Hess Corp. (NYSE:HES)

The financial performance over the observed periods reveals significant fluctuations and trends in profitability and capital efficiency.

Net Operating Profit After Taxes (NOPAT)

The NOPAT exhibited considerable volatility, with a decline from 159 million US dollars in 2018 to 77 million US dollars in 2019, followed by a sharp deterioration to a negative figure of -2506 million US dollars in 2020. However, a strong recovery is observed in 2021 and 2022, with NOPAT rising to 1404 million and further to 3165 million US dollars respectively, indicating a substantial improvement in operational profitability during these years.

Cost of Capital

The cost of capital showed a gradual increasing trend throughout the period, beginning at 15.89% in 2018 and rising steadily to 17.73% by 2022. This upward movement suggests increasing expenses related to the company's financing or higher perceived risk associated with the capital employed.

Invested Capital

Invested capital decreased from 19028 million US dollars in 2018 to a low of 16448 million in 2020, reflecting possible divestitures, asset sales, or operational contractions during this timeframe. From 2021 onwards, invested capital increased again to 16885 million and then to 18062 million US dollars in 2022, indicating reinvestments or asset expansions aligning with the recovery observed in NOPAT.

Economic Profit

Economic profit, a measure taking the cost of capital into account, remained negative throughout the entire period. Starting at -2863 million US dollars in 2018, it persisted with similar negative values through 2019 and 2020, worsening substantially to -4990 million US dollars in 2020. Although it improved notably in 2021 to -1383 million and nearly reached breakeven at -37 million US dollars in 2022, it still indicates that the company's returns slightly underperformed the cost of capital as of the last year observed.

Overall, the data indicate a challenging operational environment during 2019 and 2020 with significant losses and decreased invested capital. The company showed marked recovery in subsequent years, improving operational profit and increasing invested capital, though economic profit has yet to turn positive, reflecting an ongoing struggle to fully cover the capital costs with generated returns.

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.

The analysis of the economic profit, invested capital, and economic spread ratio over the five-year period reveals significant fluctuations in financial performance with some notable recovery trends.

Economic Profit

Economic profit exhibited a consistently negative trend throughout the period, indicating that the company generated returns below its cost of capital each year. The losses peaked in 2020, with economic profit dropping to -4,990 million USD, which represents the largest deficit in the observed timeframe. Following this low point, the economic profit improved substantially, diminishing the loss to -1,383 million USD in 2021 and further narrowing to -37 million USD by the end of 2022, signaling a near breakeven position and a significant recovery from earlier years.

Invested Capital

Invested capital showed a general decline from 19,028 million USD in 2018 to its lowest point of 16,448 million USD in 2020. This decrease perhaps reflects asset sales, depreciation, or strategic reduction of capital investments during that period. From 2021 onward, invested capital increased modestly to 16,885 million USD and then more markedly to 18,062 million USD in 2022, indicating capital reinvestment or asset growth in recent years.

Economic Spread Ratio

The economic spread ratio, indicative of the return on invested capital relative to its cost, mirrored the trends in economic profit with negative values throughout. The ratio was considerably negative in 2018 and 2019 (around -15%), worsened sharply to -30.34% in 2020, reflecting extremely poor returns relative to cost of capital in that year. However, the ratio rebounded significantly after 2020, improving to -8.19% in 2021 and nearly neutral at -0.21% in 2022. This movement reinforces the interpretation of a substantial recovery in financial performance despite the absence of positive economic spread.

In summary, the data points to a company that experienced a severe downturn around 2020, manifested by significant negative economic profit and economic spread ratio with a reduction in invested capital. Subsequent years show a promising recovery trend, with narrowing losses and reinvestment in capital assets, almost reaching a break-even economic spread ratio by the end of 2022.

Economic Profit

The economic profit has shown significant fluctuations over the five-year period. It started from a negative value of -2863 million US dollars in 2018, with a slight improvement to -2825 million in 2019. However, 2020 saw a sharp decline to -4990 million, indicating a substantial worsening in economic performance. Following this low point, the economic profit improved considerably to -1383 million in 2021 and further approached break-even levels at -37 million in 2022. This trend suggests a recovery trajectory after a peak loss in 2020.

Sales and Other Operating Revenues

Sales and other operating revenues exhibited a generally positive trend over the five-year span. Revenues initially increased modestly from 6323 million US dollars in 2018 to 6495 million in 2019. However, there was a notable decline in 2020 to 4667 million, likely reflecting challenging market conditions during that year. Subsequently, revenues rebounded strongly, rising to 7473 million in 2021 and reaching the highest level of the period at 11324 million in 2022. This pattern indicates resilience and significant growth in the later years.

Economic Profit Margin

The economic profit margin remained negative throughout the period, indicating that the company did not achieve positive economic returns. The margin started at -45.29% in 2018 and improved slightly to -43.49% in 2019. In 2020, the margin sharply declined to -106.91%, more than doubling the negative margin and reflecting a severe drop in profitability relative to sales. Improvements were observed in 2021 and 2022 with margins recovering to -18.5% and -0.33%, respectively. The near-zero margin in 2022 suggests the company moved close to generating positive economic profit, consistent with the overall improvement in economic profit observed.