Twenty-First Century Fox Inc. (NASDAQ:FOX)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) and cost of capital exhibit varying trends, impacting the overall economic profit generated. Invested capital generally increased over the observed timeframe, though not consistently.

Economic Profit Trend

Economic profit initially registered a positive value in 2013, at US$560 million. This was followed by a substantial decline into negative territory in 2014, reaching -US$3,306 million. A recovery was observed in 2015, with economic profit returning to a positive US$2,437 million. However, this positive trend was short-lived, as economic profit again became negative in 2016 (-US$2,210 million) and remained so through 2018, ending at -US$3,229 million. The trend indicates a struggle to generate returns exceeding the cost of capital, particularly in the later years.

NOPAT Analysis

Net operating profit after taxes experienced considerable volatility. It decreased substantially from US$7,896 million in 2013 to US$4,517 million in 2014. A significant increase occurred in 2015, reaching US$9,417 million, representing the highest NOPAT value in the period. Subsequent years saw declines, with NOPAT falling to US$4,025 million in 2016, US$4,273 million in 2017, and US$4,669 million in 2018. While NOPAT remained positive throughout the period, its fluctuations contributed to the inconsistent economic profit.

Cost of Capital Analysis

The cost of capital generally decreased from 16.51% in 2013 to 14.68% in 2016. However, it increased again in 2017 to 14.89% and further to 16.71% in 2018. The decrease in cost of capital from 2013 to 2016 did not consistently translate into improved economic profit, suggesting that NOPAT fluctuations were a more dominant factor. The increase in cost of capital in 2017 and 2018 likely exacerbated the negative economic profit observed in those years.

Invested Capital Trend

Invested capital showed an overall increasing trend, rising from US$44,434 million in 2013 to US$47,272 million in 2018. However, this increase was not linear. A peak was reached in 2014 at US$48,265 million, followed by a decrease in 2015 and 2016 before resuming an upward trajectory. The growth in invested capital, without a corresponding consistent increase in NOPAT, contributed to the declining economic profit.

In summary, the economic profit performance was heavily influenced by the interplay between NOPAT, cost of capital, and invested capital. While invested capital generally increased, the volatility in NOPAT and fluctuations in the cost of capital resulted in a predominantly negative economic profit trend over the period.

Net Income Attributable to Stockholders

The net income showed notable fluctuations over the analyzed periods. It started at 7,097 million USD in 2013, then declined significantly to 4,514 million USD in 2014. In 2015, there was a strong rebound with net income increasing to 8,306 million USD, marking the highest value in the timeframe. Afterward, net income dropped sharply to 2,755 million USD in 2016 and remained relatively low in 2017, with a slight increase to 2,952 million USD. In 2018, net income rose again to 4,464 million USD, indicating partial recovery but still below the earlier peak.

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes demonstrated a pattern similar to net income but with somewhat less pronounced variation. Starting at 7,896 million USD in 2013, it decreased substantially to 4,517 million USD in 2014. NOPAT peaked at 9,417 million USD in 2015, exceeding the initial period's value. Following this peak, it declined sharply to 4,025 million USD in 2016. The next two years showed moderate growth, with NOPAT increasing to 4,273 million USD in 2017 and 4,669 million USD in 2018.

Overall Trend Analysis

Both net income and NOPAT experienced significant volatility throughout the six years. The years 2014 and 2016 are characterized by marked downturns in profitability metrics. The year 2015 stands out as a peak period for both measures, reflecting a temporary strong financial performance. After 2016, there is evidence of gradual operational improvement through 2018, though neither net income nor NOPAT returned to their earlier peak levels by the end of the period. The data suggests a cycle of recovery following considerable profit contractions, warranting further examination of underlying causes during downturn years.

Provision for income taxes from continuing operations

The provision for income taxes generally declined from 2013 to 2016, starting at 1,690 million US dollars in 2013 and decreasing steadily to 1,130 million in 2016. In 2017, there was a notable increase to 1,419 million, followed by a significant drop to a negative figure of -364 million in 2018, which may indicate a tax benefit or a reversal of previous tax provisions.

Cash operating taxes

Cash operating taxes fluctuated over the period. Beginning at 1,612 million US dollars in 2013, the figure increased to 1,707 million in 2014, then decreased to 1,504 million in 2015. A more marked decline occurred in 2016 with taxes dropping to 1,095 million. Subsequently, there was a sharp rise to 1,781 million in 2017 before falling significantly to 904 million in 2018. The fluctuations suggest variability in cash tax payments potentially linked to changing profitability or tax planning strategies.

Total reported debt & leases

The total reported debt and leases displayed fluctuations over the six-year period. Starting at $19,912 million in 2013, the debt increased to a peak of $22,748 million in 2014. Following this peak, there was a general decline in debt, descending to $20,609 million in 2015 and remaining relatively stable through 2016 and 2017, with slight increases and decreases respectively. By 2018, the debt had further decreased to $21,076 million. Overall, the debt levels demonstrate initial growth followed by a slight reduction and stabilization trend.

