Las Vegas Sands Corp. (NYSE:LVS)

The period under review demonstrates significant fluctuations in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially increased before experiencing substantial declines. The cost of capital exhibited a generally decreasing trend, though with a recent increase, while invested capital showed volatility. These factors combined to create a shifting pattern in economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$3,351 million in 2018 to US$3,870 million in 2019, indicating improved operational profitability. However, a sharp reversal occurred in 2020, with NOPAT falling to a loss of US$1,708 million. This negative trend continued in 2021 and 2022, with losses of US$1,040 million and US$997 million respectively, though the magnitude of the loss stabilized somewhat in the latter year.

Cost of Capital

The cost of capital decreased from 15.59% in 2018 to 13.90% in 2021, suggesting a declining cost of funding for the company. However, it increased to 14.74% in 2022, potentially reflecting changes in market conditions or the company’s risk profile. The overall trend suggests a moderate decrease in the cost of capital over the period, despite the final year’s increase.

Invested Capital

Invested capital decreased from US$19,047 million in 2018 to US$15,828 million in 2021. This suggests a reduction in the company’s asset base or a change in capital allocation strategy. A subsequent increase was observed in 2022, with invested capital rising to US$18,926 million, potentially indicating reinvestment or acquisitions.

Economic Profit

Economic profit followed a pattern closely tied to NOPAT. Positive economic profit was recorded in 2018 (US$382 million) and 2019 (US$1,073 million). However, beginning in 2020, economic profit became significantly negative, reaching US$-4,043 million. This negative trend persisted through 2021 (US$-3,239 million) and 2022 (US$-3,787 million), indicating that the company’s returns were not exceeding its cost of capital during those years. The magnitude of the economic loss remained substantial throughout the 2020-2022 period.

The substantial decline in NOPAT appears to be the primary driver of the negative economic profit observed from 2020 onwards. While the cost of capital generally decreased, it was insufficient to offset the significant reduction in operating profitability. The fluctuations in invested capital also contribute to the overall picture, but the dominant factor is the performance of core operations.

The data reveals notable fluctuations in the profitability of the company over the five-year period. Both net income attributable to the company and net operating profit after taxes (NOPAT) follow a similar trajectory, indicating consistent trends in core profitability measures.

2018 to 2019

There is a positive growth trend in profitability. Net income increased from 2413 million USD to 2698 million USD, while NOPAT grew from 3351 million USD to 3870 million USD. This indicates improved operational efficiency and overall financial performance during this period.

2019 to 2020

A significant decline is evident, with net income shifting from a strong positive figure to a substantial loss of 1685 million USD. Similarly, NOPAT declined sharply to a negative value of 1708 million USD. This suggests a severe disruption in operations or adverse market conditions affecting profitability.

2020 to 2021

While still negative, there is an improvement in financial results compared to 2020. Net income losses reduced to 961 million USD and NOPAT losses to 1040 million USD, indicating a partial recovery or better cost management despite continuing challenges.

2021 to 2022

Profitability returns to positive territory, with net income reported at 1832 million USD. However, NOPAT remains negative at 997 million USD, though with an improvement relative to previous years. This disparity may point to differences in tax effects or non-operating items influencing net income positively.

Overall, the data highlights a period marked by major volatility. Initial growth gave way to steep declines and losses in 2020 and 2021, likely reflecting exceptional external pressures. The return to positive net income in 2022 signals a potential stabilization or recovery phase, despite ongoing operational challenges as suggested by the continued negative NOPAT.

The financial data reveals distinct fluctuations in tax-related expenses and cash outflows over the analyzed period.

Income Tax Expense (Benefit)

From 2018 to 2019, there is a marked increase in income tax expense, rising from 375 million to 468 million US dollars. This trend reversed sharply in 2020 and 2021, where the figures turned negative, indicating income tax benefits (or credits) of 38 million and 5 million US dollars respectively. In 2022, the tax expense reverted to a positive amount of 154 million US dollars, though it remained significantly lower than the pre-2020 levels.

Cash Operating Taxes

Cash operating taxes show a somewhat different pattern. There is an initial decline from 370 million US dollars in 2018 to 431 million US dollars in 2019, after which a steep reduction is noted in 2020 to 110 million US dollars. Despite the partial recovery to 172 million in 2021, the cash operating taxes notably increase in 2022, reaching 305 million US dollars. Despite this increase, the 2022 level remains below levels seen in 2018 and 2019.

Overall, the data indicates a significant impact on income tax expense and cash tax payments from 2020 onward, possibly linked to external or extraordinary factors influencing taxable income and tax payment obligations. While income tax expense shifted into credits during 2020 and 2021, cash operating taxes, although reduced, remained positive with an upward trend resuming in 2022. This reflects variability in tax dynamics, suggesting changing profitability or tax regulation impacts during these years.

Total reported debt & leases

The total reported debt and leases exhibit an overall upward trend from 2018 to 2022. Starting at 13,299 million USD in 2018, the figure slightly decreased to 12,825 million USD in 2019. However, it then increased consistently over the next three years, reaching 14,330 million USD in 2020, 14,963 million USD in 2021, and peaking at 16,148 million USD in 2022. This pattern indicates a gradual increase in the company’s leverage over the period, with a notable rise following 2019.

