DuPont de Nemours Inc. (NYSE:DD)

The period under review demonstrates significant fluctuations in financial performance. Net operating profit after taxes (NOPAT) experienced considerable volatility, beginning at US$8,206 million, declining to US$3,846 million, then further decreasing to US$2,498 million before a partial recovery to US$4,932 million, and ultimately resulting in a loss of US$572 million. Concurrently, the cost of capital exhibited an increasing trend from 14.93% to 21.13% over the period, with some intermediate decreases. Invested capital also showed substantial variation, peaking at US$149,192 million before declining to US$62,770 million.

Economic Profit Trend

Economic profit consistently declined throughout the observed timeframe. Starting at US$1,297 million, it transitioned to a loss of US$4,446 million, and subsequently deteriorated to a substantial loss of US$25,474 million. While the magnitude of the loss decreased in subsequent years to US$19,453 million and then to US$13,838 million, economic profit remained negative across the entire period.

The relationship between NOPAT, cost of capital, and invested capital is clearly reflected in the economic profit figures. The initial positive economic profit was driven by a relatively strong NOPAT and a moderate cost of capital. However, as NOPAT decreased and the cost of capital increased, coupled with significant shifts in invested capital, economic profit moved into negative territory and remained there. The peak in invested capital in 2017 coincided with the largest economic loss, suggesting a potential inefficiency in capital allocation during that year. The final year’s reduction in economic loss, despite a continued negative NOPAT and high cost of capital, is likely attributable to the decrease in invested capital.

NOPAT and Cost of Capital Interaction

The increasing cost of capital consistently placed downward pressure on economic profit. Even during periods of positive NOPAT, a higher cost of capital reduced the overall economic profit generated. The most significant decline in economic profit occurred when NOPAT was low and the cost of capital was high, as observed in 2017, 2018, and 2019.

The substantial changes in invested capital warrant further investigation. The large increase in 2017, followed by a significant decrease in 2019, suggests potentially large capital expenditures or divestitures that impacted the company’s financial performance. The negative economic profit throughout the period indicates that the company was not generating returns on its invested capital sufficient to cover its cost of capital.

The financial data reveals significant fluctuations in profitability metrics over the five-year period. Both net income attributable to DuPont and net operating profit after taxes (NOPAT) demonstrate notable volatility and an overall downward trend from 2015 to 2019.

Net Income Attributable to DuPont

The net income experienced a steep decline from a peak of 7,685 million US dollars in 2015 to 1,460 million US dollars in 2017. Although there was a partial recovery in 2018 where net income increased to 3,844 million US dollars, the figure sharply contracted again to only 498 million US dollars in 2019. This pattern highlights increasing challenges in maintaining consistent profitability.

Net Operating Profit After Taxes (NOPAT)

The NOPAT metric follows a similar variable trend but shows even greater volatility throughout the period. It begins at 8,206 million US dollars in 2015 and falls sharply to 2,498 million US dollars by 2017. Despite a rebound in 2018 to 4,932 million US dollars, the NOPAT turns negative in 2019, indicating an operational loss of 572 million US dollars. This negative result in 2019 suggests operational difficulties or increased costs impacting the company's core profitability that year.

Overall, the data suggests a period of significant financial distress and operational challenges, especially towards the end of the timeline. Both net income and NOPAT show a loss of momentum post-2015 with a critical downturn in 2019. The negative NOPAT position in 2019 might call for a closer examination of the company’s operational efficiency and expense management during this period.

Provision for (benefit from) income taxes on continuing operations

The provision for income taxes on continuing operations demonstrates significant volatility over the analyzed period. In 2015, the provision was high at 2147 million US dollars, but it drastically decreased to 9 million US dollars in 2016, indicating a sharp reduction in tax expenses or changes in tax benefits. The following year, 2017, reported a negative value of -476 million US dollars, suggesting a tax benefit or credit rather than an expense. However, the provision increased again in 2018 to 1489 million US dollars before declining sharply to 140 million US dollars in 2019. Overall, the data reveals a highly fluctuating trend without a clear upward or downward consistency.

Cash operating taxes

Cash operating taxes exhibit a generally increasing trend from 2015 to 2018, starting at 2158 million US dollars in 2015 and peaking at 2222 million US dollars in 2018. This upward movement suggests rising actual cash outflows related to tax payments during the initial years. However, in 2019, a marked decrease to 751 million US dollars occurs, indicating a substantial drop in cash taxes paid. This shift may be reflective of tax strategy changes, timing differences, or altered profitability affecting cash tax obligations.

The financial data indicates significant fluctuations in the company's capital structure and invested capital over the five-year period.

