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 over the five-year period.

NOPAT Trend

Net operating profit after taxes began at US$3,351 million in 2018 and rose to US$3,870 million in 2019. However, a sharp downturn occurred in 2020, resulting in 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. The magnitude of the losses remained substantial throughout the latter part of the period.

Cost of Capital Trend

The cost of capital decreased from 15.59% in 2018 to 13.89% in 2021, indicating a declining cost of financing operations. However, it increased to 14.74% in 2022, suggesting a potential rise in financing costs during that year. The overall trend suggests a moderate decrease in the cost of capital, but the latest figure indicates a possible reversal.

Invested Capital Trend

Invested capital decreased from US$19,047 million in 2018 to US$15,828 million in 2021. A subsequent increase was observed in 2022, with invested capital reaching US$18,926 million. This suggests potential strategic shifts in capital allocation or changes in asset base.

Economic Profit Trend

Economic profit followed a pattern mirroring the NOPAT trend. It began at US$382 million in 2018, increased significantly to US$1,073 million in 2019, and then plummeted to a loss of US$4,042 million in 2020. Losses continued in 2021 (US$3,239 million) and 2022 (US$3,787 million), indicating that the company’s returns were consistently below its cost of capital during those years. The scale of the economic losses increased substantially from 2018 to 2022.

The consistent negative economic profit from 2020 through 2022 suggests a period of value destruction. While the cost of capital decreased during some of this period, it was insufficient to offset the significant decline in NOPAT. The increase in invested capital in 2022 did not translate into improved economic profitability.

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

The economic spread ratio began at 2.01% in 2018, representing a positive spread between returns and the cost of capital. This ratio increased substantially to 5.96% in 2019, suggesting improved profitability relative to invested capital. However, a dramatic shift occurred in 2020, with the ratio plummeting to -25.35%. This decline continued in 2021 to -20.46% and remained negative in 2022 at -20.01%, indicating a sustained period where returns failed to cover the cost of capital.

The economic spread ratio’s movement is closely tied to the trend in economic profit. While economic profit was positive in 2018 and 2019, it became negative in 2020 and remained so through 2022. This suggests that the decline in the economic spread ratio is directly attributable to decreasing profitability.

Invested Capital

Invested capital decreased from US$19,047 million in 2018 to US$15,949 million in 2020. While it experienced a slight increase in 2021 to US$15,828 million, it rose more significantly to US$18,926 million in 2022. The decrease in invested capital during 2018-2020 did not prevent the economic spread ratio from becoming negative, and the subsequent increase in 2022 did not improve the ratio. This suggests that the primary driver of the negative economic spread is not the level of invested capital, but rather the generation of economic profit.

In summary, the period under review demonstrates a clear deterioration in the company’s ability to generate economic profit. The economic spread ratio’s consistent negativity from 2020 onwards signals a concerning trend, indicating that the company’s investments are not consistently yielding returns sufficient to cover their cost.

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 -111.92%. This represents a significant loss, indicating that economic profit was substantially lower than the cost of capital. The margin remained negative in 2021 at -76.50% and further deteriorated to -92.13% in 2022. This consistent negativity over the latter period suggests persistent underperformance in generating value for investors.

Relationship to Net Revenues

Net revenues experienced a decline from US$13,729 million in 2018 to US$3,612 million in 2020, coinciding with the initial sharp 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 indicates that the decline in profitability was not solely attributable to revenue fluctuations; rather, factors impacting the cost of capital or operational efficiency likely played a significant role in 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$1,073 million were recorded in 2018 and 2019, respectively. However, substantial losses were observed from 2020 onwards, reaching US$-4,042 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 underperformance and the increasing gap between returns and the cost of capital.

Overall, the analysis reveals a concerning trend of declining economic profitability. While revenue fluctuations contributed to the initial downturn, the persistent negative economic profit margin in recent years suggests deeper underlying issues impacting the company’s ability to generate value.