Kim Booth:

Good morning. And welcome to Corteva’s second quarter and first half 2024 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, 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 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.

Dave Anderson:

Thanks, Chuck, and welcome everyone to the call. Let’s start on Slide 6, which provides the financial results for the quarter and the half. You can see from the numbers here, sales and operating EBITDA for the first half were down slightly from prior year, although a little better than our latest estimates, driven by a strong finish in North America’s seeds season. Briefly touching on the quarter, organic sales were up 2% compared to prior year, with gains in both Seed and Crop Protection. Pricing for the quarter was up 2%, with gains in Seed partially offset by continued competitive pressure in Crop Protection. Second quarter volumes were flat with volume gains in Crop Protection, led by Latin America and North America, offset by Seed volume declines in North America due to first quarter and second quarter timing. Topline growth and continued productivity and cost actions translated to earnings growth of 10% in the quarter in nearly 250 basis points of margin expansion compared to prior year. Now focusing on the half, as a result of the tough first quarter, organic sales were down 2%, with Seed growth offset by Crop Protection. Seed pricing gains were mid-single-digit compared to prior year and offset by Seed volume declines, which were driven by lower planted area in EMEA and in Asia. Crop Protection price and volume were both down in the half on competitive market dynamics in the really tough comp of the first quarter of 2023. The topline performance translated into operating EBITDA of approximately $2.95 billion for the half, down slightly compared to prior year. Seed pricing, the benefits from improved net royalty expense and productivity savings drove nearly 60 basis points of margin expansion. Let’s now go to Slide 7 and review sales by segment. Seed net sales were up 2% in the half versus prior year. Organic sales were up 4% on broad-based pricing gains as we continue to price for value. Global seed pricing was up 5% with gains in every region and across the portfolio. In Crop Protection, both net sales and organic sales were down 11% in the half. Pricing was down 4% compared to prior year, driven by competitive price pressure and market dynamics. Crop Protection pricing in EMEA was up 2%, largely in response to currency. Crop Protection volumes were down in the half, although we did see volume growth of 6% in the second quarter. Demand for new products, expenses, drove volume gains over last year, and importantly, we continue to expect volume growth in the second half, driven largely by Brazil. With that, let’s go to Slide 8 for a summary of the first half operating EBITDA performance. For the half, operating EBITDA was just under our record first half 2023 to just over $2.95 billion. Pricing gains, coupled with improvement in net royalties and productivity actions, were offset by volume declines in cost and currency headwinds. Higher Seed commodity costs and Crop Protection inflation on input costs, reflecting the sell-through of higher cost inventory, were more than offset by benefits for reduced net royalty expense and productivity savings. SG&A for the half was up 1%, including an additional $25 million of spend compared to prior year related to biologicals acquisitions. Excluding these costs, SG&A would have been approximately flat versus last year, despite merit and inflation. Let’s now go to Slide 9 and transition to the updated outlook for the year. The updated full year guidance reflects the current Seed and Crop Protection markets and the best judgment of our key variables for the second half. We now expect net sales to be in the range of $17.2 billion to $17.5 billion, or up 1% at the midpoint. The lower guidance and revenues is primarily due to North America and EMEA Crop Protection price and volume in the first half of the year, in the updated second half BRL to U.S. dollar assumptions. Operating EBITDA is now expected to be in the range of $3.4 billion to $3.6 billion, 4% growth compared to prior year at the midpoint. The updated guidance is driven by lower topline growth, partially offset by less discretionary spending. We also now expect a cost tailwind for the year, driven by improved royalty expense, Crop Protection raw material deflation and productivity benefits, and while we still expect increased R&D and SG&A for the year, the increases will be more modest than our prior guidance. With the strength of Seed performance in the first half and Crop Protection volume and cost improvement in the second half of the year, we now expect operating EBITDA margin for the year of approximately 20% at the midpoint of guidance or approximately 55 basis points above of margin expansion over last year. Operating EPS is expected to be in the range of $2.60 per share to $2.80 per share, roughly flat versus last year at the midpoint. The change in EPS from our prior guidance primarily reflects lower earnings at the midpoint. We’re reaffirming our pre-cash flow guidance of $1.5 billion to $2 billion or approximately $1.75 billion at the midpoint, and cash flow to EBITDA conversion rate of 45% to 50% for the full year 2024. And finally, we’re on track to complete 1 billion of share repurchases for the year, including 500 million completed during the first half. We also recently announced a 6.25% increase in the annual dividend, consistent with the dividend growth strategy. Now, both of these are testimony to the strength of our balance sheet and the cash flow outlook. Going now to Slide 10, let’s look at the key drivers for the first half performance and the setup for the remainder of the year. Again, the first half results were overall slightly ahead of our expectations, driven by the strength of the Seed business. North America delivered an impressive performance with 4% growth in organic sales compared to prior year, despite the 3% reduction in U.S. corn acres. Crop Protection first half results were impacted by competitive market pressures. Overall Crop Protection industry conditions have begun to improve, but not yet fully stabilized. Crop Protection experienced low-single-digit rate inflation on input costs through the first half. Those market-driven cost headwinds were offset by benefits related to reduced seed net royalty expense and productivity action. SG&A and R&D, as expected, were up modestly compared to last year. Now, if you turn to the right side of Slide 10 regarding the second half of the year, our assumptions are largely consistent with what we shared with you in early May. In Seed, we expect a rebound in Brazil’s safrinha corn area after a reduction in the 2023-2024 season. However, an additional risk in Latin America is Argentina’s planted area due to corn stunts. Crop Protection volume gains will drive much of the growth in the second half, with pricing expected to remain challenged. Our assumption is for volume growth versus prior year, led by Brazil, and demand for new products and biologicals. Importantly, the order book for the second half Crop Protection sales in Brazil is trending ahead of last year. Available data suggests channel inventories are trending down. These data points are positive signals that the market is moving towards more stabilization and supports the assumptions for volume growth in the second half. And as you know, we expect to see input cost deflation in Crop Protection during the second half of the year. Coupled with productivity and cost actions, we anticipate a cost tailwind for Crop Protection. And as a reminder, we expect an increase in SG&A spend for the full year 2024, driven by normalized bad debt and compensation accruals and will also continue to increase the investment in R&D. So the balance of improved Crop Protection market conditions in Brazil and the continued focus on cost controls will drive second half growth. It’s important to point out the allocation of earnings between third and fourth quarters. We expect normal earnings patterns for the second half, which implies an operating EBITDA loss in the third quarter, and therefore, all of the second half earnings delivered in the fourth quarter. So let’s now go to Slide 11 and summarize the key takeaways. First, operating EBITDA performance for the first half was largely in line with expectations led by the strength of the Seed business. Regarding the full year, driven mostly by the current market dynamics in Crop Protection, we’re updating our full year guidance, but still on track for sales and earnings growth in 2024. Seed momentum continues through the first half, driven by the strength of the portfolio and strong demand for our latest technology, particularly in North America, with market share captured in both corn and soybeans. Overall, it’s been an impressive first half for the Seed business and continuing a strong trend by seed. Looking forward to the second half of the year, Crop Protection volume gains in Latin America and cost improvement from raw material deflation and productivity actions will drive much of the year-over-year EBITDA growth. And finally, strong first half cash flow results keep us on track to deliver the midpoint of our free cash flow guidance range of $1.75 billion or approximately 50% conversion rate. And with that, let me turn it back over to Kim.

Chuck Magro:

Thanks, Kim. I’d like to say a few words about the announcement we made after market yesterday that we will have a new Chief Financial Officer starting September 16th. David Johnson will join Corteva from Atkore, a publicly traded company and leader in electrical safety and infrastructure solutions, where he also served as CFO. David is an accomplished CFO with a proven track record of delivering strong results, operational efficiency, and financial discipline to large global organizations like ours. He has nearly three decades of experience, and as I’ve gotten to know David throughout this process, I believe he is the perfect choice for Corteva. David will, of course, succeed Dave Anderson. To ensure a smooth transition, Dave will continue to serve on the executive leadership team as a strategic advisor to me until his retirement in the first quarter of 2025. Dave joined Corteva over three years ago, which was, as many of you will remember, both a pivotal and critical time in our history. With his wealth of experience and his considerable expertise across industries, Dave gave this company, its Board, and its leadership assurance that this company’s financial strategy was in the best of hands, and I think the results speak for themselves. So before I turn it over to Dave, I’d like to thank him for his service and his dedication to Corteva, to our investors and shareholders, and to our customers and employees. Dave, thank you. It’s been an absolute privilege to serve alongside of you, and with that, over to you.

Kim Booth:

Thanks, Dave. Now let’s move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

Vincent Andrews:

Thank you. And first of all, Dave, congratulations on your retirement and thank you very much for all the help over the past three years. Chuck, if I could ask you on your sort of initial comments on 2025, and please correct me where I’m wrong, but it sounded to me like you were sort of softening your stance on 2025 and sort of not saying, hey, I took 2024 down by $100 million, so just take that existing $3.9 billion to $4.4 billion range down by $100 million. So I want to check in on those bridge items and see what’s still intact versus what your incremental concerns might be. So you had $100 million of royalty improvement for 2025, another $200 million of productivity and cost actions for 2025, and I know we had been talking about but hadn’t quantified some seed cost deflation for 2025, and then at least I expected some more crop chemical deflation for 2025. So if you could update us on those items, if there’s any change, and then also indicate, is it the Crop Protection pricing that you’re concerned about maybe deteriorating further or are you worried about being able to get seed price mix in 2025 if the futures curves stay where they are? Thank you.

Operator:

And our next question comes from the line of Joel Jackson with BMO. Your line is open.

Chuck Magro:

Yeah. Let me give you a perspective, Joel, and then I’ll have Dave just talk about how we built the forward guide and Dave can give you some specifics. So, when we look at CP for the second quarter, our price was down approximately 5%, but our volumes were up 6%, and we really needed to see the volume growth. I think from a Corteva perspective, and I’m only going to speak about Corteva today. I think what we wanted to do is make sure that we manage the inventories going into the channel. Because look, we need to learn from what’s happened, right? And we want our recovery when we look at Corteva to be sustainable as we work through the quarters. And so we’re very comfortable. We like the path that we’re on. I think when we think about how we guided the market, it’s important to say that the midpoint came down about $100 million. Really, that was sort of first half impact, right? But we had some pretty significant weather that impacted the CP business, we lost some sprays, both in Europe and the U.S., and then there was the pricing dynamic, which we’ve already called out. So now when you think about how to think about the rest of 2024, Dave, I’ll let you kind of comment on that.

Robert King:

Thanks, Dave. Joel, we finished up about as we expected in the first half. And so as you begin, as we move into the second half, you’re going to see growth from really three areas in Crop Protection, new products, spinosad and biologicals. These will account for about 65% of our total growth for the business in the second half. And these are product areas that -- product lines that are performing better than the market and definitely better than the rest of our portfolio and historically have done so as well. And further to that confidence of what we’re seeing and our expectations, Brazil order book is very healthy and much more so than it was last year. We’re about 20% ahead of where we were last year. So, again, that gives us confidence that things are moving. And then we think when you look at our biologicals, we have 70% of our full year orders already in hand. And so once again, it gives us lots of optimism for the second half that we’ll be able to do what we’re saying we can do and that’ll roll into 2025.

Chris Parkinson:

Good afternoon. So one of your competitors put out its preliminary U.S. Seed price card fairly early. I think 10 years ago it would have been on our hard-hit to go in August and now we have somebody putting out an early July. What are your presumptions in the marketplace of why that was done in terms of your current share gains in certain row crops, presumably soy, as well as your ongoing field performance? It’s probably a little bit early to comment on the latter, but just any commentary and insight on why you think that was done would be particularly helpful. Thank you.

Operator:

And the next question comes from the line of Kevin McCarthy with Vertical. Your line is open.

Chuck Magro:

Good morning, Kevin. So let me, I’ll start and then Dave should certainly comment. So, as we’ve mentioned already, the lowering of the guide was really a lot driven by where we are after the first half, right? So weather, missed applications and then the CP pricing dynamic. The second half of the year, when we start thinking about it, what we’re looking for is CP volume growth and a similar pricing dynamic that Dave just called out. And really the determining factor for the confidence in the second half will be on two things. It’ll be on controlling the cost and the productivity controllables that we have and we feel very good about that. And then Brazil, and really it’s Brazil volume that we’re focused on. When you start thinking about the range though, the upside and the downside and the guide range, we kept it this time a little bit wider than we normally do at this time of the year, and that’s really to reflect some of the uncertainty we’re seeing in Argentina when it comes to corn stunt. And Argentine farmers right now are not looking to buy the Seed. So it is an uncertainty and there’s a lot of different estimates out there. So we feel we’re pretty nicely captured between, if you think about the guide range between $3.4 billion to $3.6 billion, we would fall into that range, I think, with what we know today, and this is evolving -- the story’s evolving, from the planted acres in Argentina. And then the assumption for the midpoint certainly captured when we’ve said this before in Brazil, to capture some of the planted acres that we lost last season. And that was really driven by weather. So we think things are looking better in Brazil, but time will tell and it’s still a little early to call victory on that as well. And then if you think about the upside of the guide range, and Dave, you should weigh in on this, that would have the global CP market starting to stabilize and more of a return to growth, which isn’t out of the question in this market environment, but we did put that as the upside for the guide range. Dave, did I miss anything?

Kevin McCarthy:

Okay.

Operator:

And your next question comes from the line of David Begleiter with Deutsche Bank. Your line is open.

Chuck Magro:

Yeah. So, look, we think that there’s a lot going on in the CP industry, David, and a lot of this that we’ll reference now, we think will run its course, and it’s on a pathway of having an improved and what I would consider to be a healthier CP market overall. So when you start thinking about all of the moving parts here, what we’re finding is that a lot of the industry players now are moving through their high-priced inventory, which is natural and it’s part of the healing process that we would consider as part of the overall industry dynamic. But what I would say is that, the fundamentals, what you have to keep sort of first and foremost, and the reason we’re not overly concerned, and we’ve said this in the prepared remarks, but it’s important to state again, on-farm demand is healthy. And in the first time in two years, I’d say what’s going into the channel is now coming out of the channel. And so this is just a much healthier overall structure that we haven’t seen in a couple of years. So you’ve got this dynamic where what’s generally going into the channel is going out of the channel, on-farm applications are healthy. Of course, farmers are being smart about their investments and their applications, they always are. But what we’re seeing is that that channel is a lot healthier. So that gives us some confidence. And then what we needed to see was the volume growth into the channel in the second quarter. That was the first sign of what I would consider to be a stable market. And so the pricing dynamic is the way we’ve described it. But as we work through this journey a little bit more and we need now to finalize this with Brazil, because we would say that from a destocking perspective, the U.S. and now I’d say Europe, they’re more or less destocked. And if you notice, we haven’t used that language too much today, because we’re feeling that the industry is finally behind that. We have to go through now the Brazil environment. But like Robert said, certainly our order book is healthier than it was this time last year and farmers are planning to apply the product in the fourth quarter. So when you put it all together, I think we are on a journey of stabilization. We feel like this is where we needed to be at this time of the year. But we do need to see how the second half actually unfolds. But that’s why we have, I think, guarded optimism is the way I would describe it.

Josh Spector:

Yeah. Hi. Good morning. Two things, if I can quickly here. First, I apologies if I missed this. But can you talk about your volume expectations in CP for the second half as you go through 3Q and 4Q? One of your peers just talked about a healthier 4Q versus 3Q. I wonder if you’re seeing that the same way. And then secondly, thinking more longer term, I guess, Chuck, particularly given your experience in the industry, I think, you guys have talked about confidence on Seed pricing. But what typically have you seen -- you talked about you’re not concerned about trade down, but what have you seen in prior cycles, particularly year one of a more pinched farmer?

Robert King:

Yeah. Thanks. Well, on the volume stem for second half in Crop Protection, I’ll let Dave talk specifically about some of the splits, but relatively balanced. Dave can reference some more numbers if needed there. But when you think of us on Q3 and Q4, we don’t have a large swing. It’s about normal is the way I would think about it. Things are moving, as Chuck talked about, more stabilized. Brazil inventories are approaching normal ranges. And a large part of our business is Latin America in the second half. Specific to volume, we’re going to be in mid-teens up on a second half basis. And again, that gives us optimism on how we see things shaping up for second half. Dave, something to add?

Tim Glenn:

Yeah. On the Seed side, we get the question a lot about the trading down and maybe I’ll think about it in a couple ways. One is, in terms of technology ladder, it is very difficult for a farmer, once they’ve had certain Seed technologies, to be able to move down the ladder, if you want to think of that. So if they’re used to planting, above ground insect control with certain herbicide-resistant traits, they kind of built their operation around that. If they’re used to being triples above and below ground with multiple modes of herbicide resistance, they kind of are built that, equipment, labor, the whole bit is around that and we’ve not seen any meaningful trade down over time. And certainly, as recently as six years or seven years ago, we were in a very difficult environment and didn’t see the trade down at that point in time. On the -- if you think about from a genetic side or trading down on brand, I think that what you have to understand is, you can say Seed is interchangeable, you can get different trade packages or comparable trade packages from different companies, but one thing about Seed is it is a very emotional decision. And for that farmer, it’s not just confidence that the genetics are going to perform and deliver a certain level of yield that’s consistent with their expectations, but it’s also the ability to be able to handle adversity, consistency over time, and plus the support and service they get from their point of sale. And so, in a situation like this, our value proposition has to make sense and we’re quite confident, that what we’re delivering to those customers will be, make sense to them, will be additive to their operation. And then the other point is, at times like this, especially when margins are compressed at the farm operation level, that last bushel is maybe all the profit that they make, if you want to think of it that way or put them in a positive cash flow situation. And so, they see Seed differently than other decisions that they make over the course of their Seed operation. So, never take it for granted, always stay close to the customer and help them understand our value proposition. But history has shown that Seed holds in well.