Total Las Vegas Sands Corp. stockholders’ equity

The stockholders’ equity experienced a declining trend from 2018 through 2021, indicative of a reduction in the company's net worth ascribed to shareholders. Equity decreased from 5,684 million USD in 2018 to 5,187 million USD in 2019, then sharply declined to 2,973 million USD in 2020 and further to 1,996 million USD in 2021. In 2022, there was a partial recovery with equity increasing to 3,881 million USD. Despite this improvement, the 2022 equity remains significantly lower than the initial 2018 level.

Invested capital

Invested capital showed a declining trend from 19,047 million USD in 2018 to 15,828 million USD in 2021, which may reflect reduced asset base or adjustments in the company’s capital structure. However, in 2022, invested capital increased to 18,926 million USD, nearly returning to the initial level observed in 2018. This suggests that after several years of contraction, there was a resurgence in the resources dedicated to the company's operations or investments in 2022.

Overall observations

Throughout the period from 2018 to 2022, the company increased its debt and lease obligations, indicating a growing reliance on external financing. Concurrently, stockholders’ equity declined significantly until 2021 but partially rebounded in 2022, potentially reflecting changes such as retained earnings, losses or capital injections. Invested capital contracted steadily until 2021, then expanded in 2022, suggesting renewed investment activity or asset acquisition. The trends imply a period of financial adjustment and restructuring through 2020 and 2021, followed by an attempt to stabilize and strengthen the balance sheet in 2022.

The economic spread ratio exhibited significant fluctuations between 2018 and 2022. Initially positive, the ratio transitioned to substantial negative values, indicating a declining ability to generate returns exceeding the cost of capital. A detailed examination of the components reveals the drivers behind this trend.

Economic Spread Ratio

In 2018, the economic spread ratio stood at 2.00%, representing a modest return on invested capital above the cost of that capital. This ratio increased substantially to 5.96% in 2019, suggesting improved profitability and efficient capital allocation. However, a dramatic shift occurred in 2020, with the ratio plummeting to -25.35%. This decline continued in 2021 to -20.47% and remained negative in 2022 at -20.01%, indicating a consistent shortfall in generating returns sufficient to cover the cost of invested capital during those years.

The economic spread ratio’s movement is closely tied to the performance of economic profit and the level of invested capital. While invested capital generally decreased from 2018 to 2020, it stabilized and increased in 2022. However, this was not enough to offset the substantial decline in economic profit, which moved from positive values in 2018 and 2019 to significant negative values starting in 2020 and continuing through 2022. The negative economic profit directly contributed to the increasingly negative economic spread ratio.

Economic Profit & Invested Capital Relationship

The correlation between economic profit and the economic spread ratio is strong. The substantial decrease in economic profit from US$1,073 million in 2019 to negative US$4,043 million in 2020 directly resulted in the significant drop in the economic spread ratio. Despite a slight increase in invested capital in 2022, the continued negative economic profit prevented any recovery in the economic spread ratio.

The consistent negative economic spread ratio from 2020 through 2022 suggests a period of value destruction. The organization was unable to generate returns on its invested capital that met or exceeded its cost of capital during these years. This trend warrants further investigation into the underlying causes of the declining economic profit and the effectiveness of capital allocation strategies.

The economic profit margin exhibited significant fluctuations between 2018 and 2022. Initially positive, it transitioned to substantial negative values, indicating a declining ability to generate returns exceeding the cost of capital. A detailed examination of the trends is presented below.

Economic Profit Margin

In 2018, the economic profit margin stood at 2.78%. This value increased considerably to 7.81% in 2019, suggesting improved profitability relative to the capital employed. However, a dramatic shift occurred in 2020, with the margin plummeting to -111.93%. This represents a significant loss, exceeding the cost of capital by a wide margin. The margin remained negative in 2021 at -76.51% and further deteriorated to -92.14% in 2022. This consistent negativity over the latter period indicates persistent underperformance in generating economic profit.

Relationship to Net Revenues

Net revenues experienced a decrease from US$13,729 million in 2018 to US$3,612 million in 2020, coinciding with the initial decline in the economic profit margin. While revenues partially recovered to US$4,234 million in 2021 and remained relatively stable at US$4,110 million in 2022, the economic profit margin did not follow suit. This suggests that factors beyond revenue generation, such as increased costs or a higher cost of capital, were primarily responsible for the sustained negative economic profit margins.

Economic Profit Trend

The absolute value of economic profit also reflects this trend. Positive values of US$382 million and US$1,073 million were recorded in 2018 and 2019, respectively. However, substantial losses were observed from 2020 onwards, reaching US$-4,043 million, US$-3,239 million, and US$-3,787 million in 2020, 2021, and 2022, respectively. The magnitude of these losses underscores the severity of the economic underperformance.

Overall, the analysis reveals a substantial deterioration in economic profitability. While revenue fluctuations played a role, the consistently negative and worsening economic profit margin suggests that the company’s returns have fallen significantly short of its cost of capital in recent years.