Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Corteva Inc (CTVA, Financial) delivered both top and bottom-line growth in Q2 2024, with nearly 250 basis points of operating EBITDA margin expansion.
- The Seed business showed strong performance with 420 basis points of operating EBITDA margin expansion and broad-based pricing gains across all regions.
- Corteva Inc (CTVA) maintained its position as the number one seed provider in the North America market for both corn and soybeans.
- The company registered over 100 new Crop Protection products globally by the end of June, providing farmers with cutting-edge solutions.
- Corteva Inc (CTVA) achieved a 40% increase in royalty income in the first half of the year, driven by new corn trait technologies like PowerCore Enlist.
Negative Points
- Net sales and operating EBITDA were down for the first half of the year, despite the positive Q2 performance.
- The Crop Protection business continues to face challenges due to residual destocking and competitive market dynamics.
- Corteva Inc (CTVA) lowered its full-year net sales guidance by about 1% and operating EBITDA by about 2% due to competitive market dynamics and weather-driven missed applications.
- The company anticipates lower commodity prices and higher interest rates, leading farmers to tighten their operating approach.
- There is uncertainty regarding the planted area in Argentina due to corn stunt, which could impact future performance.
Q & A Highlights
Q: Chuck, if I could ask you on your sort of initial comments on 2025, and please correct me where I'm wrong, but it sounded to me like you were sort of softening your stance on 2025 and sort of not saying, hey, I took 2024 down by $100 million, so just take that existing $3.9 billion to $4.4 billion range down by $100 million. So I want to check in on those bridge items and see what's still intact versus what your incremental concerns might be. So you had $100 million of royalty improvement for 2025, another $200 million of productivity and cost actions for 2025, and I know we had been talking about but hadn't quantified some seed cost deflation for 2025, and then at least I expected some more crop chemical deflation for 2025. So if you could update us on those items, if there's any change, and then also indicate, is it the Crop Protection pricing that you're concerned about maybe deteriorating further or are you worried about being able to get seed price mix in 2025 if the futures curves stay where they are? Thank you.
A: Yes. Good morning, Vincent. So great question. I guess let me start by just saying we still have a lot of conviction over 2025. We feel very good about the things that are obviously in our control, and if you've looked at sort of how we describe the controllable levers, whether it's Seed out-licensing, the productivity and cost improvement that we're working through, biologicals growth, all these things, we said $350 million to $450 million in both 2024 and 2025. We're thinking that that number now is certainly north of $400 million for each of the years. So very good around the controllables. When you think about Seed, we remain very comfortable with our base assumptions for 2024 and moving into 2025 and I would even go beyond 2025. The technology pipeline that we've built, we think is second to none in the industry, and our out-licensing now is ramping up very nicely as we made comments in our prepared remarks. And then as you rightly called out, we can see deflation now that's in the P&L in both Seed and CP. You're right, we have not given you full quantities yet. We'll do that at the right time. But we think that that could be a significant tailwind as we think through 2025 and even beyond that. So when you put all that together, we're very comfortable with, if you look at the forward guide now for 2024 and then you look at some of the ranges we've provided for 2025 and what we call the value framework, we're very comfortable we're on a path to that range. The biggest question though, and we can't ignore it, right, is not when we think about CP pricing. So we needed to see a few things in this quarter, and so we're feeling pretty good that we saw volume growth in Q2 when it comes to CP, but it's been a pretty competitive environment when it comes to pricing. And so that's the thing that we're watching. We're not overly concerned, but it's something we're keeping an eye on. And the 2025 framework then needs to connect to that. And what we're hoping to see now is further stabilization in the CP industry. And then eventually this market will return to growth because we've got two years now where we've seen declining organic growth, and to see three years, it would be quite unprecedented. It's happened before, but it's been quite rare. And so we're still feeling that our base assumption of some growth in 2025 makes sense. And when you put all that together, I think the value framework would still be very comfortable for Corteva.
Q: Just following up on that. So the last hour, one of your competitors was talking about seeing kind of 6% revenue growth next year in crop chems. Speaking to what you're talking about, a volume recovery but competitive prices price decline. So I know it's following up on the prior question here, but is that in the ballpark of what you're seeing more higher or lower, and why would you be higher or lower than say that benchmark?
A: Yes. Let me give you a perspective, Joel, and then I'll have Dave just talk about how we built the forward guide and Dave can give you some specifics. So, when we look at CP for the second quarter, our price was down approximately 5%, but our volumes were up 6%, and we really needed to see the volume growth. I think from a Corteva perspective, and I'm only going to speak about Corteva today. I think what we wanted to do is make sure that we manage the inventories going into the channel. Because look, we need to learn from what's happened, right? And we want our recovery when we look at Corteva to be sustainable as we work through the quarters. And so we're very comfortable. We like the path that we're on. I think when we think about how we guided the market, it's important to say that the midpoint came down about $100 million. Really, that was sort of first half impact, right? But we had some pretty significant weather that impacted the CP business, we lost some sprays, both in Europe and the US, and then there was the pricing dynamic, which we've already called out. So now when you think about how to think about the rest of 2024, Dave, I'll let you kind of comment on that.
A: Sure, Chuck. And I think too, just related to 2025, I think, Chuck, we would get into any details and any specifics regarding that at a later time. It's really too early to comment on that. But importantly, Joel, as you know, for the first half, let me talk about our pricing assumptions just a little bit and then we can talk about overall market, and Robert, you may want to comment a little bit just on what we're seeing at the farm gate in terms of just the continued demand there and the steadiness of that demand. But on the -- for the first half, as you saw, round numbers, we were around 4% pricing headwind in the business, Crop Protection business, 3.5%, specifically for the first half. And our expectation is for the full year, that's going to be a little greater, probably in the, I'm going to call it the low- to mid-single digits, really driven by the mix -- the geographic mix. We've got a much larger, as you know, an increase in Latin America's percent of total for the second half. So that's what's really influencing that number. When we look at volumes and volume expectations for the industry, and I'll let Robert comment on this more. I mean, all of what we're seeing, signs of what we're seeing, as Chuck said, are pointing to some return to normalcy, stabilization, if you will. And we're seeing that in terms of the demand, in terms of usage of product, including the differentiated products that are, in terms of technology -- possessed technology and efficacy that the farmer needs. Robert
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
