The Corteva Third Quarter 2023 Earnings Call is being recorded and will be led by CEO Chuck Magro and CFO Dave Anderson. Tim Glenn and Robert King will also join the Q&A session. Forward-looking statements will be made and non-GAAP financial measures will be referenced. A strategic framework was unveiled a year ago to enhance Corteva's competitive position and achieve margin expansion and long-term value creation.

The company's efficient execution of their plan has led to continued earnings and margin growth in 2023 despite challenges. Their strong Global Seed and Crop Protection portfolio and focus on controlling controllables have contributed to their success. They have a pipeline of new technology and are expecting to see benefits from their Enlist platform in the coming years. In Corn, they have a decade-long view of corn trade technology and are ahead in cost and productivity. They are on track to deliver significant value creation and have already achieved cost savings of $300 million in 2023.

The company is announcing plans to optimize their global crop production network, including exiting production activities at a site in California and ceasing production at other locations. These actions are expected to result in annual savings of $100 million by 2025 and improve competitiveness and customer service. While ag markets remain mixed, global demand for agricultural production and biofuels is strong. The company expects operating EBITDA growth and margin expansion for the full year and is committed to long-term value creation, including returning cash to shareholders. Global production of key crops is estimated to increase in the upcoming year.

The current USDA estimates show a rebound in US corn stocks due to an increase in planted area, but total corn and soybean stocks are still below pre-pandemic levels. Critical southern hemisphere production, particularly in Brazil, is necessary to balance global supply and demand. Extreme weather and the transition to El Nino are adding complexity to current estimates, leading to a modest shift from corn to soybeans in the US in 2024. The company believes they have a competitive advantage in the ag technology industry and have shown strong performance in revenue and EBITDA margin improvement.

In this paragraph, Dave Anderson discusses the financial results for the quarter and year-to-date. Despite mixed market conditions, the company has delivered operating EBITDA growth and margin expansion. Sales and earnings were largely in line with expectations, with organic sales down 13% due to lower seed and crop protection volumes. However, there were pricing gains in all regions and increases in both Seed and Crop Protection. Feed volume was down 5% due to the decision to exit Russia, and Crop Protection volume was down 16% due to product exits. Despite these challenges, strong operational performance led to a 5% increase in operating EBITDA and 120 basis points of margin expansion for the year-to-date.

Despite headwinds in the Crop Protection market, the Seed business saw gains in net sales and organic sales due to strong price execution. However, Seed volumes were down 5% due to the exit from Russia and lower corn planted area. Crop Protection net sales were also down, but pricing gains partially offset lower volume. The company also saw a 2% currency headwind. Overall, operating EBITDA increased by $140 million to just under $3 billion, with $1 billion in pricing and product mix improvement.

The company's pricing gains, along with improvements in net royalties, productivity, and cost actions, offset declines in volume and higher costs. A significant portion of the cost headwind was due to seed commodity costs and unfavorable yield impact. However, market-driven and other costs were mitigated by improvements in net royalty expense and productivity savings. SG&A spend is up slightly compared to last year, but excluding acquisitions, it is down by 3%. Currency was a significant headwind, and the company is taking steps to optimize its Crop Protection manufacturing footprint. This includes recording restructuring and asset-related charges and estimated annual EBITDA improvement.

The company has updated its full year guidance, with net sales expected to be in the range of $17 billion to $17.3 billion, a 2% decrease at the midpoint. This is primarily due to lower volume and pricing expectations in Brazil. Operating EBITDA is expected to be in the range of $3.25 billion to $3.45 billion, a 4% increase at the midpoint, driven by productivity and cost actions. The company also expects to see margin expansion and plans to deliver earnings and margin growth in 2024.

The company is expecting lower planted areas for Brazil and tight margins for farmers due to macro factors. However, they remain confident in their price per value strategy and expect single-digit pricing gains. They are also simplifying their portfolio and anticipate volume headwinds from product exits. The company expects volume gains in the US and double-digit growth in biologicals. Cost and productivity will continue to be a focus, and they anticipate improvements in royalties and productivity. SG&A costs will be tightly managed, and R&D investments will be made for long-term innovation. Overall, revenue growth is expected to be lower in 2024 and 2025, but the company is confident in their ability to meet their financial framework goals.

The company's third quarter operating EBITDA performance is in line with expectations, with the strength of the Seed business leading the way. Cost discipline and productivity actions, along with improved royalty expenses, have contributed to a 120 basis point margin expansion year-to-date. The current guidance range reflects an updated fourth quarter outlook and still forecasts growth in operating EBITDA and margins for the year. The company's planning framework for 2024 supports continued earnings growth, with more details to be provided in early February. The Q&A session will now begin, with a reminder about cautions on forward-looking statements and non-GAAP measures. The first question is from Morgan Stanley, asking about the company's low single-digit pricing expectation for 2024 and the algorithm for achieving this, given competitive pressures in certain regions.

The speaker discusses the company's expectations for pricing in the upcoming year, with a focus on the Seed and Crop Protection businesses. They anticipate low single-digit growth for the company overall, driven by positive pricing for Seed and relatively flat pricing for Crop Protection. The speaker also mentions a rotation of crops in North America, which may impact pricing.

The speaker discusses the current state of the Crop Protection market and its impact on the company's ability to achieve their 2025 EBITDA guidance. They express confidence in hitting their target range and mention that they will have more information in the future. Overall, the company remains focused on meeting their goals.

The speaker discusses recent global events and their impact on the company's performance. They also mention the progress made in their controllable factors, such as portfolio simplification and operational excellence. The company is confident in achieving their 2025 targets, but may need to find ways to offset any significant downturns in Brazil. They have already shown success in offsetting weaknesses through initiatives like accelerating Enlist and implementing operational efficiency programs.