Total reported debt & leases

This metric exhibits a rising trend from 2015 to 2018, increasing from 19,250 million US dollars to a peak of 43,241 million US dollars in 2018. However, this upward trajectory reverses sharply in 2019, with total debt decreasing to 18,001 million US dollars, indicating a substantial reduction in leverage or paydown of debt obligations during that year.

Total DuPont stockholders’ equity

Stockholders’ equity remains relatively stable between 2015 and 2016 but undergoes a dramatic increase in 2017, reaching 100,330 million US dollars, which is nearly quadruple the 2016 figure. This elevated level slightly declines in 2018 to 94,571 million but experiences a steep decrease in 2019 down to 40,987 million US dollars. The pronounced spikes and drops suggest significant equity transactions, asset revaluations, or changes in retained earnings during these years.

Invested capital

Invested capital follows a similar pattern to equity, growing moderately from 46,288 million US dollars in 2015 to 50,610 million in 2016, then experiencing a sharp increase to 149,192 million in 2017 and remaining close in 2018 at 153,164 million. In 2019, invested capital declines significantly to 62,770 million. This trajectory aligns with the movements seen in both equity and reported debt, indicating substantial changes in the company’s total capital invested in operating assets.

Overall, the data reflects periods of major capital structure changes, including a notable increase in both equity and debt leading up to 2017 and 2018, followed by a significant reduction in debt and equity in 2019. These shifts may be attributable to corporate restructuring, acquisitions, divestitures, or refinancing activities during these years. The volatility in invested capital further corroborates these possibilities, suggesting the company underwent important strategic financial decisions impacting its balance sheet composition and capital deployment.

The period under review demonstrates a significant decline in economic performance, as indicated by the economic spread ratio and economic profit. Initially positive, economic profit transitions to substantial losses, while invested capital fluctuates considerably. The economic spread ratio consistently worsens throughout the observed timeframe.

Economic Profit

Economic profit begins at US$1,297 million in 2015, indicating value creation. However, it quickly becomes negative, reaching a low of -US$25,474 million in 2017. While losses moderate to -US$19,453 million in 2018 and -US$13,838 million in 2019, they remain substantial. This suggests a consistent failure to generate returns exceeding the cost of capital.

Invested Capital

Invested capital increases from US$46,288 million in 2015 to US$50,610 million in 2016. A substantial increase is then observed in 2017, reaching US$149,192 million, followed by a slight increase to US$153,164 million in 2018. A significant decrease occurs in 2019, with invested capital falling to US$62,770 million. This volatility in invested capital may be linked to acquisitions, divestitures, or significant changes in operational needs.

Economic Spread Ratio

The economic spread ratio starts at 2.80% in 2015, representing a positive spread between return on invested capital and the cost of capital. The ratio then declines sharply, becoming negative in 2016 at -8.79%. This negative trend accelerates, reaching -17.07% in 2017, -12.70% in 2018, and further deteriorating to -22.05% in 2019. The consistently worsening ratio indicates a growing disparity between the returns generated from invested capital and the associated cost of that capital.

The combined trends suggest that while the company initially generated economic profit, its ability to do so diminished significantly. The increasing invested capital, coupled with declining economic profit, directly contributes to the worsening economic spread ratio. The substantial decrease in invested capital in 2019 does not appear to have been sufficient to offset the continued negative economic profit, as the economic spread ratio reaches its lowest point during the period.

The economic profit margin demonstrates a significantly declining trend over the observed period. Initially positive, it transitioned to substantial negative values, culminating in a marked decrease by the final year.

Economic Profit Margin

In 2015, the economic profit margin stood at 2.66%. This indicates that for every dollar of sales, the company generated 2.66 cents of economic profit. However, this positive margin quickly reversed in 2016, falling to -9.23%.

The decline accelerated in subsequent years. The margin reached -39.30% in 2017 and -22.64% in 2018. This suggests a growing inability to generate returns exceeding the cost of capital.

The most substantial decrease occurred in 2019, with the economic profit margin plummeting to -64.33%. This represents a significant erosion of value creation and indicates a substantial shortfall between returns and the cost of capital.

The economic profit margin’s movement is closely linked to fluctuations in adjusted net sales and economic profit. While adjusted net sales increased between 2015 and 2018, the economic profit remained negative and, in fact, worsened considerably. The sharp decline in adjusted net sales in 2019 coincided with the most dramatic drop in the economic profit margin, suggesting a strong correlation between revenue generation and the ability to achieve positive economic profit.

The consistently negative and worsening economic profit margin throughout the period warrants further investigation into the underlying factors contributing to this trend. These factors could include increased costs, inefficient capital allocation, or competitive pressures impacting profitability.