The operator, Kayla, welcomes everyone to the Corteva Agriscience 2Q 2024 earnings conference call. Kim Booth, Vice President of Investor Relations, introduces the speakers, Chuck Magro (CEO) and Dave Anderson (CFO). Tim Glenn and Robert King will also join the Q&A session. The company has prepared presentation slides and will make forward-looking statements. They will also refer to non-GAAP financial measures. Chuck Magro thanks Kim and begins his remarks.

Corteva had a successful second quarter and first half of the year, with growth in both top and bottom line and margin expansion. This was driven by strong demand for their proprietary technology in both the Seed and Crop Protection businesses. Despite a decrease in North America corn acres, Corteva was able to maintain volumes and gain market share, thanks to their latest corn hybrids and strong business model. The company is also proud to be number one in the North American seed market for both corn and soybeans. They are particularly excited about the success of their Enlist E3 technology, which is expected to be on 65% of US soybean acres in 2024. They have also recently introduced the Pioneer brand Z-series soybeans, which have shown a significant yield advantage in trials.

The Enlist transition has helped the company become royalty neutral and their royalty income has increased by 40% in the first half of the year. The company's strategy of becoming a technology seller is working well and they have registered over 100 new Crop Protection products globally. Despite an imbalanced market, the Crop Protection business saw a 6% increase in volume in the second quarter. The company anticipates top and bottomline growth and margin improvement in 2024 due to high demand for grain, oil, seeds, and biofuels. On-farm Crop Protection demand remains stable and the market is expected to move towards a balance between sell-in and sell-out. Farmers are also prioritizing investments in top-tier seed technologies for their impact on yields.

The company is adjusting their full year net sales and operating EBITDA guidance due to competitive market dynamics and missed applications in North America and Europe. They remain optimistic about 2025 and plan to provide more details at their Investor Day event in November. The current growing season in the US has seen strong crop condition ratings, leading to expectations of high yields and lower commodity prices. This has caused farmers to tighten their operating approach.

Despite some challenges, most farmers have confidence in their investment decisions and understand the importance of driving productivity in order to stay competitive. Corteva's brand trust and long history of yield improvement also give farmers peace of mind. The financial results for the quarter and the half show a slight decrease in sales and operating EBITDA, but with a strong finish in North America's seeds season. Organic sales were up 2% in the quarter, with pricing and volume gains in both Seed and Crop Protection. Earnings grew by 10% and margins expanded compared to the previous year. However, due to a tough first quarter, organic sales for the half were down 2%.

The company's seed pricing increased by mid-single digits, but seed volume declined due to lower planted area in certain regions. Crop Protection pricing and volume were both down, leading to a slight decrease in operating EBITDA compared to the previous year. However, seed pricing gains, improved net royalty expense, and productivity savings resulted in a 60 basis point margin expansion. Overall, for the first half of the year, seed net sales were up 2% and organic sales were up 4%, while Crop Protection net sales and organic sales were down 11%. The company expects volume growth in the second half, driven by demand for new products and growth in Brazil. Despite cost and currency headwinds, operating EBITDA for the first half was just under the record set in the previous year, at just over $2.95 billion.

The company's SG&A for the half was up 1%, but would have been flat if not for additional costs related to biologicals acquisitions. The updated outlook for the year reflects lower sales due to market conditions and updated currency assumptions, but operating EBITDA is still expected to grow by 4%. The company also expects a cost tailwind for the year and increased R&D and SG&A expenses, but at a more modest rate than previously predicted. The operating EBITDA margin for the year is expected to be approximately 20%, with a 55 basis point increase over last year. Operating EPS is expected to be roughly flat compared to last year.

The company is reaffirming its pre-cash flow guidance for the year and is on track to complete $1 billion in share repurchases. The first half results were slightly ahead of expectations due to the strength of the Seed business, while Crop Protection was impacted by market pressures. The company expects a rebound in Brazil's corn area in the second half, but pricing is expected to remain challenged.

The company expects volume growth in the second half, led by Brazil and demand for new products. Data suggests a positive trend in the market and input costs are expected to decrease. The company also plans to increase investment in R&D and expects a cost tailwind for Crop Protection. The first half performance was in line with expectations, with strong performance in the Seed business. The company is updating their full year guidance due to market dynamics in Crop Protection, but still expects sales and earnings growth. The Seed business has shown impressive performance in the first half, with strong demand for new technology and market share gains in corn and soybeans.

The second half of the year is expected to bring growth in Crop Protection volume and cost improvement in Latin America. The company is on track to meet its free cash flow guidance. The CEO announces a new Chief Financial Officer, David Johnson, who will succeed the current CFO, Dave Anderson, upon his retirement in 2025. Anderson will continue to serve as a strategic advisor until then. The CEO praises Anderson for his contributions to the company's financial strategy.

The speaker thanks Dave for his service and dedication to Corteva, and turns the discussion over to him. Dave expresses gratitude and pride in his work, and looks forward to supporting the new CFO. The call then moves on to questions, with the first one regarding the speaker's comments on the company's 2025 outlook. The speaker clarifies that they are not simply lowering the 2025 range by $100 million, and discusses potential changes to the outlook.

In this paragraph, the speaker discusses the expected improvements in royalty, productivity and cost, and deflation in seed and crop chemical prices for 2025. They express confidence in their controllable levers and technology pipeline, and mention that they will provide more details on the deflation in the future.

The company is confident that they are on track to meet their forward guide for 2024 and 2025. They have seen volume growth in Q2 but are concerned about the competitive pricing environment. They hope to see stabilization in the CP industry and a return to growth in the near future. Their base assumption is for some growth in 2025. One competitor has projected 6% revenue growth next year, but the company is not sure if they will be higher or lower and will rely on their value framework. Dave will provide more specific details.