Total Twenty-First Century Fox, Inc. stockholders’ equity

Stockholders' equity showed an overall increasing trend despite some variability. Beginning at $16,998 million in 2013, there was a moderate increase to $17,418 million in 2014, followed by a small decrease to $17,220 million in 2015. A notable decline occurred in 2016, when equity dropped sharply to $13,661 million. After this decline, equity rebounded, increasing to $15,722 million in 2017 and further to $19,564 million in 2018, marking the highest equity value in the period.

Invested capital

Invested capital demonstrated a fluctuating but generally downward trend in the earlier years, followed by recovery in later years. It began at $44,434 million in 2013, increased to $48,265 million in 2014, then decreased significantly to $44,315 million in 2015 and further declined to $42,462 million in 2016. From 2016 onwards, invested capital increased, reaching $45,055 million in 2017 and $47,272 million in 2018, though it did not quite return to the previous peak observed in 2014.

The economic spread ratio exhibited considerable fluctuation between 2013 and 2018. Initial positive performance gave way to a period of sustained negative spreads, indicating diminishing value creation over time. A review of the underlying components, economic profit and invested capital, reveals the drivers of this trend.

Economic Spread Ratio

The economic spread ratio began at 1.26% in 2013, representing a positive spread between returns and the cost of capital. This positive spread diminished sharply in 2014, resulting in a negative spread of -6.85%. A recovery occurred in 2015, with the ratio increasing to 5.50%. However, this improvement proved temporary, as the ratio declined to -5.21% in 2016 and further to -5.41% in 2017. The ratio reached its lowest point during the analyzed period in 2018, at -6.83%. This consistent negative trend suggests a growing inability to generate returns exceeding the cost of capital.

Economic Profit

Economic profit mirrored the volatility observed in the economic spread ratio. A profit of US$560 million was recorded in 2013, followed by a substantial loss of US$3,306 million in 2014. Profitability recovered in 2015 to US$2,437 million, but subsequently declined to a loss of US$2,210 million in 2016 and US$2,437 million in 2017. The largest loss over the period was recorded in 2018, amounting to US$3,229 million. The fluctuations in economic profit directly influenced the economic spread ratio.

Invested Capital

Invested capital generally increased throughout the period, rising from US$44,434 million in 2013 to US$47,272 million in 2018. While there was a slight decrease between 2015 and 2016, the overall trend indicates a growing capital base. The increasing invested capital, coupled with the fluctuating and ultimately negative economic profit, contributed to the declining economic spread ratio. The company was deploying more capital, but generating insufficient returns to cover its cost.

In summary, the analysis reveals a deterioration in value creation as measured by the economic spread ratio. Despite an increasing investment in capital, the company struggled to consistently generate economic profit, resulting in a sustained negative spread in later years. This suggests a need for strategic review to improve profitability and capital allocation efficiency.

The economic profit margin exhibited considerable fluctuation between 2013 and 2018. Initial profitability, as measured by economic profit, transitioned to substantial losses before showing a recovery, followed by renewed declines. This analysis details the observed trends in economic profit and its relationship to adjusted revenues.

Economic Profit

Economic profit began at US$560 million in 2013, indicating value creation. However, a significant decline occurred in 2014, resulting in an economic loss of US$3,306 million. A recovery was observed in 2015, with economic profit reaching US$2,437 million. This positive trend was short-lived, as economic profit turned negative again in 2016 at US$ -2,210 million, and continued to decrease to US$ -2,437 million in 2017 and further to US$ -3,229 million in 2018. The overall trend demonstrates a move from value creation to consistent value destruction over the period.

Adjusted Revenues

Adjusted revenues generally increased from US$27,472 million in 2013 to US$30,498 million in 2018. Growth was observed between 2013 and 2014, reaching US$31,880 million. A slight decrease occurred in 2015 to US$28,745 million, followed by a further decrease in 2016 to US$27,383 million. Revenues then recovered, reaching US$28,575 million in 2017 and continuing to grow to US$30,498 million in 2018. Despite the overall revenue growth, it did not translate into consistent economic profit.

Economic Profit Margin

The economic profit margin mirrored the fluctuations in economic profit. It started at 2.04% in 2013, then plummeted to -10.37% in 2014. A substantial recovery to 8.48% was seen in 2015, but this was followed by a decline to -8.07% in 2016, -8.53% in 2017, and -10.59% in 2018. The margin consistently trended downward from 2015 to 2018, indicating that, despite revenue increases in later years, the cost of capital or operational inefficiencies were increasing at a faster rate, eroding profitability. The negative margins in multiple years suggest the company was not generating returns exceeding its cost of capital.

In conclusion, while adjusted revenues demonstrated overall growth, the economic profit margin reveals a concerning trend of declining profitability and value creation. The inability to translate revenue growth into positive economic profit suggests underlying issues with cost management, capital allocation, or operational efficiency.