Corteva : Transcript (Corteva 1Q 2025 Earnings Transcript)

Published: 2025-05-08 20:08:43 ET CTVA

Published on 05/08/2025 at 20:08

08-May-2025

Corteva, Inc. (CTVA)

Q1 2025 Earnings Call

Kim Booth

Vice President-Investor Relations, Corteva, Inc.

Charles V. Magro

Chief Executive Officer & Director, Corteva, Inc.

David P. Johnson

Chief Financial Officer & Executive Vice President, Corteva, Inc.

Judd O'Connor

Executive Vice President-Seed Business Unit, Corteva, Inc.

Robert King

Executive Vice President-Crop Protection Business Unit, Corteva, Inc.

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Joel Jackson

Analyst, BMO Capital Markets Corp. (Canada)

Chris Parkinson

Analyst, Wolfe Research LLC

Vincent Stephen Andrews

Analyst, Morgan Stanley & Co. LLC

Kevin W. McCarthy

Analyst, Vertical Research Partners LLC

Joshua Spector

Analyst, UBS Securities LLC

Emily Fusco

Analyst, Deutsche Bank Securities, Inc.

Stephen Byrne

Analyst, BofA Securities, Inc.

Duffy Fischer

Analyst, Goldman Sachs & Co. LLC

Patrick Cunningham

Analyst, Citigroup Global Markets, Inc.

Edlain Rodriguez

Analyst, Mizuho Securities USA LLC

Jeffrey J. Zekauskas

Analyst, JPMorgan Securities LLC

Kim Booth

Vice President-Investor Relations, Corteva, Inc.

Good morning and welcome to Corteva's first quarter 2025 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and David Johnson, Executive Vice President and Chief Financial Officer. Additionally, Judd O'Connor, 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.

Charles V. Magro

Chief Executive Officer & Director, Corteva, Inc.

Thanks, Kim. Good morning, everyone, and thanks for joining us today. Spring is always a busy and exciting time for agriculture. And this year is no exception. 2025 is off to a good start. Planting in the Northern Hemisphere is proceeding well, the weather has cooperated for the most part, and CP destocking is firmly behind us. There are some back-half risks we are monitoring. We will discuss those today. But let's start with the quarter.

Year-over-year, Corteva saw 15% increase in Q1 EBITDA, nearly 400 basis points of margin expansion, driven by strong cost execution in three growth platforms: biologicals, CP new products, and seed out-licensing. Both of our segments delivered healthy double-digit EBITDA gains. The biggest driver was operational excellence. And on this front, we are tracking well against the $400 million net cost target we set for ourselves. More on this later.

This performance allows us to reaffirm our full-year guidance, which we announced in February. It also allows us to de-risk the second half of the year. David will explain more. Factored into our guidance is the fact that farmers in the US are projected to shift planted area from soybeans to corn, resulting in a projected increase in corn of about 5%. And if current trends hold, Enlist beans will be planted on just over 65% of all US soybean acres in

2025, as it approaches maturity, Enlist is the number one selling soybean technology in the US. As you know, our focus is now set on becoming the leading provider of soybean technology in Brazil, and we're making great strides on that front, having sold more than 3 million units of Conkesta E3 soybeans over the last three years.

Globally, from an overall industry perspective, we're seeing somewhat mixed fundamentals. Record demand for grains and oilseeds continue, and farmers are investing in premium seed and crop protection technology to enhance and protect their yield. Although corn is faring relatively well so far this year and is less reliant on export trade, overall crop prices and margins have moderated somewhat, as planted area shifts and trade uncertainty begins to weigh on the markets.

Getting back to Corteva, our Seed business is off to a strong start. Organic sales were up 2% in the quarter, driven by pricing, reflecting the value our seed technology consistently delivers to farmers. Our Seed order book reflects strong demand for our product lineup, and we are planning to bring about 500 new products to the market this year, with approximately 300 new seed hybrids and varieties. We are also seeing meaningful improvements on the cost side, allowing Seed to deliver just under 400 basis points of margin enhancement for the quarter.

On Crop Protection, organic sales were up 3% in the quarter, driven by double-digit volume growth for both new products and biologicals, two of our near-term strategic growth platforms. We've now seen four consecutive quarters of volume gains, a sign that the channel is operating at healthy levels. Our latest view of the Crop Protection market for the full year is a flattish environment, with low-single digit volume gains, offset by low-single digit pricing headwinds. For Corteva, we continue to expect high-single digit volume gains, more than offsetting low-single digit pricing headwinds. However, our revised thinking is that price pressure will persist into the second half, but to a lesser extent than what we've seen in the first half. Our plan for Crop Protection in Brazil for the second half contemplates an EBITDA contribution about the same as last year, a strong performance, but if we did it once, we can do it again.

