ConocoPhillips (NYSE:COP)

The period under review demonstrates significant fluctuations in economic profit. Initially, the company experienced substantial economic losses, followed by a period of positive economic profit, and then a return to negative economic profit in the most recent year.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a dramatic shift from a loss of approximately $2.99 billion in 2020 to a profit of $10.27 billion in 2021. This positive trend continued into 2022, with NOPAT reaching $21.16 billion, before declining to $12.36 billion in 2023 and further decreasing to $9.98 billion in 2024. The decline in NOPAT from 2022 to 2024 suggests potential challenges in maintaining profitability.

Cost of Capital

The cost of capital generally increased from 13.90% in 2020 to a peak of 15.35% in 2022. A slight decrease was observed in 2023 (15.14%), followed by a further decrease to 14.71% in 2024. While the cost of capital has decreased recently, it remains elevated compared to 2020 levels.

Invested Capital

Invested capital increased substantially from $50.87 billion in 2020 to $76.36 billion in 2021. It remained relatively stable at $75.52 billion in 2022, then increased to $81.28 billion in 2023, and continued to rise significantly to $106.37 billion in 2024. This consistent growth in invested capital suggests ongoing investment in the business, potentially driving future growth, but also increasing the capital charge.

Economic Profit

Economic profit mirrored the NOPAT trend, beginning with a loss of $10.06 billion in 2020. The loss was reduced to $945 million in 2021 and transformed into a profit of $9.56 billion in 2022. However, economic profit diminished significantly to $56 million in 2023 and then turned negative again, resulting in a loss of $5.68 billion in 2024. The recent decline in economic profit, despite increasing invested capital, indicates that the returns generated are no longer sufficient to cover the cost of that capital.

The interplay between NOPAT, cost of capital, and invested capital significantly impacted economic profit. While the company demonstrated an ability to generate substantial economic profit in 2022, the subsequent decline in NOPAT coupled with continued increases in invested capital led to a return to economic losses in 2024. This suggests a need to evaluate strategies for improving profitability and managing capital allocation.

Net Income (Loss) Attributable to ConocoPhillips

The net income attributable to the company demonstrated significant volatility over the analyzed period. In 2020, the figure was a substantial loss of 2,701 million US dollars, indicating a challenging financial year. However, a dramatic recovery occurred in 2021, with net income rising to 8,079 million US dollars, reflecting a strong turnaround.

The upward trend continued in 2022, with net income reaching a peak of 18,680 million US dollars, more than doubling the previous year's performance. Despite a notable decline in 2023 to 10,957 million US dollars, net income remained robust and significantly positive. In 2024, the figure further declined to 9,245 million US dollars, representing a tapering off of profitability but maintaining a solid profit level relative to earlier years.

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes followed a pattern similar to net income, though with some differences in magnitude. The company recorded a negative NOPAT of 2,991 million US dollars in 2020, aligning with the overall loss experienced that year.

A sharp improvement occurred in 2021, with NOPAT rising to 10,273 million US dollars. This growth trend accelerated in 2022, reaching a peak at 21,159 million US dollars, which was the highest point in the observed period. Subsequently, NOPAT decreased to 12,357 million US dollars in 2023 and then to 9,976 million US dollars in 2024.

Despite these declines in the last two years, NOPAT remained significantly positive, indicating continued operational profitability post-tax, though at a lower level than the peak in 2022.

Overall Trend Summary

The financial results demonstrate a recovery from significant losses in 2020 to strong profitability in subsequent years. Both net income and NOPAT peaked in 2022, followed by decreases in the later years of 2023 and 2024, suggesting a potential moderation in earnings after a period of exceptional growth.

The alignment in trends between net income and NOPAT suggests consistent operational performance after tax impacts are considered. The decline after the peak year may indicate changing market conditions, operational challenges, or strategic shifts impacting profitability, but the company remains financially robust relative to 2020 lows.

Income Tax Provision (Benefit)

The income tax provision exhibited significant volatility over the five-year period. In 2020, the provision was a benefit amounting to -485 million USD, indicating a tax credit or refund. This trend reversed dramatically in 2021 with a substantial increase to 4633 million USD, followed by further escalation in 2022 reaching 9548 million USD. Thereafter, the provision declined notably in 2023 to 5331 million USD and continued to decrease in 2024 to 4427 million USD. This pattern suggests a shift from a net tax benefit to considerable tax expenses, peaking in 2022 before trending downward in subsequent years.

Cash Operating Taxes

Cash operating taxes demonstrated an overall upward trajectory from 2020 through 2022, increasing from 502 million USD in 2020 to 7594 million USD in 2022. However, after this peak, the amount decreased significantly to 4270 million USD in 2023 and saw a slight further reduction to 4150 million USD in 2024. This indicates that while the company’s cash tax payments rose sharply in the initial years, they moderated in the most recent periods.

Comparative Insights

Both the income tax provision and cash operating taxes followed similar trends with increases up to 2022 and subsequent declines. The notable spike in 2022 for both metrics may reflect higher taxable income or changes in tax rates or structures influencing the tax liabilities. The subsequent decline may indicate improved tax planning, tax rate reductions, or decreased taxable income in the latter years.

