Hewlett Packard Enterprise Co. (NYSE:HPE)

The analysis of the annual financial data reveals several key trends regarding profitability, cost efficiency, and capital utilization over the six-year period.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits considerable fluctuation throughout the years examined. Starting from a substantial profit of $2,346 million in 2018, it showed a slight increase to $2,514 million in 2019. However, 2020 experienced a drastic decline to $77 million, indicating a significant operational challenge or external impact within that year. The following year, 2021, showed a strong recovery with NOPAT reaching its peak at $3,529 million. Despite this rebound, 2022 saw another decrease to $818 million, followed by a moderate improvement to $2,752 million in 2023. Overall, NOPAT demonstrates volatility, with a marked impact around 2020 and substantial recoveries afterward.

Cost of Capital

The cost of capital has steadily increased over the timeframe. Beginning at 10.77% in 2018, the rate slightly decreased to 10.33% in 2019 and further to 9.2% in 2020, suggesting some reduction in capital costs during the period of low profitability. However, from 2021 onwards, the cost of capital escalated annually, rising to 10.46% in 2021, then to 11.32% in 2022, and reaching 11.78% in 2023. This upward trend indicates increasing expense or required returns on invested capital, which could impact investment decisions and valuations.

Invested Capital

Invested capital has remained relatively stable, fluctuating modestly between $41,543 million and $44,277 million. The value decreased slightly from $44,277 million in 2018 to $42,287 million in 2019, followed by a gradual decline to $41,543 million in 2022. A minor increase occurred in 2023, rising to $43,254 million. This stability suggests consistent capital deployment without significant expansions or divestitures during the observed years.

Economic Profit

Economic profit remains consistently negative throughout the period, indicating that the company's returns did not exceed its cost of capital at any point. The losses showed some improvement in 2019 with a decrease in negative economic profit from -$2,423 million to -$1,958 million. However, 2020 marked the worst performance with a sharp increase in economic loss to -$3,828 million, coinciding with the lowest NOPAT and cost of capital. The subsequent years saw fluctuating economic profit losses: an improvement to -$950 million in 2021, followed by a steep decline to -$3,883 million in 2022, and a recovery to -$2,341 million in 2023. These patterns suggest ongoing challenges in generating returns above the required threshold despite periods of improved operational profits.

Net Earnings (Loss) Attributable to HPE

The net earnings of the company demonstrate a fluctuating but generally volatile pattern over the six-year period. Starting at 1,908 million USD in 2018, earnings decreased significantly to 1,049 million USD in 2019. The company then recorded a loss in 2020 of -322 million USD, marking the only year in the dataset with a negative result.

Following this downturn, net earnings rebounded sharply in 2021 to reach 3,427 million USD, which represents the highest figure in the period examined. However, in the subsequent years, earnings again moderated to 868 million USD in 2022 before increasing to 2,025 million USD in 2023.

This pattern suggests considerable volatility in profitability, likely influenced by operational or external factors during the timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT trends show a somewhat different trajectory but align with net earnings to reflect variability in operational efficiency and profitability. Beginning at 2,346 million USD in 2018, NOPAT increased modestly to 2,514 million USD in 2019.

Significantly, 2020 experienced a dramatic drop to just 77 million USD, indicating a steep decline in core operating profitability likely linked to the loss experienced the same year.

Subsequently, there was a robust recovery by 2021, reaching a peak of 3,529 million USD, the highest level in the series. NOPAT then decreased substantially to 818 million USD in 2022 before rising again to 2,752 million USD in 2023.

The NOPAT figures reinforce the indication of operational challenges and recovery phases over the period, with 2020 standing out as an exceptional downturn year.

The analysis of the provision and cash operating taxes over the six-year period reveals notable fluctuations that merit attention.

Provision (benefit) for taxes

The provision for taxes exhibited significant volatility. In 2018, a substantial tax benefit was recorded, evidenced by a large negative figure of -1744 million USD. This shifted in 2019 to a provision of 504 million USD, indicating a move to a tax expense. Subsequently, the year 2020 showed another negative figure (-120 million USD), denoting a tax benefit once again. The trend reversed in 2021 and 2023 with positive provisions of 160 million USD and 205 million USD, respectively, with 2022 showing a minimal provision of 8 million USD. Overall, the provision for taxes oscillated between benefits and expenses, reflecting considerable year-to-year variability possibly due to changes in taxable income, tax legislation, deferred tax assets or liabilities, or extraordinary tax events.

Cash operating taxes

Cash operating taxes also demonstrated wide variability during the period. The years 2018 and 2019 recorded negative cash taxes of -1594 million USD and -483 million USD respectively, suggesting cash tax refunds or benefits. However, starting 2020, cash operating taxes turned positive and increased somewhat steadily: 249 million USD in 2020, rising to 394 million USD in 2021, then slightly decreasing to 318 million USD in 2022 before increasing again to 350 million USD in 2023. This pattern indicates a shift from receiving tax refunds to consistently paying cash taxes, albeit with some fluctuations in the amounts paid. The earlier negative cash taxes could relate to tax credits, refunds, or adjustments, whereas the subsequent positive payments suggest more stable taxable income or changes in tax payment strategies.