The company has been working on a manufacturing rationalization plan for a long time and is pleased with the progress. This will improve operational excellence and cost management. The plan includes changes to crop chem's manufacturing, such as moving some molecules externally and keeping others internally. The plan is led by Robert, who was hired a year and a half ago. The company has been reviewing chemical operation best practices from around the world and expects to see benefits of $100 million by 2025.

The benefits of the program will be seen after 2025, with a focus on modernizing operations, prioritizing safety, improving supply reliability, and maintaining cost competitiveness. The company plans to shift to an asset-light model and use third-party manufacturing, while investing in advanced control technologies and modular manufacturing for smaller, more efficient facilities. The company's portfolio is also increasing in this area, and they aim to produce plants cheaply through this next generation of CP manufacturing.

The announcement made yesterday is a big step forward for the company and aligns with their strategy to become excellent in operations. It involves shifting to an external supply balance and improving cost competitiveness and network flexibility. The company has been working on this for a year and the execution of these actions will drive profitability and make them more competitive in the market. In terms of cash flow and deployment, the company is on track to end the year with zero net leverage and the CEO will discuss future deployment plans.

The company has updated their free cash flow guide for the year to $600 million to $1 billion. This is due to higher inventory levels and lower payables. They expect to have zero net debt and a strong balance sheet. They also plan to prioritize organic growth and return capital to shareholders. In 2024, they anticipate incremental free cash flow and plan to continue investing in R&D and returning capital to shareholders.

In 2020, the company made two successful acquisitions in the Biologicals sector and is expecting double-digit growth in this area next year. They are also considering other opportunities for growth and will have a balanced approach to allocating capital. There is no change in their decision to exit the chlorpyrifos business despite recent court rulings.

The speaker is addressing a question about the challenges of shuttering facilities and the impact on registrations for crop chemicals. They mention the specific location of Pittsburgh, California where they make a nitrogen stabilizer, and state that they have plans to move production to another location seamlessly. They also mention that registrations are taken into consideration during the planning process, and that they have redundancy built into their system.

The speaker addresses a question about global CP destocking and acknowledges that there were signs of a buildup in the channel but they were not missed. The on-farm demand did not increase as expected, but it has remained steady. The speaker notes that the destocking in the US is mostly over, but there are still elevated channel inventories in Brazil.

The company is facing challenges in Brazil due to an influx of generic products from China, which has affected their inventory levels. The operating cash flow has decreased compared to the previous year, and the company will need to generate a significant amount of cash in the fourth quarter to reach the bottom of their projected range. The decrease in cash flow is mainly due to slower receivables, which is expected given the current revenue outlook.

The company has seen a slight increase in DSOs, but they are still within a healthy range. Inventory levels are decreasing due to lower volumes, which will positively impact cash flow. Payables will be a headwind, but deferred revenue will not significantly affect cash flow. The company expects to see a positive cash flow in the next year, with a slight increase in cash outflow due to restructuring. In terms of Brazil and Latin America, the company expects a decrease in Crop Protection volumes in the fourth quarter.

The speaker is discussing the potential growth of their company's volume in Brazil through 2024. They expect muted or flat growth due to macro conditions and continued destocking in the channel. They anticipate weakness in volumes and price in the fourth quarter of 2024, but cannot predict when the destocking will be completed.

The speaker discusses the competitive dynamics in Brazil, specifically the shift towards more generic supply. They believe that Brazil is a great market for growth, but it has never been a straight line and there will be periods where there may be a pause or step back. The speaker also defines what they mean by "generics" and emphasizes the importance of local representation and service in this market.

The company has observed a new level of aggressiveness in pricing for generics in the Brazilian crop protection market, which has always been a larger part of the global market. This trend is not sustainable and there is a performance trade-off for these older chemistry AIs. Farmers in Brazil value technology and high service, and the company believes there will continue to be a place for differentiated technology in the market. The company does not see this as a structural change, but rather a current reality that they must deal with. The analyst asks for further elaboration on the company's observations in other markets.

Chuck Magro and Tim Glenn discuss the dynamics in the EMEA and Asia-Pacific regions for the agriculture industry, noting that the fundamentals are still robust despite some mixed performance in Brazil. They expect healthy farmer dynamics and a focus on yield and production. In terms of seed, there was volume pressure in EMEA but strong pricing, and they anticipate stabilization in the situation for next year.

The speaker discusses the state of the European seed market, which is stabilizing after a period of decline. They also mention the impact of weather conditions on the Latin American and Asia-Pacific markets. In terms of their business, they are seeing strong demand for high-technology products in Europe, despite regulatory and social challenges. They also highlight the success of their herbicide product in the cereals sector.

The paragraph discusses the current state and future prospects of the agricultural market in Europe and Asia. It mentions the low use rate of technology in Europe due to strict environmental regulations, but also notes the potential for growth in the Biologicals sector. In Asia, the weather has been a challenge, but the company has strong products in the rice market and a good inventory position. The market in Japan is not a major focus for the company.

In the paragraph, the speaker discusses the expected growth in the fruit and vegetable market in Asia, as well as the role of technology in this growth. They also mention the impact of Seed and Crop Chem costs on the company's financials, and how the lag in inventory turnover may affect the timing of cost savings. They anticipate a decrease in costs in 2024 and a slower translation of cost benefits in the first half of the year due to this lag.

The speaker is optimistic about the direction of Corteva and expects further improvements in 2025. The operator thanks the speaker and turns the call back to Ms. Kim Booth for final remarks. Ms. Booth concludes the call, thanking the participants and wishing them a safe day. The operator thanks everyone for joining and ends the conference.

This summary was generated with AI and may contain some inaccuracies.