Operator:

And your next question comes from the line of Frank Mitsch with Fermium Research. Your line is open.

Chuck Magro:

Yeah, Frank. So I think we’re approaching, I don’t want to give you a quarter because, look, this whole dynamic that we’ve all faced with the destocking is almost unprecedented. And if I provide a quarter, I’m definitely sure I’ll be wrong. But we’re looking at the trend lines and we’re very encouraged at where we’re at. First and foremost, like we said a couple times already today, we did need to see the volume grow and we saw that. And we needed to see the volumes entering the channel and leaving the channel at about the same rate. And thank goodness, on-farm demand has been healthy. I think many of us are now moving the high-priced inventory through the P&L and into the marketplace, which is another important step. And our inventories, Dave, they’re still a little higher than we’d like, but they are a lot better than they have been over the last couple of years. So, when you put all this together, I think we’re on a path of recovery or what we call stabilization. And I probably need to leave the conversation there, because it’s probably not healthy for me to forecast what will happen, except to say that, again, two years of organic decline has happened in the industry, but it is unusual. Three years is even more unusual.

Steve Byrne:

Sorry about that. There’s a fair amount of uncertainty out there about whether dicamba will be available in 2025 or at least by early 2025. And I’d like to hear your view on, like, how would you rank the benefits to your business profitability-wise from that risk driving more independent Seed companies to license your Enlist germplasm and corn and soy, which you mentioned is gaining some momentum, Chuck. Is that a bigger benefit to you from such an uncertain outlook for dicamba versus increased shift to your own proprietary brand, your own Pioneer brand in Enlist corn and soy? How would you rank those?

Chuck Magro:

Yeah. I won’t say much more than that on the dicamba. I think Tim covered it well, but if you just look at the strategy that we’ve implemented just a few years ago to be a technology seller instead of a technology buyer, we’re very pleased with that. And you can start to see some of that path to royalty neutrality that hit our bottomline, right? Like over 400 basis points of margin expansion in Seed. This doesn’t happen overnight. This has been a long investment cycle. But if you think about how our soybeans and our corn is performing and we do have the latest in the next-gen technology in the pipeline, as Tim already called out, with Vorceed and PowerCore, and then Enlist E-Series now adding to the mix and becoming more important. And this year we’re over 200 new hybrids and varieties in the marketplace. Next year we’ll be at a similar number. We think that the strength of our Seed business will continue to gain momentum. And then when you think about some of the lower costs and the deflation, as we called it, flowing through the P&L, we just like the path that Seed is on. I think the first half this year was a record, but I think that this business is just getting started. So we’re extremely pleased with the performance of our Seed business right now.

Jeff Zekauskas:

Thanks very much. In your corn product line in the U.S., did doubles grow faster than triples? And you said that your corn royalties were up 40%. Is that a $20 million benefit or $10 million or $30 million? Can you size that?

Dave Anderson:

Yeah. So the total -- Jeff, good morning. So the total royalty income referencing the 40%. So that’s not just corn. That’s our total, as Tim said. And what that equates to for us is that about $35 million increase. Hope that helps.

Kristen Owen:

Great. Thank you so much. I wanted to ask about the moving pieces on the free cash flow guidance, since that was held stable, but you did lower the net income outlook. So, if you could just update us with your thoughts on working capital. And while I understand it’s probably too early to say on 2025, just given that the operations puts and takes that you’ve defined already, just help us understand how much of the working capital benefit is being captured 2024 versus 2025? Thank you.

Operator:

And the next question comes from the line of Edlain Rodriguez of Mizuho. Your line is open.

Chuck Magro:

Yeah. Good morning, Edlain. So, look, I think that the dynamic that we’re seeing right now on the farm, you can see the macro agricultural economy margins are tighter than they have been the last couple of years. But farmers are still at least the ones that I’ve spent some time this summer traveling through the Midwest and talking to lots of farmers. Tim and I were talking to a host of Pioneer reps as well this week. What we’re finding is we’ve already talked about the dynamic with Seed. I think with CP, we’re not seeing on any broad basis farmers making decisions based purely on economics. So if a crop needs to be protected in some fashion, they are protecting the crop. But look, given the margins that we have now on the farm, they’re going to make sure that every dollar they spend has the right return on investment. And let’s be clear, right, when they’re investing in Seed or CP, that is a return on investment. What we’re finding though is that, there is a -- if sometimes a farmer will use more of a commodity type product, they have to use that product oftentimes more often because it doesn’t have the same efficacy as some of the newer technologies. So they might buy it for a lower price, but they’re going to use more volume and I think that that is certainly what we’ve seen in some parts of the marketplace. But generally speaking, I think farmers are doing what we would expect them to do in this market. They are prioritizing their investments. They’re ensuring that they’re going to maximize yield because the yield is going to be what they’re going to take and sell into the marketplace and make their returns. So I think that we’re in a market where technology is still going to be important, but we definitely need to ensure that we’re providing farmers with a proper return on investment. And when we look at our CP portfolio, we think that certainly there is a lot that we can do to support farmers in those decisions.

Kim Booth:

Okay. So that concludes today’s call. We thank you for joining and for your interest in Corteva. We hope you have a safe and wonderful day.

Charles Magro:

Thanks, Kim. Good morning, everyone, and thanks for joining us today. We continue to be very pleased with the progress we're making executing our strategic plan including items such as the Enlist technology, biologicals, increased investment in strategic innovation and our productivity and cost actions. Today's focus will be on our first quarter performance, and also some insights into how we see the rest of the first half and year unfold. Let me start with the bottom line. While the crop is not yet fully planted in North America, 2024 is playing out mostly as we expected. And so we are reaffirming our full year guidance, which we announced in early February and remain on track to meet our 2025 financial framework.

Operator:

[Operator Instructions] Your first question comes from the line of Vincent Andrews from Morgan Stanley.

Charles Magro:

So let me start. I'll give you the backdrop and then Dave can help you with the bridging. So first of all, let me say that we're still feeling good about the ag economy. We've got record demand. On-farm demand looks very steady and healthy and generally speaking, and this is a broad statement, farmers are still making money. We're -- they're off their peaks, of course. But this is a pretty healthy macroeconomic environment for them to be operating in.

Operator:

Your next question comes from the line of David Begleiter from Deutsche Bank.

David Anderson:

I'll turn that over to Tim.

Operator:

Your next question comes from the line of Joel Jackson from BMO Capital Markets.

Charles Magro:

Let me give you the overall context from a Seed strategy and then Tim can answer the question on sort of the current dynamics and what we're finding from an order book perspective. So we said it already a couple of times today. I think we're very pleased with the Seed performance and we are expecting growth again in '24 in margin expansion. And it's really coming down, I think, for us. We have shifted our strategy, and it's been a long investment over some time. But when you're launching 300 new seed hybrid and varieties almost every year, and we're able to price for that value that farmers are seeing in terms of productivity and yield and disease resistance, insect resistance, I think that's the best of all worlds for all the players here. So our strategy, simply put, we've moved away from being sort of a net technology purchaser to a net technology seller.

Timothy Glenn:

Yes. I mean, it's certainly one of the things that we've been looking at closely for the last several months as the questions around what the future of dicamba label looks like. So again, just to reiterate this year, I'd say that the decision had a very minimal impact on what was planted this year. So in terms of the commercial crop that farmers are planting, by and large, when the decision was made on the dicamba label seed was purchased, it was probably paid for. And I think the market felt like that there was an adequate supply of dicamba in the channel for those who want to spray.

Operator:

Your next question comes from the line of Kevin McCarthy of Vertical Research.

Timothy Glenn:

Kevin, this is Tim. Let me talk -- let me address it from the seed standpoint first. Obviously, this is an emerging issue and it's I'd say it's rapidly escalated as we've gotten later into the growing season. And it's impacted -- clearly impacted farmers' yields. And I think that's what's being reported today. And we're still in the middle of harvest, so I can't speculate on what the impact is on the grain harvest. I won't even try to go there. Our -- we do have experience with corn stunt. It's the same issue we've dealt with in Brazil for the last several years. I just -- I'd say we know that there's always been presence of leafhoppers in Argentina, so it's never materialized where it became a commercial issue.

Operator:

Your next question comes from the line of Frank Mitsch from Fermium Research.

David Anderson:

Sure. Yes. So regarding the first part of your question, in terms of the royalties, those are really weighted to the first half due to North America. So -- and we're on track, Frank, as you said. And I think we stated in our remarks to the $100 million target, which is, by the way, a royalty benefit. So it's an expense reduction as well as income -- royalty income increase on a year-over-year basis.

Operator:

Your next question comes from the line of Steve Byrne of Bank of America Securities.

Charles Magro:

Okay. So look, I'll have Tim talk first maybe about our strategy on how we price for value. And then we can talk a little bit about what we're seeing in each of the regions, Tim. Go ahead.

Operator:

Your next question comes from the line of Chris Parkinson of Wolfe Research.

David Anderson:

So maybe I could, Chris, just give you some -- this is Dave, give you some perspective on that. I think, first of all, when you look at our prior guide to this guide, we do have some increase in cost on a year-over-year basis, and that's associated with the Seed business and the assumptions around the second half and particularly safrinha volume, which the anticipation is that we're going to see, call it, recovery -- market recovery there in terms of that volume. And we've got some higher cost inventory that's going to flow through in terms of cost of goods sold. And that's part of just carrying some historic higher production costs, but also it's a transition from older technology to newer technology for that market, which really will set up very, very well for improved costs in the Seed business in that market in 2025 for the '25-'26 season.

Operator:

Your next question comes from the line of Adam Samuelson of Goldman Sachs.

Charles Magro:

Adam, let me give you the overall backdrop. And then I think Robert can give you sort of the specifics to your questions. What we'd say is that there is a lot of competitive tension right now, and it's not one thing. I think it's still the industry working through the global destocking that we've seen. And the good news is there are some green shoots. The U.S. seems to be behind it. We've called out though that the market is going back to sort of just-in-time closer to the application window. So there's some timing and seasonality there. Europe is going through the destocking now, and it's been through the -- in terms of the first quarter. And then they've had some difficult weather that we've already talked about this morning and even some missed applications. But I think they're trending in the right direction.

Robert King:

Thanks, Chuck. Price competition, as Chuck talked about, is pretty stiff. But our price for value continues to be pulled through by the industry and creates value on the farm. When you think about our new products and Spinosyns combined and the performance rate there, they continue to perform better than the portfolio and better than the industry. And this first quarter was no different. These things aren't immune to impacts of the environment of marketing -- market environment, et cetera. But then on the specific to Enlist, it continues to have a strong pull, very strong demand. We expect spray rates to be still in that 80% range as we've seen in the past. And we do expect that we'll see continued volume growth this year over last year with this technology. Thank you.

Ryan Weis:

You've got Ryan on for Aleksey here. Just wanted to dig in a little bit on the generics in Brazil. I know in 3Q, you kind of saw an influx of imports, which you then called out a little bit of a slowdown in 4Q. Just trying to understand how that progressed throughout 1Q and what you're kind of seeing today?

Rahi Parikh:

This is Rahi filling in for Ben. So I just wanted to look more into trade down within the space. So when farmers have tighter wallets like today, do you see data on farmers shying away from biologicals and mainly just buying CP that they fundamentally need. I believe this plays into seeds when farmers choose GMCs but those that have fewer GM traits. Maybe there's also a geographic difference, if there's any regions that trade down quicker than others? Just any color on that.

Robert King:

Yes. Biologicals is -- they're a core part of the crop plan and the customers we serve. And so we've seen those while not immune to everything that's going on, they've held up, as Chuck said, very, very well. And when you think about the acquisitions we made and the benefit in '23, we were just under $500 million sales this last year, and we expect this to grow in the mid-20s this year and we'll double the contribution to the business. And this is all a testament to the strength of the portfolio and the people that are showing the value to the farmers as we get into this season.

Arun Viswanathan:

I guess, you guys didn't include the '25 slide. So I just wanted to maybe get your thoughts on if there's -- if anything there has changed. I think you've highlighted maybe $100 million from royalty improvement as well as -- or sorry, biologicals contribution, $200 million from your productivity actions. So that would leave maybe $300 million to the midpoint for low single-digit seed pricing and some of the other dynamics on the Crop Protection side. So would you just maybe offer your thoughts on if all of those drivers are still intact?

Operator:

That concludes our Q&A session. I will now turn the conference back over to David Anderson for closing remarks. Please go ahead.

Operator:

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Kim Booth:

Good morning and welcome to Corteva's fourth quarter and full year 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, 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.

Dave Anderson:

