Hewlett Packard Enterprise Co. (NYSE:HPE)

The financial data reveals notable fluctuations in the company's profitability and economic value over the reviewed period.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed overall volatility during the six-year span. It increased from 2018 to 2019, followed by a sharp decline in 2020 to a minimal value. A strong rebound occurred in 2021, reaching the highest point within the periods analyzed. However, this was followed by a substantial drop in 2022, with a moderate recovery in 2023. Such swings indicate variable operational performance year over year.

Cost of Capital

The cost of capital percentage generally increased over time, starting around 10.94% in 2018, dipping slightly in 2020, and then rising steadily to reach 11.97% in 2023. This upward trend suggests that the capital financing environment became more expensive or the perceived risk increased throughout the period.

Invested Capital

Invested capital showed a gradual decline from 2018 to 2022, moving from above 44 billion US dollars down to just over 41.5 billion. In 2023, there was a slight rise, ending around 43.25 billion. This trend suggests cautious capital management with some reinvestment occurring in the final year.

Economic Profit

Economic profit remained negative in all periods, reflecting that the company consistently did not earn returns above its cost of capital. The losses fluctuated substantially, with a mild improvement in 2019 compared to 2018, followed by deeper negative results in 2020 and 2022. The year 2021 showed the lowest negative value, indicating somewhat improved efficiency or profitability relative to capital cost during that year, while 2023 again saw increased negative economic profit, though less severe than in 2020 or 2022.

In summary, the company’s operational profitability experienced significant variability, while the cost of capital steadily increased. Although invested capital decreased over time, the consistently negative economic profit indicates challenges in generating returns exceeding the cost of capital. The year 2021 stands out as a relatively better year in terms of operational performance and economic profit, but volatility remains a key characteristic of the financial trends.

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.

The analysis of the financial data reveals noteworthy trends and fluctuations in key performance metrics over the six-year period from 2018 to 2023.

Economic Profit

Economic profit remains negative throughout the entire period, indicating the company consistently operated below its cost of capital. The value started at -2,500 million USD in 2018, improved slightly in 2019 to -2,028 million USD, but sharply deteriorated in 2020 to -3,887 million USD. In 2021, economic profit improved considerably to -1,022 million USD, only to decline again in 2022 to -3,960 million USD, followed by a partial recovery in 2023 to -2,423 million USD. These fluctuations suggest volatility in the company's ability to generate returns exceeding its capital costs, with significant setbacks particularly in 2020 and 2022.

Invested Capital

Invested capital shows a relatively stable trend with modest variations. Beginning at 44,277 million USD in 2018, it gradually decreased to a low of 41,543 million USD in 2022 before rebounding to 43,254 million USD in 2023. This trend implies a cautious capital allocation approach, with some divestitures or reduced investments during the period, especially noticeable in the decline through 2022, followed by slight capital reinvestment or acquisitions in 2023.

Economic Spread Ratio

The economic spread ratio, which measures the return on invested capital relative to the cost of capital, remains consistently negative across all years. The ratio started at -5.65% in 2018 and improved marginally in 2019 to -4.69%, before worsening significantly in 2020 to -9.16%. In 2021, the ratio improved to its best level in the period at -2.39%, suggesting a temporary enhancement in operational efficiency or cost management. However, it deteriorated sharply again in 2022 to -9.53%, the worst performance of the period, followed by a recovery to -5.6% in 2023. The persistent negative spread underscores the company’s ongoing challenge in generating returns above its capital cost.

In summary, the company consistently faced economic losses when accounting for capital costs, with volatile economic profit and spread ratio reflecting challenging operational conditions and fluctuating profitability. The invested capital base remained relatively stable with minor contractions and expansions, indicating measured adjustments to capital deployment in response to market conditions or strategic priorities. The data suggest that efforts to enhance economic profitability have seen mixed results, with some temporary improvements overshadowed by larger fluctuations over the period.

The financial analysis reveals the following key trends over the six-year period under review:

Economic Profit

Economic profit exhibited significant volatility throughout the period. There was an initial improvement from a negative $2,500 million in 2018 to a less negative figure of $2,028 million in 2019. However, this was followed by a substantial decline in 2020, reaching a low of negative $3,887 million. Positive momentum resumed in 2021 with economic profit improving to negative $1,022 million, but this was followed by another sharp deterioration to negative $3,960 million in 2022. The latest data in 2023 shows a partial recovery to negative $2,423 million. Overall, the company has consistently reported negative economic profit, reflecting challenges in generating value beyond its cost of capital.

Adjusted Net Revenue

The adjusted net revenue displayed a downward trend from $31,060 million in 2018 to a low of $27,212 million in 2020. From 2021 onwards, revenue began to recover steadily, reaching $29,668 million by 2023. Despite the recovery, adjusted net revenue in 2023 remains below the peak observed in 2018, indicating modest growth and some resilience amidst economic fluctuations.

Economic Profit Margin

Economic profit margin followed a pattern consistent with economic profit, remaining negative across all years. The margin improved slightly from -8.05% in 2018 to -6.92% in 2019, then deteriorated sharply to -14.29% in 2020. There was a notable improvement in 2021 to -3.66%, the least negative margin in the period, before the margin again worsened to -13.88% in 2022. The 2023 figure improved again to -8.17%. These fluctuations suggest that the company’s profitability relative to revenue has been uneven and generally insufficient to cover total capital costs.

In summary, the data indicate the company has faced significant challenges in generating consistent economic profit, despite fluctuations in revenue. The partial reversals in losses and revenue declines in recent years suggest some operational improvements; however, persistent negative economic profit margins highlight ongoing difficulties in achieving sustainable value creation.