2017 to 2019, it experienced a substantial decrease in 2020 before recovering in 2021 and 2022. This fluctuation in invested capital likely contributed to the volatility observed in the economic spread ratio, particularly in 2020.

The economic profit margin exhibited significant fluctuation over the observed period. Initially negative, it transitioned to positive values before stabilizing at a higher level. A detailed examination of the trends reveals key insights into the company’s profitability from an economic value perspective.

Economic Profit Margin Trend

In 2017, the economic profit margin was -0.19%, indicating that the company’s economic profit was negative relative to its revenue. This negative margin improved to -0.10% in 2018, suggesting a reduction in the shortfall between economic profit and revenue. The margin reached parity in 2019, registering at 0.00%.

A substantial decline occurred in 2020, with the economic profit margin falling to -2.80%. This represents a significant deterioration in economic profitability relative to revenue. A dramatic reversal took place in 2021, as the margin surged to 0.28%, indicating a substantial increase in economic profit generation. This positive trend continued into 2022, with the economic profit margin further improving to 0.46%, representing the highest value observed during the period.

The progression from consistently negative margins to positive and increasing margins suggests a notable improvement in the company’s ability to generate returns exceeding its cost of capital. The large negative margin in 2020 warrants further investigation to understand the underlying factors contributing to this decline, while the subsequent recovery in 2021 and 2022 demonstrates a successful turnaround in economic performance.

Relationship to Revenue

Revenue consistently increased throughout the period, moving from US$153,143,826 thousand in 2017 to US$238,587,006 thousand in 2022. The positive correlation between revenue growth and the improvement in economic profit margin, particularly in the later years, suggests that increased sales contributed to the enhanced economic profitability.

The economic profit figures themselves mirror the margin trends, moving from substantial negative values to positive values. The magnitude of the economic profit in 2020 was particularly large in absolute terms, aligning with the lowest economic profit margin of the period. The increasing economic profit values in 2021 and 2022 further reinforce the positive trend observed in the economic profit margin.