Lowe’s Cos. Inc. (NYSE:LOW)

The period demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially increased significantly, then declined, and subsequently stabilized with a slight upward trend. The cost of capital remained relatively stable, experiencing minor fluctuations throughout the period. Invested capital exhibited a decreasing trend initially, followed by an increase in later years. Consequently, economic profit mirrored the NOPAT trend, peaking in 2022 before declining and stabilizing.

NOPAT Trend

NOPAT increased substantially from $7,056 million in 2021 to $9,827 million in 2022, representing a significant improvement in operational profitability. However, NOPAT decreased to $7,020 million in 2023, before recovering to $8,789 million in 2024. The trend continued with $8,137 million in 2025 and a slight increase to $8,308 million in 2026, indicating a stabilization of profitability after the initial decline.

Cost of Capital

The cost of capital remained relatively consistent throughout the period, ranging between 14.69% and 15.72%. A slight decrease is observed from 15.52% in 2021 to 14.69% in 2026, suggesting a marginal reduction in the company’s funding costs over time.

Invested Capital

Invested capital decreased from $28,534 million in 2021 to $24,710 million in 2023. This downward trend reversed in 2024, with invested capital increasing to $25,913 million, and continued to rise to $26,276 million in 2025. A substantial increase is observed in 2026, reaching $36,866 million, indicating a significant reinvestment in the business.

Economic Profit

Economic profit followed a similar pattern to NOPAT. It rose from $2,627 million in 2021 to a peak of $5,695 million in 2022. A subsequent decline to $3,381 million in 2023 was followed by a recovery to $4,841 million in 2024. Economic profit then decreased slightly to $4,182 million in 2025 and further to $2,894 million in 2026. The fluctuations in economic profit are largely attributable to the changes in NOPAT, with the relatively stable cost of capital having a moderating effect.

The significant increase in invested capital in 2026, coupled with a slight decrease in economic profit, warrants further investigation to determine the efficiency of the new investments. Overall, the period demonstrates a dynamic financial situation with periods of strong growth followed by stabilization and reinvestment.

Net operating profit after taxes (NOPAT) exhibited a generally positive trajectory over the observed period, though with some fluctuation. Initial values demonstrate growth followed by a period of decline and subsequent stabilization. A comparison with net earnings reveals distinct patterns in profitability.

Overall NOPAT Trend

NOPAT increased from US$7,056 million in January 2021 to a peak of US$9,827 million in January 2022, representing a substantial year-over-year increase. Following this peak, NOPAT decreased to US$7,020 million in February 2023, nearly returning to the level observed in 2021. A subsequent recovery occurred, with NOPAT reaching US$8,789 million in February 2024. The trend then moderates, with values of US$8,137 million and US$8,308 million reported for January 2025 and January 2026, respectively.

NOPAT vs. Net Earnings

While both NOPAT and net earnings generally moved in the same direction, the magnitude of change differed. The increase from 2021 to 2022 was more pronounced for net earnings (44.5% increase) than for NOPAT (39.3% increase). Conversely, the decline from 2022 to 2023 was more significant for net earnings (23.8% decrease) than for NOPAT (3.1% decrease). This divergence suggests that factors beyond core operating profitability, such as financing costs or non-operating items, significantly impacted net earnings.

Recent Performance

The most recent two years (January 2025 and January 2026) show a relatively stable NOPAT, fluctuating within a narrow range of US$8,137 million to US$8,308 million. This suggests a potential plateauing of operating profitability or a balancing of offsetting factors affecting NOPAT.

In summary, NOPAT demonstrated initial strong growth, followed by a correction, and then a period of stabilization. The relationship between NOPAT and net earnings indicates that non-operating factors play a role in overall profitability.

The income tax provision and cash operating taxes exhibited fluctuating behavior over the observed period. Both metrics initially increased before demonstrating a subsequent decline.

Income Tax Provision

The income tax provision increased from US$1,904 million in 2021 to US$2,766 million in 2022, representing a substantial rise. This was followed by a decrease to US$2,599 million in 2023 and a further reduction to US$2,449 million in 2024. The trend continued with a decline to US$2,196 million in 2025 and US$2,093 million in 2026. This indicates a consistent downward trend in reported income tax provision over the latter half of the period.

Cash Operating Taxes

Cash operating taxes mirrored the general trend of the income tax provision. An increase was observed from US$2,217 million in 2021 to US$2,847 million in 2022. The value peaked at US$3,055 million in 2023 before decreasing to US$2,771 million in 2024. Further declines were recorded in 2025 (US$2,501 million) and 2026 (US$2,169 million), demonstrating a consistent reduction in cash taxes paid.

Relationship between Metrics

Cash operating taxes consistently exceeded the income tax provision throughout the entire period. The difference between the two metrics remained relatively stable, fluctuating between approximately US$300 million and US$400 million annually. This suggests that timing differences related to tax payments and accruals are a consistent feature of the company’s tax position.

Overall Trend

From 2022 to 2026, both the income tax provision and cash operating taxes experienced a net decrease. The rate of decline appeared to accelerate in the later years of the period, particularly from 2024 to 2026. This could be attributable to changes in tax laws, improved tax planning strategies, or shifts in the company’s profitability and taxable income.

The reported invested capital demonstrates fluctuations over the observed period. Initially, a decrease is noted, followed by a period of relative stability, and then a significant increase towards the end of the timeframe. A closer examination of the components contributing to invested capital reveals key trends in the company’s financial structure.

