Norfolk Southern Corp. (NYSE:NSC)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuates, it does not generate sufficient returns to cover the cost of capital employed. Invested capital remains relatively stable throughout the analyzed timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$2,921 million in 2017 to US$3,546 million in 2019, indicating improved operational profitability during this period. However, a significant decline to US$2,658 million occurred in 2020, followed by a recovery to US$3,711 million in 2021. This suggests sensitivity to external factors or internal operational changes impacting profitability.

Cost of Capital

The cost of capital exhibits minimal variation across the five years, ranging between 17.86% and 17.93%. This consistency suggests a stable capital structure and risk profile for the entity. The slight fluctuations are likely attributable to broader market interest rate movements.

Invested Capital

Invested capital shows a gradual increase from US$33,382 million in 2017 to US$35,469 million in 2021. The growth is moderate and relatively consistent, indicating a steady deployment of capital into the business. The incremental increases are not substantial enough to significantly alter the overall economic profit picture.

Economic Profit

Economic profit remains negative throughout the period, ranging from -US$2,645 million to -US$3,668 million. The most substantial negative economic profit was recorded in 2020, coinciding with the lowest NOPAT value. While NOPAT improved in 2021, it was insufficient to offset the cost of capital and generate a positive economic profit. The negative values indicate that the entity is not generating returns exceeding its cost of capital, suggesting potential inefficiencies in capital allocation or operational performance.

In summary, the entity consistently destroys economic value as indicated by the negative economic profit. Improvements in NOPAT are offset by a consistent cost of capital and a relatively stable, but substantial, invested capital base. Further investigation into the drivers of NOPAT and the efficiency of capital utilization is warranted.

The financial data indicates fluctuations in key profitability measures over the five-year period ending December 31, 2021.

Net Income

The net income shows a notable decline from 2017 to 2018, dropping from 5404 million US$ to 2666 million US$. This represents a reduction of approximately 50.6%. From 2018 onwards, net income slightly increased to 2722 million US$ in 2019 but then declined again to 2013 million US$ in 2020. A recovery is observed in 2021, with net income increasing to 3005 million US$. Overall, net income has not returned to the 2017 peak by the end of the period.

Net Operating Profit After Taxes (NOPAT)

NOPAT presents a generally upward trend from 2017 through 2019, increasing from 2921 million US$ to 3546 million US$. However, in 2020, there is a decline to 2658 million US$, reflecting operational challenges or increased costs. The figure recovers significantly in 2021, reaching 3711 million US$, which is the highest level recorded during the period and exceeds the 2017 value.

The data suggests that while net income experienced volatility with an initial sharp decline and partial recovery by 2021, operational profitability as measured by NOPAT has demonstrated resilience with an overall increasing trajectory. The year 2020 marks a downturn in both measures, likely correlated with adverse external or internal factors during that period. The stronger rebound in NOPAT by 2021 compared to net income may imply improved operational efficiency or changes in non-operational factors affecting net income.

The financial data presents notable fluctuations in the income taxes and cash operating taxes over a five-year period ending December 31, 2021.

Income Taxes

The income taxes exhibit significant variability. In 2017, there was a considerable negative value, indicating a tax benefit or recovery of US$ 2,276 million. Subsequently, income taxes turned positive, registering amounts ranging from US$ 503 million to US$ 873 million from 2018 through 2021. The lowest recorded amount was US$ 517 million in 2020, followed by a noticeable increase to US$ 873 million in 2021. This pattern suggests the entity transitioned from a tax recovery position in 2017 to consistent tax expenses in subsequent years, with some fluctuations potentially influenced by operational or regulatory factors.

Cash Operating Taxes

Cash operating taxes showed a declining trend from US$ 784 million in 2017 to US$ 509 million in 2020. In 2018, the amount decreased slightly to US$ 753 million and further dropped to US$ 570 million in 2019. The 2020 figure marks the lowest during the period analyzed. However, in 2021, cash operating taxes increased sharply to US$ 827 million, reaching the highest level in the dataset. This increase may indicate higher taxable income, changes in tax legislation, or operational adjustments impacting taxable cash flows.

Overall, the data reveals a shift from a significant income tax benefit in 2017 to ongoing tax expenses in later years, alongside a generally declining trend in cash operating taxes until 2020, followed by a marked rise in 2021. These trends could reflect changes in profitability, tax strategy, or external fiscal conditions impacting the company's tax obligations.

