United States Steel Corp. (NYSE:X)

The period under review demonstrates significant fluctuations in economic profit. Initial observations reveal a pattern of negative economic profit transitioning to positive values, followed by a subsequent decline. Net operating profit after taxes (NOPAT) exhibits a volatile trajectory, directly influencing economic profit calculations. Invested capital generally increased over the period, while the cost of capital fluctuated, impacting the overall economic profit outcome.

Economic Profit Trend

Economic profit began at a negative US$580 million in 2018 and worsened to negative US$2,598 million in 2020. A substantial positive swing occurred in 2021, with economic profit reaching US$1,958 million. However, this positive trend did not sustain, as economic profit decreased to US$315 million in 2022.

NOPAT Performance

NOPAT experienced a significant downturn from US$893 million in 2018 to a loss of US$1,095 million in 2020. A strong recovery was evident in 2021, with NOPAT reaching US$4,449 million. In 2022, NOPAT decreased to US$3,060 million, though remaining positive.

Cost of Capital Analysis

The cost of capital decreased from 21.79% in 2018 to 12.61% in 2019, before increasing to 17.43% in 2020 and 20.18% in 2021. It rose again slightly to 21.58% in 2022. These fluctuations in the cost of capital, combined with changes in NOPAT, significantly impacted the economic profit calculations.

Invested Capital Evolution

Invested capital showed a consistent upward trend, increasing from US$6,762 million in 2018 to US$12,723 million in 2022. This growth in invested capital, without a corresponding sustained increase in NOPAT, contributed to the volatility observed in economic profit.

The correlation between NOPAT and economic profit is strong. Periods of negative or declining NOPAT directly resulted in negative or decreasing economic profit. While the increase in invested capital suggests growth initiatives, the fluctuating cost of capital and NOPAT performance indicate potential challenges in generating returns commensurate with the capital employed.

The financial data over the analyzed periods exhibit notable fluctuations in profitability metrics for the entity. The net earnings attributable to the company reveal a volatile trajectory, characterized by a significant loss phase between 2019 and 2020, followed by a pronounced recovery and peak in 2021, and a subsequent decrease in 2022, though remaining positive.

Net Earnings (Loss) Attributable

In 2018, the company reported net earnings amounting to 1,115 million US dollars, followed by a sharp decline to a loss of 630 million in 2019. This adverse trend intensified in 2020 with a deeper loss of 1,165 million. The year 2021 marked a substantial turnaround with net earnings reaching 4,174 million, representing the highest value in the dataset. In 2022, earnings declined to 2,524 million, which, despite being lower than the previous year, remained robust and positive.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values mirror the net earnings trend closely, confirming the operational profitability challenges faced during 2019 and 2020. In 2018, NOPAT was recorded at 893 million US dollars, declining sharply to a negative 121 million in 2019, and further deteriorating to a negative 1,095 million in 2020. A significant recovery occurred in 2021, with NOPAT peaking at 4,449 million. Although there was a decrease in 2022 to 3,060 million, the figure remained strongly positive, indicative of sustained operational improvement relative to the loss years.

Overall, the data indicate a period of financial stress and operational difficulty during 2019 and 2020, likely reflective of external or internal challenges during those years. The strong rebound in 2021 signifies effective recovery measures, enhanced profitability, or favorable market conditions. The subsequent decline in 2022, while noteworthy, does not negate the positive turnaround, suggesting a period of stabilization at an improved profit level compared to the negative earnings years.

The data reveals notable fluctuations in the income tax provision (benefit) over the five-year period. Initially, there was a substantial tax benefit recorded in 2018 at -$303 million, indicating a negative tax expense or a tax benefit. This shifted to a positive income tax provision of $178 million in 2019, signaling a tax expense rather than a benefit during that year. The year 2020 once again saw a tax benefit of -$142 million, suggesting a reversal or reduction in tax obligations. However, in 2021 and 2022, the trend changed significantly, with the income tax provision increasing to $170 million and then sharply rising to $735 million. This indicates progressively higher tax expenses in the later years, with 2022 showing the most substantial tax charge over the period analyzed.

Cash operating taxes displayed a different pattern. From 2018 to 2019, there was a marked decrease from $60 million to $6 million. This was followed by a recovery to $49 million in 2020, and a substantial increase in 2021 to $290 million, suggesting a significant rise in actual cash payments for taxes in that year. In 2022, the cash operating taxes slightly decreased to $260 million, yet remained considerably higher than the levels observed in the earlier years.

Overall, the data points to considerable volatility in both the income tax provision and cash operating taxes, with a general trend towards higher tax expenses and cash tax payments in the most recent years. The divergence between income tax provision and cash operating taxes in certain years, such as 2018 and 2020 where provisions were negative but cash taxes positive, may indicate timing differences, tax credits, or adjustments impacting accounting and cash tax reporting differently.