Thanks, Chuck, and welcome, everyone, to the call. Let's start on slide 6, which provides the financial results for the quarter and full year. You can see from the numbers that both for the fourth quarter and the full year, we continued to deliver operating EBITDA growth and margin expansion. Quickly touching on the quarter, sales and earnings were largely in line with our expectations. Organic sales were down 8% compared to prior year with Seed pricing gains offset by volume declines in both Seed and Crop Protection. Seed volume gains in North America and Europe were offset by volume declines in Latin America and Asia Pacific. In Crop Protection, as expected, we saw continued inventory destocking in both Latin America and Europe. Importantly, we did see volume gains in North America as destocking in the region seems to be largely behind us. Turning to the full year, organic sales down 3% versus last year with pricing gains offset by lower volume. This includes a 4% impact from product exits. Total company pricing was up 7% with double-digit Seed pricing and price gains in all regions. Despite the reduction in top line growth, strong operational performance translated into operating EBITDA of nearly $3.4 billion for the year, an increase of 5% over prior year and margin expansion of 116 basis points. And finally, free cash flow for the year 2023 was approximately $1.2 billion or 35% conversion rate on EBITDA. The improvement in free cash flow from last year was driven by increased earnings and working capital improvement, primarily inventory and accounts receivable with a partial offset from accounts payable. Let's now go to slide 7 to review sales by segment. Seed net sales were up 5% to nearly $9.5 billion. Organic sales were up 7% on strong price execution as we continue to price for value. Global seed pricing was up 13% with gains in every region and across the portfolio. Seed volumes were down 6% versus last year. Gains in North America, driven by increased corn acres were offset by declines in Latin America due to lower expected corn planted area and delayed planting in Europe driven by the exit from Russia and lower corn planted area. The exit from Russia represented a 2% volume headwind for the Seed business. Crop Protection net sales were down 9% compared to last year to approximately $7.8 billion. Organic sales were down 12% with pricing gains more than offset by volume. Crop Protection pricing was up 2% and driven by demand for new products. Crop Protection volumes were down 14% for the year, impacted by channel destocking and Brazil market dynamics as well as more than $400 million headwind or 5% impact from exits. Finally, the Biologicals acquisitions added approximately $400 million of revenue, which is reflected in Portfolio and Other. With that, let's go to slide 8 for a summary of full year operating EBITDA performance. For the year, operating EBITDA increased approximately $160 million to about $3.4 billion. Pricing gains, coupled with improvement in net royalties, productivity and cost actions more than offset declines in volume and higher cost and currency headwinds. The approximately $380 million of cost headwinds was related to seed commodity costs and unfavorable yield impact as well as crop protection inflation on input costs. Crop Protection raw materials costs were up 2% versus prior year. Importantly, we're starting to see the impact of lower input costs. During the second half of the year, Crop Protection raw material cost trends in to low single-digit deflation. Market-driven and other costs were mitigated by approximately $200 million of improvement in Seed net royalty expense and $285 million of productivity savings. SG&A spend for the full year was roughly flat versus prior year, including $130 million in SG&A from the Biologicals acquisitions. If you exclude the acquisitions, SG&A was down nearly 5% versus prior year as we maintain disciplined spending, coupled with lower incentive comp accruals despite year-over-year inflation. Let's now transition to a discussion on the guidance for 2024 on slide number 9. We expect net sales to be in the range of $17.4 billion and $17.7 billion, representing 2% growth at the midpoint, driven by seed pricing and volume growth in both Seed and Crop Protection on demand for new and differentiated technology. Volume growth will be muted by approximately $100 million of product exits in 2024. Operating EBITDA is expected to be in the range of $3.5 billion and $3.7 billion or more than 6% improvement over prior year at the midpoint. Margin is also expected to improve with price and product mix, cost deflation and productivity actions translating to 90 basis points at the midpoint. Operating EPS is expected to be in the range of $2.70 and $2.90 per share, an increase of 4% at the midpoint, which reflects earnings growth and lower average share count, partially offset by higher net interest expense and a higher effective tax rate. We expect free cash flow to be in the range of $1.5 billion and $2 billion, with higher earnings and working capital improvements, partially offset by higher net interest and cash taxes. At the midpoint, it translates to a free cash flow to EBITDA conversion rate of roughly 50%. Note that the free cash flow was revised to utilize cash from operations on a continuing basis. Turning to Slide 10, you can see the operating EBITDA bridge for 2024 from approximately $3.4 billion in 2023 to $3.6 billion at the midpoint for 2024. Total company pricing in 2024 is expected to be flat to modestly up with low single-digit pricing in Seed to be offset by declines in Crop Protection pricing given ongoing destocking, particularly in Brazil and global market dynamics. Importantly, we do expect volume gains in both Seed and Crop Protection. Seed volume gains are driven by expected increased US soybean acres in planted area in Brazil, safrinha for the 2024/2025 season. In Crop Protection, we expect mid-single-digit volume growth in 2024, led by Latin America and driven by global demand for new and differentiated products. New crop protection product volume is expected to be up high single-digits, driving incremental organic revenue. Additionally, we'll benefit from Spinosyns' capacity expansion as we expect high single-digit growth from the Spinosyns franchise. 2024 will be another significant step in our path to royalty neutrality with $100 million improvement in net royalty expense, with increased benefits in both out-licensing income and royalty expense driven by Enlist E3 penetration. And after two years of high levels of input cost inflation, we expect to see low single-digit deflation in Crop Protection raw material costs. Productivity and cost actions in both Seed and Crop Protection combined with input cost deflation, are expected to add approximately $300 million of benefits. We expect an increase in SG&A spend in 2024, driven by normalized bad debt and compensation accruals. We'll also continue to invest in the future with increased investment in R&D, which is expected to now be approximately 8% of sales. And finally, the Biologicals franchise is expected to add approximately $90 million of operating EBITDA with improved margins in 2024. Regarding the timing of sales and earnings in 2024, we're expecting over 60% of sales and roughly 80% of EBITDA to be delivered in the first half of the year. We also expect to see a timing difference between the first two quarters versus prior year due primarily to the strength of Crop Protection in the first quarter of 2023. You'll recall that Crop Protection's first quarter 2023 was prior to the significant impact of channel inventory destocking. For Seed, we're assuming a normal delivery pattern in the Northern Hemisphere, which could shift significantly between first and second quarter depending on weather conditions. With 2024 guidance in mind, let's go to Slide 11 to review the key drivers of earnings growth in 2024 and 2025. And as Chuck said, we've adjusted the 2025 financial framework based on our actual results for 2023 and the expectation for continued earnings growth and margin expansion in both 2024 and 2025. Now, in 2023, we delivered an incremental $800 million in EBITDA versus 2021. Given the market dynamics in 2023, this was no small feat and clearly differentiates us from our peers. We have a plan to generate an approximate $800 million of additional EBITDA growth by 2025, which translates to low double-digit compound annual growth rate between 2023 and 2025. A number of the drivers of our anticipated performance of about $4.2 billion of EBITDA and 22% margin in 2025 are within our control. We've demonstrated our price for value strategy in Seed and we expect this strategy to continue. Our royalty neutrality strategy delivered more than $200 million in benefits in 2023 alone and is going to add another $100 million per year in both 2024 and 2025. What's even more exciting is that we're starting to see benefits from our out-licensing business as we migrate a greater portion of our portfolio to our own proprietary technology and we expect that to meaningfully grow in the next decade. The rebalance in the Crop Protection industry will take some time. We expect it to be achieved by 2025, but underlying demand and applications at the farm gate remains solid. The differentiated portions of our Crop Protection portfolio, including our new products, together with its Spinosyns franchise and our Biologicals franchise, will continue to outpace market growth in 2024. The differentiation will also protect our business from the most severe elements of pricing competition, which are largely in the non-differentiated portions of the industry. Now, we delivered more than $315 million of combined productivity and cost actions in 2023 across the business. And our plan is to deliver another $200 million per year in both 2024 and 2025, and this does not include an additional improved net royalty or the deflation benefit that we anticipate will grow into 2025. Importantly, we'll also continue to invest more in R&D and our future innovation. With that, let's go to Slide 12 and transition to the setup for 2025 and the assumptions included in the base case as well as what could drive EBITDA to the low and high end of the range. Now, in both 2024 and 2025, we expect low single-digit Seed pricing, driven by demand for yield advantage technology. One of the biggest variables in our assumptions is how much growth we'll see in the Crop Protection business, given the current market imbalance. While on-farm demand remains relatively consistent, we're not assuming a significant rebound in the market. New and differentiated products, including Biologicals, would drive much of the Crop Protection growth in 2024 and 2025, as we move towards differentiation in two-thirds of the Crop Protection portfolio. In 2024, we expect to see modest input cost inflation in Crop Protection with Seed costs relatively flat. By 2025, we expect to see more benefit from cost deflation in both Seed and Crop Protection. Our assumptions include increased SG&A due to normalization of bad debt and compensation accruals as well as increased investment in R&D, as we reach our target of 8% of sales. Together, we have a balanced set of assumptions, which gives us confidence in our ability to grow earnings and margins out to 2025 and beyond in both Seed and Crop Protection. So with that, let's go to Slide 13 and summarize the key takeaways. First, full year operating EBITDA performance for 2023 was in line with expectations, led by the strength of the Seed business and we're able to grow EBITDA by 5%. Self-help levers helped improve operating margin by roughly 115 basis points. And importantly, this is going to continue into 2024 and into 2025. The bottom line is that our guidance for this year and the setup for next year 2025 that we shared with you today reflects continued earnings and margin growth, much of which is in our control. And finally, the significant financial strength and balance sheet flexibility give us confidence in our ability to continue to grow and supports our track record of returning cash to shareholders. And with that, let me turn it back over to Kim.

Operator:

[Operator Instructions] And we'll go first to Vincent Andrews from Morgan Stanley.

Chuck Magro:

Yes. Good morning, Vincent, it's Chuck. What I'll do is I'll give you the overview and then Robert can talk about some of the specifics in the market, and we'll try to do this as quickly as we can. Look, if you think about the overall situation, last year was a pretty tough year in global CP. Where we think we are this year is that the CP market, what I'd say broadly speaking, they're still imbalanced but only in a few regions. So Brazil is still a market where we have ample supply. And there are pockets, I would say, in Europe. But the US, the destocking is largely behind us now. And the market is functioning quite normally and I'd say, is healthy. When you look at it globally, the situation that we see for 2024 is that the overall global industry most likely will be down low single digits. And that is, as you rightly called out, it's really a function of price. Volumes seem to be stable and growing, and we expect that in 2024 and then our early look -- so then if you think about this, the first half, I think, is going to be fairly tough in CP. Things should normalize and stabilize in the second half of the year, and this is a broad statement globally. And then as we look to 2025, we believe that 2025 will look more like the historical CP industry. So low single-digit, return to normal growth is how we're sizing up 2025. And then that growth will be off of a new lower base. So that's the setup for 2024 and a first look at 2025. Robert, do you want to just talk specifically around markets?

Operator:

I'll go next to David Begleiter from Deutsche Bank.

Chuck Magro:

Yeah. Good morning, David, and Dave can give me some perspective as well here. But if you start thinking about the situation, just the way we've looked at the market, the Seed market remains very healthy, and we've talked about sort of on-farm demand for top technical and Seed, but also for CP being very stable and very steady. So that is the backdrop, and then when you consider the fact that you've got the CP industry and if you take the comments we've just made, where we still have some destocking in 2024, that's going to impact our business. And that's reflective in how we've set up the guide and then where we believe we can hit in 2025 is really the impact of having that global CP market stabilize and then start to go again in 2025. And then there's this large bucket of sort of value creation, which is, we call it, controlling our controllables, it's self-help, it's cost, it's productivity, it's the royalties that we've seen improvement in expenses in our out-licensing royalty growing. If you think about that, in 2023, that number was approaching -- well, it was over $500 million. And we're going to see now going forward in 2024 and again, in 2025, somewhere between $350 million and $450 million of sort of self-help controllables, and that has some deflation. But that's really -- one of the big issues here is we're starting to see deflation move through our P&L, primarily now in CP. And because of how we manage risk management and hedging in our Seed business, there's going to be even more benefit as we get into 2025. So to your specific question, some of it has to do with just the rate and the timing of seeing some of the deflation come through the P&L. And then there are some accounting normalizations, Dave, that you should hit.

Chuck Magro:

Yeah. And maybe one last point here, David. If you think about the last two years, Corteva actually grew by about $800 million of EBITDA. That's the same plan for 2024 and 2025, a little less in 2024, more in 2025, but we saw that in 2022 and then a little less in 2023. So it should give -- at least when we look at it, it gives us some comfort that this path that we're on to 2025 with the adjustments we've made, and by the way, we did not adjust the margin. We're feeling very comfortable about that. We feel we are on the right path here.

Joel Jackson:

Hi. Good morning, everyone. I want to go back to slide 10, which is the 2023 operating EBITDA bridge. So looking at the bridge, looking at the drivers, the tax over hand side, the cost component we're talking a lot about controllables and costs but actually, your bridge is showing that net-net costs are not driving any of your growth and even earnings in 2010. So you've got all these cost benefits, cost programs, lower seed royalties paying out to also have I -- guess, higher cost in SG&A and R&D. Can you explain that a bit and trying to put this all together why net-net high level, you're showing cost is not driving growth, but as far as your talking points on the right-hand side?

Operator:

Thank you. We'll go next to Kevin McCarthy from Vertical Research Partners.

Dave Anderson:

Kevin, sure. So in Crop Protection, as we indicated, the anticipated benefit we're going to see on the direct material side. In terms of looking at really, call it, the addressable spend and the opportunity for improvement and what we're experiencing in the second half of this year. So that low single digits, I think is an appropriate kind of range to be thinking about for 2024. On the Seed side, as you know, what you have is you have a delay when you look at spot or commodity costs in the market versus what shows up in the P&L. It's associated with as Chuck said, and as you know, the commodity hedging strategy that we utilize. So for 2024, very important percentage of those costs in terms of that commodity cost is actually related to grower compensation and procurement activity that occurs in 2022 and 2023. The other part of it is the FIFO accounting, which also influences the numbers on the Seed side. There's a lot of other variables besides commodity costs. But as Chuck said, we don't anticipate -- aren't currently planned, haven't baked into our guidance, a meaningful change in terms of year-over-year cost of goods sold for the Seed business.

Q – Frank Mitsch:

Thanks so much. I want to focus in on Latin America. Obviously, you had weather impacts, which you had kind of foreshadowed in the last conference call. I'm curious as to what you thought that might overall impact have been? And then just staying with that region, obviously, you're expecting destocking to continue into the early part of the year, but you also referenced market dynamics in CPC which I assume I was referring to generic competition. I'm wondering what -- if you could provide an update on what you're seeing there in terms of the generic impact in Brazil in particular? Thank you.

Tim Glenn:

Yes. Thanks, Chuck, and good morning, Frank. So yes, I mean, you go back to kind of the backdrop heading into the season, we saw a pretty significant rapid decline in the commodity prices that was a result of the big yields and the resulting high carryover stocks from the last safrinha season. And then when you couple that with the, I would describe as highly variable weather conditions that really delayed the start of the soy planting season in the key markets across the marketplace in Brazil. And in some cases, that was drought or lack of moisture early on or in some places, it was excessive moisture as you went further into the South. And what it ended up doing was pushing a significant share of the soy into later planning window that really impacts the ability of the farmer to follow up with a corn crop that falls into an ideal planting window. So as you said, we talked about that in November, and we were sort of at that call it at that critical point when we needed to get that crop planted. And my best guess is somewhere around 20%, 25% of the corn -- or excuse me, of the soybeans were planted in a window that was not ideal for following up with corn. And I'm not going to try to peg how much corn won't be planted at this point in time. I spent a lot of time in the marketplace over the last three months, traveling across the major safrinha growing areas, discussions with customers and channel partners and certainly, a lot of feedback from our frontline commercial team there. But as we sit here today, we believe it will be somewhere, call it, a double-digit reduction in terms of the area that's planted to corn for both the safrinha and the summer season that has already been planted. That being said, farmers are still planting corn hectares where the timing works out. And last week, I was in Brazil, and I saw it firsthand where they were harvesting beans and coming right in with corn. So, the momentum is still there for corn and a lot of support even with the reduced commodity price. And our expectation is, as Chuck just said, that we're going to see something more back to a typical level of corn planting as we go into next year, where I think of something on the order of the safrinha hectares for 2022 and 2023 being a reasonable target for the 2024-2025 crop that will be important in the second half of next year. Corn remains a profitable crop. Demand for rain in Brazil is still growing. And so that's very important. And the other thing that we've seen is that there's a real strong agronomic reason to plant corn and the soy that is being harvested right now that followed corn from last year is performing better than those that were not on rotated acres from corn. So, we're still very optimistic and the fundamentals remain strong, but it is a really challenging safrinha season in Brazil. So, I'll pass it over to Robert for CP.

Operator:

We'll go next to Steve Byrne from Bank of America.

Tim Glenn:

All right, Steve. Hey, good morning. I'll take a shot at all those. It's -- we're going little bit of time on North America Seed here. So I'd say where we're at right now, you touched on it. I mean, we've been live in the market since August 1st, and we spend that August-December window, working closely with customers, building proposals and securing commitments, and we feel very good about where our order book sits today. And I'd say pattern -- order pattern in terms of timing was consistent with past experiences and our expectations, and we're not seeing any change in terms of the mix of technology. And so that feels like a good spot rate there. In terms of the question on pricing, it's always a competitive marketplace. And I'd say this year, I'd say soybeans are probably a little bit more competitive than maybe on the corn side and a lot of hooks battling for the spots there. But as we sit here today, and we're roughly 70 days out from the planting window opening in the heart of the corn belt. Our prices are holding and we feel good about where we sit there. Customers understand the value proposition, and our team is focused on staying close and executing our plan. And so you never know what's going to happen, as I said, 70 days until the season really breaks here. But I think we're in a positive spot in terms of, call it, the stability around price. When you get into E3, I'd say where we sit today, order position is tracking as expected and our best estimate in terms of the market right now is about 60%. We see the soy market at about 60% converted to E3 this year. And again, remember, we don't have full visibility to our licensees and there's over 100 other companies that are selling Enlist E3 soybeans. And so we don't have perfect visibility there, but I think that 60% level is confident. So no surprises and things are tracking as expected. In terms of that royalty bucket, I'd say this year, and I don't know if I can split it into four, I probably won't try to. But the majority of the benefit that we're getting this year would be from reduced payment of royalties, primarily in soybeans. So that's the -- think of that as the primary bucket. I think as maybe Chuck had said earlier in his comments, we're going to see that transition, especially beginning in 2025 and beyond where royalties and the benefit from royalties will be greater than what the benefit is from reduction of royalties paid. So a pretty significant -- that will be a significant milestone as we transition there. So I think I touched on all your points there.

Adam Samuelson:

Yes. Thank you. Good morning, everyone. I was hoping to maybe just get a little bit more color on the free cash flow outlook, both the out performance in the fourth quarter as well as kind of the cadence in 2024. How do we think about the normalization in crop protection production, which will -- should your payables balance increase? How -- just how is that working capital kind of inflection maybe work through the year and any differences you would call out in working capital trends between Seed and Crop Protection because, obviously, there's very divergent trends happening in those two businesses?

Operator:

Thank you. We'll go next to Aleksey Yefremov form KeyBanc Capital Markets.

Chuck Magro:

Yes. So I think Robert covered some of this already. Good morning. I'd say, look, what we saw in the third quarter was elevated imports from broadly speaking, from generics entering Latin America. What we've seen since then as we work our way through the fourth quarter and then so far in 2024, is that, generally speaking, imports into Latin America are down and they're trending -- they're slowing down, they're trending down, and that includes generics. So I think we commented that what we're seeing at a price level is that we didn't expect that what we saw at, I'll call it, the peak was sustainable. And that's exactly what we think is happening here is there is a rebalancing happening, I think there's kind of a view of that you need to be profitable when you're moving these products around the world and into these regions. And so that's exactly what we saw is a slowdown. But I will counsel -- generics a part of this market. They're not going away. They serve a role, but it's not the primary area. In fact, we've made portfolio decisions to move almost our entire portfolio away from these product lines, because we feel that where we want to add value is differentiated technology service with strong agronomic support, because I think that's what farmers need and they're willing to pay for that. But to answer your direct question, yes, we've seen a slowdown in imports into Brazil, including generics.

Josh Spector :

Yes. Hi. Thanks for taking my question. Just a quick one, if I could ask on, you didn't talk about a shift from corn to soy as being a negative in your EBITDA bridge. Just given where you're at from a profitability in soy and a higher and less share, is that a meaningful factor as you look at acres shifting between corn and soy or is that more neutral? What's the sensitivity we should be looking at? Thanks.

Operator:

Thank you. And I'll turn it back over to Kim for any additional or closing remarks.

Operator:

And that does conclude today's conference. Thank you for your participation. You may now disconnect.

Kim Booth:

Good morning and welcome to Corteva's third quarter 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, 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.

