CSX Corp. (NASDAQ:CSX)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuates, it does not generate sufficient returns to cover the cost of capital employed. Invested capital shows an overall increasing trend, while the cost of capital remains relatively stable, contributing to the persistent negative economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced an initial increase from US$4,106 million in 2018 to US$4,174 million in 2019. A subsequent decline to US$3,545 million occurred in 2020, followed by recoveries to US$4,534 million in 2021 and US$4,863 million in 2022. Despite the increases in 2021 and 2022, NOPAT levels did not reach those observed in 2018 and 2019.

Cost of Capital

The cost of capital remained relatively consistent throughout the period, ranging from 16.33% to 17.05%. A slight upward trend is observable from 2018 to 2022, though the fluctuations are minimal. This stability suggests that the company’s risk profile, as perceived by investors, remained largely unchanged.

Invested Capital

Invested capital exhibited a steady upward trend, increasing from US$34,219 million in 2018 to US$38,278 million in 2022. This indicates a continued investment in the business, potentially through capital expenditures or acquisitions. The increasing capital base, coupled with a consistent cost of capital, contributes to the growing absolute value of the economic loss.

Economic Profit

Economic profit remained negative across all years examined. The magnitude of the loss varied, with the largest negative economic profit of US$-2,601 million recorded in 2020. While the losses decreased in 2021 and 2022 to US$-1,868 million and US$-1,662 million respectively, they remained substantial. This indicates that the returns generated by the invested capital were consistently below the required rate of return.

In summary, the analysis reveals a consistent inability to generate economic profit. While NOPAT shows some recovery in later years, it is insufficient to offset the increasing invested capital and relatively stable cost of capital. The trend suggests a need to either improve operational efficiency to increase NOPAT, reassess investment strategies to optimize capital allocation, or potentially re-evaluate the cost of capital.

The financial data reveals several key trends concerning profitability over the analyzed five-year period. Net earnings exhibited an initial slight increase from 2018 to 2019, growing marginally from 3,309 million USD to 3,331 million USD. This was followed by a noticeable decline in 2020 down to 2,765 million USD, indicating a downturn in earnings performance during that year. Subsequently, net earnings demonstrated a robust recovery, increasing significantly to 3,781 million USD in 2021 and further to 4,166 million USD in 2022, surpassing earlier results. This indicates a strong rebound and an overall positive trajectory post-2020.

Net operating profit after taxes (NOPAT) exhibits a pattern comparable to net earnings, although at consistently higher absolute values. From 2018 to 2019, NOPAT increased slightly from 4,106 million USD to 4,174 million USD, similar to the initial net earnings rise. In 2020, NOPAT declined noticeably to 3,545 million USD, coinciding with the drop observed in net earnings. Afterwards, there was a marked recovery in 2021, with NOPAT rising to 4,534 million USD and continuing upward to 4,863 million USD in 2022, reflecting improvement in operational profitability.

Net Earnings Trends

- Slight growth from 2018 to 2019

- Decline in 2020, possibly reflecting adverse conditions

- Strong recovery and growth in 2021 and 2022, reaching record highs in the period

Net Operating Profit After Taxes (NOPAT) Trends

- Positive growth early in the period (2018-2019)

- Decrease in 2020 aligned with net earnings downturn

- Significant rebound in 2021 and continued growth in 2022, indicating operational efficiency improvements

Overall Insight

The data suggests resilience in profitability following a challenging 2020, with both net earnings and NOPAT showing strong recovery and growth thereafter. Operational profits consistently exceeded net earnings, implying favorable non-operating factors or financial management contributing positively to net results.

The financial data reflects the progression of income tax expense and cash operating taxes from 2018 to 2022, measured in millions of US dollars.

Income Tax Expense

This item shows a fluctuating but generally increasing trend across the five-year period. The expense declined slightly from 995 million in 2018 to 985 million in 2019, followed by a more noticeable decrease to 862 million in 2020. However, from 2020 onward, there was a significant rise to 1,170 million in 2021 and a further increase to 1,248 million in 2022, surpassing earlier years’ figures.

Cash Operating Taxes

Cash operating taxes exhibit a similar pattern to income tax expense. Starting at 854 million in 2018, the value increased marginally to 862 million in 2019, then decreased moderately to 842 million in 2020. Subsequently, there was a considerable rise to 1,159 million in 2021 and an additional increase to 1,284 million in 2022. The growth in 2021 and 2022 was strong enough to exceed the levels observed prior to 2020.

Overall, both income tax expense and cash operating taxes suffered declines in 2020, possibly reflecting economic conditions or operational factors impacting taxable income or tax payments during that year. The subsequent two years show recovery and robust increases, indicating higher taxable profits or changes in tax rates or policies. Notably, cash operating taxes slightly outpaced income tax expense in the last two years, which could suggest timing differences or changes in tax payment structures.