On Seed in Brazil, we've spent a fair amount of time talking about the inroads we're making on soybeans with Conkesta. But I'd be remiss not to mention the exciting developments we're seeing in the market for corn. Brazil's corn ethanol industry has seen remarkable growth since the country's first plant in 2017. With production poised to nearly double by early next decade, corn is expected to account for nearly a third of Brazil's total ethanol production by 2026, strengthening Brazil's position as the world's second-largest ethanol producer. The rise in production is also linked to Brazil's increasing Safrinha corn output, which has doubled over the past decade.

Given our leading position in Brazil corn, this is certainly going to be a structural value creator for us.

Moving on to tariffs, an important topic in the quarter, this is a fluid situation, as you all know. But we'll try to summarize how Corteva may or may not be impacted by the tariffs currently in place, which in 2025 is largely a Crop Protection story. Long story short, based on what we know today, the direct cost impact to Corteva in 2025 should be about $50 million, which we believe is manageable. While we work through the process of identifying the level and nature of mitigation efforts, we have not at this time dialed the puts and takes into our financial numbers that David will discuss in a few minutes. The main takeaway is that tariffs are not impacting our full-year guidance range, but please note we have work to do to mitigate the impact.

It is important to reiterate the significance of our domestic manufacturing footprint. Two of our largest Crop Protection franchises, Enlist and Spinosyns, are both produced here in the US. We are also seeing the benefits of our global multi-sourcing capabilities, as we work to minimize the impact on cost and customers. That said, our bigger concern lies with American farmers. American farmers are the backbone of the world's food supply, working sunup to sundown to produce the food we eat every day. As the American growing season moves closer to the harvest, we hope to see export markets open up for North American grain and oilseeds. I don't think we're

alone in this view, and it goes without saying that the financial well-being of our farmers affects the entire industry, and the world does need the food.

So as we sit here today in the beginning of May, I am pleased with our first quarter performance. Double-digit EBITDA gains and almost 400 basis points of margin improvement is not easy to come by in this market environment, and it is driven by another quarter of operational excellence. As we all know, the first quarter doesn't dictate the year in agriculture, but the first half is playing out a little better than we expected. The tariff situation appears to be manageable based on what we know today, and we're showing good progress on our growth platforms.

I believe we have the appropriate level of attention on improving our cost position through our controllable levers. It's worth repeating that we expect to generate net cost improvements of $400 million, driven by productivity and raw material tailwinds. In addition, our path to royalty neutrality and transitioning to a net out-licensor of technology by later this decade is expected to generate another $65 million in benefits this year. These self-help levers continue to drive value creation for the company and provide meaningful, some might say transformational, margin enhancement through the ag cycle.

With that, let me turn over the call to David.

David P. Johnson

Chief Financial Officer & Executive Vice President, Corteva, Inc.

Thanks, Chuck, and welcome everyone to the call. Let's start on slide 6, which provides the financial results for the first quarter. You can see from the numbers, results for the quarter were strong, led by more corn acres in North America, along with favorable timing and execution on controllables in both Seed and Crop Protection.

Organic sales were up 3% compared to last year, with Seed up 2% and Crop Protection up 3%. Currency was a significant headwind to top line for the quarter at 5% of sales, in line with expectations.

Seed pricing was up 3% in the quarter, with pricing gains in most regions, as we continued to price for value. Latin America was the one exception, our price was down as expected, given the competitive dynamics in Brazil, as we closed out the Safrinha season. Seed volume was down 1% compared to prior year. More corn acres in the US and favorable spring weather drove gains in North America, that were offset by declines in other regions. Seed volume in EMEA and Latin America was down mostly due to seasonal timing shifts.

Crop Protection price was down 2% as expected, driven by competitive market dynamics. Crop Protection volume was up 5%, with gains in nearly every region. Notably, new products delivered double-digit volume gains in the quarter. Operating EBITDA was up 15% over last year. Operating EBITDA margin of nearly 27% was up 390 basis points, driven by organic sales growth, coupled with significant benefit from lower input costs and productivity.

Moving on to slide 7 for a summary of the first quarter operating EBITDA performance. Operating EBITDA was up more than $150 million to just under $1.2 billion. Price and mix, volume gains, and cost benefits more than offset currency headwinds. Seed continues to make progress on its path to royalty neutrality with another $20 million decrease in net royalty expense. This improvement was driven by both increased out-licensing income and lower trade licensing expense. Seed and Crop Protection combined to deliver more than $200 million in productivity and cost benefit, including lower seed commodity cost in all regions, led by North America.

In the first quarter, SG&A was up modestly compared to prior year, driven by higher compensation and normalized bad debt accruals. The increased investment in R&D, aligned with our target, is on track to reach 8%

Disclaimer

Corteva Inc. published this content on May 08, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 08, 2025 at 22:39 UTC.