Dave Anderson:

Thanks Chuck and welcome everyone, to the call. Let's start on Slide number 6, which provides the financial results for the quarter and the year-to-date. You can see from the numbers that we continue to deliver operating EBITDA growth and margin expansion despite the mixed market conditions that Chuck outlined. Briefly touching on the quarter. Sales and earnings were largely in line with our expectations. Organic sales were down 13% compared to prior year, with seed pricing gains offset by volume declines in both Seed and Crop Protection. Lower seed volumes were driven by lower expected planted area and delayed farmer purchases in Brazil and an earlier operational finish to the season in North America. Crop Protection volumes were impacted by approximately 95 million in product exits. In addition, we saw inventory destocking in both North America and Latin America and delayed farmer purchases, particularly in Brazil. Turning to year-to-date, sales were down 1% versus prior year, with broad-based pricing gains offset by lower volume. Global pricing was up 9%, with gains in all regions and increases in both Seed and Crop Protection. Feed volume was down 5% versus prior year, largely driven by the decision to exit Russia. Crop Protection volume was down 16%, which includes a 5% impact from product exits. Put in perspective, total exits year-to-date represent a $530 million impact to volume. Now, despite the reduction in the topline growth, strong operational performance translated into operating EBITDA of nearly $3 billion year-to-date, an increase of 5% over 2022. Pricing, favorable product mix, and productivity more than offset higher costs in volume and currency headwinds, driving more than 120 basis points of margin expansion for year-to-date. So, let's now go to Slide 7. You can see the gains in the Seed business were offset by Crop Protection market headwinds year-to-date where total company organic sales declined 1% compared to prior year, which again includes a 4% headwind to volume from the exits. Seed net sales were up 7% through the third quarter to more than $7.8 billion. Organic sales were up 9% on strong price execution as we continue to price for value and offset higher input costs. Global seed price was up 14% year-to-date with gains in every region, led by North America and EMEA. Seed volumes were down 5% versus prior year. Gains in North America, driven by increased corn acres were offset by declines in EMEA driven by the exit from Russia as well as lower corn planted area. In Latin America, due to expected corn planted area and delayed planning, the exit from Russia represented a 3% headwind for the Seed segment. Crop Protection net sales were down 10% versus prior year to approximately $5.7 billion. Organic sales were down 12% with pricing gains, more than offset by lower volume. Global crop protection pricing was up 4% year-to-date as the high single-digit pricing gains from the first half of the year moderate due to increased competitive pressures. Crop Protection volumes were down 16% through the third quarter, impacted by channel destocking, a shift in timing of seasonal demand delaying farmer purchases in Latin America as well as more than $330 million headwind or 5% impact from exits. Currency headwind for the total company was 2%, largely driven by European currencies. And finally, the Biologicals acquisitions added more than $280 million of revenue, which is reflected in portfolio and other. With that, let's go to Slide 8 for a summary of the year-to-date operating EBITDA performance. During the first three quarters, operating EBITDA increased approximately $140 million to just under $3 billion. Year-to-date, we delivered more than $1 billion in pricing and product mix improvement. Pricing gains, coupled with improvement in net royalties, productivity and cost actions more than offset declines in volume and higher cost and currency headwinds. Roughly $460 million of net cost headwind was related to seed commodity costs and unfavorable yield impact as well as Crop Protection inflation on input costs. Crop Protection raw material costs were up 5% versus prior year as we sold through higher cost inventory. Market-driven and other costs were mitigated by approximately $190 million of improvement in net royalty expense and $240 million of productivity savings. SG&A spend year-to-date is up less than 1% versus prior year, including nearly $90 million in SG&A from the Biologicals acquisitions. Excluding acquisitions, SG&A is down versus prior year by 3% as we maintain disciplined spending despite year-over-year inflation. Currency was a $228 million headwind driven largely by European currencies. Now as Chuck noted, we're taking several large steps to optimize the Crop Protection manufacturing footprint. You can see more details on Slide 9. Although this analysis has been in process for some time, given the current global macroeconomic backdrop in the crop protection industry, we're taking the opportunity to accelerate these actions. We expect to record pretax restructuring and asset-related charges of $410 million to $460 million through the end of 2024, including $320 million to $340 million of noncash asset related and impairment charges. Cash payments related to these actions are anticipated to be $90 million to $120 million, primarily related to the payment of severance and related benefits and contract terminations. And we're estimating annual run rate EBITDA improvement of approximately $100 million by 2025, which translates to a payback of a little more than two years. Of course, we'll keep you posted on the progress of this plan as we deliver a reliable and flexible cost competitive supply network. Turning now to Slide 10. I want to take you through the full year guidance. We now expect net sales for the year to be in the range of $17 billion and $17.3 billion or down 2% at the midpoint, including a 3% impact from portfolio exits. This change from our August guide is driven by lower volume and pricing expectations in Brazil Seeds and Crop Protection. We continue to expect over $400 million of net sales for the full year from the Biologicals acquisitions. Operating EBITDA is now expected to be in the range of $3.25 billion to $3.45 billion, 4% growth versus prior year at the midpoint. The updated guidance is driven by lower topline growth, partially offset by productivity and cost actions. These updates translate into an expected operating EBITDA margin of 19.5% at the midpoint of guidance, approximately 100 basis points of margin expansion over 2022. Led by the strength of our Seed business performance. Operating EPS is now expected to be in the range of $2.50 to $2.70 per share, down 3% versus prior year at the midpoint. The change in guidance reflects lower operating EBITDA, partially offset by lower interest expense and lower forecasted effective tax rate and lower share count. Free cash flow is now forecast to be in the range of $600 million and $1 billion, with a change in guidance reflecting the lower earnings range and the forecast for higher inventory and lower payables. And as Chuck mentioned, we expect share repurchases to be approximately $750 million for the year, which includes roughly $580 million that we completed through the third quarter. Let's now transition to the setup for 2024. Slide 12 presents the initial high-level view of our planning framework and provides key assumptions as we begin our internal planning process for 2024. Importantly, using this framework as a starting point, we expect to deliver earnings and margin growth again in 2024. After a 7% increase in US corn acres in 2023, we expect to shift back to soybeans in 2024. While also expecting lower planted area for Brazil, safrinha. But the Ag fundamentals remain relatively healthy with U.S. farmer income and commodity prices above historical average. However, we expect Brazil farmer margins to remain generally tight, particularly in corn due to macro factors, including higher interest rates and lower commodity prices. Our price per value strategy continues to be a key lever, driving organic growth. I think for our yield advantage technology and differentiated solutions is expected to drive low single-digit pricing gains for the total company in 2024. We continue to make progress on our portfolio simplification. We expect another $100 million of volume headwinds related to product exits. Despite the impact of the product exits, we expect Crop Protection volume gains in the US led by new and differentiated products. Brazil volumes are expected to be muted due to ongoing expected market dynamics. Biologicals are expected to grow double-digits with both price and volume gains. Cost and productivity will remain a focus for the organization as we drive improved margins. While we're seeing the prices of raw materials fall, the cost improvements in Seed and Crop Protection will lag stock commodity price trends, driven by the timing of inventory turns. In Seed, we expect another $100 million of improved royalties as we shift to more proprietary technology, and we expect to combine $100 million of productivity in Seed and Crop Protection. We'll continue to tightly manage our SG&A costs with core SG&A expenses increasing less than inflation. R&D will continue to increase as we invest in innovation for the long term. To summarize and highlight, we expect lower revenue growth in 2024 as well as in 2025 versus the level implied in our multiyear revenue targets. Despite this, we're confident in our ability to continue to deliver earnings and EBITDA margin within the range of our 2025 financial framework. So with that, let's go now to Slide 13 and just summarize the key takeaways. Importantly, our third quarter year-to-date operating EBITDA performance is in line with expectations, led by the strength of our Seed business. Continued cost discipline and productivity actions coupled with significant improvement in royalty expenses is making a difference to the bottom line and helping to drive more than 120 basis points of margin expansion year-to-date. The current guidance range reflects updated fourth quarter outlook and importantly, still forecast operating EBITDA and margin growth for the year. The planning framework for 2024 that we shared today supports continued earnings growth and as you would expect will be followed with detailed market analysis and planning assumptions when we release full year 2023 results in early February. With that, let me turn it over to Kim.

Operator:

Thank you. [Operator Instructions] We'll first take our first question from Vincent Andrews from Morgan Stanley.

Dave Anderson:

Let me just share with you a couple of highlights. And then, Tim, maybe you could comment a little bit on Vincent's point about Seed. Vincent, you're right. So, low single-digit for the company overall is the expectation right now. And again, this is an early indication and I call it, preliminary view as part of our framework for 2024. For Seed, Tim will comment more specifically, but obviously, we're looking at continued positive, we call it price for value, as you know. So, we think that's going to lead the way in terms of our year-over-year pricing performance. For Robert's business, the Crop Protection business, we think the price is going to be generally favorable with the exception significantly for our LatAm business, where we continue to see pricing pressures. In the aggregate, we think Crop Protection pricing will be potentially up slightly to neutral to down slightly compared to 2024. So taking all that together gets us to the low single-digits for the company. Again, early, Tim, you want to comment on Seed

Operator:

Thank you. And we'll take our next question from David Begleiter from Deutsche Bank.

Chuck Magro:

Yes, good morning David. So, obviously, it's a pretty dynamic market that we're operating in right now. Let me just give you sort of what we're thinking. And it's a very good question. And obviously, we'll have a lot more to say as we give final results for the full year of 2023 in February, and then we'll really be able to talk about 2024 and with a level of degree of specifics that we just can't get into today. But I'd say right now, the entire Corteva organization, it's remaining very highly focused on hitting that $4.1 billion to $4.7 billion with the 21% to 23% EBITDA margins. I'm not going to talk about the specifics in terms of exact numbers because I think the key, I think, for us is that we're still feeling very good that we're within that range. And if you think about that just for a minute, a couple of years ago, just look at what's happened, right, over the last two years, we've had the Russia invasion of Ukraine. We've had a global chemical destocking, and now we're seeing weakness in Brazil, which we haven't seen weakness in Brazil since 2015. But when you put all that together, it's pretty clear that we've also overachieved when it comes to some of the controllables. So if you recall that the framework that we laid out last year, it had 4 buckets, portfolio simplification, royalty neutrality, product mix and what we called operational excellence. And these were largely in our control, and we've made very good progress. In fact, on a lot of these dimensions and elements, Dave in his prepared remarks commented, we're running a year and sometimes a little ahead of program there. So, we're finding ways as a management team and as an organization to offset some of the market headwinds that we've been -- have been put in front of us. So, I guess what I'd say right now is that when we look at the 2025 targets, we're still very comfortable we're well within that range. And that, of course, assumes that we don't see another significant step down in Brazil, for example, because we are planning as part of that 2025 framework that there's modest growth in Brazil over the next couple of years. So, if that was not to unfold, then we would obviously have to find ways to offset that weakness. And we've been pretty good at offsetting the weakness. If you think about just the acceleration of Enlist on those acres, that royalty neutrality is actually, we're making better progress than we thought there. The productivity and cost management issues in this organization, I've been very impressed with, our SG&A barely hasn't moved on an apples-to-apples basis. And now that just yesterday, we announced sort of that next level of our operational efficiency program. This is something that's been in the work for a very long time. We're quite pleased with the progress, and that will add to the operational excellence and cost management of the organization. So, when you put it all together, there's always puts and takes but we're feeling very good that we're still on the right track when it comes to delivering that framework.

Joel Jackson:

Hi, good morning. Thanks for taking my question. I'm looking at your crop chem's manufacturing rationalization plan, can you maybe highlight some of the major changes? You did highlight a high level on the slide last night. Maybe talk about some of the low-hanging fruit, which molecules are you moving externally? Which one did you want to make sure you're keeping internally. Maybe just some really good, maybe a few anecdotes or low-hanging fruit you could talk about that's really driving this plan? Thank you.

Robert King:

Yes, the announcement yesterday is one that will be a big step forward for us. It's -- when you look at the pieces that Chuck laid out there, really focused on what can we control. And this one is a big part of the strategy that we laid out at Investor Day, where we're -- our journey is to become excellent in operations, and we don't take that lightly. It really underscores the approach of shifting more to an external supply balance with asset-light capital. That's going to improve our cost competitiveness and our network flexibility to be able to respond and change with the ever-changing markets that we're in. . The thing about this is that this is something that we started on about a year ago, I think, as Chuck said. But we've been able to do some acceleration. The environment has allowed us to do some acceleration, but we've been working on this for some time. So, the execution of these actions is going to allow us to not only drive profitability. But we're going to be much more competitive in the market from a cost standpoint, and it puts us much further down the road.

Kevin McCarthy:

Yes, good morning everyone. A question on cash flow and deployment. If I consider your updated guidance on free cash flow as well as the remainder on your share repurchase commitment for 2023. It seems like you could end the year with more or less zero net leverage. So two questions would be, is that fair or not? And more broadly, Chuck, what are you thinking about deployment for 2024 and beyond?

Dave Anderson:

Yes. Kevin, so yes, thank you, Chuck. So Kevin, exactly. I think you're right. Just to refresh, we've updated the free cash flow guide as of today to that $600 million to $1 billion for the full year. Really, the difference as we pointed out in the prepared remarks really has to do with some higher inventory levels as a result of reduced volume outlook as well as lower payables, which goes with what Robert also stated just in terms of managing our current production capacity in light of the market demand or overall volume. So, your estimate about essentially being zero net debt, I think that's a reasonable forecast at this stage when you think about where we are in translating that cash flow. And it does include, as we mentioned, the $750 million of share buyback for this year. Chuck, do you want to comment a little bit about 2024?

Dave Anderson:

Yes, definitely.

Operator:

Thank you. And we'll next go to Frank Mitsch with Fermium Research. Please go ahead.

Dave Anderson:

Really no change in our thinking, Frank, at this point in time. This is a business we made decision to exit. Strategically, it fits as well -- that decision fits as well with our overall portfolio criteria today. So, appreciate the question, but no real change, no update in terms of our thinking.

Steve Byrne:

Yes, thank you. Don't your crop chemicals have registrations that specify where they're manufactured, and thus, is that -- is that a challenge for you to shutter facilities because then you'd have to have the respective registrations in countries and crops revised? Or is that less of an issue for the plants you're targeting. You mentioned Pittsburgh, California. Are we right on that. That's where you make your nitrogen stabilizer, which wouldn't have any relevance to registrations? Is that right? And maybe one broader crop chem question, and that is any lessons learned on the destocking that you've seen this year that you had a competitor yesterday that doesn't seem to have that same issue. Is there some fundamental reason why this is more challenging for some than others?

Robert King:

Sure. Yes, Frank [ph], you're right. Anything that we produce does have registrations. It does tie to where it's made. And then, of course, where it's applied. Optinyte is one of the main products that is made out of Pittsburgh that is our nitrogen stabilizer. It goes into what brand name N-Serve and Instinct NXTGEN. And both of those are leading industry-leading nitrogen stabilizers that is a good business for us. And so we have plans to move that production to another location. We will continue to serve our customers seamlessly through this time, and we'll be in a better position in the future for this product to continue to serve the market. So, the registrations and things are part of the planning process when any time we move products are we -- many times, we always have redundancy built into our system. And so we have other plants registered many times. This is one that we'll be move into registration and that's all in the plans and timing of the overall transition here. So yes, good question, absolutely something we have to do, and it's always in the planning when we go to rearrange our network.

Operator:

Thank you. And next, we'll go to Jeff Zekauskas from JPMorgan. Please go ahead.

Dave Anderson:

Yes, Jeff, those are -- this is Dave. Those are good questions. So, you're right, there's a lot of free cash flow or cash from operations to be generated in the fourth quarter. When you look at it, though, on a year-over-year basis, if you will, the change on the change, it's significantly related to receivables slowdown reduction, which is very understandable in the light of the revenue outlook. And by the way, while DSOs have ticked up a bit, they're still within a very healthy parameters compared to historic averages. And then the other thing is inventory because we are bringing inventories down as a result of the volume declines. And as I mentioned earlier, and Robert referenced also the reduction in procurement or purchasing as a result of those lower volumes. So, both receivables and inventory will be sources of cash on a year-over-year basis, an important deliverable in the fourth quarter. Payables on the other hand will represent a headwind. Deferred revenue is not much of a change compared to prior year. So that's really not significant. It doesn't play really into it. It's really a working capital story. In terms of run rate, kind of where we want to be, where we need to be, I'm going to use free cash flow as opposed to cash from operations. So, after CapEx, free cash flow, we think, again, in the range of building to 40% then to 50% and so forth is very, very reasonable for the company. In 2024, when we look forward, we'll again have positive from working capital, we believe. We'll have a little bit of increase as a result of what we just mentioned. On the restructuring, for the Crop Protection business in terms of cash outflow on a year-over-year, there are some other puts and takes. But next year should be a good year for cash flow for the company. Thanks for the question.

Adam Samuelson:

Yes, thank you. Good morning everyone. I wanted to maybe come back to the Brazil destocking and Crop Protection volume outlook a little bit more closely. And maybe just can you be a little more clear on what the volume expectations would be for Brazil and Latin America broadly in the fourth quarter on volumes? And how at this juncture, are you thinking about the shape of that volume through 2024 given what potentially could be more carryover inventory if channel inventories are still high and planted area, especially for corn isn't actually growing?

Dave Anderson:

Yes, yes., So we will see some growth in the fourth quarter in Brazil. And part of the reason is it compares to -- and this is on the crop protection side. It compares to an order pattern and a sales pattern last year, which, as you recall, was much more significantly accelerated. We saw basically a very significant increase in orders last year for Brazil. compared to this year in terms of the quarterly pattern. When we look for 2024, our preliminary thinking, and I think I had mentioned this earlier in the prepared remarks, we're looking at basically kind of flattish or muted volume growth on a year-over-year basis. We expect some of the macro conditions to continue that are characterized in the second half of this year.

Dave Anderson:

And let me correct because I was looking at another data point when I referenced the Latin America Crop Protection, we're actually going to see volume declines in the fourth quarter in Crop Protection. So correct that.