Total reported debt & leases

The total reported debt and leases demonstrated an overall increasing trend across the observed periods. Starting at $15,060 million at the end of 2018, the figure rose steadily to $18,604 million by the end of 2022. There was a noticeable increment from 2019 to 2020, followed by a slight decline in 2021, and then an uptick again in 2022 reaching the highest value in the series.

Shareholders’ equity, attributable to CSX

Shareholders’ equity showed fluctuations during the five-year period. Beginning at $12,563 million in 2018, it decreased to $11,848 million in 2019. Subsequently, the equity improved, peaking at $13,490 million in 2021, before declining again to $12,615 million in 2022. This pattern suggests variable equity performance with no consistent growth trajectory.

Invested capital

Invested capital displayed a consistent growth pattern over the period examined. The value increased incrementally from $34,219 million in 2018 to $38,278 million in 2022. The growth was steady with modest year-to-year increases, indicating a gradual expansion of the capital base over time.

The period between 2018 and 2022 demonstrates a consistent pattern of negative economic profit for the entity. While the absolute value of economic profit fluctuates, it remains negative throughout the observed timeframe. Invested capital exhibits a general upward trend, increasing from US$34,219 million in 2018 to US$38,278 million in 2022. The economic spread ratio, reflecting the relationship between economic profit and invested capital, consistently registers negative values, indicating that the entity’s returns are not exceeding its cost of capital.

Economic Profit

Economic profit begins at -US$1,689 million in 2018, decreases to -US$2,601 million in 2020, and then shows some improvement, reaching -US$1,662 million in 2022. The largest decline occurs between 2019 and 2020. While 2021 and 2022 show improvement relative to 2020, the entity still reports a negative economic profit in both years.

Invested Capital

Invested capital shows a steady increase over the five-year period. The increase from 2018 to 2019 is relatively modest, at US$583 million. Growth accelerates between 2019 and 2020, with an increase of US$2,835 million. The rate of increase slows in subsequent years, with increases of US$7 million between 2020 and 2021, and US$634 million between 2021 and 2022. Despite the increasing invested capital, the entity has not generated positive economic profit.

Economic Spread Ratio

The economic spread ratio mirrors the trend in economic profit, remaining negative throughout the period. The ratio reaches its most negative point in 2020, at -6.91%. It improves to -4.34% by 2022, but remains indicative of returns falling short of the cost of capital. The ratio’s movement suggests that while economic profit improved slightly in the later years, the increase in invested capital partially offset this improvement, preventing a significant positive change in the economic spread.

In summary, the entity consistently underperforms relative to its cost of capital, as evidenced by the negative economic profit and economic spread ratio. While invested capital has increased, the entity has not been able to generate sufficient returns to offset this investment and achieve positive economic profit.

The analysis reveals a consistent pattern of negative economic profit over the five-year period, though with some fluctuation. Revenue demonstrates a more volatile trend, exhibiting a decline in 2019 and 2020 before recovering and achieving substantial growth in 2021 and 2022. The economic profit margin mirrors the economic profit trend, remaining negative throughout the observed period.

Economic Profit

Economic profit consistently registers as a negative value across all five years. The largest negative economic profit is observed in 2020, at -US$2,601 million. While there is some reduction in the magnitude of the loss in 2021 and 2022, the company still fails to generate economic profit during this period. The values for 2018, 2019, 2021, and 2022 are relatively close, ranging from -US$1,574 million to -US$1,868 million.

Revenue

Revenue experiences a decrease from US$12,250 million in 2018 to US$10,583 million in 2020. A significant recovery is then observed in 2021, with revenue increasing to US$12,522 million. This upward trend continues into 2022, with revenue reaching US$14,853 million, representing the highest value within the observed timeframe. The growth in revenue from 2020 to 2022 is particularly noteworthy.

Economic Profit Margin

The economic profit margin is consistently negative, indicating that the company’s return on capital employed is less than its cost of capital. The most substantial negative margin is recorded in 2020, at -24.58%. The margin improves in 2021 and 2022, reaching -14.92% and -11.19% respectively, coinciding with the revenue increases. However, the margin remains considerably negative, suggesting persistent challenges in generating economic value. The margins for 2018 and 2019 are relatively similar, at -13.79% and -13.18% respectively.

In summary, while revenue has demonstrated a positive trend in recent years, the company continues to experience negative economic profit and a negative economic profit margin. The substantial improvement in revenue has not yet translated into positive economic profit, suggesting that cost of capital remains a significant factor.