The financial data indicates notable trends in debt, equity, and invested capital over the five-year period ending in 2021.

Total reported debt & leases

This item shows a consistent upward trend throughout the period. Debt increased steadily from $10,336 million in 2017 to $14,253 million in 2021. The increase appears continuous year over year, with the most significant growth occurring between 2020 and 2021.

Stockholders’ equity

Stockholders’ equity exhibits a declining pattern over the same timeframe. Equity decreased from $16,359 million in 2017 to $13,641 million in 2021. The decline is relatively gradual but consistent each year, reflecting potential shareholder value diminution or increased liabilities.

Invested capital

Invested capital shows a moderate increase from $33,382 million in 2017 to $35,469 million in 2021. However, the growth is not linear; the capital rose annually until 2020, after which it exhibits minimal change between 2020 and 2021. This trend suggests that investments or total capital expenditures slowed or stabilized towards the end of the period.

Overall, the capital structure reflects a rising reliance on debt financing accompanied by declining equity, while the total invested capital has grown modestly but appears to plateau in the most recent year. These movements could indicate a strategic shift towards leveraging debt and managing capital investment more conservatively.

The period between 2017 and 2021 demonstrates a fluctuating, yet generally negative, economic profit for the entity. Invested capital exhibited a consistent upward trend over the same timeframe, while the economic spread ratio mirrored the fluctuations in economic profit, remaining negative throughout the analyzed period.

Economic Profit

Economic profit began at negative $2,888 million in 2017 and showed modest improvements in 2018 and 2019, reaching negative $2,750 million. A significant decline occurred in 2020, with economic profit falling to negative $3,668 million, before partially recovering to negative $2,645 million in 2021. This suggests periods of diminished value creation followed by some recovery, but consistently falling short of covering the cost of capital.

Invested Capital

Invested capital increased steadily from $33,382 million in 2017 to $35,469 million in 2021. This consistent growth indicates ongoing investment in the business, despite the negative economic profit. The rate of increase was relatively stable year-over-year.

Economic Spread Ratio

The economic spread ratio, consistently negative, indicates that the entity’s return on invested capital was less than its cost of capital throughout the period. The ratio improved from -8.65% in 2017 to -7.81% in 2019, suggesting a narrowing gap between returns and costs. However, it deteriorated sharply to -10.35% in 2020, coinciding with the largest decline in economic profit, and then improved to -7.46% in 2021. This suggests a strong correlation between the economic spread ratio and the absolute value of economic profit.

Overall, the entity consistently destroyed economic value during the analyzed period. While invested capital grew, the returns generated were insufficient to cover the cost of that capital. The economic spread ratio’s fluctuations suggest sensitivity to underlying economic profit drivers, with 2020 representing the most challenging year in terms of value creation.

The period between 2017 and 2021 demonstrates a volatile performance in economic profit and its associated margin. While economic profit remains negative throughout the observed timeframe, fluctuations are evident. The economic profit margin exhibits similar variability, indicating inconsistent value creation relative to revenues.

Economic Profit

Economic profit consistently registers as a negative value across all years examined. The magnitude of the loss decreased from 2017 to 2019, moving from a loss of US$2,888 million to a loss of US$2,750 million. However, 2020 saw a significant increase in the loss, reaching US$3,668 million, before decreasing again in 2021 to US$2,645 million. This suggests periods of improving, then worsening, economic performance.

Railway Operating Revenues

Railway operating revenues generally increased from 2017 to 2018 and 2019, rising from US$10,551 million to US$11,296 million. A substantial decrease occurred in 2020, with revenues falling to US$9,789 million, likely influenced by external economic factors. Revenues recovered partially in 2021, reaching US$11,142 million, but remained below the 2019 peak.

Economic Profit Margin

The economic profit margin mirrors the trends observed in economic profit. It decreased from -27.37% in 2017 to -24.34% in 2019, indicating a lessening of the negative impact on revenue. The margin then deteriorated sharply in 2020 to -37.47%, coinciding with the lowest revenue and highest economic loss. A subsequent improvement to -23.74% in 2021 suggests a partial recovery in profitability relative to revenue, though the margin remained negative.

The largest decline in economic profit margin occurred in 2020, coinciding with a significant drop in railway operating revenues. The subsequent partial recovery in 2021 suggests a correlation between revenue performance and the ability to generate economic profit, although the company continued to destroy economic value during this period.