Aleksey Yefremov:

Thanks and good morning everyone. I just wanted to follow up on competitive dynamics in Brazil. Specifically the shift to more generic supply? And how do you think this is going to evolve in terms of long-term competitive status of that market and also pricing next year?

Operator:

Thank you. And we'll next go to Ben Theurer from Barclays.

Chuck Magro:

Yes. So, let me give you the backdrop and then I'll turn it over to Tim, maybe you can cover Seed and Robert, you can cover CP. The backdrop, as we said in the prepared remarks, the fundamentals are still they're still robust. They're mixed, given the Brazil weakness we're seeing. But there has been record demand for biofuels. And in fact, feed demand is quite high in North America. So global stocks to use are ticking up a little bit. But overall, what we're expecting is that there'll still be healthy farmer dynamics, and that's exactly what we're seeing. Farmers are still prioritizing their investments in yield and production. They're managing this very, very well. And we don't see a very significant shift in sort of buying behavior, except for the kind of the thing we've talked about many times, they move just in time. So, the overall Ag market fundamentals are healthy. And maybe, Tim, you can talk about -- go around the regions in seed and then we'll do the same thing in CP.

Chuck Magro:

Robert, CP?

Operator:

Thank you. We'll take our final question from Joshua Spector from UBS.

Dave Anderson:

Okay. So, this is Dave. Yes, thanks for the question. So, we're starting to see, as you know, we're seeing the price -- cost of raw materials fall. We indicated in our prepared remarks that we are seeing continued inflation in the third quarter for the Crop Protection business, but that's going to now start to come down in the fourth quarter. And we anticipate, again, early, but we anticipate favorability in 2024 on a year-over-year basis. In both Seed and Crop, it's going to be influenced by inventory turns, which as a result of inventory then translating into cost of goods sold and the timing of that. That's going to be a little bit of a buffer, if you will, against just either spot, ingredient or input costs or spot commodity costs in the case of seed. It will be a little bit also slower to actually translate in terms of cost benefit in the first half of the year just because of that phenomenon. It just takes a while. But overall, we're heading in the right direction. I feel very good and more to come in 2025. So we'll see another lift, another improvement as we look out to 2025.

Kim Booth:

And that concludes today's call. We thank you for joining and for your interest in Corteva. We hope you have a safe and wonderful day.

Kim Booth:

Good morning and welcome to Corteva's second quarter and first half 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, 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 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.

Dave Anderson:

Thanks, Chuck and welcome, everyone, to the call. Let's start on Slide 7 which provides the financial results for the quarter and half. As Chuck said and you can see from the numbers, we had a solid first half against quickly evolving market conditions. Briefly touching on the quarter, organic sales were down 4% compared to prior year with pricing gains in both segments more than offset by declines in volume and Crop Protection. Volumes were impacted by strategic portfolio actions and the exit from Russia which combined represent an approximate $240 million headwind in the quarter. In addition, we saw delayed customer purchases due to weather, higher interest rates and supply availability, again, particularly in Latin America and North America. Despite the reduction in top line growth, improved product mix and ongoing productivity and cost actions translated to earnings growth of 2% and nearly 140 basis points of margin expansion. Now focusing on the half. Organic sales grew 2%, with broad-based pricing gains. Global pricing was up 11% with strong execution in both Seed and Crop Protection. Seed volumes were down 5% versus prior year, largely driven by the decision to exit Russia with Crop Protection volumes down 16% which includes a 5% headwind from strategic portfolio exits. The top line performance translated into operating EBITDA of nearly $3 billion for the half, an increase of 8%. Pricing, favorable product mix and productivity more than offset higher input costs and volume and currency headwinds, driving more than 180 basis points of margin expansion. So let's go to Slide 8, where you can see how the performance of our Seed business offset the Crop Protection market headwinds in the first half for total company sales growth of 1% compared to prior year. Seed net sales were up 8% in the first 6 months to more than $6.9 billion. Organic sales were up 9% on strong price execution as we continue the price for value strategy and also offset higher input costs. Global seed price was up 14% for the half with pricing gains in every region, led by North America and EMEA. Seed volumes were down 5% versus prior year. Gains in North America driven by increased corn acres more than offset fewer soybean acres. Volume declines in EMEA were driven by the exit from Russia and lower corn planted area, with Latin America and Asia Pacific volumes down due to delayed plannings and also seasonal timing shifts. And importantly, the exit from Russia represented a 3% headwind for the Seed segment. Crop Protection net sales were down 9% compared to prior year to more than $3.9 billion. Organic sales were down 9% for the half with pricing gains more than offset by lower volume. Global Crop Protection pricing was up 7% for the half versus prior year, reflecting pricing for value of our differentiated technology as well as to offset higher raw materials globally as well as currency impacts in EMEA. Crop Protection volumes were down 16% for the first half, impacted by the shift in order patterns that Chuck referenced as well as the roughly $240 million headwind from the strategic portfolio actions and exit from Russia. Currency headwind on both Seed and Crop Protection was 3%, largely driven by European currencies. And finally, the Biologicals acquisitions added $135 million of revenue since we closed on the deals in early March which is reflected in portfolio and other. Taking a step back, the performance in the first half showcases the strength and complementary nature of our diverse portfolio. With that, let's go to Slide 9, for a summary of the first half operating EBITDA. You can see the operating EBITDA increased approximately $220 million to just under $3 billion, pricing and product mix, coupled with productivity and cost actions more than offset declines in volume and higher cost in currency headwinds. And we took a significant step in the journey towards royalty neutrality with more than $150 million of combined benefit from increased royalty income and a decrease in royalty expense driven by the continued penetration of Enlist. The nearly $450 million of net cost headwind was related to seed commodity costs and unfavorable yield impact as well as crop protection inflation. Crop Protection raw material costs were up about 5% versus the prior year as we sold through higher cost inventory. In total, market-driven cost headwinds and other costs were mitigated by the improvement in net royalty expense and $175 million of productivity savings. SG&A spend in the first half of the year was about flat versus prior year. It reflects the inclusion of approximately $50 million in SG&A from the Biologicals acquisitions. So excluding the acquisitions, SG&A is down versus prior year as we maintain disciplined spending and execution on cost actions. Investment in R&D was up roughly $80 million for the half, aligned with the targeted spend increases to support our leading position in ag technology. Portfolio and other gains in the half were driven by the Biologicals acquisitions which contributed $22 million of EBITDA. Currency was a $228 million headwind, again, driven primarily by European currencies. Turning now to Slide 10. I want to take you through Crop [ph] Protection segment. We now expect net sales to be in the range of $17.9 billion to $18.2 billion or 3% growth at the midpoint, roughly $700 million lower than the previous guide. This is largely driven by North America and Latin America Crop Protection. And consistent with the prior guide, we expect approximately $450 million of net sales for the full year from the Biologicals acquisitions. Operating EBITDA is now expected to be in the range of $3.5 billion to $3.65 billion, 11% growth versus the prior year at the midpoint. The updated guidance is driven by lower top line growth, partially offset by improved product mix and greater-than-expected benefits from reduced net royalty expense as well as productivity and cost actions. Importantly, with the strength of Seed performance in the first half and Crop Protection's improved product mix, we now expect operating EBITDA margin of 19.8% at the midpoint of guidance or more than 130 basis points of margin expansion over prior year with growth in both Seed and Crop Protection. Operating EPS is expected to be in the range of $2.75 to $2.90 per share, an increase of 6% versus the prior year at the midpoint. The change in guidance reflects lower earnings partially offset by lower forecasted effective tax rate and also a lower share count. Now it's important to point out that the allocation of earnings between the third and fourth quarters. Again, we expect order patterns to be more consistent with historical timing. This timing in Latin America sales, coupled with the seasonal patterns of the Biologicals acquisitions, is expected to result in nearly all of our second half earnings to be delivered in the fourth quarter. Free cash flow is now forecasted to be in the range of $1 billion to $1.2 billion. We expect share repurchases to be approximately $500 million for the year, including $330 million that we completed in the first half. And of course, we recently announced a 7% increase in the dividend consistent with the dividend growth strategy. On Slide 11, I want to remind you, importantly, of the value creation framework we introduced at last year's Investor Day to accelerate our performance and deliver greater value to shareholders. The 2025 financial targets we presented included operating EBITDA of $4.4 billion or a 22% margin at the midpoint. This slide includes those 2025 financial performance targets and it also reflects today's guidance for 2023. Execution on our strategic decisions including exiting low-margin commodity products, while delivering a cumulative $250 million reduction in net royalty expense and disciplined cost actions is driving margin expansion while also enabling increased R&D investment. And while we're revising our 2023 revenue and EBITDA guidance, we're confident that we're on track to deliver the 2025 earnings targets. With that, let's go to Slide 12 and summarize the key takeaways. Again, we believe ag fundamentals remain positive and demand at the farm level is stable despite the significant Crop Protection market pullback that we're experiencing. We believe Corteva is well positioned relative to the market despite the industry-wide destocking trends and some macro level headwinds and our revised full year guide is proof of the strength of our portfolio with continued sales and earnings growth in 2023. We believe this performance differentiates us from others in the industry. And finally, our expected 2023 performance supports our 2025 financial targets and provides us confidence that we're able to execute and grow. And with that, let me turn it over to Kim.

Operator:

[Operator Instructions] We'll take our first question from Vincent Andrews from Morgan Stanley.

Chuck Magro:

Vincent, yes, so let me give you a couple of thoughts and then I'll turn it over to Dave to talk a bit about the specifics. So -- look, we don't think a whole lot has changed. If you think about what's happened with the channel and the industry-wide destocking, obviously, it came up -- it was a larger issue and it happened a lot faster than anyone expected. But we do think that this situation is temporary and it's certainly not sustainable. So when we start thinking about the plans for 2024 and then to your question, 2025, we do think that we're on the same trajectory that we were when we laid this out back in September. And if you start thinking about what we have to deliver, as we've communicated a couple of times now before, a lot of this journey is well within our own control. And so what we're trying to do is reshape the overall strategy and the portfolio of the company. So what we're going to need to do in '24 and '25 is some of the same things that we've been working on for the last 2 years. So we are expecting, for example, our [indiscernible] and our new products in CP to continue to grow. They actually held up pretty well in 2023 so far and we're expecting growth through the rest of the year. We're about 80% complete through the product and country exits by the end of this year. So we'll finish those in the next 2 years. We did indicate in this morning's call already that our royalty expenses are running a little lower than we had expected. So we had previously thought about $100 million of expense reduction, we're closer to $150 million now and well on track for the $250 million by 2025. I think some of the other things that we're seeing and it's a little too early to talk about the specifics. We are expecting some lower costs now to flow through the P&L. I'd say both in Seed and CP through 2024 and certainly through 2025, it's too early to give specifics but that's sort of how we're thinking about things. There's going to be some offset because we are planning to continue to invest in R&D. We're targeting 8% of revenue. So when you put all of this together, I don't think we should talk about the low end or the top end. We feel very comfortable that we're basically on the same path in that this channel destocking issue that's happening right now I think we'll be behind -- a significant portion of it will be behind us this year. There could be pockets that move into next year. But certainly, the framework we've laid out, I think, is still one that we're very confident in. Dave, anything to add?

Operator:

Our next question comes from David Begleiter from Deutsche Bank.

Chuck Magro:

David. So look, this came up on the industry pretty quickly. It sort of became very clear that how we were thinking about it in terms of pockets. If you recall at the end of the last quarter, we were talking that we knew there were pockets of higher inventories, some areas of LatAm and Asia Pacific really weather-driven. By the end of May, it became very clear that what we were talking about was more systemic and broad-based. And at that point, what we're seeing, so just to set the stage, right? The one thing that this industry has is it has pretty good line of sight for data that goes into the channel and that leaves the channel. And what we're seeing is that on-farm demand actually very, I'd say, positive. And it's been consistent over the last 2 to 3 years at a low single-digit growth when you're talking about organic revenue. So that's the good news is we -- and you can imagine, since May, we have spent a lot of time looking at this but we're feeling very good that the overall fundamentals, farmers health and they're applying the products they need to preserve their crop and to drive yield. But what happened since the end of May is that there has been a very significant pullback by the channel because they've had too much inventory. And so what we're expecting now is that by the time we get through the end of this year, that -- I'd say most of it will be behind us. But that doesn't mean that we're out of the woods when it comes to 2024. There's probably going to be some product lines and some geographies that this will persist into 2024 and we're planning for that. We understand that. We're going to work with our channel partners. But overall, I think what we're also finding is that it wasn't just an inventory perspective. But with the higher cost of capital, higher interest rates specifically, there is a move clearly back to the way the industry operated pre-2022, right? Where the industry really was used, especially in North America but also I'd say in Latin America, where these supply chains are quite sophisticated. They have high fidelity and the channel plus, the farming community got very comfortable that the product can be delivered just in time. So we're going to see that. So unfortunately, what will happen is you're going to see that in the seasonality, especially around Q3, that's why Dave communicated sort of the earnings split between Q3 and Q4. But I wouldn't say that we're not constructive about 2024. The 2024 setup still looks to us to be pretty good. You've got record demand for grains and oilseeds. You have record demand for biofuels in '23. We think there'll be another record in '24. As we talked about, crop prices have come down but farmer margins are still really healthy and we haven't seen a change in buying behavior in terms of the products that they're investing in. But would there be -- is it possible that there's going to be some carryover in terms of the destocking in 2024? Certainly in the first part of '24, that's entirely possible.

Kevin McCarthy:

Yes. Just to peel the onion a little bit more on the Crop Protection destocking. As you survey the world, do you think there's more excess at the distributor level or the end user grower level or both? And I guess maybe a related question. Can you speak to the 3Q, 4Q earnings cadence? I think you made a comment that earnings would be mainly in the fourth quarter. Obviously, you have a lot of seasonal effects even in a normal year but just kind of wondering how the destock will affect that in terms of your current planning view.

Dave Anderson:

Sure, sure. And maybe the way I could start that, Kevin, start the conversation in Q3 and Q4. So maybe just talk a little bit about the half -- sort of what's implied in terms of guide for the half, just to give you some perspective. So to the midpoint of our revenue guide, the $18.5 billion [ph], that would imply a revenue increase on a year-over-year basis of $500 million. Now importantly, when you look at that, it includes our Biological acquisitions. So there's about $300 million of that $500 million that's coming about as a result of the acquisitions. On the EBITDA, what's implied, our actual last year for the second half was $466 million. This year [indiscernible] numbers, it's about $600 million. And again, very importantly, the Biologicals acquisition represents about $70 million. If you look at that $90 million number that we've given you is a full year guide for Biologicals contribution to EBITDA, $20 million in the first half, $70 million in the second half. So keep that in mind just in terms of giving some perspective on kind of what's assumed here, if you will, in the growth that's assumed for the second half. Now to your question in terms of 3Q, 4Q, it really has to do with timing of LatAm and timing associated with the acquisition contributions. The acquisition contributions are really mostly now in terms of second half will be in the fourth quarter, specifically the Stoller [ph] acquisition and its business which is really for the second half, really focused on Brazil. And then for LatAm, in total, when you look at our -- both our Seed business, Seed business with a normal distribution 3Q to 4Q and then for Robert's Crop Protection business, you're really looking at, again, that recalibration from 1H to 2H from the first half to the second half that we communicated back in May, that's playing out. We've got more insights on that now and that really is the other reason the other big component of the fourth quarter and the significance of the fourth quarter. If you look at it historically, it's not atypical compared to when you go back to '21 -- 2020 [ph], it is different than 2022 but 2022 really was anomalous in terms of the distribution, particularly the distribution pattern that we experienced in Latin America.

Christopher Parkinson:

Great. As we're all beginning to think about 2024 as well as a few variables which you perhaps have better line of sight on or, in some cases, or directly in your control. Can you just hit on a few of those -- when we're thinking about net royalty reductions, E3 penetration, how we're thinking about [indiscernible] costs based on the presumably lower payments to certified growers, CPC inputs looks like they're easing a little bit. So when we're taking ourselves outside of just the price volume side of it, can you just kind of give us some initial thought processes on how we should be approaching that once again, considering 2024?

Operator:

Our next question comes from Joel Jackson from BMO Capital Markets.

Dave Anderson:

Sure. Let me give you the crop numbers. So it's a really good point because when you look at our numbers, you really have to consider product exits, the strategic decisions that we've made just to get -- just to put that into perspective, on a reported basis, the volume change for the crop business would be round numbers about 16% down for the first half but it's really minus 10% when you take into consideration the exit. So there's about 6 points there of impact in the first half from those decisions. When you look at the second half, what you're looking at Joel is on a reported basis, we've got a volume change of about 4% but on an adjusted basis -- and by the way, this also includes the store acquisition in it. So this is sort of an all-in -- when you look at it all in, it would be up 8%. So we're looking at -- that growth is really a transference significantly of LatAm from 1H to 2H in addition to what we're seeing is sequentially for Brazil, specifically, when you look at the market research data, we're seeing sequentially 1Q to 2Q in the channel, some improvement in overall inventory levels and we're seeing pretty good strength in terms of actual sellout, if you will, in other words, product that's going to the farm gate. So essentially, what we're seeing in the second half is the improvement in terms of related to the timing of LatAm.

