Corteva, Inc. — 2024 Q1

So let me start. I'll give you the backdrop and then Dave can help you with the bridging. So first of all, let me say that we're still feeling good about the ag economy. We've got record demand. On-farm demand looks very steady and healthy and generally speaking, and this is a broad statement, farmers are still making money. We're -- they're off their peaks, of course. But this is a pretty healthy macroeconomic environment for them to be operating in.

Sure. So it's really a continuation of some of the themes that we talked about for the first quarter, including the strong North America seed despite the anticipation, obviously, of reduced corn acres. But that's going to continue to be very positive. We're going to see the flow-through and the benefit of that in terms of first half results. There's some improvement that's anticipated in the Crop Protection business, but we're still, as I mentioned, I think, in the prepared remarks, expecting crop to be down both revenue and EBITDA on a year-over-year basis. So we're going to finish -- second quarter is going to be an improvement in the trend line on Crop Protection in terms of the variance from prior year, but not enough to offset that first quarter, so the first half will have -- will be down in that segment on a year-over-year basis.

I'll turn that over to Tim.

Yes. I mean, my first answer is always the markets are always competitive. So no question about that. And we operate our branded business especially at the high end of the market. We're selling a premium product, top performance. And so I don't know if I'd say it's any more competitive than what it typically is. But soybeans are more so than corn in recent years, competitive, and there's always lower-cost options in the marketplace. So I think our teams have done a very good job of creating demand and filling that order. I think we're, obviously, continuing to be focused on getting paid for the value that we deliver to our customers. And we're fortunate we work with a group of customers who appreciate that value, and we're going to continue to focus on it. But my answer is, it's competitive, it's always competitive. There are always lower-cost alternatives, but farmers are very, very interested in planting high-performing products.

Let me give you the overall context from a Seed strategy and then Tim can answer the question on sort of the current dynamics and what we're finding from an order book perspective. So we said it already a couple of times today. I think we're very pleased with the Seed performance and we are expecting growth again in '24 in margin expansion. And it's really coming down, I think, for us. We have shifted our strategy, and it's been a long investment over some time. But when you're launching 300 new seed hybrid and varieties almost every year, and we're able to price for that value that farmers are seeing in terms of productivity and yield and disease resistance, insect resistance, I think that's the best of all worlds for all the players here. So our strategy, simply put, we've moved away from being sort of a net technology purchaser to a net technology seller.

Yes. I mean, it's certainly one of the things that we've been looking at closely for the last several months as the questions around what the future of dicamba label looks like. So again, just to reiterate this year, I'd say that the decision had a very minimal impact on what was planted this year. So in terms of the commercial crop that farmers are planting, by and large, when the decision was made on the dicamba label seed was purchased, it was probably paid for. And I think the market felt like that there was an adequate supply of dicamba in the channel for those who want to spray.

Kevin, this is Tim. Let me talk -- let me address it from the seed standpoint first. Obviously, this is an emerging issue and it's I'd say it's rapidly escalated as we've gotten later into the growing season. And it's impacted -- clearly impacted farmers' yields. And I think that's what's being reported today. And we're still in the middle of harvest, so I can't speculate on what the impact is on the grain harvest. I won't even try to go there. Our -- we do have experience with corn stunt. It's the same issue we've dealt with in Brazil for the last several years. I just -- I'd say we know that there's always been presence of leafhoppers in Argentina, so it's never materialized where it became a commercial issue.

Thanks, Tim. The herbicide stores, you got to start with, our portfolio has shifted over this time, the exit of several molecules, glyphosate being one of those. The second thing around that is Q1 2023 was a record herbicide quarter for our company. Couple that with two things. North America is really a timing. Enlist continues to be in really high demand. It will be up for the full year. Keep in mind, there will also be added acres in soybeans. But it's a very trusted technology by the growers, and it's something that we see that will continue to grow this year. Overall, its volume for the season is in line. Keep in mind, we had a pretty good load in Q4 of last year. So when you track it for a season of the crop, we're in line with where we need to be. So that one [indiscernible] up on timing.

Sure. Yes. So regarding the first part of your question, in terms of the royalties, those are really weighted to the first half due to North America. So -- and we're on track, Frank, as you said. And I think we stated in our remarks to the $100 million target, which is, by the way, a royalty benefit. So it's an expense reduction as well as income -- royalty income increase on a year-over-year basis.

Okay. So look, I'll have Tim talk first maybe about our strategy on how we price for value. And then we can talk a little bit about what we're seeing in each of the regions, Tim. Go ahead.

Yes. So on the price for value, I mean that's -- we anticipate that -- over time that we're going to be pricing in that low single-digit range based off of the value of the new products that we bring to the market every year. So we plan to have 20%, 25% of our lineup in new genetics that open the door for value share with our customers and gives us that pricing power. And I think I had a little bit of difficulty following the question, but I think you asked about the relative pricing between Europe and North America.

