Corteva, Inc.
CEO : Mr. Charles Victor Magro B.Sc. (Chem), MBA
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2023 Q2 | -3.3% YoY | -40.8% | -25.4% | 2023-08-04 |
Dave Anderson says,
Financial Results for Q2 and H1 2023
- Organic sales in Q2 were down 4% compared to the prior year, due to declines in volume and Crop Protection, offset by pricing gains.
- Volumes were impacted by strategic portfolio actions and the exit from Russia, representing a $240 million headwind.
- Delayed customer purchases due to weather, higher interest rates, and supply availability also affected volumes, particularly in Latin America and North America.
- Earnings grew 2% and margin expanded by nearly 140 basis points due to improved product mix and cost actions.
- In H1, organic sales grew 2%, driven by broad-based pricing gains.
- Operating EBITDA for H1 was nearly $3 billion, an 8% increase, with more than 180 basis points of margin expansion.
Performance of Seed Business
- Seed net sales increased by 8% in the first 6 months, driven by strong price execution and offsetting higher input costs.
- Seed volumes were down 5% due to the exit from Russia and lower corn planted area in EMEA, delayed plannings in Latin America and Asia Pacific.
- Crop Protection net sales were down 9% due to lower volume, impacted by order patterns and strategic portfolio actions.
- Global Crop Protection pricing was up 7% for the half.
Operating EBITDA and Guidance
- Operating EBITDA increased by approximately $220 million to just under $3 billion in H1.
- Net cost headwind of $450 million was driven by seed commodity costs, unfavorable yield impact, and crop protection inflation.
- Updated guidance for Crop Protection net sales is $17.9 billion to $18.2 billion, operating EBITDA is $3.5 billion to $3.65 billion.
- Operating EBITDA margin is expected to be 19.8%, with growth in both Seed and Crop Protection.
- Operating EPS is expected to be $2.75 to $2.90 per share, a 6% increase.
- Free cash flow is forecasted to be $1 billion to $1.2 billion.
- Share repurchases are expected to be approximately $500 million for the year.
2025 Financial Targets
- 2025 financial targets include operating EBITDA of $4.4 billion or a 22% margin at the midpoint.
- Execution of strategic decisions, cost actions, and increased R&D investment are driving margin expansion.
- Despite the revised 2023 guidance, the company remains confident in delivering the 2025 earnings targets.
Key Takeaways
- Despite market pullback and macro-level headwinds, Corteva is well positioned and expects sales and earnings growth in 2023.
- The company’s performance differentiates it from others in the industry.
- The expected 2023 performance supports the 2025 financial targets and provides confidence in the company’s ability to execute and grow.
Chuck Magro says,
Corteva’s strong performance in the first half of 2023
- Delivered top and bottom-line growth
- Operating EBITDA margin expanded by over 180 basis points
- Strong demand for proprietary technology
- On track to deliver 2025 financial targets
Seed performance
- Operating EBITDA margin expanded by about 240 basis points
- Double-digit organic sales gains in corn
- Higher corn acres and pricing actions in North America
- Enlist E3 recognized as the number one selling soybean technology in the U.S.
- Expect E3 beans to be on at least 55% of U.S. soybean acres in 2023
- Launched PowerCore Enlist Advanced RA for corn, enhancing technology position and creating new out-licensing opportunities
Crop Protection market dynamics
- Customers adjusting purchasing patterns due to macroeconomic environment
- Factors such as interest rates, supply availability, and working capital management impacting buying decisions
- Supply chain rebalancing leading to shifted purchase timing
- Believe these actions could persist through end of 2023
Biologicals business
- Excellent progress on building the Biologicals business
- Recent acquisitions expected to deliver $90 million of EBITDA in 2023
- Advancing pipeline of new active ingredients
- Expected global launch of Reklemel Active, a selective nematocide
Guidance and market outlook
- Adjusting full-year net sales guidance down by about 4% versus the previous quarter
- Muted sales growth in Crop Protection as the channel destocks
- Modest reduction in midpoint of 2023 EBITDA guidance, reflecting revenue reduction partially offset by product mix, royalty reductions, and cost actions
- Yields in the U.S. expected to be below trend line for the third year in a row
- Ending stocks expected to build, putting pressure on prices
- Commodity prices for 2023 crop expected to be down from recent highs but above historical averages
- Continued impact of Russia’s war on Ukraine and projected record demand for grains and oilseeds expected to keep prices at profitable levels
- Positive agriculture fundamentals and strong demand for inputs
- Farmers incentivized to increase and protect their yields
Q & A sessions,
Expectations for 2024 and 2025
- Temporary channel destocking situation is expected to be behind the company by the end of 2023.
- Company expects to continue with the same trajectory as laid out in September 2022 for 2024 and 2025.
- Expectation of growth in the new products in Crop Protection (CP) and revenue growth in CP and Seed.
- 80% completion of product and country exits by the end of 2023.
- Royalty expenses running lower than expected, with expected expense reduction of $150 million by 2025 instead of $100 million.
- Expectation of lower costs in Seed and CP through 2024 and 2025.
- Continued investment in research and development (R&D) with a target of 8% of revenue.
Impact of Channel Destocking on 2024
- Significant pullback by the channel due to excess inventory, expected to be resolved by the end of 2023.
- Some product lines and geographies may continue to experience destocking into 2024.
- Higher cost of capital and interest rates leading to a move back to pre-2022 industry operations.
- Expectation of seasonality impact, especially in Q3, due to the shift in industry operations.
Expectations for 2024
- Positive agricultural setup with above-average pricing and strong demand for grains, oilseeds, and biofuels.
- Expectation of growth and margin expansion consistent with the 2025 framework.
- Significant growth expected in new crop protection products.
- Trending ahead of plan to achieve the target of $250 million reduction in royalty expenses by 2025.
- Expected lower costs in raw materials on the chemical side to flow through the profit and loss statement (P&L).
Gene Editing in Europe
- Gene editing viewed as a powerful tool with potential impact on seed and crop development.
- Active investment in research and development (R&D) in gene editing products and tools.
- EU proposed policy seen as a workable framework, with expectation of clarity within the next 1 to 2 years.
Overall Performance and Outlook
- Positive performance in margin and EBITDA despite volume headwinds in crop protection business.
- Portfolio refinements and technology enhancements contributing to margin and EBITDA delivery.
- Positive outlook for 2024 with continued cost performance and margin expansion.
No bad stock 