Dave Anderson:

Yes. So just very quickly, just to kind of go through a couple of the numbers and then go specifically your question in terms of directionally, what do we see in terms of cash flow and cash flow conversion going forward. So for the first half, as you pointed out, we've had higher use of cash on a year-over-year basis. That's really related to the phenomena of working capital including payables and the payables has to do with more cash outflow in terms of growers comp on the seed side which is all explainable by the size of the business, the growth of the business as well as commodity costs and our pricing actions. On the other side of the payables is trade payables which is really attributable to what we're doing in terms of inventory management, on the crop protection side of the business, where we're really pulling back, obviously, very understandably in terms of procurement there. For the full year, the $1 billion to $1.2 billion translates to, let's say, at the midpoint, $1.1 billion against our EBITDA translates to about a 30% cash conversion at $1.1 billion using our midpoint of our EBITDA guide for the full year, about a 30% conversion to EBITDA which, by the way, is about a 50% conversion if you use the cash to operating earnings relationship, in other words, the numerator of our EPS calculation which is another way to calculate communicate conversion. When you look at what's happening in the second half of the year, it's really -- working capital is really becomes a source of cash and it's really attributable to the fact that we're growing but holding working capital levels basically on a year-over-year basis, holding at constant -- coming down, obviously, from our first half levels in terms of inventory but also increasing in terms of payables. When you look out to 2024 and 2025, again these sort of directional numbers, what we would be looking at for the 2 years, '24, '25 something in the neighborhood of 50% plus in terms of cash flow conversion, if you look at, again, a cash-to-EBITDA relationship that would translate to around 80% plus when you think of cash relative to operating earnings for those periods. And that's dialed in. We've got, we think, the -- all the right disciplines, capabilities, et cetera. And it's consistent with what we referenced earlier in terms of our confidence in our outlook, in terms of our earnings targets for '24 and '25.

Frank Mitsch:

I wanted to focus in on the Seed side of things because that was obviously clearly impressive performance and congrats on E3 or Enlist E3 getting to the 55% mark. So you're clearly gaining share on the soybean side. Your corn growth, 20% was also pretty impressive. Can you talk about your overall feelings on market share gains? And what are some of the underlying factors behind that?

Operator:

We'll take our next question from Jeff Zekauskas from JPMorgan.

Chuck Magro:

David, you hear the question?

Jeff Zekauskas:

In order to reach them.

Chuck Magro:

Yes, Jeff, it's Chuck. So I think Dave hit it but we've communicated this before, right, is the way we try to price for Seed is price for value. We have a big R&D machine. We're bringing out new hybrids every year. If you looked at some of our recent announcements, we've also brought out what we call our next-gen trade packages. I called out PowerCore actually in our prepared remarks but we also announced for Seed as well. So these are trade packages that are going to be very important for farmers in the next generation. Significant value creation will be there. And we'll certainly price for that. I'd also say that what it does and it helps a lot is it opens up the door for us to out-license this new technology. And maybe, Tim, you can talk a little bit about some of the progress we've seen even with Enlist.

Dave Anderson:

And Jeff, just -- this is Dave. Just one final comment to just add to what I said earlier. Just as a reminder and you recall this from our as early as Investor Day last year, communications that most of the pricing the seed pricing will have taken place through 2023. So that's just a kind of a reminder in terms of relative significance of those forward years.

Steve Byrne:

Yes. A couple of more Seed questions. That 12% pricing that you're getting in Seed, what fraction of that is underlying like-for-like pricing versus the share gain or the mix shift because of growers shifting to higher-yielding genetics and then the other bucket being the acreage shift from soy to corn. Can you split that 12% that way? And then the net royalty reduction of $150 million, that was ahead of the guide. Did you pull some from the $100 million target you had for 2024? Did you pull some of that forward in that Enlist maybe has penetrated faster than you thought? And then just lastly, I'd like to hear your view on the value to you if the Europeans do adopt their gene editing rule for seeds?

Chuck Magro:

Yes, Steve, great question on gene editing and what's happening in Europe. First of all, just to set the stage. So we believe that gene editing is sort of that next level of agricultural science, very powerful set of tools and has the potential to be more impactful to Seed development and crop development than BT [ph] was 25 years ago. So we're very excited. We've got a full-on R&D program and we are -- this is a space where we are increasing our investment in R&D. The EU proposed policy that came out early July, what I would say is a good start. It's a workable framework, I think, for the industry. It's going to take some time to get through the specifics and that they're on a time line, hopefully, to have clarity of the policy in, I'd say, in the next 1 to 2 years. But so far, what we see is a framework that is relatively connected to the rest of the policy landscape around the world. So what we're hoping is that we'll be able to have freedom to operate in the next 1 to 2 years and we are actively investing in a whole suite of gene editing products and tools. so that we will be ready when the market says that we can start putting these products into the ground. So it is a very exciting part of our overall future development. And I think that what we saw in Europe was a very good first step.

Arun Viswanathan:

So I had a question about the trajectory from '23 to '25 going from that 3.6 to say, 4.4 or 4.3 [ph] in the midpoint in '25. It looks like a relatively ratable growth and that would kind of imply 10% EBITDA growth in '24. I know there's a lot of uncertainty and you're still going through the planning process. But how should we think about that? Are there any major buckets that you could help us with? I understand that -- or maybe you could kind of bucket that out by restructuring program gains, royalty reduction, market growth and pricing. Is there any way you could help us with that?

Operator:

And I'd now like to turn the call back over to Ms. Booth for any closing remarks.

Operator:

Thank you. And ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.

Kim Booth:

Good morning and welcome to Corteva’s first quarter 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, 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 will 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.

Dave Anderson:

Thanks, Chuck and welcome everyone to the call. Let’s start on Slide 7, which provides the financial results for the quarter. As Chuck said and you can see from the numbers, we have had a strong start to the year. Compared to the first quarter of 2022, organic sales increased 10% with gains in both segments, led by North America and EMEA. Global pricing was up 14%, with good price execution in both seed and crop protection. The pricing included management of currency headwinds, primarily in Central and Eastern Europe. Volumes for the quarter are down as expected, reflecting the strategic portfolio actions in the exit from Russia. In total, for the quarter, these exits represent $190 million or a 4% headwind. Feed volumes were down largely due to tight supply and drought conditions in Latin America, coupled with our exit from Russia. Crop Protection volumes were down 1% in the quarter versus prior year, with new product growth offset by unfavorable weather conditions in Latin America, in Asia Pacific and our previously announced product exits. The strong top line performance translated into operating EBITDA of more than $1.2 billion for the quarter, an increase of 18%. Pricing, product mix and productivity more than offset higher input costs and currency headwinds, driving more than 260 basis points of margin expansion. Let’s now go to Slide 8, where you can see the reported sales by business. Seed net sales were up 7% in the quarter to $2.7 billion. Organic sales were up 10% on strong price execution as we continue our strategy to price for value and also offset higher input costs. We delivered pricing gains in every region led by EMEA, which more than offset currency headwinds in that region. Seed volumes were down 7% versus prior year, with volume up in North America driven by soybean delivery timing and in APAC driven by demand for new technology. These gains were more than offset by volume declines in Latin America and EMEA and EMEA seed volumes were down as expected due to our 2022 decision to exit Russia coupled with lower corn planted area. Now excluding the Russia impact, seed volume would have been down 4% in the quarter. Declines in Latin America seed volumes were largely driven by a shortened Brazilian safrinha season due to delayed soybean harvest and supply constraints in the region as well as the strength of Brazil’s fourth quarter 2022. As you will recall, growers in Brazil accelerated purchases last year with concerns regarding product availability and supply. Crop Protection net sales were up 5% compared to the prior year to $2.2 billion. Organic sales were up 10% in the quarter, driven by broad-based pricing gains, reflecting pricing for the value of our differentiated technology as well as to offset higher raw materials globally and currency in EMEA. Crop Protection volumes were down 1% impacted by an approximate $90 million headwind from our strategic portfolio actions notably the exit of commodity glyphosate and our exit from Russia. Crop Protection was up 3%, excluding the impact of these exits. Continued penetration of new products added $140 million of incremental net sales growth as customer demand for Enlist and Arylex herbicides was strong in the quarter. Currency headwinds on both business units, was 5% largely driven by European currencies. And finally, you’ll recall we closed on the biologicals acquisitions on March 1, which added approximately $19 million of sales in the quarter. With that, let’s go to Slide 9 for a summary of the first quarter operating EBITDA performance. Operating EBITDA increased more than $190 million to $1.23 billion. Pricing and product mix driven by customer demand for yield advantage technology more than offset higher cost and currency headwinds. We incurred approximately $360 million of market-driven inflation and other across both businesses in the quarter. Seed saw higher commodity costs and yield impacts from dry weather in EMEA and Latin America. Crop Protection raw material costs were up 7% versus prior year as we sold through higher cost inventory and we delivered approximately $75 million in productivity savings which partially offset these headwinds. SG&A as a percent of sales was down 140 basis points compared to the first quarter of the prior year as we maintain disciplined spending in execution on cost actions and also reflects the timing benefit of commissions expense. Investment in R&D was up roughly $50 million in the quarter, aligned with targeted spend increases to support our leading position in ag technology. Now, you can learn more about the R&D pipeline and technology investments at our R&D innovation update call on May 9. Kim is going to provide more details on that at the end of this call. Now, portfolio and other gains in the quarter were driven by $7 million of EBITDA from the biologicals acquisitions in the month of March as well as a favorable impact from the absence of the remeasurement of an equity investment, which was sold in the first half of 2022. Currency was $172 million headwind and driven primarily by European currencies. Turning to Slide 10, I want to provide an update on our full year guidance. The setup for Corteva in 2023 remains positive and we are raising our full year revenue, earnings and cash flow guidance. Now changes to the guidance are driven by the inclusion of the biologicals acquisitions as well as some favorability from the strong operational performance in the first quarter, which is also included in the full year outlook. We now expect net sales to be in the range of $18.6 billion to $18.9 billion or 7% growth at the midpoint. This includes approximately $450 million of additional sales in biologicals. Operating EBITDA is now expected to be in the range of $3.55 billion to $3.75 billion, an increase of $150 million over our original full year guidance. At the midpoint, the updated range represents a 13% increase over prior year and it includes approximately $90 million from the acquisitions, net of roughly $20 million of integration costs. And importantly, as we are starting to see our strategic portfolio actions translate into higher quality earnings, we now expect EBITDA margin of 19.5% at the midpoint of guidance or 100 basis points of margin expansion over prior year. It’s another indication we are on track to achieve the 2025 value creation framework targets. Operating EPS is expected to be in the range of $2.80 to $3 per share, an increase of 9% versus the prior year at the midpoint, $0.10 higher than our original guidance, reflecting improved operating performance as well as the earnings from the acquisitions partially offset by the increased depreciation and amortization related to purchase accounting. We expect free cash flow to be in the range of $1.2 billion to $1.4 billion, an increase of $100 million at the midpoint from our previous guidance. That increase largely reflects higher earnings, coupled with an update to the 2023 capital spending forecast. And finally, related to capital allocation. We remain committed to a balanced strategy, returning excess cash to shareholders while investing for growth. In the first quarter, we returned approximately $360 million to shareholders via dividends and share repurchases and we expect to complete a total of $500 million of share repurchases for the year. With that, let’s go to Slide 11. I want to provide some color on our outlook for the first half and full year. It’s an important reference in light of the shifts in order patterns that we are seeing due largely to weather and reversions to more normalized conditions for supply chains. Specifically, our first half seed growth will be driven by continued pricing momentum and increased U.S. corn acres. However, seed volume growth in the U.S. is expected to be more than offset for the shortened safrinha season, supply constraints in Latin America, coupled with approximately $200 million headwind to volume related to our exit from Russia. For Crop Protection, first half volumes are expected to be down as growth from new products will be offset by more than $200 million of strategic product exits. Additionally, we see customer buying behavior returning to historical patterns driven by improvement in supply chain reliability as well as higher interest rates, particularly in Latin America. In LatAm, we saw significant growth in the first half of 2022 and with more than one-third of Latin America’s full year sales delivered in the period. In 2023, we expect the sales pattern to reflect more normalized timing shifting more of the sales to the second half, so more like pre-2022 order pattern for the region. Here is a couple of other summary points. As expected, cost inflation will be higher in the first half of the year due to the sell-through of higher crop protection inventory and the seasonal timing of higher seed input costs. We expect the rate of inflation to be high single digits for the first half of the year moderating to low to mid-single digits in the second half. Currency headwinds will be heavily weighted towards the first half of the year, driven again by European currencies and the seasonal pattern of sales in EMEA. And consistent with our previous expectations, total company pricing is expected to be up mid-single digits for the year. The double-digit pricing gains reflected in the first quarter are expected to moderate as a portion of that pricing in the quarter was in response to currency headwinds in EMEA. Operational efficiencies will drive improvement in SG&A. In fact, we expect that excluding the biologicals acquisitions, SG&A will be effectively flat compared to prior year. And finally, approximately 80% of the full year EBITDA from biologicals acquisitions will be delivered in the second half, reflecting Stoller’s seasonal pattern. So in summary, we expect roughly 80% of our full year earnings to be in the first half of the year, which implies lower year-over-year growth in both revenue and EBITDA in the second quarter relative to the average that we’re now forecasting for the first half of the year. And with that, let’s go to Slide 12 and summarize the key takeaways. The year is obviously off to a great start with first quarter growth led by EMEA in North America. The quarter’s performance sets us up well for another year of delivering results. While we’re confident that we’re on track to deliver our full year guidance, we expect a greater percentage of revenue and earnings in the second half of the year compared to 2022, largely driven by supply chain improvement and normalization in customer buying behaviors. We’re raising our full year guidance, largely driven by the biologicals acquisitions and operational performance. Importantly, we remain confident that we’re on track to deliver on our 2025 financial targets. And with that, let me turn it over to Kim.

Operator:

Thank you. [Operator Instructions] And our first question comes from Vincent Andrews with Morgan Stanley.

Chuck Magro:

Good morning, Vincent. So I’ll have Robert and Tim answer those questions. Just let me give you a couple of other comments to the stage when it comes to price. So as we mentioned in our prepared remarks, we’re seeing very good demand. The underlying demand on the farm is still strong. And that underpins our forward thinking. Obviously, it underpins the guidance that we put out today. And we’re just seeing a willingness around the world for farmers to maximize yield and productivity. It is really one of the few tools they have to ensure that they are going to be profitable long term. So maybe, Robert, you want to answer Vincent’s question on CP?

Chuck Magro:

Tim?

Operator:

And our next question will come from Joel Jackson with BMO.

Chuck Magro:

Dave, why don’t you take that question?

Operator:

And our next question will come from Kevin McCarthy with Vertical Research Partners.

Chuck Magro:

Okay, Kevin, how are you? Robert, why don’t you take that question?

Operator:

And moving on to David Begleiter with Deutsche Bank.

Chuck Magro:

Good morning, David. So look, if you step back and you think through the last 2 years in terms of crop pricing, we’ve seen very strong crop pricing and one was a record, right? So that is where we are coming off of. But when you look at 2023, we’re still well above mid-cycle. And crop pricing is still above historical averages. There is still a very tight stocks-to-use ratio out there. And then if you look at the growing markets, the major growing and exporting markets around the world, you’ve got Argentina that is under a 60-year drought. It’s the worst in 60 years. You’ve got the Ukraine still under significant conflict and not able to produce corn the way they want to. The drought in Southern Brazil looks like it’s turned the corner. So we’re going to see, I think, good production out of Brazil. But in our view, it’s going to come down to the U.S. and the planning in the United States. And it’s too early to talk about that crop right now because it’s just going in the ground. But we also believe when we look at the stocks-to-use models that we need 2 consecutive years at trend yield. And this year may or may not be. So look, we’re still very optimistic about where we are in the cycle. Now when you talk about Corteva and the influence of the cycle on Corteva, that’s a bit of a different question. In fact, if you look at the way we frame the value creation opportunity for 2025, $4.4 billion, $20 billion of revenue, in 21% to 23% margins. A lot of the value creation levers are well within our control. And of course, we’re operating in the ag market. But when you talk about royalty neutrality of the journey, when you talk about the product mix and really optimizing the percentage of differentiated products that we put into the market, when you talk about the number of new products that are going to go in the market in the next couple of years, all of these things, I think, are well within our control, and they are the major levers of value creation. So I think there is 2 points to make today. One is we’re very comfortable with where we are in the cycle. In fact, we think that 2023 is going to be a very, very good year for agriculture. And then on top of that, when you think through our value creation levers, a lot of that will be within our control and it’s a matter of execution. And as the team has been saying today, we feel very good where we are today. And the first quarter is a bit of a testimony of that is the significant amount of new product sales we put into the market. It was the first time we hit 25% EBITDA margin in the first quarter. So we like the strategic levers we’re pulling, and we think they are adding value.

Christopher Parkinson:

Great. Thank you so much. So when you look at your – the first quarter EBITDA bridge, I mean it’s clear that you’re pricing well above cost, which is positive. But could you just give a little bit further insight on how we should be thinking about that by segment just for the balance of the year and the cadence and how that evolves throughout the balance of ‘23? Thank you so much.

