Corteva, Inc. Q3 loss decreases, but misses estimates

Date:11-09-2023

• 3Q YTD Net Sales reflects overall positive global Ag fundamentals

• 3Q YTD performance reflects pricing gains, product mix, and productivity

• FY guidance³ reflects recalibrated 4Q Brazil outlook for both Seed and Crop Protection

On November 8, 2023, Corteva, Inc. (NYSE: CTVA) (″Corteva″ or the ″Company″) reported financial results for the third quarter and nine months ended September 30, 2023.

3Q 2023 Results Overview

2023 YTD Results Overview

2023 YTD Highlights

• 2023 YTD net sales and organic¹ sales decreased 1% versus prior year with gains in North America² and EMEA² offset by declines in Latin America and Asia Pacific.

• Seed net sales grew 7% and organic¹ sales increased 9%. Price was up 14% globally, led by continued execution on the Company’s price for value strategy and recovery of higher input costs. Volume declines were driven by the exit from Russia, lower corn planted area in EMEA², and lower corn volumes in Latin America, partially offset by increased corn acres in North America².

• Crop Protection net sales decreased 10% and organic¹ sales decreased 12%. Volume declines, largely in Latin America and North America², were driven by strategic product exits, inventory destocking, and delayed farmer purchases. Price gains reflected pricing for value and strong execution in response to cost inflation led by EMEA² and North America².

• GAAP income and earnings per share (EPS) from continuing operations were $1.17 billion and $1.63 per share for the period, respectively, down from prior year driven by lower volumes, unfavorable currency and noncash charges associated with legacy retirement plans, partially offset by pricing, productivity, lower restructuring charges and lower effective tax rate. Operating EBITDA¹ was $2.99 billion, a 5% improvement over prior year on price execution and productivity actions, partially offset by lower volumes coupled with cost and currency headwinds. Operating EPS1 was $2.54 per share, up 2% compared to prior year.

• Management affirmed full year 2023 net sales and earnings guidance³. Net sales is expected to be in the range of $17.0 billion to $17.3 billion and Operating EBITDA¹ is expected to be in the range of $3.25 billion to $3.45 billion. Operating EPS¹ is expected to be in the range of $2.50 to $2.70 per share.

"Overall global Ag fundamentals remain positive in 2023, with farmer incomes healthy and abovehistorical levels.Third quarter results were largely aligned with expectations that we set last quarter. However, we recalibrated the fourth quarter due to the market factors impacting our LatinAmerica business, particularly the Brazil operations.

The solid year-to-date performance has resulted in continued EBITDA margin gains and reflectsoverall positive pricing, significant progress toward royalty neutrality, and double-digit growth incorn sales globally.These gains have been impacted by headwinds from global crop chemicalsdestocking and challenging market conditions in Brazil. In this environment, we remain focused onlevers within our control to continue to deliver meaningful earnings and margin improvement."

Chuck Magro

Chief Executive Officer

Summary of Third Quarter 2023

For the third quarter ended September 30, 2023, net sales decreased 7% versus the same period last year. Organic¹ sales declined 13%.

Volume declined 15% versus the prior-year period driven by strategic product exits and ongoing headwinds in the Crop Protection segment. Lower Seed volumes were driven by the timing of seasonal demand in Latin America and an earlier operational finish to the season in North America versus prior year.

Price increased 2% versus prior year, reflecting continued execution on the Company’s price for value strategy, while managing increased competitive pressure. 

GAAP income from continuing operations after income taxes was a loss of $315 million in third quarter 2023 compared to a loss of $322 million in third quarter 2022. Operating EBITDA¹ for the third quarter was $18 million, down 81% compared to prior year.

The Company announced a plan to further optimize its Crop Protection network of manufacturing facilities and external partners. The plan includes the exit of the Company’s production activities at its site in Pittsburg, California, as well as ceasing operations in select manufacturing lines at other locations. As a result, the Company expects to record total pre-tax restructuring and asset related charges of $410 million to $460 million through 2024, with an estimated $90 million to $120 million of cash payments. The Company expects to achieve approximately $100 million in run-rate savings by 2025 as a result of these actions.

Seed Summary

Seed net sales were $878 million in the third quarter of 2023, up from $862 million in the third quarter of 2022. The sales increase was driven by a 14% increase in price, partially offset by a 12% decline in volume.

The increase in price was broad-based, driven by strong demand for top technology products, and strong operational execution across the portfolio. Lower volumes were driven by expected lower planted area and delayed farmer purchases in Brazil, and an earlier operational finish to the season in North America versus prior year.

Segment operating EBITDA was a loss of $138 million in the third quarter of 2023, an improvement of 38% from the third quarter of 2022. Price execution, reduction of net royalty expense, and ongoing cost and productivity actions more than offset higher input and freight costs, lower volumes, and the unfavorable impact of currency.

