Hess Corp. (NYSE:HES)

Net Operating Profit After Taxes (NOPAT)

The NOPAT exhibits significant fluctuations over the five-year period. It starts at 159 million USD in 2018, then declines sharply to 77 million USD in 2019. A substantial negative value of -2506 million USD is recorded in 2020, indicating considerable operational losses that year. However, recovery is evident in 2021 with a positive NOPAT of 1404 million USD, followed by further improvement to 3165 million USD in 2022, the highest figure in the period analyzed.

Cost of Capital

The cost of capital shows a generally upward trend, beginning at 15.95% in 2018 and decreasing slightly in 2019 and 2020 to around 15.16%. From 2020 onwards, it increases notably, reaching 16.58% in 2021 and peaking at 17.81% in 2022. This upward trend implies rising expenses associated with financing and investing activities.

Invested Capital

Invested capital declines overall from 19028 million USD in 2018 to a low of 16448 million USD in 2020. A slight increase is seen in 2021, reaching 16885 million USD, which continues growing to 18062 million USD in 2022. This indicates a reduction in capital investment up to 2020, followed by reinvestment or asset growth in subsequent years.

Economic Profit

Economic profit remains negative throughout the entire period, signaling the company's returns have been below its cost of capital. The losses are pronounced from 2018 to 2020, with figures around -2800 to -5000 million USD. A marked reduction in economic losses occurs in 2021 (-1395 million USD), with the figure nearly reaching break-even at -52 million USD in 2022. This trend reflects improving value creation prospects, although actual economic profit remains just below zero.

The financial data over the five-year period exhibits significant volatility in key profitability measures for the company.

Net income (loss) attributable to Hess Corporation

The net income shows a negative trend from 2018 through 2020, with losses deepening each year and peaking at a substantial loss in 2020. Specifically, the company recorded losses of $282 million, $408 million, and $3,093 million respectively in those years. However, a marked recovery occurred in 2021, with net income turning positive to $559 million, followed by a further substantial increase to $2,096 million in 2022. This indicates a strong rebound in profitability after a difficult period culminating in 2020.

Net operating profit after taxes (NOPAT)

Similar to net income, NOPAT declined sharply from 2018 to 2020, moving from a profit of $159 million in 2018 to a significant loss of $2,506 million in 2020. Notably, the decline in NOPAT was steeper than for net income, which may suggest operational challenges or non-operating factors affecting net income differently. From 2021 onwards, NOPAT exhibits a strong recovery, reaching $1,404 million in 2021 and rising to $3,165 million in 2022, surpassing pre-2018 levels. This recovery highlights a substantial improvement in operational profitability and tax efficiency.

Overall, the data demonstrates the company's transition from significant losses during the 2018-2020 period to robust profitability in 2021 and 2022. The peak losses in 2020 may reflect extraordinary circumstances or operational setbacks, followed by a significant turnaround. Both net income and NOPAT reflect this trend, with NOPAT showing a more pronounced recovery in 2022, indicating enhanced core operating performance relative to net income gains.

Provision (benefit) for income taxes

The provision for income taxes exhibits significant volatility over the five-year period. Starting at 335 million USD in 2018, it rose substantially to 461 million USD in 2019. In 2020, the figure turned negative to -11 million USD, indicating a tax benefit rather than a provision. The trend reversed sharply in 2021, with the provision increasing dramatically to 600 million USD, followed by a further increase to 1,099 million USD in 2022. This suggests an increasing tax expense or liability in the most recent years, possibly due to higher pre-tax earnings or changes in tax regulations.

Cash operating taxes

Cash operating taxes showed a relatively stable but fluctuating pattern. The amount increased slightly from 504 million USD in 2018 to 547 million USD in 2019, then dropped substantially to 146 million USD in 2020. This decrease corresponds with the sharp drop in the provision for income taxes in 2020, reflecting lower tax payments during that year. In 2021, cash operating taxes rebounded to 586 million USD and further increased significantly to 904 million USD in 2022. This rise mirrors the increased tax provision, indicating higher cash outflows related to tax payments in the latter years.

Analysis of the financial data reveals several key trends in the debt, equity, and invested capital of the company over the five-year period ending December 31, 2022.

Total reported debt & leases

The total reported debt and leases increased steadily from $7,434 million in 2018 to $9,150 million in 2022. This represents a gradual accumulation of liabilities over the five years, indicating a strategic move towards higher leverage or increased financing requirements. The rate of increase slowed notably between 2020 and 2022, suggesting a stabilization in borrowing or lease commitments.

Total stockholders’ equity

Stockholders’ equity showed a different pattern, starting at $9,629 million in 2018 then declining sharply through 2020 to a low of $5,366 million. This substantial reduction, nearly halving equity value, may reflect net losses, dividends, share buybacks, or other equity-reducing activities during this period. However, from 2020 onwards, equity rebounded progressively, reaching $7,855 million by the end of 2022, indicating a recovery phase, possibly driven by improved profitability or equity financing events.

