Norfolk Southern Corp. (NYSE:NSC)

The period between 2017 and 2021 demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuated, it was consistently insufficient to cover the cost of capital employed. Invested capital remained relatively stable over the five-year period, while the cost of capital exhibited minor variations.

NOPAT Trend

Net operating profit after taxes increased from US$2,921 million in 2017 to US$3,300 million in 2018 and further to US$3,546 million in 2019. A significant decrease was observed in 2020, with NOPAT falling to US$2,658 million, before recovering to US$3,711 million in 2021. This suggests a sensitivity to external factors impacting operational performance, with a notable recovery in the most recent year.

Cost of Capital

The cost of capital remained relatively consistent throughout the period, ranging between 15.09% and 15.54%. The slight fluctuations observed do not appear to have a substantial impact on economic profit calculations, given the larger influence of NOPAT and invested capital.

Invested Capital

Invested capital showed a gradual increase from US$33,382 million in 2017 to US$35,469 million in 2021. The growth was incremental, indicating a steady, but not aggressive, expansion of the capital base. The relative stability of this figure suggests consistent investment strategies over the analyzed timeframe.

Economic Profit

Economic profit remained negative throughout the period, ranging from -US$1,794 million to -US$2,824 million. The most substantial negative economic profit occurred in 2020, coinciding with the lowest NOPAT value. While economic profit improved in 2021, it remained significantly negative, indicating that the company’s returns did not exceed its cost of capital. The consistent negative values suggest a potential need to re-evaluate capital allocation strategies or improve operational efficiency to generate returns exceeding the cost of invested capital.

In summary, the analysis reveals a consistent inability to generate economic profit. Despite increases in NOPAT and invested capital, the cost of capital consistently exceeded the returns generated, resulting in negative economic profit for each year examined.

The financial data indicates fluctuations in key profitability measures over the five-year period ending December 31, 2021.

Net Income

The net income shows a notable decline from 2017 to 2018, dropping from 5404 million US$ to 2666 million US$. This represents a reduction of approximately 50.6%. From 2018 onwards, net income slightly increased to 2722 million US$ in 2019 but then declined again to 2013 million US$ in 2020. A recovery is observed in 2021, with net income increasing to 3005 million US$. Overall, net income has not returned to the 2017 peak by the end of the period.

Net Operating Profit After Taxes (NOPAT)

NOPAT presents a generally upward trend from 2017 through 2019, increasing from 2921 million US$ to 3546 million US$. However, in 2020, there is a decline to 2658 million US$, reflecting operational challenges or increased costs. The figure recovers significantly in 2021, reaching 3711 million US$, which is the highest level recorded during the period and exceeds the 2017 value.

The data suggests that while net income experienced volatility with an initial sharp decline and partial recovery by 2021, operational profitability as measured by NOPAT has demonstrated resilience with an overall increasing trajectory. The year 2020 marks a downturn in both measures, likely correlated with adverse external or internal factors during that period. The stronger rebound in NOPAT by 2021 compared to net income may imply improved operational efficiency or changes in non-operational factors affecting net income.

The financial data presents notable fluctuations in the income taxes and cash operating taxes over a five-year period ending December 31, 2021.

Income Taxes

The income taxes exhibit significant variability. In 2017, there was a considerable negative value, indicating a tax benefit or recovery of US$ 2,276 million. Subsequently, income taxes turned positive, registering amounts ranging from US$ 503 million to US$ 873 million from 2018 through 2021. The lowest recorded amount was US$ 517 million in 2020, followed by a noticeable increase to US$ 873 million in 2021. This pattern suggests the entity transitioned from a tax recovery position in 2017 to consistent tax expenses in subsequent years, with some fluctuations potentially influenced by operational or regulatory factors.

Cash Operating Taxes

Cash operating taxes showed a declining trend from US$ 784 million in 2017 to US$ 509 million in 2020. In 2018, the amount decreased slightly to US$ 753 million and further dropped to US$ 570 million in 2019. The 2020 figure marks the lowest during the period analyzed. However, in 2021, cash operating taxes increased sharply to US$ 827 million, reaching the highest level in the dataset. This increase may indicate higher taxable income, changes in tax legislation, or operational adjustments impacting taxable cash flows.

Overall, the data reveals a shift from a significant income tax benefit in 2017 to ongoing tax expenses in later years, alongside a generally declining trend in cash operating taxes until 2020, followed by a marked rise in 2021. These trends could reflect changes in profitability, tax strategy, or external fiscal conditions impacting the company's tax obligations.

The financial data indicates notable trends in debt, equity, and invested capital over the five-year period ending in 2021.

