Freeport-McMoRan Inc. (NYSE:FCX)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuated, it was consistently insufficient to cover the cost of capital employed. Invested capital exhibited an initial increase followed by a slight decline, while the cost of capital remained relatively stable throughout the analyzed timeframe.

NOPAT Trend

Net operating profit after taxes increased significantly from 2020 to 2021, reaching US$6,188 million. However, NOPAT subsequently decreased in 2022 and 2023, settling at US$4,632 million and US$4,538 million respectively. A modest decrease was observed from 2023 to 2024.

Cost of Capital

The cost of capital remained relatively consistent, fluctuating between 20.24% and 21.20% over the five-year period. The highest value was recorded in 2024 at 21.20%, while the lowest was in 2020 at 20.24%. These fluctuations were minimal and did not appear to significantly impact economic profit.

Invested Capital

Invested capital increased from US$32,173 million in 2020 to US$36,035 million in 2022. A slight decrease was then observed in 2023 to US$35,126 million, followed by a further decrease to US$33,889 million in 2024. This suggests a potential shift in capital allocation strategy or project divestitures towards the end of the period.

Economic Profit

Economic profit remained negative throughout the entire period. The most substantial negative economic profit was recorded in 2020 at -US$4,815 million. While the negative economic profit lessened in 2021 to -US$1,210 million, it increased again in subsequent years, reaching -US$2,646 million in 2024. This indicates that the company’s returns on invested capital consistently fell short of its cost of capital.

The consistent negative economic profit suggests that, despite fluctuations in NOPAT, the company has not generated returns sufficient to cover its cost of capital during the analyzed period. The trend in invested capital, while initially increasing, shows a recent decline, potentially reflecting strategic adjustments. However, these adjustments have not yet translated into positive economic profit.

Net Income Attributable to Common Stockholders

The net income attributable to common stockholders showed a significant increase from 599 million USD in 2020 to a peak of 4306 million USD in 2021. However, after this peak, net income declined to 3468 million USD in 2022 and continued to decrease further to 1848 million USD in 2023. There was a slight recovery in 2024, with net income rising marginally to 1889 million USD. Overall, the data indicates a pronounced volatility with a substantial peak in 2021 followed by a consistent downward trend in the subsequent years through 2024.

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes also demonstrated a strong upward movement from 1698 million USD in 2020 to 6188 million USD in 2021. Following this, NOPAT experienced a decline to 5116 million USD in 2022 and a further decrease to 4632 million USD in 2023. By 2024, NOPAT slightly decreased again to 4538 million USD. Despite the reductions after 2021, NOPAT levels remained substantially higher than the 2020 baseline, signifying an overall improved operating profitability compared to the start of the period.

General Observations

Both net income and NOPAT peaked in 2021, indicating a year of exceptional profitability. Post-2021, both metrics declined, with net income showing a sharper drop compared to NOPAT. This divergence suggests that factors affecting net income beyond operating performance, such as non-operating expenses or one-time gains/losses, could have influenced net income volatility. Despite declines, the company maintained profitability above initial 2020 levels over the five-year span. The slight uptick in net income in 2024 may hint at stabilization or recovering profitability after several years of decrease.

The financial data reveals trends in the provision for income taxes and cash operating taxes over a five-year period ending December 31, 2024.

Provision for Income Taxes

There is a notable increase from 944 million US dollars in 2020 to 2299 million in 2021, indicating a sharp rise in tax provisions. The figures then remain relatively stable around the 2200-2270 million range for the years 2022 and 2023. In 2024, a further increase to 2523 million is observed, suggesting continuing growth in tax obligations.

Cash Operating Taxes

This category exhibits a significant surge from 774 million US dollars in 2020 to 2217 million in 2021, reflecting a major increase in cash tax payments. There is a slight downward trend in 2022 and 2023, with cash operating taxes recorded at 2088 million and 2009 million respectively. However, in 2024, a sharp rise occurs, reaching 2672 million, surpassing previous years' levels.

Overall, the trends indicate a substantial increase in both provision for income taxes and cash operating taxes starting in 2021. While the provision for income taxes shows a steady upward trend after 2021, cash operating taxes display more variability with a dip in the middle years followed by a significant rebound in 2024. This pattern may reflect changes in the company's profitability, tax strategies, or external tax environment impacting its tax liabilities and payments.

The financial data reveals several key trends regarding the company’s capital structure and equity position over the five-year period.

