DuPont de Nemours Inc. (NYSE:DD)

The period under review demonstrates significant fluctuations in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) experienced considerable volatility, beginning at US$8.206 billion in 2015, declining to US$3.846 billion in 2016, and continuing downward to US$2.498 billion in 2017. A partial recovery was observed in 2018 with NOPAT reaching US$4.932 billion, before a substantial loss of US$-0.572 billion was recorded in 2019.

The cost of capital exhibited an increasing trend from 15.09% in 2015 to 21.40% in 2019, with a peak of 18.98% in 2017. This suggests a rising cost of funding the company’s operations over the analyzed timeframe.

Invested capital showed a dramatic increase from US$46.288 billion in 2015 to US$149.192 billion in 2017, followed by a slight increase to US$153.164 billion in 2018, and a significant decrease to US$62.770 billion in 2019. This substantial variation in invested capital likely influenced the economic profit calculations.

Economic Profit Trend

Economic profit began at US$1.222 billion in 2015, indicating value creation. However, the trend quickly reversed, with economic profit becoming negative in 2016 at US$-4.544 billion. This negative trend intensified in subsequent years, reaching US$-25.820 billion in 2017 and US$-19.735 billion in 2018. The economic loss continued in 2019, reaching US$-14.003 billion, although showing some improvement from the prior year’s loss.

The consistent negative economic profit from 2016 through 2019 suggests that the company’s returns on invested capital were consistently below its cost of capital during those years. The large fluctuations in NOPAT and invested capital appear to be the primary drivers of the volatility in economic profit. The increasing cost of capital further exacerbated the negative economic profit, particularly in the later years of the period.

Relationship between NOPAT and Economic Profit

The decline in NOPAT from 2015 to 2019 directly contributed to the shift from positive to negative economic profit. Even with a relatively stable cost of capital in the earlier years, the reduction in NOPAT significantly impacted the company’s ability to generate economic profit.

Impact of Invested Capital

The substantial increase in invested capital in 2017, coupled with a lower NOPAT, resulted in the largest negative economic profit during the period. The subsequent decrease in invested capital in 2019 partially offset the negative impact, leading to a smaller economic loss compared to 2017 and 2018.

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$1,222 million in 2015, indicating value creation. However, it quickly becomes negative, reaching -US$4,544 million in 2016. Subsequent years show a deepening of the loss, with the most substantial decline occurring between 2016 and 2017, reaching -US$25,820 million. While the loss moderates somewhat in 2018 and 2019, it remains significant at -US$19,735 million and -US$14,003 million respectively.

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 considerable reduction in invested capital occurs in 2019, falling to US$62,770 million. This fluctuation suggests significant capital allocation and reallocation activities during the period.

Economic Spread Ratio

The economic spread ratio, initially at 2.64% in 2015, indicates a positive return on invested capital exceeding the cost of capital. However, the ratio rapidly deteriorates, becoming negative in 2016 at -8.98%. The decline accelerates in subsequent years, reaching -17.31% in 2017, -12.88% in 2018, and culminating in -22.31% in 2019. This consistent negative trend signifies that the return on invested capital is consistently below the cost of capital, resulting in value destruction.

The divergence between economic profit and invested capital is noteworthy. Despite periods of high invested capital, the corresponding economic profit remains negative, suggesting inefficient capital utilization or unfavorable market conditions. The substantial decrease in invested capital in 2019 does not translate into improved economic profit, indicating that factors beyond capital levels are contributing to the ongoing losses.

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 2.51%. This indicates that for every dollar of sales, the company generated 2.51 cents of economic profit. However, this positive margin quickly reversed. A substantial decline was observed in 2016, with the margin falling to -9.44%.

The decline accelerated in subsequent years. By 2017, the economic profit margin reached -39.84%, representing a significant erosion of value creation. While there was a partial recovery in 2018, with the margin improving to -22.96%, this remained a substantial negative value.

The most pronounced decrease occurred in 2019, where the economic profit margin plummeted to -65.09%. This represents a considerable loss of economic value relative to sales, and a dramatic shift from the initial positive margin observed in 2015.

The movement in adjusted net sales does not appear to correlate directly with the economic profit margin. While sales increased from 2015 to 2018, the economic profit margin deteriorated during that same period. The significant drop in adjusted net sales in 2019 coincided with the largest decline in the economic profit margin, suggesting a potential relationship between revenue and value creation in that specific year.

The consistently negative economic profit, coupled with the declining economic profit margin, suggests a growing inability to generate returns exceeding the cost of capital. The magnitude of the negative margin in 2019 warrants further investigation to understand the underlying drivers of this substantial value destruction.