Corteva, Inc. (NYSE:CTVA) Q4 2023 Earnings Call Transcript

Corteva, Inc. (NYSE:CTVA) Q4 2023 Earnings Call Transcript February 1, 2024

Corteva, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to the Corteva Fourth Quarter 2023 Earnings Call. Today’s conference is being recorded. At this time, I’d now like to turn the conference over to Kim Booth. Please go ahead.

Kim Booth: Good morning and welcome to Corteva’s fourth quarter and full year 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President, Seed Business Unit; and Robert King, Executive Vice President, Crop Protection Business Unit, will join the Q&A session. We have prepared presentation slides to supplement our remarks during this call, which are posted on the Investor Relations section of the Corteva website and through the link to our webcast. During this call, we will make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.

Our actual results could materially differ from these statements due to these risks and uncertainties, including but not limited to, those discussed on this call and in the Risk Factors section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today’s presentation, we’ll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in our earnings press release and related schedules, along with our supplemental financial summary slide deck available on our Investor Relations website. It’s now my pleasure to turn the call over to Chuck.

Chuck Magro: Thanks Kim. Good morning everyone and thanks for joining us. I hope your year is off to a great start. There are several key takeaways I’d like to share with you today, including an overview of the market fundamentals, our solid 2023 performance, and an update on our path to incremental value creation by 2025 with a closer look at what’s ahead for 2024. First, I would say that our 2023 performance validates the effectiveness of our value creation strategy and its key levers of portfolio simplification, royalty neutrality, product mix, and operational improvements. At our core, we are a technology company and last year, we had more than 400 new product launches. In Seed alone, we introduced 300 new hybrids or varieties, two new product concepts, and 41 new trade or stack registration approvals.

In Crop Protection, our team delivered and launched about 140 new products in two new actives, Adavelt and Reklemel, the latter being the first of its kind, selective nematicide that also has beneficial soil characteristics. The outcome of the strategic and operational actions implemented over the last two years demonstrates the significant progress we have made in converting every dollar of sales into more cash and earnings. With this solid momentum, we entered 2024 on well-positioned and are confident in our ability to deliver value to our customers and other stakeholders. As we look ahead, overall ag fundamentals remain constructive. Large global crop production is being met with rare demand for grain, oilseeds, and biofuels. In North America, corn production and yield for the 2023-2024 crop year is expected to hit a new record despite the productivity challenges that farmers must face related to weather and disease, a testament to the importance of ag technology.

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Q&A Session

Brazil could be the exception with weather influencing crop stress and planting decisions. Commodity prices have declined from their peaks as global stocks to use have grown, but remain elevated as demand continues to keep pace with production. Global crop area is forecasted to increase in 2024 with a modest shift in the US from corn to soybeans. In addition, US farm income remains above the historical average, slow down from its 2022 peak. What has not changed is farmer demand for breakthrough innovation and technology, including seeds that maximize yields which, in turn, boost farmer revenue. With on-farm demand remaining overall strong, the crop protection industry is still going through what we refer to as a rebalance as it recovers from de-stocking that had a challenging and abrupt impact on the market in 2023.

While we expect this to continue to normalize throughout the first half of 2024, we’re seeing signs of improvement, which gives us more confidence in what the crop protection market should look like as we enter the second half of this year. Once we get into 2025, we expect the imbalance between product going into the channel versus what is being applied on the farm to be back in sync. On full year results for 2023, Corteva continued to deliver with 5% operating EBITDA growth and 116 basis points of margin expansion. Our Seed business, in particular, had an outstanding year with Enlist E3 soybeans achieving the status of being the number one selling soybean technology in the United States, where it reached 58% market penetration. The Enlist system, including our herbicide offerings reached $1.7 billion in sales in 2023, growing in a well-supplied market.

Our new product sales held steady year-over-year at about $1.9 billion for the full year and the Biologicals business had a strong year, delivering both top and bottom line growth. Between strong demand for our innovative seed technology, costs and working capital discipline, as well as healthy farmer income levels in North America, our free cash flow in 2023 exceeded our previous estimate, coming in at about $1.2 billion. We returned approximately $1.2 billion to shareholders via dividends and share repurchases for the full year, while also funding approximately $1.5 billion of acquisitions. Turning to 2024. And I’ll turn this over to Dave in just a minute but at a high level, we should expect to see another year of meaningful margin expansion with a heavy focus on cash generation.

As a result, we expect to deliver 2% top line and 6% operating EBITDA growth at the midpoint, which reflects another incremental EBITDA margin improvement of nearly 100 basis points. We foresee another year of strong cash flow generation and plan to execute $1 billion in share repurchases over the course of 2024. Now, let’s spend a few minutes on key themes as we transition from 2023 into 2024. In 2024, we expect Seed to have another strong year as farmers continue to look to effective technology to boost yields, while offsetting the effects of climate change and increasing pest pressures. In Crop Protection, we’re expecting volume growth but also continued pricing pressures, so low single-digit sales growth overall. We expect to increase our Biological sales by double digits and nearly double earnings.

And although, we expect the effects of de-stocking to linger through the first half of the year in certain regions, we’re beginning to see the benefits of cost deflation. All-in, we believe volume gains from our differentiated portfolio, as well as operational improvements and a modest recovery in Brazil will more than offset expected price headwinds. We plan to launch more than 300 new seed hybrids and varieties, putting much needed solutions in farmers’ hands. Our Seed pipeline is the best in the industry. Promising technologies like gene editing will make our innovation more effective, sustainable and accessible to everyone from startups to large customers. The incremental yields from the advanced technologies in our pipeline allow us to continue our long-standing price-for-value strategy.

Importantly, we have adjusted the 2025 financial framework based on current market factors. The expectation is for continued strong EBITDA growth off the 2023 base and EBITDA margin rate of 21% to 23% in 2025. Benefits from our self-help actions give us the ability to invest in R&D and future innovation. The overall strategy is very much intact. Differentiation in our portfolio, strengthening our route to market and cost performance are all driving value. This is the formula that has been working and will continue to work for Corteva. With that, let me turn the call over to Dave.

Dave Anderson: Thanks, Chuck, and welcome, everyone, to the call. Let’s start on slide 6, which provides the financial results for the quarter and full year. You can see from the numbers that both for the fourth quarter and the full year, we continued to deliver operating EBITDA growth and margin expansion. Quickly touching on the quarter, sales and earnings were largely in line with our expectations. Organic sales were down 8% compared to prior year with Seed pricing gains offset by volume declines in both Seed and Crop Protection. Seed volume gains in North America and Europe were offset by volume declines in Latin America and Asia Pacific. In Crop Protection, as expected, we saw continued inventory destocking in both Latin America and Europe.