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.

Economic Profit Trend

Economic profit began at a negative US$378 million in 2018. This deficit widened considerably to negative US$1,004 million in 2019 and further deteriorated to negative US$2,417 million in 2020. A substantial turnaround occurred in 2021, with economic profit becoming positive at US$2,295 million. However, this positive trend was not sustained, as economic profit decreased to US$693 million in 2022.

NOPAT Analysis

NOPAT mirrored the economic profit trend. A value of US$893 million in 2018 was followed by a loss of US$121 million in 2019 and a significant loss of US$1,095 million in 2020. The substantial increase in NOPAT to US$4,449 million in 2021 directly contributed to the positive economic profit observed that year. NOPAT then decreased to US$3,060 million in 2022.

Cost of Capital

The cost of capital varied throughout the period. It began at 18.81% in 2018, decreased to 11.27% in 2019, and then increased to 15.33% in 2020. Further increases were observed in 2021 (17.45%) and 2022 (18.60%). The rising cost of capital in the latter years likely contributed to the reduction in economic profit despite continued positive NOPAT.

Invested Capital

Invested capital consistently increased over the period, moving from US$6,762 million in 2018 to US$12,723 million in 2022. This growth in invested capital, coupled with fluctuations in NOPAT and the cost of capital, significantly impacted the resulting economic profit values.

The substantial improvement in economic profit in 2021 appears strongly correlated with the significant increase in NOPAT that year. However, the subsequent decline in economic profit in 2022, despite continued positive NOPAT, suggests that the increasing cost of capital and growing invested capital base played a role in diminishing returns.

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 to positive territory and subsequently moderating. 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 -5.59%. This value deteriorated considerably to -12.81% in 2019, and further to -28.04% 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 18.59%, signifying a substantial improvement in profitability relative to invested capital. However, the ratio decreased to 5.45% in 2022, suggesting a moderation of the positive trend observed in the prior year.

The economic spread ratio’s movement is closely tied to the reported economic profit. The negative economic profit values in 2018, 2019, and 2020 directly contributed to the negative economic spread ratios during those years. The positive economic profit reported in 2021 and 2022 aligned with the positive, though fluctuating, economic spread ratios.

Invested Capital and Ratio Relationship

Invested capital consistently increased from 2018 to 2022. While increasing invested capital would typically dilute the economic spread ratio if economic profit remained constant, the substantial increase in economic profit in 2021 more than offset this effect, leading to the significant positive shift in the ratio. The smaller increase in economic profit in 2022, coupled with a continued rise in invested capital, resulted in a lower economic spread ratio compared to 2021.

The substantial volatility in the economic spread ratio suggests sensitivity to underlying economic profit and potentially, the capital employed. The company experienced a period of value destruction, as indicated by the negative ratios, before achieving a period of value creation. The recent moderation in the ratio warrants further investigation to determine the sustainability of profitability relative to the capital base.

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

Economic Profit

Economic profit demonstrated a consistent decline from 2018 to 2020, moving from a loss of US$378 million to a loss of US$2,417 million. A substantial turnaround occurred in 2021, with economic profit becoming positive at US$2,295 million. While remaining positive, economic profit decreased in 2022 to US$693 million.

Net Sales

Net sales decreased from US$14,178 million in 2018 to US$9,741 million in 2020, representing a significant contraction. A strong recovery was then observed in 2021, with net sales reaching US$20,275 million. This upward trend continued modestly into 2022, with net sales reported at US$21,065 million.

Economic Profit Margin

The economic profit margin began at -2.67% in 2018 and experienced a marked decline, reaching -24.82% in 2020. This indicates a widening gap between the cost of capital and the returns generated from sales during this period. The margin improved dramatically in 2021 to 11.32%, coinciding with the increase in economic profit and net sales. In 2022, the economic profit margin decreased to 3.29%, suggesting a reduced, though still positive, level of value creation relative to sales.

The correlation between net sales and economic profit is apparent. The substantial increase in net sales in 2021 appears to be a primary driver of the positive shift in economic profit and the corresponding improvement in the economic profit margin. However, the margin’s decline in 2022, despite continued sales growth, suggests that profitability may not be scaling proportionally with revenue.