The operator introduces the Corteva Fourth Quarter 2023 Earnings Call and turns it over to Kim Booth, who welcomes everyone and introduces the speakers. The prepared remarks will be led by Chuck Magro and Dave Anderson, with Tim Glenn and Robert King joining the Q&A session. Forward-looking statements will be made, and non-GAAP financial measures will be referenced. Chuck Magro thanks everyone for joining and hopes their year is off to a great start.

The speaker discusses key takeaways from their company's performance in 2023, including the effectiveness of their value creation strategy and new product launches. They are confident in their ability to continue delivering value to customers and stakeholders in 2024. Overall, the ag market fundamentals remain positive, with global crop production meeting demand for grain, oilseeds, and biofuels. However, commodity prices have declined slightly from their peak, but remain elevated due to strong demand.

Global crop area is expected to increase in 2024, with a shift in the US from corn to soybeans. US farm income remains above average, leading to a continued demand for innovative technology and seeds that maximize yields. The crop protection industry is recovering from de-stocking in 2023, with signs of improvement and a predicted balance by 2025. Corteva had a successful year in 2023, with 5% operating EBITDA growth and strong sales in their Seed and Biologicals businesses. Free cash flow exceeded expectations due to strong demand and cost discipline.

In 2024, the company expects to see margin expansion and cash generation, with a 2% increase in top line and 6% growth in operating EBITDA. They plan to execute $1 billion in share repurchases and anticipate strong performance in their Seed and Biological segments. Despite pricing pressures in Crop Protection, they expect volume gains from their differentiated portfolio and operational improvements to offset these challenges. The company also plans to launch over 300 new seed hybrids and varieties, utilizing promising technologies like gene editing to continue their price-for-value strategy.

The 2025 financial framework has been adjusted based on current market factors, with expected strong EBITDA growth and margin rate in 2025. The company's self-help actions have allowed for investment in R&D and future innovation. The overall strategy remains intact, with focus on differentiation, route to market, and cost performance. In the fourth quarter and full year, the company delivered operating EBITDA growth and margin expansion, with organic sales down due to volume declines and inventory destocking in certain regions. However, pricing gains were seen in all regions and strong operational performance led to an increase in operating EBITDA and margin expansion for the full year.

The company's free cash flow for 2023 was $1.2 billion, driven by increased earnings and working capital improvement. Seed net sales were up 5%, with organic sales up 7% due to strong price execution. Crop Protection net sales were down 9%, with organic sales down 12%. The Biologicals acquisitions added $400 million in revenue. Operating EBITDA increased by $160 million, driven by pricing gains and cost actions. However, there were declines in volume and higher costs due to seed commodity costs and crop protection inflation.

The paragraph discusses the financial results and guidance for 2024 of a company's Crop Protection sector. It mentions a 2% increase in raw material costs, offset by lower input costs and productivity savings. The company expects 2% growth in net sales, 6% improvement in operating EBITDA, and 4% increase in operating EPS. The free cash flow is expected to be in the range of $1.5 billion to $2 billion, with a conversion rate of 50%.

In 2024, the company expects to see an increase in operating EBITDA, with flat to slightly higher pricing and volume gains in both Seed and Crop Protection. There will also be improvements in net royalty expense and cost savings from productivity and input cost deflation. The company plans to increase investment in R&D and expects the Biologicals franchise to contribute to operating EBITDA with improved margins.

In 2024, the company expects a significant portion of sales and earnings to be delivered in the first half of the year, with a timing difference compared to the previous year due to the strength of Crop Protection. The delivery pattern for Seed will depend on weather conditions. The company has adjusted its 2025 financial framework based on actual results and expects to generate $800 million in additional EBITDA growth by 2025. This will be driven by their price for value and royalty neutrality strategies, as well as the growth of their out-licensing business.

The Crop Protection industry is expected to rebalance by 2025, with underlying demand remaining strong. The company's differentiated products and cost actions will help protect it from pricing competition. The company plans to deliver more cost actions and invest in R&D in the coming years. The assumptions for 2025 include low single-digit seed pricing, modest input cost inflation, and growth driven by new and differentiated products. The company expects to see more cost deflation by 2025.

The speaker responds to a question about the Crop Protection business by discussing volume and price. They mention that destocking is still ongoing in certain markets and that they expect lower volume in those markets compared to others where destocking has finished. They do not provide specific numbers for volume expectations.

The paragraph discusses the current state and future projections of the global CP market, with a focus on price performance and destocking. It is stated that the market is currently imbalanced in some regions, but is expected to stabilize and return to normal growth in 2025. The first half of 2024 is expected to be tough, but the second half should see improvements. Specific markets and product groups are also mentioned, with Brazil and Europe being highlighted as regions with ample supply.

The speaker, Chuck, mentioned the industry being down overall but volume is up. This trend is reflected globally as the company is seeing growth in all regions. Price remains competitive, especially in Brazil where destocking still needs to occur. The company's differentiated portfolio, including new products and Biologicals, is expected to drive increases in price and volume. The acquisition and integration of Biologicals is expected to result in a significant increase in EBITDA. The company will continue to follow a strategy of pricing for value, despite competitive pricing in the market. The majority of the company's earnings come from new, differentiated, and Biologicals products, which puts them in a strong position to navigate pricing challenges.

