Amphenol Corp. (NYSE:APH)

The period between 2019 and 2023 demonstrates a fluctuating financial performance as measured by economic profit. Net operating profit after taxes generally increased over the period, but the cost of capital and invested capital also rose, ultimately resulting in consistently negative economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$1,277,245 thousand in 2019 to US$1,351,172 thousand in 2020, representing a growth of approximately 5.8%. A more substantial increase occurred between 2020 and 2021, with NOPAT reaching US$1,644,807 thousand, a rise of roughly 21.7%. This upward trend continued into 2022, reaching US$2,040,201 thousand. However, in 2023, NOPAT experienced a slight decrease to US$2,010,042 thousand, indicating a potential stabilization or minor decline in operational profitability.

Cost of Capital

The cost of capital exhibited a consistent upward trend throughout the analyzed period. Starting at 18.99% in 2019, it increased to 19.20% in 2020, 19.23% in 2021, 19.55% in 2022, and finally reached 19.91% in 2023. This continuous rise suggests increasing financing costs or perceived risk associated with the company’s operations.

Invested Capital

Invested capital showed a steady increase over the five-year period. From US$9,029,400 thousand in 2019, it grew to US$10,035,300 thousand in 2020 (approximately 11.1% increase). Further growth was observed in 2021, reaching US$12,048,900 thousand, followed by US$12,775,400 thousand in 2022, and US$13,752,400 thousand in 2023. This indicates ongoing investment in the business, potentially through capital expenditures or acquisitions.

Economic Profit

Economic profit remained negative throughout the period, indicating that the company’s returns did not exceed its cost of capital. The economic profit decreased from a loss of US$-437,669 thousand in 2019 to a loss of US$-575,909 thousand in 2020. The losses continued to widen, reaching US$-672,259 thousand in 2021. While the loss narrowed slightly to US$-457,558 thousand in 2022, it increased significantly in 2023 to US$-727,942 thousand, representing the largest economic loss over the observed timeframe. This suggests that despite increasing NOPAT, the growth in invested capital and cost of capital outpaced profitability, resulting in a diminishing economic return.

In summary, while the company demonstrated growth in NOPAT and invested capital, the increasing cost of capital consistently resulted in negative economic profit. The economic loss widened in the final year of the period, suggesting a growing disparity between returns generated and the cost of funding those returns.

The financial data reveals a generally positive trend in profitability over the five-year period from 2019 to 2023, with some fluctuations in specific measures.

Net Income Attributable to Amphenol Corporation

This metric shows a consistent increase from 2019 to 2023, starting at 1,155,000 thousand US dollars in 2019 and rising to 1,928,000 thousand US dollars in 2023. The most significant jump occurred between 2020 and 2021, where net income increased by approximately 32.2%, from 1,203,400 to 1,590,800 thousand US dollars. Growth continued through 2022, reaching 1,902,300 thousand US dollars, before showing a more modest increase of about 1.3% into 2023.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a similar upward trend, rising from 1,277,245 thousand US dollars in 2019 to a peak of 2,040,201 thousand US dollars in 2022. This represents an overall increase of nearly 60%. There is a steady year-over-year improvement, with the largest increase again visible from 2021 to 2022. However, in 2023, there is a slight decline of approximately 1.5%, decreasing to 2,010,042 thousand US dollars. Despite this small reduction, the 2023 figure remains significantly higher than in the early years.

Overall, the data indicates strong growth in profitability, with both net income and NOPAT more than doubling during the examined timeframe. The minor dip in NOPAT in 2023 suggests a potential plateau or emerging challenges affecting operating profit, though net income continues to rise slightly. This pattern suggests effective operational performance and profitability growth over the longer term, with a need to monitor recent subtle downturns in operating profit closely.

The provision for income taxes and cash operating taxes for the analyzed periods reveal notable trends in tax-related expenses.

Provision for income taxes

There was a decrease from 331,900 thousand USD in 2019 to 313,300 thousand USD in 2020, indicating a reduction in estimated tax liabilities. In 2021, this figure sharply increased to 409,100 thousand USD, followed by a further rise to 550,600 thousand USD in 2022. However, in 2023, a slight decline to 509,300 thousand USD was observed, suggesting some relief in tax provisions compared to the previous year but still significantly higher than pre-pandemic levels.

Cash operating taxes

Cash operating taxes also decreased from 342,736 thousand USD in 2019 to 307,985 thousand USD in 2020, mirroring the provision trend and likely reflecting the impact of external economic factors. Beginning in 2021, cash taxes increased substantially to 464,115 thousand USD and continued to increase through 2022 and 2023, reaching 583,929 thousand USD and 599,691 thousand USD respectively. This steady increase indicates an upward pressure on actual tax payments despite the slight reduction in provisions in 2023.