Total Reported Debt & Leases

The total reported debt and leases show fluctuation but overall a slight decrease from 2020 to 2024. After peaking in 2022 at 10,952 million USD, the debt level declines to 9,738 million USD by the end of 2024. This suggests an effort to reduce debt or improve debt management after a temporary increase in 2022.

Stockholders’ Equity

Stockholders’ equity demonstrates consistent growth year over year. Starting at 10,174 million USD in 2020, it rises steadily to reach 17,581 million USD in 2024. This upward trend indicates strengthening equity, possibly due to retained earnings growth, issuing equity, or increased profitability enhancing the company’s net asset base.

Invested Capital

Invested capital increases from 32,173 million USD in 2020 to a peak of 36,035 million USD in 2022, followed by a decline to 33,889 million USD in 2024. The increase up to 2022 may reflect expanded operational assets or investment in capital projects, while the subsequent decline suggests divestitures, asset sales, or depreciation outpacing new investments.

Overall, the data reflects a company focused on strengthening equity while managing debt levels relatively stable after a notable increase in 2022. Investment in capital assets has peaked and begun to recede moderately, indicating possible strategic shifts in capital allocation or operational adjustments during the latter years.

The period under review demonstrates a consistent pattern of negative economic profit, coupled with fluctuations in invested capital. This translates into consistently negative economic spread ratios across the five-year span.

Economic Profit

Economic profit remains negative throughout the observed period, ranging from a low of -4,815 US$ millions in 2020 to a high of -1,210 US$ millions in 2021. While 2021 showed improvement compared to 2020, subsequent years exhibit a gradual increase in the magnitude of the negative economic profit, culminating in -2,646 US$ millions in 2024. This indicates that the company’s returns are consistently below its cost of capital.

Invested Capital

Invested capital increased from 32,173 US$ millions in 2020 to 36,035 US$ millions in 2022, suggesting a period of capital investment. However, it then decreased to 35,126 US$ millions in 2023 and further to 33,889 US$ millions in 2024. This decline in invested capital in the latter two years may reflect divestitures, reduced capital expenditure, or asset impairment.

Economic Spread Ratio

The economic spread ratio consistently registers negative values, indicating that the company is not generating returns exceeding its cost of capital. The ratio improved from -14.97% in 2020 to -3.45% in 2021, mirroring the improvement in economic profit. However, the ratio then deteriorated steadily, moving from -3.45% in 2021 to -7.81% in 2024. This worsening trend suggests a growing disparity between the company’s returns and its cost of capital, despite the fluctuations in invested capital. The relative stability of the ratio between 2023 and 2024 suggests the negative spread is becoming entrenched.

In summary, the company consistently fails to generate economic profit, resulting in negative economic spread ratios. While invested capital initially increased, it has since declined, and the economic spread continues to worsen, indicating a concerning trend in value creation.

The period under review demonstrates consistent negative economic profit, although with some fluctuation in magnitude. Adjusted revenues exhibit an overall upward trend, while the economic profit margin remains negative throughout the analyzed timeframe.

Economic Profit

Economic profit begins at negative US$4,815 million in 2020, improves to negative US$1,210 million in 2021, then declines to negative US$2,498 million in 2022 and further to negative US$2,778 million in 2023. A slight improvement is noted in 2024, with economic profit reported at negative US$2,646 million. This indicates that, while the absolute value of the loss decreased initially, it has largely remained substantial and relatively stable in recent years.

Adjusted Revenues

Adjusted revenues increased significantly from US$14,251 million in 2020 to US$22,971 million in 2021. Subsequent years show more moderate increases, reaching US$22,665 million in 2022, US$22,940 million in 2023, and finally US$25,385 million in 2024. The consistent growth in adjusted revenues suggests positive performance in top-line sales, despite the persistent negative economic profit.

Economic Profit Margin

The economic profit margin is consistently negative across all years. It starts at -33.79% in 2020, improves to -5.27% in 2021, then worsens to -11.02% in 2022 and -12.11% in 2023. A slight improvement is observed in 2024, with the margin at -10.42%. The negative margin indicates that the cost of capital exceeds the returns generated from operations, even with increasing revenues. The margin’s fluctuation suggests a sensitivity to changes in economic profit relative to adjusted revenues.

In summary, while adjusted revenues have shown an upward trajectory, the entity has not yet achieved positive economic profit. The economic profit margin, though showing minor fluctuations, remains negative, indicating that the business is not generating returns sufficient to cover its cost of capital.