Total Debt & Leases

Total reported debt and leases exhibits a consistent upward trajectory from 2021 to 2024, increasing from US$26,211 million to US$40,145 million. A slight decrease is observed in 2025 to US$39,678 million, but this is followed by a further increase to US$44,677 million in 2026. This suggests an increasing reliance on debt financing over the period.

Shareholders’ Equity

Shareholders’ equity experiences a substantial decline throughout the period. Beginning with a positive value of US$1,437 million in 2021, it transitions to a deficit by 2022, reaching a deficit of US$4,816 million. This negative trend continues, with the deficit deepening to US$15,050 million in 2024, before a modest improvement to a deficit of US$9,917 million in 2026. This indicates a consistent erosion of equity value.

Invested Capital Trend

Invested capital decreased from US$28,534 million in 2021 to US$24,710 million in 2023. It then stabilized, fluctuating between US$25,913 million and US$26,276 million in 2024 and 2025, respectively. A notable increase is observed in 2026, with invested capital rising to US$36,866 million. This final increase appears to be driven primarily by the increase in total debt and leases, offsetting the continued negative shareholders’ equity.

The interplay between debt and equity significantly influences the invested capital. The increasing debt levels, coupled with the declining shareholders’ equity, initially resulted in a decrease in invested capital. However, the substantial increase in debt in the later years ultimately drove the overall invested capital higher, despite the continued equity deficit. This pattern suggests a shift in the company’s capital structure towards greater debt financing.

The economic spread ratio demonstrates considerable fluctuation over the observed period. Initially, the ratio experienced substantial growth, followed by a period of decline and stabilization, and then a more pronounced decrease towards the end of the analyzed timeframe.

Economic Spread Ratio - Overall Trend

The economic spread ratio began at 9.21% in January 2021 and increased significantly to 21.66% in January 2022. This represents a period of strong performance relative to the cost of capital. Following this peak, the ratio decreased to 13.68% in February 2023, then rose to 18.68% in February 2024, indicating some recovery. However, a more substantial decline is observed in subsequent years, falling to 15.92% in January 2025 and further to 7.85% in January 2026.

The economic profit exhibited a different pattern. While it increased from 2021 to 2022, it subsequently decreased, though not consistently with the economic spread ratio. This suggests that changes in invested capital are also influencing the economic profit.

Relationship between Economic Spread Ratio and Invested Capital

Invested capital decreased from US$28,534 million in January 2021 to US$24,710 million in February 2023. It then experienced a slight increase to US$25,913 million in February 2024, followed by a further increase to US$26,276 million in January 2025, and a significant jump to US$36,866 million in January 2026. The decline in the economic spread ratio in the later years coincides with the substantial increase in invested capital, potentially indicating diminishing returns on the increased investment.

The combination of fluctuating economic profit and changing invested capital levels results in the observed volatility in the economic spread ratio. The most significant decrease in the ratio occurs between January 2025 and January 2026, coinciding with the largest increase in invested capital.

Economic Profit Trend

Economic profit increased from US$2,627 million in January 2021 to US$5,695 million in January 2022. It then decreased to US$3,381 million in February 2023 and rose again to US$4,841 million in February 2024. A subsequent decline is observed, with economic profit falling to US$4,182 million in January 2025 and US$2,894 million in January 2026. While generally positive, the trend is not consistently upward.

The economic profit margin exhibited considerable fluctuation over the observed period. Initial values demonstrated growth, followed by a period of decline and stabilization. A review of the economic profit and adjusted net sales figures reveals the underlying drivers of these margin changes.

Economic Profit Margin Trend

The economic profit margin began at 2.92% in January 2021 and increased substantially to 5.89% in January 2022. This represents a significant improvement in profitability relative to sales. Following this peak, the margin decreased to 3.49% in February 2023. A subsequent recovery was observed in February 2024, with the margin reaching 5.62%. The margin then moderated to 5.00% in January 2025 before declining again to 3.35% in January 2026.

Relationship to Economic Profit

The economic profit margin’s movements correlate with changes in economic profit. The substantial increase in margin between 2021 and 2022 aligns with a significant rise in economic profit, from US$2,627 million to US$5,695 million. The decrease in margin in 2023 corresponds with a reduction in economic profit to US$3,381 million. The margin’s recovery in 2024 is linked to the increase in economic profit to US$4,841 million. The subsequent declines in both economic profit and margin in 2025 and 2026 suggest a consistent relationship between these two metrics.

Relationship to Adjusted Net Sales

Adjusted net sales increased from US$90,111 million in 2021 to US$96,664 million in 2022, contributing to the margin expansion. While sales remained relatively stable between 2022 and 2023 (US$96,822 million), the decrease in economic profit led to a margin contraction. A decrease in adjusted net sales to US$86,206 million in 2024 was accompanied by an increase in economic profit, resulting in a higher margin. The slight decrease in sales in 2025 (US$83,667 million) did not prevent a margin decline, and the modest sales recovery in 2026 (US$86,399 million) was insufficient to offset the further reduction in economic profit.

Overall, the economic profit margin demonstrates sensitivity to both economic profit and adjusted net sales. While increases in sales can support margin expansion, the primary driver appears to be the underlying economic profit generated by the business. The recent trend indicates a potential weakening in the ability to translate sales into economic profit, as evidenced by the declining margin in the latest two observed periods.