Chuck Magro explains that the accelerated growth in EBITDA in 2025 compared to 2024 is due to the stable and steady demand for Seed and CP, the expected stabilization and growth of the CP industry in 2025, and the company's focus on controlling costs and increasing productivity. He also mentions the impact of deflation in the P&L and accounting normalizations.

During a recent conference call, Dave Anderson and Chuck Magro discussed the company's projected financial performance for 2023. They mentioned that they expect some headwinds in SG&A due to increased incentive compensation and merit, but that these factors will not affect the company's growth in 2025. They also mentioned that in the past two years, Corteva has seen growth in EBITDA and they are confident in their plan for 2024 and 2025. A question was raised about the 2023 operating EBITDA bridge, which showed that costs are not driving growth, despite the company's focus on controlling costs. The executives explained that while there are cost benefits and programs in place, there are also higher costs in SG&A and R&D, leading to a net-neutral effect on growth.

The speaker is responding to a question about the cost benefits of a business merger. They mention a projected $250 million in benefits and $100 million in net royalties, but also acknowledge higher R&D and SG&A costs. The increase in SG&A is due to merit, incentive comp accrual, bad debt, and the annualization of costs for the Biologicals business. They also mention other expenses like the ERP deployment in Latin America. Overall, the speaker believes that the merger will result in a significant increase in EBITDA in 2024, but there are some headwinds to consider.

The speaker discusses the potential increase in costs for 2024, but notes that it will decrease in 2025. They also mention the expected benefit in Crop Protection due to lower direct material costs, while on the Seed side, there may be a delay in seeing the impact of lower commodity prices due to hedging strategies and accounting methods.

Chuck Magro, CEO of Agrium, addressed concerns about the impact of weather and market dynamics in Latin America during a conference call. He stated that the company does not anticipate a significant change in cost of goods sold for their Seed business. The destocking and weather challenges in Brazil have slowed down the market, but the long-term potential for growth in the country remains strong.

The paragraph discusses the impact of changing weather conditions and declining commodity prices on the soy and corn planting seasons in Brazil. It mentions that a significant portion of soy was planted in a less-than-ideal window, leading to a reduction in the area planted for corn. However, farmers are still planting corn where timing allows.

The speaker discusses their recent trip to Brazil and their observations on the current state of corn and soybean planting. They remain optimistic about the profitability of corn and the growing demand for rain in Brazil. However, they acknowledge the challenges of the current safrinha season. The speaker also mentions the impact of generics and off-patent products in the global market. Overall, they expect modest growth in the industry in the coming year.

The speaker discusses the current state of the generic drug market in Latin America and Asia, noting that there has been no significant change in production capacity or pricing degradation from generic manufacturers. However, they mention that some new plants have been built to focus on big molecules coming off patent in the next few years, but none of their own molecules are affected. They also mention that Brazil's import market has slowed down and generic profits are struggling in the low pricing environment. The speaker believes that their focus on higher value, differentiated products and high-quality agronomic services will differentiate them from the competition and put them in a good position for 2024 and 2025. The question then shifts to the company's seed order book for North America and their expectations for an increase in Enlist soybeans for 2024. They also ask for a breakdown of the $100 million reduction in net royalty, specifically in regards to trade fees and germplasm fees for both out-licensing and in-licensing.

Tim Glenn, speaking on behalf of the company, provided an update on North America Seed. He stated that the order book looks strong and the mix of technology is consistent with past experiences. While the soybean market is more competitive, the company's prices are holding and customers understand the value proposition. In terms of E3 soybeans, the order position is tracking as expected and the market is estimated to be at 60% converted to E3. However, the company does not have full visibility into the sales of other companies selling Enlist E3 soybeans.

The company's royalty benefits are tracking as expected, with the majority of the benefit coming from reduced payments in soybeans this year. Starting in 2025, the benefit from royalties will surpass the benefit from reduced payments. The speaker also addresses questions about the company's free cash flow outlook, noting that strong collections in 2023 led to a round number of $1.2 billion in cash flow. For 2024, the company expects continued progress in working capital, but with a different mix.

In the fourth quarter of 2023, the company saw an increase in imports of generic crop protection products into Latin America. However, since then, imports have slowed down and are trending downwards in the first quarter of 2024. This includes a decrease in imports of generics.

The company has noticed a slowdown in imports into Brazil, including generics, which is due to a rebalancing in the market and a shift towards more profitable products with differentiated technology and strong agronomic support. The company has also anticipated a shift from corn to soy in North America and has planned for it, but the difference in profitability between the two is not as significant as before.

The speaker explains that soybeans are now more profitable due to the company's shift to Enlist E3 technology. However, there is still a difference compared to previous years when they were dependent on someone else's technology. The call is then concluded.

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