Total reported debt & leases

This item shows a consistent upward trend throughout the period. Debt increased steadily from $10,336 million in 2017 to $14,253 million in 2021. The increase appears continuous year over year, with the most significant growth occurring between 2020 and 2021.

Stockholders’ equity

Stockholders’ equity exhibits a declining pattern over the same timeframe. Equity decreased from $16,359 million in 2017 to $13,641 million in 2021. The decline is relatively gradual but consistent each year, reflecting potential shareholder value diminution or increased liabilities.

Invested capital

Invested capital shows a moderate increase from $33,382 million in 2017 to $35,469 million in 2021. However, the growth is not linear; the capital rose annually until 2020, after which it exhibits minimal change between 2020 and 2021. This trend suggests that investments or total capital expenditures slowed or stabilized towards the end of the period.

Overall, the capital structure reflects a rising reliance on debt financing accompanied by declining equity, while the total invested capital has grown modestly but appears to plateau in the most recent year. These movements could indicate a strategic shift towards leveraging debt and managing capital investment more conservatively.

The period between 2017 and 2021 demonstrates a generally improving, yet volatile, financial performance as measured by economic value added metrics. Economic profit consistently remained negative throughout the analyzed timeframe, but exhibited fluctuations in magnitude. Invested capital showed a consistent, albeit modest, increase over the five years. The economic spread ratio, reflecting the efficiency of capital deployment, displayed a similar pattern of fluctuation with an overall trend towards improvement, followed by a significant downturn and subsequent recovery.

Economic Profit

Economic profit began at negative US$2,115 million in 2017 and decreased to negative US$2,824 million in 2020, representing the lowest point during the period. A subsequent increase was observed in 2021, with economic profit improving to negative US$1,794 million. This suggests a reduction in the absolute value of the loss generated relative to the capital employed, but continued underperformance relative to the cost of capital.

Invested Capital

Invested capital increased steadily from US$33,382 million in 2017 to US$35,469 million in 2021. The rate of increase was relatively consistent year-over-year, indicating a continuous reinvestment in the business. This growth in invested capital occurred concurrently with negative economic profit, suggesting that additional capital deployment did not immediately translate into value creation.

Economic Spread Ratio

The economic spread ratio, initially at -6.33% in 2017, improved to -5.06% in 2021. However, this improvement was not linear. The ratio reached its lowest point at -7.97% in 2020, coinciding with the largest negative economic profit. The recovery to -5.06% in 2021 indicates a potential increase in the efficiency of capital utilization, or a decrease in the cost of capital, relative to the returns generated. The consistently negative values indicate that the company’s returns on invested capital were less than its cost of capital throughout the period.

In summary, while invested capital grew consistently, the company struggled to generate positive economic profit. The economic spread ratio suggests a degree of improvement in capital efficiency towards the end of the period, but the overall trend indicates a continued shortfall in value creation relative to the cost of capital.

The period between 2017 and 2021 demonstrates a fluctuating, yet generally negative, economic profit position. Economic profit consistently remained below zero across the examined timeframe, indicating the company’s returns were insufficient to cover the cost of capital. However, the magnitude of the economic loss varied considerably year to year.

Economic Profit

Economic profit exhibited volatility. Starting at a loss of US$2,115 million in 2017, it decreased to US$2,001 million in 2018, then slightly improved to US$1,912 million in 2019. A substantial decline occurred in 2020, reaching a loss of US$2,824 million, before partially recovering to US$1,794 million in 2021. This suggests external factors significantly impacted profitability in 2020, with a partial rebound in the subsequent year.

Railway Operating Revenues

Railway operating revenues generally increased from 2017 to 2019, rising from US$10,551 million to US$11,296 million. A significant decrease was observed in 2020, with revenues falling to US$9,789 million, likely correlating with the economic downturn experienced that year. Revenues then recovered in 2021, reaching US$11,142 million, approaching the 2019 level.

Economic Profit Margin

The economic profit margin mirrored the trend in economic profit, remaining negative throughout the period. The margin improved from -20.04% in 2017 to -17.47% in 2018 and -16.93% in 2019, indicating a slight increase in efficiency in generating economic profit from revenue. However, the margin deteriorated sharply to -28.84% in 2020, coinciding with the decline in both economic profit and revenues. A subsequent improvement to -16.11% in 2021 suggests a partial recovery in profitability relative to revenue.

The substantial decline in the economic profit margin in 2020 warrants further investigation to understand the underlying drivers. While revenues decreased, the simultaneous increase in the magnitude of the economic loss suggests factors beyond revenue contraction, such as increased costs or a higher cost of capital, played a significant role. The partial recovery in 2021 indicates some mitigation of these factors, but continued negative economic profit suggests ongoing challenges in generating returns exceeding the cost of capital.