The financial data exhibits notable fluctuations in key measures over the five-year period ending in 2022.

Total Reported Debt & Leases

There is a general upward trend from 2018 to 2020, with debt rising from $2,624 million to $5,109 million. This is followed by a decrease in 2021 to $4,085 million, after which the debt level stabilizes in 2022 at $4,131 million. The initial increase suggests a phase of leveraging or increased borrowing, while the subsequent reduction and stabilization indicate efforts to manage or reduce debt obligations.

Total United States Steel Corporation Stockholders’ Equity

Equity demonstrates a mixed trajectory. The equity declined from $4,202 million in 2018 to $3,786 million in 2020, possibly reflecting losses or distributions exceeding earnings. A significant reversal occurs in 2021 with equity surging to $9,010 million and further increasing to $10,218 million in 2022. This sharp rise in equity suggests substantial profits, capital injections, or retained earnings during these years, strengthening the company's financial position.

Invested Capital

Invested capital has consistently increased year over year, growing from $6,762 million in 2018 to $12,723 million in 2022. The steady rise indicates ongoing investment in assets or operations that support the business. The substantial jump between 2020 and 2021 aligns with the marked increase in equity, implying financed growth and asset expansion during this period.

The economic spread ratio exhibited significant fluctuations between 2018 and 2022. Initially negative, the ratio demonstrated a substantial decline before recovering and then stabilizing at a low positive value. This movement correlates with changes in economic profit and invested capital over the same period.

Economic Spread Ratio Trend

In 2018, the economic spread ratio was -8.58%. This value deteriorated considerably to -14.15% in 2019, and further to -30.14% in 2020, indicating a widening gap between the cost of capital and returns generated from invested capital. A dramatic reversal occurred in 2021, with the ratio surging to 15.86%, signifying a substantial improvement in profitability relative to invested capital. However, this improvement was not sustained, as the ratio decreased to 2.47% in 2022, suggesting a return to more modest value creation.

Relationship to Economic Profit

The economic spread ratio’s negative values in 2018, 2019, and 2020 align with corresponding negative economic profit figures. The magnitude of the negative spread generally mirrored the size of the economic loss. The positive economic profit reported in 2021 directly corresponds with the positive and high economic spread ratio observed in that year. The reduced economic profit in 2022 is reflected in the lower, though still positive, economic spread ratio.

Relationship to Invested Capital

Invested capital increased steadily from 2018 to 2022. While the economic spread ratio was negative, the increasing invested capital likely exacerbated the magnitude of the negative economic profit. The substantial increase in invested capital between 2020 and 2021 did not prevent a significant improvement in the economic spread ratio, suggesting that the increased capital was deployed more effectively in 2021. The relatively small increase in invested capital from 2021 to 2022 coincided with a substantial decrease in the economic spread ratio, indicating that the returns on the increased capital base diminished in the latter year.

Overall, the period demonstrates a volatile performance in value creation. While significant improvements were achieved in 2021, the return to a low positive economic spread ratio in 2022 suggests potential challenges in sustaining profitability relative to the capital employed.

The economic profit margin exhibited significant fluctuations between 2018 and 2022. Initially negative, the margin demonstrated a substantial decline before recovering to positive territory. This analysis details the observed trends in economic profit and its relationship to net sales.

Economic Profit Margin Trend

In 2018, the economic profit margin stood at -4.09%. This indicates that the company’s economic profit was 4.09% below the cost of capital applied to its net sales. The margin deteriorated considerably in 2019, reaching -8.58%, suggesting a widening gap between economic profit and the cost of capital. The most substantial decline occurred in 2020, with the margin plummeting to -26.68%, indicating a significant shortfall in generating returns exceeding the cost of capital. A dramatic reversal is observed in 2021, as the economic profit margin surged to 9.66%, signifying that the company generated economic profit exceeding its cost of capital. This positive trend continued, albeit at a slower pace, with the margin reaching 1.49% in 2022.

Relationship between Economic Profit and Net Sales

Net sales decreased from US$14,178 million in 2018 to US$9,741 million in 2020, coinciding with the most significant deterioration in the economic profit margin. While net sales experienced a substantial recovery in 2021, reaching US$20,275 million, and further increased to US$21,065 million in 2022, the economic profit margin did not fully recover to its 2018 level. This suggests that factors beyond revenue growth, such as cost of capital or operational efficiency, played a crucial role in determining economic profitability.

The substantial volatility in the economic profit margin highlights the sensitivity of the company’s profitability to underlying economic conditions and internal operational factors. The shift from significant negative economic profit to positive economic profit in 2021 and 2022 suggests successful strategic adjustments or favorable market conditions. However, the margin’s failure to return to 2018 levels despite increased net sales warrants further investigation into the factors influencing the cost of capital and operational performance.