Hewlett Packard Enterprise Co. (NYSE:HPE)

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures exhibit significant volatility over the analyzed period. Starting at 2,346 million US dollars in 2018, there is a slight increase to 2,514 million in 2019, followed by a drastic decline to 77 million in 2020. This is succeeded by a strong recovery to 3,529 million in 2021, a subsequent drop to 818 million in 2022, and a partial rebound to 2,752 million in 2023. Such fluctuations suggest considerable variability in operating performance or external factors influencing profitability.

Cost of Capital

The cost of capital shows a gradual upward trend throughout the period. It declines from 10.8% in 2018 to a low of 9.22% in 2020, then increases steadily each year, reaching 11.81% in 2023. This rising cost may reflect increasing risk perceptions or changes in capital structure and market conditions.

Invested Capital

Invested capital remains relatively stable with minor fluctuations. Starting at 44,277 million US dollars in 2018, it slightly declines over the next few years to 41,543 million in 2022 before increasing again to 43,254 million in 2023. The movements suggest steady investment levels with limited expansion or contraction during these years.

Economic Profit

The economic profit, calculated as NOPAT minus the charge on invested capital at the cost of capital, reveals persistent negative values throughout the period. Although the magnitude of the loss varies, there are no positive economic profit years. The losses peak notably in 2020 and 2022 with values of -3,837 million and -3,895 million respectively. The smallest losses are observed in 2021 (-961 million) and 2019 (-1,968 million). This pattern indicates that despite fluctuations in operating profit and stable invested capital, the company has not been generating returns exceeding its cost of capital, signaling potential value destruction during these years.

Net Earnings (Loss) Attributable to HPE

The net earnings of the company demonstrate a fluctuating but generally volatile pattern over the six-year period. Starting at 1,908 million USD in 2018, earnings decreased significantly to 1,049 million USD in 2019. The company then recorded a loss in 2020 of -322 million USD, marking the only year in the dataset with a negative result.

Following this downturn, net earnings rebounded sharply in 2021 to reach 3,427 million USD, which represents the highest figure in the period examined. However, in the subsequent years, earnings again moderated to 868 million USD in 2022 before increasing to 2,025 million USD in 2023.

This pattern suggests considerable volatility in profitability, likely influenced by operational or external factors during the timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT trends show a somewhat different trajectory but align with net earnings to reflect variability in operational efficiency and profitability. Beginning at 2,346 million USD in 2018, NOPAT increased modestly to 2,514 million USD in 2019.

Significantly, 2020 experienced a dramatic drop to just 77 million USD, indicating a steep decline in core operating profitability likely linked to the loss experienced the same year.

Subsequently, there was a robust recovery by 2021, reaching a peak of 3,529 million USD, the highest level in the series. NOPAT then decreased substantially to 818 million USD in 2022 before rising again to 2,752 million USD in 2023.

The NOPAT figures reinforce the indication of operational challenges and recovery phases over the period, with 2020 standing out as an exceptional downturn year.

The analysis of the provision and cash operating taxes over the six-year period reveals notable fluctuations that merit attention.

Provision (benefit) for taxes

The provision for taxes exhibited significant volatility. In 2018, a substantial tax benefit was recorded, evidenced by a large negative figure of -1744 million USD. This shifted in 2019 to a provision of 504 million USD, indicating a move to a tax expense. Subsequently, the year 2020 showed another negative figure (-120 million USD), denoting a tax benefit once again. The trend reversed in 2021 and 2023 with positive provisions of 160 million USD and 205 million USD, respectively, with 2022 showing a minimal provision of 8 million USD. Overall, the provision for taxes oscillated between benefits and expenses, reflecting considerable year-to-year variability possibly due to changes in taxable income, tax legislation, deferred tax assets or liabilities, or extraordinary tax events.

Cash operating taxes

Cash operating taxes also demonstrated wide variability during the period. The years 2018 and 2019 recorded negative cash taxes of -1594 million USD and -483 million USD respectively, suggesting cash tax refunds or benefits. However, starting 2020, cash operating taxes turned positive and increased somewhat steadily: 249 million USD in 2020, rising to 394 million USD in 2021, then slightly decreasing to 318 million USD in 2022 before increasing again to 350 million USD in 2023. This pattern indicates a shift from receiving tax refunds to consistently paying cash taxes, albeit with some fluctuations in the amounts paid. The earlier negative cash taxes could relate to tax credits, refunds, or adjustments, whereas the subsequent positive payments suggest more stable taxable income or changes in tax payment strategies.

In summary, both tax provisions and cash operating taxes showed marked fluctuations over the six years. The early years highlight strong tax benefits and refunded cash taxes, which shifted toward more consistently positive tax provisions and payments in more recent years. This pattern suggests evolving tax circumstances, potentially impacted by operational profitability, tax policy changes, or adjustments in deferred tax accounting.

Total Reported Debt & Leases

The total reported debt and leases exhibited a general declining trend from October 31, 2018, to October 31, 2023. Starting at 15,530 million USD in 2018, the debt increased to a peak of 17,169 million USD in 2019. However, from 2019 onward, a notable downward trend is observed, reaching a low of 13,484 million USD by 2022. A slight uptick occurred in 2023, increasing marginally to 13,515 million USD. Overall, the data indicate a reduction in leverage over the five-year period following the 2019 peak.

