Corteva Inc (CTVA)

• Strong performance of new products and biologicals: The company achieved about 20% organic growth in new products in Q3, with biologicals expected to be up double digits in EBITDA growth for 2024. These are the growth engines for the Crop Protection business and are expected to continue driving growth into 2025. -
• Significant EBITDA growth in Crop Protection business: The Crop Protection segment saw its second consecutive quarter of volume growth, with over 30% EBITDA growth in Q3, driven by new technologies and biological investments. For 2025, they expect to outperform the flat industry with mid-single-digit volume growth, propelled by new technology. -
• Strong free cash flow and shareholder returns: The company is generating robust cash flow, expecting $1.5 billion to $2 billion in free cash flow for the year, and returning approximately $1.5 billion to shareholders through buybacks and dividends, while investing in growth opportunities. -

• Significant price declines in the Brazilian Crop Protection market, with prices down 18% in the third quarter due to intense competition and a flat to down market environment - . This pressure may continue to impact margins and profitability.
• Substantial decrease in seed sales, with organic seed sales down 17% and seed volumes down 12% in Q3, primarily driven by a 20% reduction in Argentina's corn planted area - - . Additionally, North American seed prices declined by 25% year-over-year in Q3 due to elevated replant settlements caused by early season floods - .
• The company reported an operating loss in the third quarter and adjusted full-year EBITDA guidance downward to $3.4 billion at the midpoint - . With expectations of a flat Crop Protection market in 2025 and reliance on a significant fourth-quarter performance in Brazil, there are concerns about the company's growth prospects - - .

1. Confidence in 2025 Guidance
   Q: How confident are you in the 2025 guidance?
   A: While acknowledging that the 2025 guidance depends on several factors, especially the Crop Protection (CP) industry, management feels confident in delivering double-digit earnings growth and margin expansion. The seed business is on plan, and cost productivity is strong. Although the CP industry has faced challenges, signs point to stabilization. Their current view is based on a flattish CP market in 2025, and they have been candid in updating assumptions as industry conditions change. They believe the range provided reflects their best perspective at this time. -

2. 2025 Guidance on Cost Deflation
   Q: Why does 2025 cost deflation benefit seem low?
   A: Of the $600 million gross benefit expected in 2025, about half is due to deflation in seed and Crop Protection costs. Seed deflation is a three-year journey, with benefits anticipated in 2025 through 2027. Management indicates that the current estimate aligns with their best perspective and it's early to predict possible upsides. They emphasize that a large part of this benefit is under their control, driven by cost management and productivity. -

3. EBIT Outlook Risks
   Q: Are FX and CPC pricing risks to EBIT outlook?
   A: Currency impacts, primarily from Brazil, are considered in the outlook, with management feeling comfortable with the current estimate of a $150 million impact. While predicting currency movements is challenging, they believe their assumptions are reasonable. They also express confidence regarding CPC pricing and other factors in the EBIT outlook, noting that achieving the higher end of their guidance would require overachieving on deliverables and some market strength. -

4. Crop Protection Expectations 2025
   Q: What's baked into 2025 Cropchem guidance?
   A: Management expects the CP market to be flat in 2025 but anticipates their business will perform better due to mid-single-digit volume growth driven by new technologies and biological investments. While pricing may be down low single digits, sales are expected to grow slightly, with new products leading the growth in volume. They believe their offerings will outperform the market despite the flat industry outlook. -

5. Argentina Seed Sales Impact
   Q: How will Argentina seed sales affect earnings?
   A: The company faces a 20% reduction in corn planting area in Argentina, from 8 million down to 6.5 million hectares, impacting a profitable and significant market where they hold an above-average market share of nearly 40%. This reduction represents lost sales rather than deferred business, affecting earnings. For 2025, they are prudently not assuming a significant rebound due to ongoing agronomic pressures but remain optimistic over the next few years. - , -

6. Brazil Cropchem Pricing Decline
   Q: Why did Brazil crop chemical prices drop 18%?
   A: In a competitive and flat-to-down market, Brazil experienced an 18% price decline in crop chemicals for the quarter due to intense competition for volume. The company aims to hold share by focusing on products that drive value, particularly new and differentiated offerings. They expect to finish the year with mid-single-digit price declines overall and believe their strategy positions them well despite market pressures. -

7. New Products and Biologicals Performance
   Q: How are new products and biologicals performing?
   A: Biologicals are performing well, expected to achieve double-digit EBITDA growth for the year, serving as a strong complement to the synthetics business. New products saw about a 20% organic growth in Q3, continuing to perform above the market. Management anticipates that these offerings will continue to drive growth into 2025 and beyond, contributing significantly to the company's performance. -

8. Balance Sheet and Debt Consideration
   Q: Would you consider taking on more debt?
   A: Management's views remain consistent; they do not foresee meaningful changes in their capital structure. With strong free cash flow of $1.5 billion to $2 billion, they aim to invest in growth while maintaining capital returns to shareholders, and they regard their investment-grade rating as a strategic asset. They believe their current approach appropriately balances growth investments and shareholder returns. - ,

9. North American Seed Price Drop
   Q: Why was seed price down 25% year-over-year?
   A: The 25% year-over-year drop in North American seed price reflects the timing of end-of-season settlements, specifically replant settlements that occurred later than usual. While it appears as a significant price concession, it's a normal part of the business influenced by the timing of when these settlements are recognized. This year, replants were within the normal range but settled in the third quarter rather than the second. -

10. $150 Million Cost Breakdown
    Q: Can you break down the $150 million costs?
    A: Of the $150 million in inflation and other costs, about 75% is in the Seed business, primarily related to trait transition costs in corn traits in North America. These costs are due to ramping up new technologies and incurring additional expenses until they reach a steady state. The company expects to manage these transition costs over the next couple of years as they complete the technology shift. -

Annual guidance for FY 2024:

• Net Sales: $17.0B to $17.2B - (lowered from $17.2B to $17.5B - )
• Operating EBITDA: $3.35B to $3.45B - (lowered from $3.4B to $3.6B - )
• Operating EBITDA Margin: About 20% - (no change from prior guidance - )
• Operating EPS: $2.50 to $2.60 - (lowered from $2.60 to $2.80 - )
• Free Cash Flow: $1.5B to $2.0B, midpoint $1.75B - (no change from prior guidance - )
• Share Repurchases: Approximately $1B - (no change from prior guidance - )
• Cash Flow to EBITDA Conversion Rate: 45% to 50% - (no prior guidance)

Annual guidance for FY 2025:

• Net Sales: $17.3B to $17.7B - (no prior guidance)
• Operating EBITDA: $3.6B to $4.0B - (no prior guidance)
• Operating EBITDA Growth: 12% at the midpoint - (no prior guidance)
• Operating EBITDA Margin: 21% to 23% - (no prior guidance)
• Cost Improvements: Approximately $400M - (no prior guidance)
• Currency Headwind: Driven by Turkish lira and Brazilian real - (no prior guidance)