Dave Anderson:

Maybe I can take that one. So when you look at the first quarter and – sorry, there we go. When you look at the first quarter, of course, the pricing, as we talked about, was influenced also by EMEA. And just maybe just chat a little bit about that just to give you some perspective. As we mentioned, Chris, in the call that we had fairly significant currency headwinds in EMEA in quarter one. And in fact, if you exclude euro-based currencies, the headwind was only 1%. So it really gives you kind of an indication of how significant it was. So given that fact, that really also influenced our pricing. So in other words, it wasn’t just the price for value and against cost, it was also against the currency headwinds that we faced. So that’s important. As we’ve indicated, our pricing remains on track for the full year against our original guide that we made for pricing. And the numbers are significantly consistent whether you look at the seed business where we expect high single-digit pricing for the full year or crop protection, where we expect low to mid-single-digit pricing for the full year for crop. So no change from that. And again, first quarter very much influenced by that EMEA phenomenon that I mentioned to you.

Jeff Zekauskas:

Thanks very much. Sort of a two-part question. Is your mix in corn seeds in North America improving and making an appreciable difference to your corn economics? And second, in terms of cash flows, the cash flows year-over-year were lower by $600 million. And a big piece of that was accounts payable and that accounts payable sequentially went up, I don’t know, $950 million and normally, decreased $950 million. And normally, it decreases maybe $400 million? What’s going on with payables? Will your payables be higher in 2023 than in ‘22? How does that line work? What’s going on there?

Tim Glenn:

Hey Jeff. On the second – or the first question, I guess on the mix, if we are seeing an improving mix in corn technology, what I would say is when you look over the course of the season, our technology mix doesn’t vary that much on a year-to-year basis. Farmers get comfortable with certain types of technology. It’s critical for their operation. They kind of plan accordingly for that. And in terms of the year-to-year shift, you might have a point or 2 points shift, but it tends to be very consistent. I think what you are seeing in terms of first quarter versus first half is we had a little bit different mix in terms of the out-the-door sales. And so we probably had a lower representation of the Pioneer in the sales rep model and more dealer distributor, which will be primarily Brevant into retail as well as in the South and Southeast where Pioneer is going through distribution as well. So, probably saw more of a mix effect on the quarter in terms of channel versus technology. And again, our technology they don’t change that much. I would just emphasize, we had a kind of a miserable end of March and beginning of April. So, that’s why we ended up with a higher percentage of – from a weather standpoint, from a higher percentage of, call it, dealer distributor business and to farmers through our agents. So – but the technology mix doesn’t change on a year-to-year basis so much.

Steve Byrne:

Yes. Thank you. I would like to better understand what you mean by the shortened safrinha season, or perhaps you can break down that 41% decline in seed volume? Conab has safrinha corn area modestly up year-over-year. So, I don’t quite understand it. Perhaps it was a pull forward from the fourth quarter and/or how much of it was due to just insufficient seed supply?

Operator:

And we have a question from Kristen Owen with Oppenheimer.

Tim Glenn:

I think that’s heading my way again, Kristen. Good morning. So, in terms of the state of the season, I describe overall, we are off to a decent start with planning progress. And we are at – on corn, we are at about the 5-year average as of Monday when the USDA last reported, and we are slightly ahead of the 5-year average on soybeans. And so again, it’s despite getting off to a really pretty slow start at the beginning of April as we were working through the end of winter and really moving towards spring conditions. Across the corn belt, all indications are that we are going to continue to get the crop in the ground on a timely basis. So, we do have some isolated places where we have had some river flooding due to the snow melt. And you pointed out Northeast Iowa is one of those areas. Another area that we are looking really closely at is the Northern Plains or the Red River Valley. Tuesday afternoon, I had a conversation with our area leader there to understand where we were sitting and actually a tremendous amount of progress has been made up there, and we are very optimistic that farmers are going to be able to get most or nearly all this crop in the ground. So, the thing we got to remember is that we have large farmer customers, and they are highly motivated to get the crop in the ground. So, we have got about 30 days of good corn planting window here, call it, the month of May in front of us. And as the season opens in those areas, farmers are going to be able to move fast, and they are very motivated to get that corn in the ground. So, we will continue to watch it. But as of right now, I would not put up a red flag on that.

Arun Viswanathan:

Great. Thanks for taking my question. Good morning. Your results look [Technical Difficulty] you thought and seen from maybe some of your peers. Was that – would you attribute that to maybe share gains in crop protection and new product rollouts, or how would you kind of consider your performance versus the global ag market trends? Have you seen any changes in ag markets, or is it just more internal? Thanks.

Robert King:

Yes. Thanks Chuck. On the CP side, let me start with – we continue to see the market will grow on a year-over-year basis even in ‘23, where we expecting from the non-glyphosate – take glyphosate out, about 6% to 8% or mid-single digits really is really the better normal or the better number. For our growth on total market, when you begin to look then at how we performed from a market standpoint, 2022, the organic growth for the industry was in the mid-teens. And we grew, as you saw in the Q4 report, about 20% on organic growth. So, we expect we picked up a few points of market share around the globe. Obviously, all the numbers aren’t totally in, so we got to see how things settle out. But we do expect that we have gained a little bit over the last year. And as you begin to project that forward into this year and what’s happening, the volume is growing from crop protection around the world and for us as well. The shift that I talked about earlier is just timing. And so the demand remains very strong as we see it. And for us, it’s really centered around the differentiation and the strategy that we put in place to be differentiated and sustainably advantaged in our portfolio, and that’s really being driven by two areas primarily. New product growth as you saw in first quarter was up, and we expect that we will be up across the year from new products. And Spinosyns, Spinosyns continue to be a franchise of over $1 billion this year, and it is continuing to grow. So, when you begin to look at how we are different in the market, we are continuing to be able to deliver new technologies to the growers that really helped them add value and yield to their farms. So, those are some of the things that’s driving us, how we see the numbers a little bit there across the last year and the first quarter.

Operator:

And our next question will come from Joshua Spector with Lukas with UBS.

Dave Anderson:

Yes. This is Dave. I can give you a little bit of additional color on that. So again, it’s against the backdrop of the EBITDA guide, as you decided that we have given for the full year, call it, $3.65 billion at the midpoint. When you look at the pattern for this year, we would expect revenues to be slightly different, but roughly in line with last year. So, roughly 60% first half, 40% second half. On the other hand, on the – in the EBITDA, as I have said, if you look at last year, we had about 85%, a little over 85% of our EBITDA that was generated last year was generated in the first half. We are going to be some 300 basis points to 400 basis points likely less than that in terms of 1H 2023 EBITDA as a percent of the total year compared to 2022. So, when you do that, and back into math, what you get is you still have growth, obviously, in the second quarter, but it’s more muted for the reasons that we talked about, the timing of EMEA and the shift out of LatAm mostly from 1H last year or more significantly 1H last year into a more normalized pattern of 1H, 2H for this year. So, that’s really the difference. And again, that earnings, when you look at that distribution, it’s not that much different than we have had pre-2022 levels. So, hopefully that helps.

Ben Theurer:

Good morning and thank you very much. Congrats on the result. I wanted to follow-up just a little bit on the short and medium-term impact as to your guidance and some of the strategic announcements you have made. So, how should we think about the portfolio execution on these exits and how is that going to shape? Is that all baked in into the guidance for this year, what are the main impacts and where do you see maybe potential to increase further to get closer, call it to the higher end of the range in the long run versus the lower end of the range? What are like kind of the levers we should consider here? Thank you.

Dave Anderson:

Yes. I think one of the things we have been saying, Chuck referenced this earlier is, we are well on path in terms of the product exits, the AIs, if you will, the active ingredients, exit as well as some of the geographies that we are exiting. So, the majority of that is going to be completed over the course of 2023, and that’s baked into our guidance. Now importantly, when you look at the numbers in terms of the significance of those exits, it really does have a big impact on the figures. So, for example, when you look at total Corteva for the full year, and now I am talking just specifically about volume, when you look at the full year on an adjusted basis, what we are going to see is positive growth of over 3% for total Corteva. It’s really significant when you look at the crop protection business, on the significance of exits because when you include both the impact of product exits and also the decision to exit Russia, which as you know, we announced in 2022. I mentioned for the first quarter that crop protection volume would actually be up. And for the full year, it’s going to be up attractively mid-single digits when you adjust for those strategic decisions. So, I think a couple of takeaways. I think number one, relative to your question, we are absolutely on track. It’s built into our numbers. You are seeing that, as Chuck said, in terms of the quality of earnings, you seeing that in terms of the margin lift that we are generating and the guide that we have given you for the full year. And second, the optics are fairly significant when you look at the volume numbers. So, when you adjust for those exits. The numbers are, as we have said, are pretty attractive and continue to contribute to our strong organic growth outlook that we have shared with you today.

Kim Booth:

Okay. Thank you. And that concludes today’s call. We thank you for joining and for your interest in Corteva. We hope you have a safe and wonderful day.

Kim Booth:

Good morning and welcome to Corteva's fourth quarter and full year 2022 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, 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.

Dave Anderson:

Thanks Chuck and welcome everyone to the call. Let's start on slide 6 which provides the financial results for the quarter and full year. You can see in the table, we finished 2022 with another quarter of strong performance. Quickly touching on the fourth quarter, organic sales were up 11% versus prior year, led by Latin America and North America. The strong organic sales translated into earnings of $370 million for the quarter more than 200 basis points of margin improvement. Turning to the full year, organic sales grew 15% versus 2021 with broad-based pricing and volume gains. Global pricing was up 10% over prior year with notable gains in both seed and crop protection. Seed volumes were flat due mostly to lower planted area in the U.S. Canola supply constraints and the impact of our Russia exit in EMEA. Crop Protection volume was up 9% for the year, driven by strong demand for new products. These new products delivered over $475 million of sales growth year-over-year an increase of more than 30%. We delivered $3.2 billion in operating EBITDA for the year an increase of 25% over the prior year. Pricing product mix and productivity more than offset higher input costs and currency headwinds. This earnings improvement translated into more than 200 basis points of margin expansion year-over-year reflecting the strength in execution by our organization. And as Chuck said, 2022 is an early installment on our multiyear performance goals that we shared with you at Investor Day. So let's now go to slide 7. You can see the broad-based growth with strong organic sales gains in every region for the full year 2022. In North America organic sales were up 10%, driven by crop protection on demand for new technology including Enlist herbicide. Seed volumes were down versus prior year, primarily due to a reduction in U.S. corn acres and supply constraints for canola in Canada. Soybean volumes were up 7% driven by penetration of Enlist. Both seed and Crop Protection delivered pricing gains with pricing up 6% and 14%, respectively. In Europe, Middle East and Africa, we delivered 18% organic growth compared to prior year, driven by price and volume gains in both segments. Seed pricing increased 11% and helped to mitigate currency impacts. In Crop Protection demand remains high for new and differentiated products driving volume growth of 15% for the year. In the fourth quarter volumes were muted by approximately $50 million related to the war in Ukraine in our previously announced exit from Russia. In Latin America, organic sales increased 23% with notable gains in both price and volume. Pricing increased 16% compared to prior year, driven by our price for value strategy coupled with increases to offset rising input costs. Seed volumes increased 4% with some pressure due to tight supply of corn, while Crop Protection volumes increased 10% driven by demand for new products. Asia Pacific organic sales were up 9% over prior year on both volume and price gains. Seed organic sales increased 23% on strong price execution and the recovery of corn-planted area. Crop Protection volume was down 1% due to wet weather and low pest pressure in certain areas, partially offset by demand for new products. So with that let's go to slide 8 for a summary of 2022 operating EBITDA performance. For the full year, operating EBITDA increased approximately $650 million to $3.2 billion. And as I covered on the prior slide, strong customer demand drove broad-based organic growth with price and volume gains in all regions and we particularly benefited from the strong finish to the year including favorable year-over-year performance in our functional spend. We incurred approximately $1.2 billion of market driven headwinds and other costs over the course of 2022 driven by higher seed commodity costs, Crop Protection raw material costs and freight and logistics. We delivered approximately $250 million in productivity savings, which helped to partially offset these headwinds. SG&A as a percent of sales was down more than 230 basis points versus prior year as we maintain disciplined spending and accelerated execution on certain cost actions. Currency was a $290 million headwind, driven primarily by the euro and other European currencies. Standing back to performance in 2022 is a result of strong execution by the organization, demonstrating our ability to meet increased customer demand while effectively managing costs through pricing, product mix and productivity. Turning now to slide 9. I want to provide an update on our full-year free cash flow performance. Free cash flow for the year was approximately $270 million, compared to over $2 billion in 2021. The year-over-year decrease is driven by higher working capital balances, primarily accounts receivable and inventory. Receivables increases were largely due to higher sales, reflecting both volume and pricing. Importantly, DSO metrics remain healthy, benefiting from the strength of farmer incomes and also customer collections. In the case of inventory, you'll recall we had significant drawdowns in 2020 and 2021 particularly in Crop Protection. This inventory drawdown was driven by significant customer demand in the face of supply chain challenges, product availability and shipping and logistics issues. This set of challenges was obviously not unique to Corteva and affected broader industry. In 2022, inventory increases reflect a rebuild of safety stocks to support growth, higher input and commodity costs, as well as the impact from market volatility. We have now been able to rebuild our inventory levels. We believe we have about the right balances at this time. Due to supply chain dynamics and their impact on working capital over the last few years, it's meaningful to look at the free cash flow to EBITDA conversion over the most recent two years rather than either year in isolation. Free cash flow conversion averaged 42% in a two-year period from 2021 to 2022. In 2022, we returned $1.4 billion to shareholders including, $1 billion in share repurchases, a clear commitment to deliver value for our shareholders. Our pension liability continues to be well managed despite volatility in both equity and bond markets. As of year-end, the funded status of the US plan was 92%, and we do not anticipate cash contributions to the US plan in either 2023 or 2024. Now transition to a discussion on the guidance for 2023 on Slide 10. We expect net sales to be in the range of $18.1 billion and $18.4 billion, representing 5% growth at the midpoint driven by pricing and strong customer demand for differentiated best-in-class technology and increased US planted area. Keep in mind, that this growth is muted by approximately $600 million of product and geographic exits. 2023 operating EBITDA is expected to be in the range of $3.4 billion and $3.6 billion, a 9% improvement over prior year at the midpoint. Margins are also expected to improve with pricing, mix and productivity actions more than offsetting further cost inflation and currency headwinds, translating to roughly 70 basis points of improvement at the midpoint. Operating EPS is expected to be in the range of $2.70 and $2.90 per share, an increase of 5% at the midpoint, which reflects earnings growth, lower average share count, partially offset by a higher effective tax rate and interest expense. We expect our 2023 tax rate to be in the range of 22% to 24%, an increase from the 2022 rate of 20.6% largely driven by US tax law changes impacting foreign tax credits and the treatment of R&D expenses. Higher interest expense is driven by higher borrowing costs and higher debt balances. As you know, we carry significant commercial paper balances throughout most of the year to fund cash needs. Our 2023 guidance assumptions include, a higher average interest rate on the commercial paper balances, as well as higher borrowing to finance growth including the Biologicals acquisitions. We expect that free cash flow will be in the range of $1.1 billion to $1.3 billion, with higher earnings partially offset by the higher cash taxes and higher interest expense. At the midpoint, this translates into a free cash flow to EBITDA conversion rate of roughly 34% or approximately 40% over the last three-year period. On Slide 11, I want to remind you of the value creation framework we laid out in September to accelerate our performance and deliver greater value to shareholders. The growth targets we presented included, a 2025 operating EBITDA of $4.4 billion or a 22% margin at the midpoint. This slide includes our 2025 performance targets from Investor Day, and it also reflects our actual 2022 performance in today's guidance for 2023. Execution on our strategic decisions including focusing on core crops and markets, pricing for value being disciplined in cost, is driving margin expansion while also enabling increased R&D investment. Again, our performance in 2022 was a major installment on the path to our 2025 financial targets. Coupled with our guidance for 2023, we're confident we're on track to deliver those targets. So let's now go to Slide 12, to discuss the operating EBITDA bridge for 2023. You can see the pricing in 2023 will be in the mid-single-digit range, which will more than offset the impact from higher commodity costs and raw material inflation. Increased planted area in the US and demand for our best-in-class technology including, continued penetration of Enlist E3 soybeans are expected to drive volume increases in North America. Latin America seed volumes are expected to be up for the full year, with the increase weighted to the second half due to supply constraints early in the year from last season's dry weather. Volume growth in North America and Latin America will be partially offset in EMEA, driven by lower expected corn-planted area and an approximate $200 million impact from our decision to exit Russia. Demand remains strong for differentiated technology, which will drive increased volume in Crop Protection. Sales of new crop protection products will add approximately $300 million of incremental organic revenue. We'll benefit from the ongoing Spinosyns capacity expansion as we expect the franchise to generate more than $1 billion in sales in 2023. Volume growth will be partially offset by the approximately $400 million impact from our previously discussed product exits including commodity glyphosate. And while we're seeing some slowing in the rate of inflation as well as overall supply chain improvements the operating environment is still dynamic. For the full year of 2023, we expect approximately 6% increase in market-driven cost headwinds including higher commodity prices, input costs, and freight and logistics. This impact should be largely weighted to the first half of the year reflecting seed commodity cost impact and the sell-through of higher cost inventory. This translates into high single-digit rate of inflation in the first half of the year dropping down to low single digit in the second half. In addition to these market-driven costs, we expect additional headwinds on other cost of sales. Importantly, the outlook includes approximately $100 million reduction in royalty expense and an additional $300 million of productivity and restructuring benefits. Another key element of our cost structure and consistent with our multiyear plan, we are increasing our investment in R&D in 2023. Regarding currency, we expect continued headwinds. Our assumption is for a weaker exchange rate relative to the dollar for several key currencies including the Brazilian real, the euro, and the Canadian dollar. We estimate 3% to 4% currency headwind on revenues and low double-digit headwind on EBITDA. Now, it's important to note the guidance does not include the impact of the biologicals acquisitions which are expected to close in the first half of the year. We'll provide an update for 2023 to include these acquisitions in the quarter in which they close. So, let's now go to slide 13 and summarize the key takeaways. We had great performance in 2022 with 15% growth in organic sales, more than 200 basis points of margin improvement, amidst a dynamic operating environment. We have favorable momentum and we'll carry that into 2023 and expect another year of strong performance in growth, supporting our 2025 financial targets. And finally, we're investing in innovation in the future of Corteva. We remain committed to a disciplined capital allocation strategy that is a balance of investing for growth or returning cash to shareholders. Since 2019, our capital deployment was heavily weighted towards returning cash to shareholders as we returned more than $3.6 billion through share repurchases and dividends. In 2023, against the backdrop of M&A, this distribution will be tilted towards investing for growth as we close on the previously announced biologicals acquisitions in the first half of the year. And with that, let me turn it over to Kim.