Total Reported Debt & Leases

The total reported debt and leases exhibit a fluctuating yet overall increasing trend from 2020 through 2024. The debt rose significantly from 16,154 million in 2020 to a peak of 20,601 million in 2021, followed by a decline to 17,188 million in 2022. Subsequently, the debt increased again, reaching 19,634 million in 2023 and further escalating to 25,348 million by the end of 2024. This pattern indicates periods of both deleveraging and increased borrowing or lease obligations, with a notable surge in the final reported year.

Common Stockholders’ Equity

Common stockholders’ equity demonstrates a consistent upward trajectory across all years presented. Starting at 29,849 million in 2020, equity grew substantially each year, reaching 45,406 million in 2021, 48,003 million in 2022, and 49,279 million in 2023. The growth accelerates notably in 2024 with equity rising to 64,796 million. This steady increase reflects a strengthening equity base, likely supported by retained earnings growth and possibly additional equity issuance or valuation gains.

Invested Capital

Invested capital shows an overall growth trend with slight volatility. Beginning at 50,870 million in 2020, it increased sharply to 76,355 million in 2021 but then edged down marginally to 75,520 million in 2022. Afterwards, invested capital resumed growth, climbing to 81,278 million in 2023 and making a more pronounced leap to 106,371 million in 2024. The upward movement in invested capital corresponds with the increases in both equity and debt, indicating expanding asset bases or capital expenditures that may be financed through both debt and equity.

The economic spread ratio exhibited significant fluctuations between 2020 and 2024. Initially negative, the ratio demonstrated substantial improvement before declining again in the most recent period. A review of the underlying components, economic profit and invested capital, provides further context to these movements.

Economic Spread Ratio

In 2020, the economic spread ratio was -19.78%, indicating a substantial shortfall in returns relative to the cost of capital. This ratio improved considerably to -1.24% in 2021, suggesting a narrowing of the gap between returns and capital costs. A positive value of 12.66% was achieved in 2022, representing a period where returns exceeded the cost of capital. However, this positive spread was short-lived, decreasing to 0.07% in 2023 and falling to -5.34% in 2024. The 2024 result indicates a return to underperformance relative to the cost of invested capital.

The economic spread ratio’s volatility appears closely linked to the performance of economic profit. While invested capital generally increased over the period, the economic profit experienced considerable swings. The substantial negative economic profit in 2020 and 2024 directly contributed to the negative economic spread ratios observed in those years. The positive economic profit in 2022 drove the peak in the economic spread ratio.

Invested Capital

Invested capital increased from US$50,870 million in 2020 to US$106,371 million in 2024. This represents a compound annual growth rate of approximately 14.7%. The largest single-year increase occurred between 2023 and 2024, with an increase of US$25,093 million. Despite this growth, the increasing capital base did not consistently translate into improved economic returns, as evidenced by the fluctuating economic spread ratio.

Economic Profit

Economic profit moved from a loss of US$10,061 million in 2020 to a loss of US$945 million in 2021, then to a profit of US$9,564 million in 2022. This was followed by a significant decrease to a profit of US$56 million in 2023 and a loss of US$5,675 million in 2024. The magnitude of the swings in economic profit suggests sensitivity to external factors or internal operational changes. The return to a substantial loss in 2024 is a key driver of the negative economic spread ratio in that year.

In summary, while invested capital consistently grew, the economic spread ratio’s performance was heavily influenced by fluctuations in economic profit. The recent decline in the economic spread ratio, coupled with a return to negative economic profit in 2024, warrants further investigation to understand the underlying causes and potential implications for future performance.

The economic profit margin exhibited significant fluctuations between 2020 and 2024. Initially negative, the margin improved substantially before declining again in the most recent period. A detailed examination of the trends reveals key insights into the company’s profitability relative to its cost of capital.

Economic Profit Margin Trend

In 2020, the economic profit margin was -53.56%, indicating substantial economic losses. This represents a significant shortfall where returns did not cover the cost of capital. A dramatic improvement occurred in 2021, with the margin increasing to -2.06%, suggesting a narrowing of the gap between returns and the cost of capital. The margin turned positive in 2022, reaching 12.18%, demonstrating that the company generated returns exceeding its cost of capital. However, this positive trend was short-lived. The margin decreased sharply to 0.10% in 2023, indicating a minimal economic profit. Finally, in 2024, the margin fell to -10.37%, signifying a return to economic losses, though less severe than those experienced in 2020.

The economic profit margin’s volatility appears closely linked to the fluctuations in economic profit. The substantial negative economic profit in 2020 directly contributed to the large negative margin. The positive economic profit in 2022 drove the margin to its highest point during the analyzed period. The decline in economic profit in 2023 and 2024 subsequently resulted in a diminishing and then negative economic profit margin.

Relationship to Sales

Sales and other operating revenues increased significantly from 2020 to 2022, rising from US$18,784 million to US$78,494 million. This substantial revenue growth likely contributed to the improved economic profit and margin observed in 2021 and 2022. However, revenues decreased in both 2023 and 2024, falling to US$56,141 million and US$54,745 million respectively. This revenue decline, coupled with the negative economic profit in 2024, suggests that the company’s ability to translate sales into economic profit is sensitive to revenue levels and/or cost of capital changes.

Overall, the analysis indicates a period of improving economic performance followed by a recent downturn. While the company achieved positive economic profit in 2022, the subsequent decline in both economic profit and margin warrants further investigation to understand the underlying drivers and potential corrective actions.