Overall, the data shows a downward shift in both tax provisions and cash taxes during 2020, possibly due to extraordinary circumstances affecting taxable income. However, from 2021 onwards, both measures display a pronounced upward trend, highlighting a recovery or growth phase characterized by higher taxable earnings and increased cash tax outflows. The divergence in 2023, where cash taxes slightly rise while provisions fall, may suggest adjustments in expected future tax liabilities or timing differences in tax payments.

Total reported debt & leases

The total reported debt and leases exhibited an overall upward trend from 2019 through 2021, increasing from approximately $3.81 billion to $5.05 billion. This was followed by a decline in the subsequent two years, lowering the figure to about $4.64 billion by 2023. The initial rise may indicate increased leverage or financing activities, while the subsequent decrease suggests debt reduction or repayment strategies.

Stockholders’ equity attributable to Amphenol Corporation

Stockholders' equity showed consistent growth throughout the examined period, rising from roughly $4.53 billion in 2019 to $8.35 billion in 2023. This steady increase points to strengthening financial stability, possibly driven by retained earnings, profitable operations, or issuance of equity, thereby enhancing the company's net worth.

Invested capital

Invested capital demonstrated a continuous increase over the five years, expanding from approximately $9.03 billion to $13.75 billion. The upward trend reflects ongoing investments in assets, acquisitions, or capital expenditures supporting the company’s growth and operational capacity. The growth rate in invested capital generally outpaced that of debt, indicating a rising equity contribution.

The economic spread ratio exhibited fluctuations over the five-year period. While generally negative, indicating the company’s return on invested capital is less than its cost of capital, the ratio’s magnitude varied annually. Invested capital consistently increased throughout the period, while economic profit remained negative.

Economic Spread Ratio

The economic spread ratio began at -4.85% in 2019 and decreased to -5.74% in 2020, representing a widening gap between the cost of capital and the return generated. A slight improvement was observed in 2021, with the ratio moving to -5.58%. This was followed by a more substantial positive shift in 2022, reaching -3.58%, suggesting improved capital efficiency or a lower cost of capital. However, the ratio deteriorated again in 2023, ending at -5.29%, indicating a renewed decline in value creation relative to invested capital.

Economic Profit

Economic profit demonstrated a consistent negative trend from 2019 to 2021, moving from -437,669 to -672,259. While a decrease in the absolute value was seen in 2022 (-457,558), the negative trend resumed in 2023, with economic profit reaching -727,942, representing a new low for the period.

Invested Capital

Invested capital increased steadily throughout the observed period. Starting at 9,029,400 in 2019, it rose to 10,035,300 in 2020, 12,048,900 in 2021, 12,775,400 in 2022, and finally reached 13,752,400 in 2023. This consistent growth in invested capital occurred alongside consistently negative economic profit, suggesting that increases in capital deployment are not translating into commensurate value creation.

The combination of increasing invested capital and persistently negative economic profit and economic spread ratio suggests a potential need to evaluate capital allocation strategies and operational efficiency to improve value creation.

The economic profit margin exhibited considerable fluctuation between 2019 and 2023. Initially negative, the margin worsened through 2021 before showing improvement in 2022, only to decline again in the most recent period.

Economic Profit Margin Trend

The economic profit margin began at -5.32% in 2019. It deteriorated to -6.70% in 2020, representing a 25.9% decrease in margin value. A slight recovery occurred in 2021, with the margin moving to -6.18%, a 4.7% improvement. The most substantial positive change was observed between 2021 and 2022, where the margin improved to -3.62%, a 30.7% increase. However, this improvement was reversed in 2023, with the margin declining to -5.80%, a 60.2% decrease.

Net sales generally increased over the period, but the economic profit margin did not consistently benefit from this growth. While net sales increased from US$8,225.4 million in 2019 to US$12,623.0 million in 2022, the economic profit remained negative and, in fact, increased in absolute value through 2021. The slight improvement in margin in 2022 coincided with continued sales growth, but the decline in margin in 2023 occurred despite a relatively stable sales figure of US$12,554.7 million.

Economic Profit

Economic profit itself consistently remained negative throughout the analyzed period. The magnitude of the loss increased from US$-437.7 million in 2019 to US$-727.9 million in 2023. The largest single-year increase in the absolute value of the economic loss occurred between 2022 and 2023, rising by US$-270.4 million.

The divergence between net sales and economic profit margin suggests that factors beyond revenue generation are significantly impacting profitability. These factors could include rising costs of capital, increased operating expenses, or inefficiencies in capital allocation. The recent decline in economic profit margin in 2023, despite stable sales, warrants further investigation.