Seed net sales were $7.8 billion for the first nine months of 2023, up from approximately $7.3 billion in the same period of 2022. The sales increase was driven by a 14% increase in price and 1% favorable impact from portfolio. This gain was partially offset by a 5% decline in volume and a 3% unfavorable currency impact.

The increase in price was driven by strong demand for top technology and operational execution globally, with global corn and soybean prices up 15% and 8%, respectively. Pricing actions more than offset currency impacts in EMEA. The decline in volume was driven by the 2022 decision to exit Russia, lower corn planted area in EMEA, and lower-than-expected corn planted area projected in Brazil, partially offset by increased corn acres in North America. Unfavorable currency impacts were led by the Turkish Lira and the Canadian Dollar.

Segment operating EBITDA was $1.97 billion for the first nine months of 2023, up 24% from the same period last year. Price execution, reduction of net royalty expense, and ongoing cost and productivity actions more than offset higher input and freight costs, lower volumes, and the unfavorable impact of currency. Segment operating EBITDA margin improved by more than 350 basis points versus the prior-year period.

Crop Protection Summary

Crop Protection net sales were approximately $1.7 billion in the third quarter of 2023 compared to approximately $1.9 billion in the third quarter of 2022. The sales decrease was driven by a 16% decrease in volume and a 4% decrease in price, partially offset by a 7% favorable impact from the Biologicals acquisitions and a 2% favorable impact from currency.

The decrease in volume was driven by strategic product exits, inventory destocking trends, timing of seasonal demand, and delayed farmer purchases, impacting volumes across all regions. Pricing gains in EMEA and Asia Pacific were offset by price declines in North America and Latin America, driven by elevated competitive pressure. Favorable currency impacts were led by the Brazilian Real and the Euro. The portfolio impact was driven by the Biologicals acquisitions, which added approximately $145 million of net sales.

Segment operating EBITDA was $184 million in the third quarter of 2023, down 48% from the third quarter of 2022. Volume and pricing declines and higher input costs more than offset productivity actions. Segment operating EBITDA margin declined by approximately 760 basis points versus the prior-year period.

Crop Protection net sales were approximately $5.7 billion for the first nine months of 2023 compared to approximately $6.3 billion in the same period of 2022. The sales decrease was driven by a 16% decrease in volume and a 2% unfavorable impact from currency. These declines were partially offset by a 4% increase in price and a 4% favorable impact from the Biologicals acquisitions.

The decrease in volume was driven by strategic product exits, inventory destocking trends, and delayed farmer purchases. The increase in price was broad-based, with gains in most regions led by EMEA and North America, and mostly reflected pricing for the value of our differentiated technology, including new products, and currency in EMEA. Unfavorable currency impacts were led by the Turkish Lira and Chinese Renminbi. The portfolio impact was driven by the Biologicals acquisitions, which added approximately $280 million of net sales.

Segment operating EBITDA was $1.1 billion for the first nine months of 2023, down 18% from the same period last year. Pricing execution and productivity actions were more than offset by lower volumes, higher input costs, and the unfavorable impact of currency. Segment operating EBITDA margin decreased approximately 200 basis points versus the prior-year period.

2023 Guidance

The global outlook for agriculture remains positive overall in 2023, with high demand for grain and oilseeds. Commodity prices are above historical averages, and farm balance sheets and income levels remain generally healthy, encouraging growers to prioritize technology to maximize return. The Company’s outlook for its operations in Brazil has been revised, influenced by lower-than-expected corn planted area, ongoing headwinds in crop chemicals, delayed farmer purchases on both plantings and crop protection applications, as well as elevated levels of generic products, leading to an update to full-year 2023 net sales and earnings expectations in October 2023.

Corteva expects net sales in the range of $17.0 billion to $17.3 billion, down 2% versus prior year at the mid-point. Operating EBITDA¹ is expected to be in the range of $3.25 billion to $3.45 billion, growth of 4% at the mid-point. Operating EPS¹ is expected to be in the range of $2.50 to $2.70 per share, down 3% at the mid-point.

The Company is not able to reconcile its forward-looking non-GAAP financial measures to its most comparable U.S. GAAP financial measures, as it is unable to predict with reasonable certainty items outside of its control, such as Significant Items, without unreasonable effort.

1. Organic Sales, Operating EPS and Operating EBITDA are non-GAAP measures. See page A-5 for further discussion. 2. North America is defined as U.S. and Canada. EMEA is defined as Europe, Middle East and Africa. 3. The Company does not provide the most comparable GAAP measure on a forward-looking basis. See page 5 for further discussion.