Invested capital

Invested capital decreased from $19,028 million in 2018 to $16,448 million in 2020, aligning with the decline in equity and increase in debt. From 2021 onwards, invested capital increased moderately each year, reaching $18,062 million in 2022. This suggests selective reinvestment or asset expansion after a period of contraction, reflecting a potentially cautious but constructive growth strategy.

Overall, the data illustrates a period of financial strain or restructuring between 2018 and 2020, marked by decreased equity and fluctuating capital levels alongside rising debt. Subsequent years show signs of recovery and cautious growth with equity rebuilding and stabilization in debt levels, complementing an increase in invested capital. This pattern suggests a phase of adaptation followed by strategic stabilization improving the company’s capital structure.

Economic Profit

Economic profit exhibited considerable fluctuations over the five-year period. From 2018 to 2019, economic profit remained negative and relatively stable around -2,800 million US dollars. In 2020, a significant deterioration occurred, with economic profit plunging to -5,000 million US dollars, highlighting a notable decline in profitability. The subsequent years showed a marked improvement: in 2021, economic loss narrowed substantially to -1,395 million US dollars and further improved to nearly break-even at -52 million US dollars in 2022.

Invested Capital

The invested capital showed a downward trend from 2018 to 2020, decreasing from approximately 19,028 million US dollars to 16,448 million US dollars. This reduction could indicate asset divestments or efficiency optimizations. However, in 2021 and 2022, invested capital increased again, reaching 18,062 million US dollars by the end of 2022. While still below the 2018 level, this rebound suggests renewed investment or capital allocation efforts in recent years.

Economic Spread Ratio

The economic spread ratio, reflecting the difference between return on invested capital and cost of capital, was consistently negative throughout the observed period, signaling losses relative to capital costs. The ratio worsened substantially in 2020, reaching -30.4%, which aligns with the sharp decline in economic profit. Thereafter, it improved significantly, rising to -8.26% in 2021 and nearly neutral at -0.29% in 2022. This trend indicates a steady recovery in operational performance relative to capital costs, moving towards a breakeven or slightly negative stance in the last reported year.

Overall Insights

The analyzed period demonstrates that the entity experienced significant financial challenges, notably in 2020, with a considerable loss in economic profit and a sharp negative economic spread ratio. However, following this peak in financial distress, the company undertook measures that appear to have improved both profitability and capital efficiency. By 2022, economic profit nearly reached break-even, and the economic spread ratio approached zero. The fluctuation in invested capital suggests strategic adjustments to asset allocation, potentially aligned with efforts to optimize financial performance. Continued monitoring of these indicators will be critical to assess the sustainability of this recovery trend.

Sales and Other Operating Revenues

The sales and other operating revenues demonstrate a noticeable fluctuation over the analyzed period. Beginning with 6,323 million US dollars at the end of 2018, revenues experienced a moderate increase to 6,495 million in 2019. However, in 2020 there was a significant decrease to 4,667 million, likely reflecting adverse market or operational challenges during that year. This downturn was followed by a robust recovery in 2021, with revenues climbing back to 7,473 million, and further rising to 11,324 million by the end of 2022, indicating strong growth momentum in the latter years.

Economic Profit

The economic profit remained consistently negative throughout the entire period, indicating that the company did not generate returns exceeding its cost of capital. Starting at a loss of 2,876 million US dollars in 2018, economic profit showed a slight improvement in 2019 with a loss of 2,837 million. However, 2020 marked a substantial deterioration, with losses widening dramatically to 5,000 million. Subsequent years saw a marked improvement, with economic losses narrowing sharply to 1,395 million in 2021 and further to just 52 million in 2022, suggesting an ongoing trend toward approaching breakeven.

Economic Profit Margin

The economic profit margin consistently reflected negative values, mirroring the trends in economic profit. The margin stood at -45.49% in 2018, slightly improving to -43.68% in 2019. In 2020, the margin deteriorated substantially to -107.14%, correlating with the sharp drop in profitability during that year. The company then achieved considerable margin recovery in 2021, improving to -18.67%, and continued this favorable trend into 2022 with the margin reaching -0.46%, approaching a neutral margin and signaling improved operational efficiency and profitability relative to revenues.

Overall Insights

The financial data reveals a period marked by significant volatility, especially in 2020, which appears to have been an exceptionally challenging year with substantial declines in both revenues and profitability metrics. Despite the negative economic profit margins throughout, the strong revenue recovery and the marked reduction in economic losses from 2021 onward indicate effective efforts at cost control, operational improvements, or favorable market conditions. The trend toward economic profit breakeven suggests progress in the company’s financial health, though the margin remains marginally negative as of the most recent period.