In the second quarter, Corteva's price was down 5% but volume was up 6%. The company is focused on managing inventories and ensuring a sustainable recovery. The midpoint guidance for the market has come down by $100 million due to weather and pricing dynamics. The company is not yet commenting on the rest of 2025. For the first half, there was a 4% pricing headwind in the Crop Protection business, and this is expected to be slightly higher for the full year due to geographic mix. The demand at the farm gate remains steady.

The company is experiencing an increase in Latin America's percentage of total sales in the second half of the year. This is due to the demand for differentiated products with advanced technology and efficacy. The company expects growth in the second half from new products, such as spinosad and biologicals, which are performing well in the market. The Brazil order book is also healthy and ahead of last year, giving the company confidence in its outlook. Additionally, 70% of the company's full-year orders for biologicals are already in hand, further supporting their optimism for the second half and beyond.

The speaker is responding to a question about a competitor's early release of a price card for their seed products. They mention that it's hard to comment on the motivations behind this, but they are currently developing their own pricing plans for 2025. They emphasize that their approach to pricing is driven by innovation and delivering value to their customers.

The company is introducing new technologies on corn and soybeans, and their focus remains on providing value and innovation to their customers. The guidance was adjusted due to various factors, including corn stunt and weather conditions in South America, as well as pricing dynamics in the Crop Protection chemical market. The company's approach and philosophy remain unchanged despite the current market environment.

The second half of the year will depend on controlling costs and increasing volume in Brazil. The company has set a wider guide range due to uncertainties in Argentina and the possibility of a stabilizing global CP market.

Dave Anderson and Chuck Magro discuss the financial outlook for the company, highlighting factors such as recovery in Brazil, volume growth in Latin America, and cost deflation for crop protection raw materials. They also address potential challenges, such as pricing pressure and the impact of Argentine corn planted area. Overall, they remain confident in the company's performance and believe the current issues in the crop protection industry will improve over time.

The industry is going through a natural healing process as they work through their high-priced inventory. On-farm demand is healthy and what is going into the channel is now coming out. The channel is much healthier than it has been in the past few years. Volume growth in the second quarter was a sign of a stable market. The pricing dynamic is being worked through, and the industry needs to finalize the destocking process in Brazil. The order book is healthier and farmers are planning to apply the product in the fourth quarter. Overall, the industry is on a journey of stabilization.

The speaker expresses guarded optimism for the second half of the year, but acknowledges the need to see how it unfolds. They then address questions about volume expectations for the second half and the potential impact of trade downs on seed pricing. The speaker also mentions that Brazil inventories are stabilizing and that the company is expected to see a mid-teens increase in volume for the second half.

The speaker discusses the concept of normalization and how it relates to comparing numbers in the Latin American market. They also address the issue of trading down in the Seed industry and explain why it is difficult for farmers to do so due to technology and emotional attachment to specific brands.

The paragraph discusses the importance of delivering consistent and high-performing genetics to farmers, as well as providing support and service to them. The value proposition of seed is crucial, especially in times of compressed margins, as it can make a significant difference in a farmer's profits. The company has a long history and experience in breeding, and their obligation is to continually improve their hybrids. This has earned them credibility in the marketplace.

In a recent conference call, Frank Mitsch of Fermium Research congratulated Dave on his retirement and asked about the current state of CPC volumes and pricing. Chuck Magro, the speaker, responded that they are seeing encouraging trends and expect pricing to stabilize in the near future, but did not give a specific quarter. He mentioned that on-farm demand is healthy and inventories are improving. He also noted that the industry has experienced two years of organic decline but three years would be unusual. The call then moved on to the next question from Steve Byrne of Bank of America.

There is uncertainty about the availability of dicamba in 2025, which could lead to more independent seed companies licensing Enlist germplasm and corn and soy from Pioneer. This could potentially benefit Pioneer's business profitability-wise, but it is difficult to rank this benefit against the increased shift to their own proprietary brand. Adoption of Enlist E3 soybeans is already strong and is expected to continue to grow in 2025, but it is unclear how much more the market can expand. The outcome of the dicamba situation will determine how much Pioneer's brands and licensees will benefit.

The speaker discusses the uncertainty surrounding the current state of the market and the potential for growth in the future. They also mention the success of their strategy to be a technology seller and the impact it has had on their bottom line. They express confidence in the strength of their Seed business and the potential for continued growth. The speaker also mentions the increase in corn royalties, but does not provide a specific dollar amount.

The company's mix of products is stable and they have a strong competitive offer. They are transitioning to new technology but it will not greatly impact the mix. The company's total royalty income has increased by $35 million. The next question asks about the company's free cash flow guidance and how it relates to their lowered net income outlook. The company's representative states that it is too early to say for 2025, but they will capture the working capital benefit in both 2024 and 2025.

The company saw benefits from inventory and accounts payable, but also had some offsets in receivables. They expect these trends to continue, with continued benefit from inventory and normalization of payables. Receivables may be a headwind due to increased volume and revenues. The company is encouraged by their cash flow and hopes to sustain and improve it going into 2025. The relationship between volume and pricing pressure in Crop Protection is unclear, but farmers are likely to continue using the products regardless of pricing.

The speaker believes that despite tighter margins in the agricultural economy, farmers are still prioritizing their investments in technology and ensuring a good return on investment. They may use more commodity products, but newer technologies have better efficacy. The company believes they can support farmers in making these decisions with their CP portfolio.

The speaker, Kim Booth, thanks the audience for joining the conference call and for their interest in Corteva. They wish everyone a safe and wonderful day and the operator announces the end of the call.

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