Corteva, Inc. (NYSE:CTVA) Q1 2024 Earnings Call Transcript

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There is nothing here that is a structural change that we can see. I think that this has been played out now and what we’re seeing are sort of the return to normalization. The big question is when will we see that in some of these key markets specifically Brazil? But the direction is clear after a couple of these data points have now come out that the inventories are receding and we do expect as we called out that in the second half of 2024, we should see Brazil volumes start to improve. And then as we get to 2025, we would expect that the global CP industry would return to some level of growth. It’s a little early to talk specifically about that because we’ve got to get through the second half of 2024. But I think that that’s what we are kind of assuming as we look forward from second half of ’24 and into ’25.

Operator: Your next question comes from the line of Ben Theurer from Barclays. Please go ahead.

Unidentified Analyst: Hi, everyone. Good morning. This is Rahi [ph] 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. Thank you so much.

Chuck Magro: 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. And we don’t see them skipping applications, especially when they have real disease or pester or weed pressures. And when it comes to Biologicals, actually the second half of 2023 is sort of the proof point, very difficult conditions for farmers in South America.

But our Biologicals business was very solid. And that’s because I think certainly, the products that we sell are not considered to be fringe or nice to have. I think they’re core to plant health to their physiology to how they will grow and yield. And so the farmers will most likely make other decisions if things get a little tighter in terms of capital purchases and land acquisitions. But their core fertility packages and their core crop input packages, we don’t really see them trading down. Tim your thoughts.

Tim Glenn: 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 the thing I always remind, when margins get tight for farmers, it’s not that first bushel you produce it’s that last bushel that determines, what’s going to fall to the bottom line. And so I think customers understand what makes them money and they continue to invest in the things that are going to make them money over time. And in the case of seed it’s high-yielding genetics and the technology to help protect the trade or protect those yields.

Chuck Magro: And Robert how about Biologicals?

Robert King: 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 2023, 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.

Operator: Your next question comes from the line of Arun Viswanathan from RBC Capital Markets. Please go ahead.

Arun Viswanathan: Great. Thanks for taking my question. I guess, you guys didn’t include the 2025 slide. So I just wanted to maybe get your thoughts on if there’s — if anything there has changed. I think you’ve highlighted maybe $100 million from royalty improvement as well as — or sorry Biologicals contribution, $200 million from your productivity actions. So that would leave maybe $300 million to the midpoint for low single-digit seed pricing and some of the other dynamics on the Crop Protection side. So, would you just maybe offer your thoughts on, if all of those drivers are still intact? Thanks.

Dave Anderson: 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. That’s going to be important. That’s going to be led by our Seed business, but very important. Crop Protection is going to have gains and Robert spoke to that in terms of the 2024 performance outlook, and particularly our second half that’s going to carry through into 2025 for new products Biologicals and Spinosyns, the contribution margin there quite attractive.

On the controllables, the royalty benefit, I mentioned earlier, when we were talking about the deflation and cost of raw materials ingredients and commodities, we’re going to see a deflation benefit higher net in 2025 compared to 2024. We’ll have other cost of sales improvements that will translate including, the progress that we’re making on the Crop Protection footprint optimization. And then finally, we’ll have some higher investment in R&D and some modest increase in SG&A that will offset that. But the formula is very, very much intact, building off that midpoint of the guide that we’ve provided you for 2024. So, thanks a lot for the question.

Operator: That concludes our Q&A session. I will now turn the conference back over to David Anderson for closing remarks. Please go ahead.

Dave Anderson: 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.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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