In summary, both tax provisions and cash operating taxes showed marked fluctuations over the six years. The early years highlight strong tax benefits and refunded cash taxes, which shifted toward more consistently positive tax provisions and payments in more recent years. This pattern suggests evolving tax circumstances, potentially impacted by operational profitability, tax policy changes, or adjustments in deferred tax accounting.

Total Reported Debt & Leases

The total reported debt and leases exhibited a general declining trend from October 31, 2018, to October 31, 2023. Starting at 15,530 million USD in 2018, the debt increased to a peak of 17,169 million USD in 2019. However, from 2019 onward, a notable downward trend is observed, reaching a low of 13,484 million USD by 2022. A slight uptick occurred in 2023, increasing marginally to 13,515 million USD. Overall, the data indicate a reduction in leverage over the five-year period following the 2019 peak.

Total HPE Stockholders’ Equity

Stockholders’ equity showed a more fluctuating pattern over the observed years. It started at 21,239 million USD in 2018, then declined sharply to 17,098 million USD in 2019 and further to 16,049 million USD in 2020. This reduction suggests a contraction in equity or potentially share repurchases or losses affecting the equity base. Nevertheless, from 2020 onwards, equity values rebounded significantly, climbing to 19,971 million USD in 2021 and maintaining a steady state near 19,800 million USD in 2022. By 2023, equity increased again to 21,182 million USD, nearing the 2018 level. This resurgence indicates potential retained earnings growth, capital injections, or asset revaluations enhancing the equity position.

Invested Capital

The invested capital followed a slightly decreasing trend with minor fluctuations. The figure begins at 44,277 million USD in 2018 and gradually decreases to 43,287 million USD in 2019 and subsequently to 42,440 million USD in 2020. From 2020 to 2021, there was a marginal increase to 42,837 million USD, followed by a decline to 41,543 million USD in 2022. The final figure in 2023 increases again to 43,254 million USD. These variations suggest moderate adjustments in the company’s total capital base used for operations, with a slight overall decrease but some recovery in the most recent year.

Summary Insights

The data collectively reveal a company managing its capital structure with a focus on reducing debt levels after 2019 while recovering stockholders’ equity after a significant dip by 2020. The modest fluctuations in invested capital imply adjustments in financing or operational investments. The decreasing trend in debt combined with the recovery of equity may indicate strengthening financial stability and an effort to optimize capital costs through deleveraging. The rebound in equity over the latter years supports the notion of improved profitability or capital management actions.

Economic Profit

The economic profit exhibited significant fluctuations over the observed period. Initially, there was a negative economic profit of -2423 million USD in 2018, which improved to -1958 million USD in 2019. However, this was followed by a sharp decline to -3828 million USD in 2020. The year 2021 saw a considerable recovery to -950 million USD, but this positive trend reversed again in 2022 with a substantial drop to -3883 million USD. By 2023, economic profit improved once more to -2341 million USD, indicating persistent negative profitability but with intermittent recoveries.

Invested Capital

The invested capital demonstrated moderate fluctuations with a general downward trend over the period. Beginning at 44,277 million USD in 2018, it slightly decreased to 43,287 million USD in 2019 and further to 42,440 million USD in 2020. In 2021, the invested capital remained relatively stable at 42,837 million USD, then experienced a more noticeable decline to 41,543 million USD in 2022. However, there was a rebound in 2023 to 43,254 million USD, suggesting some recovery or renewed investment in capital assets.

Economic Spread Ratio

The economic spread ratio consistently remained negative throughout the timeframe, indicating that the company's return on invested capital was below its cost of capital. Starting at -5.47% in 2018, the ratio improved slightly to -4.52% in 2019 before deteriorating sharply to -9.02% in 2020. In 2021, the spread saw an improvement to -2.22%, the least negative point in the period. This was followed by a decline to -9.35% in 2022, the lowest ratio recorded, and a subsequent recovery to -5.41% in 2023. These fluctuations parallel the observed trends in economic profit, reflecting variable operational efficiency or changes in capital costs.

The financial data reveals several notable trends and patterns over the observed six-year period.

Economic Profit

Economic profit has consistently been negative throughout the period, indicating that the company has not generated economic value above its cost of capital. The loss ranged from a high of -$950 million in 2021 to a low of -$3,883 million in 2022. There is a visible pattern of significant fluctuation, with sharp decreases in 2020 and 2022 and some recovery in other years, such as 2019 and 2021. However, even the years showing improvement remain deeply negative, underscoring continuous economic losses.

Adjusted Net Revenue

Adjusted net revenue shows a generally declining trend from 2018 to 2020, decreasing from approximately $31.06 billion to $27.21 billion. Following this period, there is a moderate recovery, with revenue increasing to about $29.67 billion by 2023. Despite this rebound, revenue in 2023 remains slightly below the 2018 peak, suggesting the company has faced challenges in sustaining growth but has managed some stabilization in recent years.

Economic Profit Margin

The economic profit margin remains negative for all years, consistent with the economic profit figures. It fell from -7.8% in 2018 to a low of -14.07% in 2020, reflecting deteriorating profitability relative to revenue. A temporary improvement occurred in 2021, where the margin improved to -3.4%, indicating a reduction in losses relative to revenue. However, margins worsened again in 2022 to -13.61%, before partially recovering to -7.89% in 2023. The pattern highlights ongoing difficulties in achieving profitability, with volatility in economic efficiency over the years.