Amphenol Corp. (NYSE:APH)

The period between 2019 and 2023 demonstrates a fluctuating financial performance as measured by economic profit. While net operating profit after taxes (NOPAT) generally increased over the period, the cost of capital and invested capital also rose, resulting in consistently negative economic profit values.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced an overall increase from US$1,277,245 thousand in 2019 to US$2,010,042 thousand in 2023. However, growth was not linear. A substantial increase occurred between 2020 and 2021 (US$1,351,172 thousand to US$1,644,807 thousand), followed by a further increase to US$2,040,201 thousand in 2022. A slight decrease in NOPAT was observed in 2023.

Cost of Capital

The cost of capital exhibited a consistent upward trend throughout the period, increasing from 16.40% in 2019 to 17.18% in 2023. This steady increase in the cost of capital contributed to the negative economic profit observed each year.

Invested Capital

Invested capital increased significantly from US$9,029,400 thousand in 2019 to US$13,752,400 thousand in 2023. The largest increase occurred between 2020 and 2021 (US$10,035,300 thousand to US$12,048,900 thousand). This growth in invested capital, coupled with the rising cost of capital, further suppressed economic profit.

Economic Profit

Economic profit remained negative throughout the observed period. The most substantial negative economic profit was recorded in 2020 (US$-312,651 thousand), followed by 2021 (US$-354,914 thousand) and 2023 (US$-352,370 thousand). While the negative economic profit lessened in 2022 (US$-115,801 thousand), it increased again in the following year. This indicates that, despite increasing NOPAT, the returns generated were insufficient to cover the cost of the capital employed.

In summary, the organization experienced growth in both NOPAT and invested capital. However, the consistent rise in the cost of capital outweighed these gains, resulting in a sustained period of negative economic profit. The economic profit figures suggest that capital allocation strategies or operational efficiencies may warrant further investigation.

The financial data reveals a generally positive trend in profitability over the five-year period from 2019 to 2023, with some fluctuations in specific measures.

Net Income Attributable to Amphenol Corporation

This metric shows a consistent increase from 2019 to 2023, starting at 1,155,000 thousand US dollars in 2019 and rising to 1,928,000 thousand US dollars in 2023. The most significant jump occurred between 2020 and 2021, where net income increased by approximately 32.2%, from 1,203,400 to 1,590,800 thousand US dollars. Growth continued through 2022, reaching 1,902,300 thousand US dollars, before showing a more modest increase of about 1.3% into 2023.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a similar upward trend, rising from 1,277,245 thousand US dollars in 2019 to a peak of 2,040,201 thousand US dollars in 2022. This represents an overall increase of nearly 60%. There is a steady year-over-year improvement, with the largest increase again visible from 2021 to 2022. However, in 2023, there is a slight decline of approximately 1.5%, decreasing to 2,010,042 thousand US dollars. Despite this small reduction, the 2023 figure remains significantly higher than in the early years.

Overall, the data indicates strong growth in profitability, with both net income and NOPAT more than doubling during the examined timeframe. The minor dip in NOPAT in 2023 suggests a potential plateau or emerging challenges affecting operating profit, though net income continues to rise slightly. This pattern suggests effective operational performance and profitability growth over the longer term, with a need to monitor recent subtle downturns in operating profit closely.

The provision for income taxes and cash operating taxes for the analyzed periods reveal notable trends in tax-related expenses.

Provision for income taxes

There was a decrease from 331,900 thousand USD in 2019 to 313,300 thousand USD in 2020, indicating a reduction in estimated tax liabilities. In 2021, this figure sharply increased to 409,100 thousand USD, followed by a further rise to 550,600 thousand USD in 2022. However, in 2023, a slight decline to 509,300 thousand USD was observed, suggesting some relief in tax provisions compared to the previous year but still significantly higher than pre-pandemic levels.

Cash operating taxes

Cash operating taxes also decreased from 342,736 thousand USD in 2019 to 307,985 thousand USD in 2020, mirroring the provision trend and likely reflecting the impact of external economic factors. Beginning in 2021, cash taxes increased substantially to 464,115 thousand USD and continued to increase through 2022 and 2023, reaching 583,929 thousand USD and 599,691 thousand USD respectively. This steady increase indicates an upward pressure on actual tax payments despite the slight reduction in provisions in 2023.