So maybe I could, Chris, just give you some -- this is Dave, give you some perspective on that. I think, first of all, when you look at our prior guide to this guide, we do have some increase in cost on a year-over-year basis, and that's associated with the Seed business and the assumptions around the second half and particularly safrinha volume, which the anticipation is that we're going to see, call it, recovery -- market recovery there in terms of that volume. And we've got some higher cost inventory that's going to flow through in terms of cost of goods sold. And that's part of just carrying some historic higher production costs, but also it's a transition from older technology to newer technology for that market, which really will set up very, very well for improved costs in the Seed business in that market in 2025 for the '25-'26 season.

Adam, let me give you the overall backdrop. And then I think Robert can give you sort of the specifics to your questions. What we'd say is that there is a lot of competitive tension right now, and it's not one thing. I think it's still the industry working through the global destocking that we've seen. And the good news is there are some green shoots. The U.S. seems to be behind it. We've called out though that the market is going back to sort of just-in-time closer to the application window. So there's some timing and seasonality there. Europe is going through the destocking now, and it's been through the -- in terms of the first quarter. And then they've had some difficult weather that we've already talked about this morning and even some missed applications. But I think they're trending in the right direction.

Thanks, Chuck. Price competition, as Chuck talked about, is pretty stiff. But our price for value continues to be pulled through by the industry and creates value on the farm. When you think about our new products and Spinosyns combined and the performance rate there, they continue to perform better than the portfolio and better than the industry. And this first quarter was no different. These things aren't immune to impacts of the environment of marketing -- market environment, et cetera. But then on the specific to Enlist, it continues to have a strong pull, very strong demand. We expect spray rates to be still in that 80% range as we've seen in the past. And we do expect that we'll see continued volume growth this year over last year with this technology. Thank you.

You've got Ryan on for Aleksey here. Just wanted to dig in a little bit on the generics in Brazil. I know in 3Q, you kind of saw an influx of imports, which you then called out a little bit of a slowdown in 4Q. Just trying to understand how that progressed throughout 1Q and what you're kind of seeing today?

Yes. So look, I think we even called it out in our fourth quarter in February that the generic imports into Brazil have what I'd call stabilized to sort of more normal import rates. And so they've always been part of the market, and they've been a larger part in APAC and Brazil. That's -- there's nothing new there. There is some new capacity coming online for some AIs that are coming off patent. And certainly, our strategy as a company overall is to sell differentiation, value agronomic service. And so there's a lot of the parts of the generic market where Corteva is simply just not focused on. So I'd say that the market fundamentals today when we look at the global CP market, and I think this comment applies to Brazil as well.

This is Rahi filling in for Ben. So I just wanted to look more into trade down within the space. So when farmers have tighter wallets like today, do you see data on farmers shying away from biologicals and mainly just buying CP that they fundamentally need. I believe this plays into seeds when farmers choose GMCs but those that have fewer GM traits. Maybe there's also a geographic difference, if there's any regions that trade down quicker than others? Just any color on that.

Let me give you my perspective, and then I think it would be helpful to hear from Robert and Tim on this one. So generally, what we've seen in this crop environment, but also sort of stronger conditions and even weaker conditions than we have today, farmers are always prioritizing production per acre because, in many cases, the last few bushels per acre will be their profit. And so from an overall crop inputs perspective, we have not seen a significant trend down in sort of a selection of different types of seed technology, for example.

No, Chuck, I agree. I think the thing you have to remember is that the technologies in seed is not just the yield that they're pursuing or -- out there, but it's the whole production system, especially when you talk about the utilization of biotechnology traits. Those traits not only provide some benefit in the field, but it also changes how they manage over the course of the season, and they see a lot of value in that and we have no evidence that they trade down.

And Robert, how about biologicals?

Yes. Biologicals is -- they're a core part of the crop plan and the customers we serve. And so we've seen those while not immune to everything that's going on, they've held up, as Chuck said, very, very well. And when you think about the acquisitions we made and the benefit in '23, we were just under $500 million sales this last year, and we expect this to grow in the mid-20s this year and we'll double the contribution to the business. And this is all a testament to the strength of the portfolio and the people that are showing the value to the farmers as we get into this season.

Thanks, Arun. Very good question. So we're still expecting the bottom line performance consistent with the financial framework we've provided for you for 2025. And just as a reminder, it's that $3.9 billion to $4.4 billion EBITDA range. And as you said, the key components, maybe just spend a quick minute here going through some of those elements. First of all, as you pointed out, net pricing gains for the total company.

Well, first, let me tell you, thanks again for your participation today and the quality of the questions. We very much appreciate the interest, obviously, in Corteva. We look forward to speaking to a number of you in follow-up to today's call. And also, we look forward to seeing you in New York City on November 19 for an Investor Day. So thanks again. Have a great day. Appreciate it.