EQT Corp. (NYSE:EQT)

The period under review demonstrates a consistent pattern of negative economic profit. Net operating profit after taxes (NOPAT) fluctuates significantly, beginning with a positive value in 2017 before transitioning to substantial negative values in subsequent years. The cost of capital exhibits volatility, decreasing from 2017 to 2019, then increasing through 2021. Invested capital shows a decreasing trend from 2017 to 2020, followed by a slight increase in 2021. These factors combine to produce a sustained negative economic profit throughout the analyzed timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT was positive in 2017 at US$408,113 thousand. However, it became negative in 2018, reaching -US$2,332,609 thousand, and remained negative for the remainder of the period. While the magnitude of the negative NOPAT decreased from 2018 to 2019, it increased again in 2020 and 2021, ending at -US$1,348,798 thousand.

Cost of Capital

The cost of capital decreased from 14.92% in 2017 to 6.43% in 2019, representing a substantial reduction. It then increased in 2020 to 11.79% and further to 12.52% in 2021. This suggests a changing risk profile or capital market conditions impacting the company’s funding costs.

Invested Capital

Invested capital decreased from US$26,508,072 thousand in 2017 to US$15,621,670 thousand in 2020. A modest increase was observed in 2021, with invested capital reaching US$16,527,021 thousand. This decline may indicate divestitures, reduced capital expenditures, or asset write-downs.

Economic Profit

Economic profit was negative throughout the entire period. The largest negative economic profit occurred in 2018 at -US$4,419,725 thousand. While the negative economic profit decreased from 2018 to 2019, it remained substantial and increased in both 2020 and 2021, reaching -US$3,418,324 thousand. The consistent negative economic profit indicates that the company is not generating returns exceeding its cost of capital.

The interplay between declining NOPAT, fluctuating cost of capital, and a decreasing then slightly increasing invested capital consistently resulted in negative economic profit. The substantial negative economic profit in 2018 and 2021, coupled with the overall trend, suggests a significant underperformance relative to the company’s capital costs.

Net Income (Loss) Attributable to EQT Corporation

Over the five-year period from 2017 to 2021, net income exhibited a significant downward trend. In 2017, net income was positive, amounting to approximately $1.51 billion. However, from 2018 onwards, the company incurred losses each year, with the loss magnitude increasing initially in 2018 (around $2.24 billion), followed by a somewhat reduced loss of roughly $1.22 billion in 2019. The losses remained substantial in 2020 and 2021, with figures close to $967 million and $1.16 billion respectively. This pattern suggests persistent financial challenges beginning in 2018 and continuing through 2021, without a return to profitability within this timeframe.

Net Operating Profit After Taxes (NOPAT)

The NOPAT data reveals a similar trajectory to net income, indicating consistent operating losses from 2018 forward. Starting with a positive NOPAT of about $408 million in 2017, the company faced a steep decline to a negative $2.33 billion in 2018. Subsequent years show ongoing negative NOPAT values, though somewhat less severe than 2018, with losses of approximately $1.34 billion, $908 million, and $1.35 billion in 2019, 2020, and 2021 respectively. The continuous negative NOPAT reflects challenges in the core operations, implying difficulties in generating operating profitability post-2017.

Overall Trend Analysis

The data indicates a critical inflection point between 2017 and 2018, with both net income and operating profit shifting sharply from profitability to significant losses. This negative trend persists without material improvement through to 2021. Despite some fluctuations in the magnitude of losses, the absence of recovery highlights ongoing adverse conditions impacting the company's earnings and operational efficiency over this interval.

The financial data reflects fluctuations and notable trends in the tax-related components over the five-year period ending December 31, 2021.

Income Tax Benefit

This item shows a consistent decrease in the magnitude of the tax benefit from 2017 through 2020, moving from approximately -1,188,416 thousand US dollars in 2017 to -298,858 thousand US dollars in 2020. The decreasing absolute value suggests a diminishing tax benefit over time. However, in 2021, there is a slight reversal with the income tax benefit increasing in magnitude to -434,175 thousand US dollars, indicating a partial rebound in the tax benefits recognized.

Cash Operating Taxes

Cash operating taxes exhibit significant volatility during the period. Notably, there is a sharp increase in the cash operating tax outflow in 2018, with a value of -510,482 thousand US dollars, which markedly exceeds the amounts of the surrounding years. In 2019 and 2020, these operating taxes decreased substantially to -58,336 and -85,720 thousand US dollars respectively. Contrasting with previous years, a positive figure of 64,624 thousand US dollars is observed in 2021, indicating a cash inflow or a tax refund rather than an outflow, which marks a substantial positive shift in this cash flow item.

Overall, the data reveals a general trend of decreasing income tax benefits until 2020 followed by a slight increase in 2021, alongside a volatile pattern in cash operating taxes which includes a significant outflow anomaly in 2018 and a notable positive inflow in 2021. These trends suggest shifts in the tax strategy, tax payments, or recognition of tax benefits, as well as possible changes in underlying tax positions or operational tax circumstances during the analyzed period.