Total HPE Stockholders’ Equity

Stockholders’ equity showed a more fluctuating pattern over the observed years. It started at 21,239 million USD in 2018, then declined sharply to 17,098 million USD in 2019 and further to 16,049 million USD in 2020. This reduction suggests a contraction in equity or potentially share repurchases or losses affecting the equity base. Nevertheless, from 2020 onwards, equity values rebounded significantly, climbing to 19,971 million USD in 2021 and maintaining a steady state near 19,800 million USD in 2022. By 2023, equity increased again to 21,182 million USD, nearing the 2018 level. This resurgence indicates potential retained earnings growth, capital injections, or asset revaluations enhancing the equity position.

Invested Capital

The invested capital followed a slightly decreasing trend with minor fluctuations. The figure begins at 44,277 million USD in 2018 and gradually decreases to 43,287 million USD in 2019 and subsequently to 42,440 million USD in 2020. From 2020 to 2021, there was a marginal increase to 42,837 million USD, followed by a decline to 41,543 million USD in 2022. The final figure in 2023 increases again to 43,254 million USD. These variations suggest moderate adjustments in the company’s total capital base used for operations, with a slight overall decrease but some recovery in the most recent year.

Summary Insights

The data collectively reveal a company managing its capital structure with a focus on reducing debt levels after 2019 while recovering stockholders’ equity after a significant dip by 2020. The modest fluctuations in invested capital imply adjustments in financing or operational investments. The decreasing trend in debt combined with the recovery of equity may indicate strengthening financial stability and an effort to optimize capital costs through deleveraging. The rebound in equity over the latter years supports the notion of improved profitability or capital management actions.

Economic Profit

The economic profit exhibits significant fluctuations over the years. Initially, it improved from -2435 million US$ in 2018 to -1968 million US$ in 2019, indicating a reduction in economic losses. However, it subsequently deteriorated sharply in 2020 to -3837 million US$, before recovering to -961 million US$ in 2021. The year 2022 saw another significant decline to -3895 million US$, followed by a partial improvement in 2023 to -2354 million US$. This pattern reflects considerable volatility and persistent negative economic returns throughout the period.

Invested Capital

The invested capital shows a generally decreasing trend from 44,277 million US$ in 2018 to 41,543 million US$ in 2022. This decrease suggests a gradual reduction in the capital base over these years. In 2023, there is a slight recovery to 43,254 million US$, indicating a possible infusion or reallocation of capital after a period of contraction. Overall, the invested capital demonstrates relative stability with a mild downward bias across the six-year span.

Economic Spread Ratio

The economic spread ratio remains negative throughout the period, indicating that the returns on invested capital are consistently below the cost of capital. Starting at -5.5% in 2018, the ratio improves slightly to -4.55% in 2019, then worsens sharply in 2020 to -9.04%. Following this, a notable improvement occurs in 2021 to -2.24%, but this is reversed in 2022 with a steep decline to -9.38%. In 2023, the ratio recovers marginally to -5.44%. The pattern mirrors the volatility observed in economic profit with significant swings, highlighting challenges in achieving positive economic returns over the timeframe.

The financial data reveals several noteworthy trends regarding economic profit, adjusted net revenue, and economic profit margin over a six-year period.

Economic Profit

Economic profit figures exhibit significant volatility throughout the observed timeframe. Starting from a negative value of -$2,435 million in 2018, the loss reduced somewhat in 2019 to -$1,968 million. However, 2020 showed a substantial deterioration with economic profit plunging deeper into the negative at -$3,837 million. The year 2021 marked an improvement with the loss narrowing sharply to -$961 million, the least negative point in the series. Yet, this improvement was not sustained, as 2022 reported another sharp decline to -$3,895 million, followed by a recovery in 2023 to -$2,354 million. Overall, economic profit remained negative throughout, indicating consistent economic loss, albeit with marked fluctuations.

Adjusted Net Revenue

Adjusted net revenue experienced a gradual decline from $31,060 million in 2018 to its lowest point of $27,212 million in 2020. Following that year, the revenue showed signs of recovery, climbing to $27,949 million in 2021, continuing upward to $28,522 million in 2022, and reaching $29,668 million in 2023. Despite fluctuations, the overall trend suggests resilience with revenues rebounding after reaching a trough in 2020, though still below the initial 2018 figure.

Economic Profit Margin

The economic profit margin mirrored the volatility observed in economic profit values. Starting at -7.84% in 2018, the margin improved slightly to -6.72% in 2019 before deteriorating substantially to -14.1% in 2020. In 2021, there was a significant narrowing of losses to -3.44%, indicating an improved profitability position relative to revenue. However, this was followed by a deterioration again in 2022 to -13.66%, before partially recovering to -7.93% in 2023. The persistent negative margins throughout the period underline ongoing challenges in achieving economic profitability.

In summary, the data reflects a pattern of persistent economic losses despite fluctuations in both revenue and profit margins. The most severe downturns occurred in 2020 and 2022, with intermittent recoveries in 2019, 2021, and 2023. The adjusted net revenue decline reaching its lowest in 2020 aligns with the steepest negative economic profit margin. Subsequent years show a recovery trend in revenue and margins, although losses remain entrenched. This pattern suggests cyclical challenges impacting profitability, with partial recoveries insufficient to offset negative economic profit fully.