Overall, the data shows a downward shift in both tax provisions and cash taxes during 2020, possibly due to extraordinary circumstances affecting taxable income. However, from 2021 onwards, both measures display a pronounced upward trend, highlighting a recovery or growth phase characterized by higher taxable earnings and increased cash tax outflows. The divergence in 2023, where cash taxes slightly rise while provisions fall, may suggest adjustments in expected future tax liabilities or timing differences in tax payments.

Total reported debt & leases

The total reported debt and leases exhibited an overall upward trend from 2019 through 2021, increasing from approximately $3.81 billion to $5.05 billion. This was followed by a decline in the subsequent two years, lowering the figure to about $4.64 billion by 2023. The initial rise may indicate increased leverage or financing activities, while the subsequent decrease suggests debt reduction or repayment strategies.

Stockholders’ equity attributable to Amphenol Corporation

Stockholders' equity showed consistent growth throughout the examined period, rising from roughly $4.53 billion in 2019 to $8.35 billion in 2023. This steady increase points to strengthening financial stability, possibly driven by retained earnings, profitable operations, or issuance of equity, thereby enhancing the company's net worth.

Invested capital

Invested capital demonstrated a continuous increase over the five years, expanding from approximately $9.03 billion to $13.75 billion. The upward trend reflects ongoing investments in assets, acquisitions, or capital expenditures supporting the company’s growth and operational capacity. The growth rate in invested capital generally outpaced that of debt, indicating a rising equity contribution.

The economic spread ratio exhibited fluctuations over the five-year period. Initially negative, the ratio demonstrated a worsening trend before showing improvement and then declining again. Invested capital consistently increased throughout the period, while economic profit remained negative each year.

Economic Spread Ratio

The economic spread ratio began at -2.26% in 2019 and decreased to -3.12% in 2020, indicating a widening gap between the return on invested capital and the cost of capital. A slight improvement was observed in 2021, with the ratio moving to -2.95%. This positive shift was followed by a substantial increase to -0.91% in 2022, suggesting a narrowing of the gap. However, in 2023, the ratio declined again to -2.56%, indicating a renewed deterioration in the relationship between returns and costs.

Economic Profit

Economic profit consistently registered as a negative value throughout the observed period. The magnitude of the loss increased from US$203,893 thousand in 2019 to US$354,914 thousand in 2021. While the loss decreased to US$115,801 thousand in 2022, it increased again in 2023 to US$352,370 thousand, mirroring the trend observed in the economic spread ratio.

Invested Capital

Invested capital demonstrated a consistent upward trend, increasing from US$9,029,400 thousand in 2019 to US$13,752,400 thousand in 2023. This continuous growth in invested capital occurred alongside consistently negative economic profit, suggesting that increases in capital deployment did not translate into equivalent economic gains during the period.

The combination of a negative and fluctuating economic spread ratio with consistently negative economic profit, alongside increasing invested capital, suggests the company faced challenges in generating returns exceeding its cost of capital. The temporary improvement in 2022 was not sustained, and the situation deteriorated again in 2023.

The economic profit margin exhibited considerable fluctuation between 2019 and 2023. Initially negative, the margin worsened through 2021 before showing improvement in 2022, and then declining again in the most recent year.

Economic Profit Margin Trend

In 2019, the economic profit margin stood at -2.48%. This margin deteriorated to -3.64% in 2020, representing a decrease in profitability relative to sales. A further decline was observed in 2021, with the margin reaching -3.26%.

A notable improvement occurred in 2022, as the economic profit margin increased to -0.92%, indicating a reduction in the economic loss relative to net sales. However, this positive trend was not sustained, as the margin decreased to -2.81% in 2023.

Net sales demonstrated an overall upward trend during the period, increasing from US$8,225,400 thousand in 2019 to US$12,623,000 thousand in 2022. While sales decreased slightly to US$12,554,700 thousand in 2023, they remained significantly higher than the initial value in 2019.

Relationship between Net Sales and Economic Profit Margin

Despite the growth in net sales, the economic profit margin remained consistently negative throughout the analyzed period. The improvement in the margin during 2022 coincided with the highest level of net sales, suggesting a potential, though not definitive, correlation between revenue generation and economic profitability. The decline in margin in 2023, despite relatively high sales, indicates that factors beyond revenue, such as cost of capital or operational expenses, may be influencing economic profit.

Economic profit itself was consistently negative, with the largest loss occurring in 2020 at -US$312,651 thousand. While the loss decreased in 2022 to -US$115,801 thousand, it increased again in 2023 to -US$352,370 thousand, mirroring the trend observed in the economic profit margin.