Total reported debt & leases

Over the five-year period, total reported debt and leases exhibited a general downward trend from 6,193,259 thousand USD at the end of 2017 to a low of 4,975,379 thousand USD at the end of 2020. However, this was followed by an increase to 5,537,714 thousand USD at the end of 2021, indicating a partial reversal of the previous declining trend.

Common shareholders’ equity

The common shareholders' equity showed a consistent decline from 13,319,618 thousand USD in 2017 to a low of 9,255,240 thousand USD in 2020. Notably, in 2021 there was a recovery to 10,029,527 thousand USD, suggesting improvement in equity position after several years of decrease.

Invested capital

Invested capital experienced a sharp decline from 26,508,072 thousand USD in 2017 to 15,621,670 thousand USD in 2020. This represents a significant reduction in invested capital over these years. In 2021, there was a modest increase to 16,527,021 thousand USD, signaling a stabilization or slight growth after the downward trajectory.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent pattern of negative economic profit over the five-year period from 2017 to 2021. Simultaneously, invested capital experienced fluctuations, impacting the economic spread ratio.

Economic Profit

Economic profit consistently remained negative throughout the observed period. The magnitude of the loss varied, with the largest negative economic profit recorded in 2017 at -3,547,043 US$ in thousands. A peak in negative profit occurred in 2018 at -4,419,725 US$ in thousands, followed by a decrease in 2019. However, negative economic profit increased again in 2020 and 2021, reaching -2,750,232 and -3,418,324 US$ in thousands respectively. This indicates the company consistently failed to generate returns exceeding its cost of capital during this timeframe.

Invested Capital

Invested capital decreased significantly from 2017 to 2019, moving from 26,508,072 US$ in thousands to 16,653,426 US$ in thousands. A slight increase was observed in 2021, reaching 16,527,021 US$ in thousands, but remained below the 2017 level. The reduction in invested capital may reflect strategic divestitures, asset sales, or changes in capital expenditure policies.

Economic Spread Ratio

The economic spread ratio, consistently negative, reflects the negative economic profit. The ratio worsened considerably from 2017 to 2018, moving from -13.38% to -24.03%. While it improved slightly in 2019 to -14.47%, it resumed a downward trend in 2020 and 2021, reaching -17.61% and -20.68% respectively. This indicates a widening gap between the rate of return generated and the cost of capital, suggesting increasing value destruction. The consistent negativity and declining trend of this ratio are concerning.

In summary, the observed trends suggest a consistent inability to generate economic profit, coupled with a fluctuating, but generally decreasing, level of invested capital. The economic spread ratio’s deterioration reinforces the conclusion that the company’s returns are not adequately covering its cost of capital.

The period under review demonstrates significant fluctuations in economic profit and, consequently, the economic profit margin. Economic profit consistently remained negative across all observed years, indicating the company’s returns were insufficient to cover the cost of capital. However, the magnitude of the negative economic profit varied considerably.

Economic Profit

Economic profit exhibited substantial volatility. It reached its most negative value in 2017 at -3,547,043 US$ in thousands, then worsened in 2018 to -4,419,725 US$ in thousands. A notable improvement occurred in 2019, with economic profit decreasing to -2,410,352 US$ in thousands. This improvement was not sustained, as economic profit declined again in 2020 to -2,750,232 US$ in thousands, and further deteriorated in 2021 to -3,418,324 US$ in thousands. This suggests inconsistent ability to generate returns exceeding the cost of capital.

Sales of Natural Gas, Natural Gas Liquids and Oil

Sales revenue showed a marked increase from 2017 to 2018, rising from 2,651,318 US$ in thousands to 4,695,519 US$ in thousands. A subsequent decrease was observed in 2019, with sales falling to 3,791,414 US$ in thousands. Sales decreased again in 2020 to 2,650,299 US$ in thousands, before experiencing a substantial increase in 2021, reaching 6,804,020 US$ in thousands. The fluctuations in sales do not directly correlate with the fluctuations in economic profit, suggesting factors beyond revenue volume are significantly impacting profitability.

Economic Profit Margin

The economic profit margin consistently registered as negative throughout the period, reflecting the persistent negative economic profit. The margin was most negative in 2017 at -133.78%. It improved to -94.13% in 2018, followed by a further improvement to -63.57% in 2019. However, the margin worsened again in 2020 to -103.77% and continued to improve slightly in 2021 to -50.24%. The trend indicates a degree of volatility, with the margin showing some improvement in 2019 and 2021, but remaining substantially negative overall. The magnitude of the negative margin suggests a significant disparity between the cost of capital and the returns generated from sales.

In summary, while sales revenue experienced fluctuations, the company consistently failed to generate economic profit. The economic profit margin, though showing some variation, remained significantly negative throughout the observed period, indicating a consistent underperformance relative to its cost of capital.