Operator:

Thank you. [Operator Instructions] Our first question will come from Vincent Andrews with Morgan Stanley.

Chuck Magro:

Good morning Vincent. That's right. So, look when we look at the performance for 2022, what I'd start with is we're very pleased with the year and we had a very strong year across the board and really focused on execution. Obviously, the market fundamentals are robust we've said that. We believe that, conditions are going to be constructive through 2023, and potentially into 2024 depending on supply demand. And when it comes to the value creation framework, right now, we'd say we're actually a little ahead of the plan and that's really driven by – we got after some of the portfolio decisions a little sooner than we thought. And we took some of the cost management actions, and you could see that hit the bottom line. If you look back to the value creation framework that we proposed in September, we indicated somewhere between 100 and 150 basis points per year. In 2022, we hit 200 basis points. So there's some acceleration there. We are finding new opportunities every day. So we'll give the market an update at the right time. But what I'd say right now is we're very comfortable with the $4.4 billion in the 21% to 23% margins by 2025. And 2022 sort of a reflection of that with a bit of an acceleration from some of the actions we took a little faster than we thought we could get after.

David Begleiter:

Thank you. Good morning. Chuck on 2023 guidance the low end $3.4 billion. I guess, the question is why is this so low given the strong tailwinds we're seeing? I understand cost FX headwinds, but how conservative is that low end of the guidance range in your view?

Dave Anderson:

Sure. Yeah. So – good morning, by the way. And if you think about the high end of the guidance versus the midpoint of the guidance clearly more corn acres in the US would be a positive favorable cost realization of price would be a positive. And then we're also looking at some upside potential in terms of Brazil. To your point on the bottom end, it really still is very much a focus on our part on currency impacts and also just the dynamics in terms of the rate of inflation, which continues to be somewhat dynamic. We're seeing positive early indications on that, but that continues to be something, we're very, very focused on. So you can think of that and then of course in this business there's always Dave as you know, weather impacts that we would consider. Chuck mentioned, Symborg and Stoller. Our expectation is run rate for 2022 on those businesses in terms of EBITDA collectively is in the range of $120 million. So depending upon the time of the close and Chuck you may want to comment a little bit about that you could think of something like two-thirds of that coming through and actually benefiting us. And that reflects the fact as you know Stoller with being Latin America focused that would be towards the end of the year. Symborg really Europe some of that performance in earnings we won't really capture in 2023. But in 2024 in terms of run rate, we're going to see some very attractive contribution from both of those businesses, which will be very additive both obviously revenue added EBITDA and EBITDA margin additive for the company. Chuck, do you want to talk a little bit about timing?

Operator:

Thank you. And our next question will come from Kevin McCarthy with Vertical Research Partners.

Dave Anderson:

Yes. Essentially what we've assumed particularly very importantly, a good question around inventory is our inventory levels in terms of inventory to revenue or inventory to sales be basically constant. So in other words that would end up than being -- inventory would be a contribution. The change on the change would be a contribution to cash in 2023. Two of the key items beyond working capital they're very important and somewhat embedded in my prepared remarks earlier. One was the expectation for higher interest expense. Obviously, both amount of debt, but also the rate on that debt in 2023. That will flow through as a cash use for incrementally '23 compared to '22. And then the other one is higher cash taxes. That's predominantly related to the R&D tax credit phenomena if you will the capitalization amortization as opposed to expense benefit that we've been receiving. We're not unique in terms of that challenge and of course, that's something that's going to continue to be very much the focus of legislative lobbying because it's really we think highly punitive. So it's really working capital actually ending up net of increase in receivables, being a source of cash and then higher usage of cash on both the interest and on the tax side.

Operator:

And our next question will come from Joel Jackson with BMO Capital Markets.

Dave Anderson:

Sure, Joel. The sort of the short answer on the free cash flow conversion for 2023 relates to the points I made in the previous question which really have to do with the higher -- on a year-over-year basis, higher cash taxes and higher interest. There's some other factors in there, but those are the biggest components of that. In terms of capital allocation, as you know -- and we've really demonstrated that balance in terms of our overall capital allocation with history if you will up through 2022 very much of course weighted towards returning cash to shareholders. And that was I think very, very smartly executed during that period of time. 2023 is going to be much more significantly tilted towards growth and specifically M&A with the Stoller and Symborg acquisitions. We anticipate continuing on our share buyback, but that's going to be at a -- likely will be at a reduced level just given the significance of those acquisitions.

Christopher Parkinson :

One of the best success stories I think Corteva in 2022 was just the progress you've made in CPC margins. You laid out some helpful framework in the PowerPoint, but if you could just offer some further color on first of all just obviously the price/cost environment new product growth the exit of certain business lines. It seems like things are probably ahead of schedule as it pertains to your longer-term margin guidance. So just any additional framework you could offer on that would be very helpful? Thank you so much.

Robert King :

Sure. Yes Chris when you look at 2022 just a quick recap on how do we do it and what were some of the key drivers there. Dave hit on a few of them, but it really starts out with our strategy around price for value and productivity. We continue to be able to offset inflation in that year of -- inflation was about 10% as you roll the year up and yet we were able to continue to put new technology on the ground and the demand for it continues to grow up -- continues to go up with the growers. Our new product growth finished up about 33% as you've seen. And this is really a good story around that technology that continues to be a pull into the market. So these types of things with our supply chain becoming more resilient. We delivered nearly 10% more volume last year. This will be the continued story into 2023, as we begin to look at how will we manage margins what's that look like and how do we get through the year. We're going to continue to follow our price for value strategy. We do expect we'll have a little headwinds in the first half of the year for inflation and we'll work with that and productivity to continue to offset that. And then really what you look at in 2022 is structural changes that we're making and with the exits that have started we will finish up. It will be about 70% done with all of our AI exits in 2023. So 2023 really becomes a transformation year that we begin to change our portfolio and position us for even better margin accretion as we move forward into the future.

Patrick Cunningham :

Hi. Good morning. This is Patrick Cunningham on for P.J. In crop volumes in the quarter Crop Protection were down outside of North America and it seems like fungicides took a pretty big hit. Can you walk us through why the Crop chem volumes were so weak in the quarter? Thank you.

Operator:

And we have a question from Steve Byrne with Bank of America.

Dave Anderson:

Yes. This is Dave. So as we -- as you know we really have not provided -- cannot provide any kind of forward view. There's just no estimate that's available that would allow us to do that. We do -- we'll have an $87 million charge for the full year of 2022. There's just at this time limited forecast visibility as to what that would translate to in terms of 2023 and we've really just not prepared to comment on that. In the same way on the cash side, I mean, I think that's very, very much a TBD. We'll obviously update as actuals occur and actuals progress.

Frank Mitsch:

Yes. Good morning. I wanted to follow up on the Crop Protection Chemical. Growth that you saw in new products, obviously, that was a nice success story for 2022. The original guidance was for $300 million increase in 2022 and you came in at $475 million and you're guiding again for $300 million in 2023. So I'm wondering what went right in 2022? And what could go right in 2023, or what could go wrong in 2023?

Chuck Magro:

Yes. Frank, maybe I'll add one other point. It's not necessarily a new product, but we've got the new Spinosyns franchise capacity that will come into the market in 2023. So beyond what Robert said around that existing portfolio, we've got a capacity expansion and one of the most profitable franchises we've got with Spinosyns and that will start to go into the market, the new capacity this year. So we're looking forward to good things from that franchise as well.

Arun Viswanathan:

Great. Thanks for taking my question. So just looking at the guidance, it looks like you've noted that the cost headwinds are largely weighted to 1H 2023. Is there any potential for maybe cost to surprise to the downside or upside? How would you kind of look at that? And if so is the pricing that you have in place sufficient to offset some higher costs if there is any possible increase, or would you be able to enact pricing to offset that? I'm just wondering what drives the lower end of your range there.

Tim Glenn:

Yeah. Dave on the seed side, I'd say for the first half we have a very good understanding of what our seed costs are that seed we would have produced last year. And so consider in the barn and well-understood in terms of the cost that we have there and we've been live in the marketplace with pricing for really since August in North America. And given where we're at in the market, we got great performance, very good demand for our technology. And I would describe our pricing as being well accepted in the marketplace. And again that's largely driven by good value proposition our ability to go out there and demonstrate value to our customers. So North America in a great spot. We've been live in Europe for about three months and again understood what our cost position was. And again pricing I was in Europe last week and our pricing is holding well in the marketplace and great implementation. You think about exposure for the rest of the year on seed. Latin America we're still in the field, producing our seed in Brazil especially but also Argentina. And so we have a little bit more exposure if you will in terms of those costs, but obviously we're working hard and we factor that in I think to our guide so far. And in terms of pricing, we still have flexibility there. We're not live in the marketplace per se. And so we're going to continue to evaluate where we're at there. We got a great track record of capturing value in Latin America and so we believe we're positioned very well for value -- strong value proposition. Again we've got an excellent track record in terms of being able to capture value and confident that we're going to be able to more than offset what that inflation pressure is.

Operator:

And our next question will come from Joshua Spector with UBS.

Dave Anderson:

I think I would just comment that we've got on a year-over-year basis, obviously, those additional headwinds that I mentioned to you. The other thing that I would mention is that we will get the cash contribution over time from acquisitions. It's not going to be significant, but it will be important to the overall equation. But the other thing is just the growth in EBITDA that's going to occur over that period of time. So, we also see some call it improvement as we look to more normal patterns in terms of the cost and inflation issues and some of the supply chain issues that we've been dealing with and the industry have been dealing with in general. All of those are going to be able to be contributors towards the targets that we've talked about. And by the way just to reinforce again, the 2022 performance combined with the 2022-2023 guide is again a very important statement we think we're making about the attainment of those 2025 numbers.

Operator:

And moving on to Adam Samuelson with Goldman Sachs.

Robert King:

Adam, thanks for the question of what's going on in the market. It's going to be a dynamic year. But as we look at it it's – we're expecting the market organic growth to be in the mid-single digits call it 4% to 7% with biologicals outstripping that. It will be the fastest-moving segment. Overall, the demand continues very strong across all regions. And again, it's – growers are chasing yield and that's where we – that's our sweet spot I guess is what I would say with the products we have. You asked about channel inventory, and right now we see inventory to be about normal across all regions with a few hotspots around some pockets that we're going to have to watch. One being, we talked about earlier the fungicide in Latin America is elevated a bit. To a lesser extent Europe not near as much but in a couple of areas in Europe. And then insecticide in Asia is elevated as well because it's just been vet not have pest pressures. But if you roll all that together, those inventory levels from what we see in the channels is very manageable across the year, across the seasons. No issues there from a standpoint of will it work itself out. We do see that the pace of price for the year flattening as compared to a year-over-year comparison. But we – like we said before, mid-single-digit inflation we're still expecting for crop protection. Again more weighted towards the first half. I think the thing to watch is the global supply chain. So all things are trending in the right direction. If you look at all the key indicators for the global supply chain market. But what I would say is it's stable. It's not getting any worse for the first time in a while. And I guess, I'm cautiously optimistic that that continues to improve but that's one to watch as well to see how does that drive the market as we move into this year. So overall from a market standpoint, it's poised to have a really good year and we think we're sitting in a pretty good position across all levels there as well. Maybe a couple of comments on seed.

Tim Glenn:

Yes. I think Adam, when you think a seed this year, one of the big movers obviously is the shift back towards corn here in North America. We believe we'll have an increased area in both corn and beans, but that tilt towards corn is very important. Clearly for us, we were still operating in a very healthy environment as well. Customers are generally good in terms of what their farmer income is and there's certainly as always demand for the latest and best technology that's going to help them be most productive. The dynamics between corn and soy, we watch that all the time up through final decision-making and it continues to tilt towards corn. And I'm comfortable with that current 91, 89 as reasonable assumption. Around the world, certainly dynamics are different than what we see here in North America. In Europe, I'd say that we're probably more expecting corn to be flat-ish in the marketplace and that's driven by a couple of markets including Ukraine impacting that. Latin America, still strong momentum there. Certainly, we're in the midst of planting this safrinha season and here in a few months we'll be out selling next summer corn, as well as soybeans and then on to safrinha. That all comes very fast, but still tremendous growth across Latin America and no reason to see that hectares won't be up, not just this season, but also in the coming seasons as well for Brazil in particular.

Edlain Rodriguez:

Thank you. Good morning. Actually, this is Edlain Rodriguez. A quick follow-up on seed for Tim. I mean, this is the first time in a long time where the seed business has a positive EBITDA in the fourth quarter. Can you talk about how sustainable that trend is going forward? And also, with minus, what's driving that change?

Operator:

Thank you. That does conclude the question-and-answer session. I'll now hand the call back over to Kim Booth.

Operator:

Well, thank you. That does conclude today's conference. Thank you for your participation and have an excellent day.

Kim Booth:

Good morning and welcome to Corteva's third quarter 2022 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, 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 is now my pleasure to turn the call over to Chuck.

Dave Anderson :

Thanks, Chuck, and welcome, everyone, to the call. Let's start on Slide 6, which provides the financial results for the quarter and year-to-date. You can see from the numbers, we had another quarter of strong performance. Quickly touching on the third quarter. Organic sales increased 22% compared to 2021 with double-digit growth in both segments and in all regions. This translated into earnings of $96 million for the quarter, growth of nearly 290% and margin improvement of more than 550 basis points. So another quarter of impressive growth and margin expansion. Now it's important to note that the third quarter includes some timing benefit from volume that was originally forecasted in the fourth quarter that shifted into the third quarter. This is incorporated in our updated full year guide, in the implied fourth quarter that we'll go through in a moment. This guide also includes third quarter performance favorability lives through for the full year. Turning to year-to-date. Organic sales grew 16% over prior year with broad-based price and volume gains. Global pricing was up 10% through the first 9 months with notable increases in both Seed and Crop Protection. Volume growth in Crop Protection of 13% was driven by the strength of new products, which delivered more than $470 million of sales growth year-over-year, an increase of almost 50%. We delivered approximately $2.85 billion in operating EBITDA in the first 9 months, a 23% increase from the same period last year. This is impressive given the continued cost inflation, commodity price and currency volatility and the war in Ukraine. Pricing, product mix and productivity more than offset the higher costs incurred as well as an approximate $270 million currency headwind driven predominantly by European currencies. This earnings improvement translated into more than 190 basis points of margin expansion year-over-year, reflecting the execution, including the portfolio decisions that Chuck referenced earlier. So with that, let's go to Slide 7, where you can see the broad-based growth with double-digit organic sales gains in every region through the first 9 months. In North America, organic sales were up 11% driven by Crop Protection on demand for new technology, including Enlist herbicide. Seed volumes were down versus prior year primarily due to a reduction in U.S. corn acres and supply constraints for canola in Canada. Soybean volumes were up 5% versus prior year driven by continued penetration of Enlist. Both segments delivered pricing gains with 6% pricing in Seed, 18% in Crop Protection, more than offsetting higher commodity and input costs. In addition, we're confident that we gained market share in both corn and soybeans in North America. In Europe, Middle East and Africa, we delivered 21% organic growth compared to prior year driven by price and volume gains in both segments. Seed pricing increased 12% and helped to mitigate currency impacts. In Crop Protection, demand remains high for new and differentiated products, driving volume growth of 18% through the first 9 months. In Latin America, Organic sales increased 24% with double-digit volume and price gains. Pricing increased 14% compared to prior year driven by our price-for-value strategy coupled with increases to offset rising input costs. Seed volumes increased a modest 1% due to tight supply of corn, while Crop Protection volumes increased 16% driven by demand for new products. Asia Pacific organic sales were up 12% over prior year on both volume and price gains. Seed organic sales increased 27% on strong price execution and the recovery of corn planted area. Crop Protection volume growth of 2% was again led by demand for new and differentiated products. Let's now turn to Slide 8 for a summary of our operating EBITDA performance. Through the first 3 quarters, operating EBITDA increased $540 million to $2.85 billion. And as I covered on the prior slide, strong customer demand drove broad-based organic growth with price and volume gains in all regions. Year-to-date, we've incurred approximately $830 million of market-driven headwinds and other costs driven by higher seed commodity costs, crop protection raw material costs and freight and logistics. We've delivered approximately $175 million in productivity savings, which helped to partially offset these cost headwinds. We continue to maintain disciplined spending with SG&A down as a percent of sales, more than 200 basis points from the same period last year. Currency was a $270 million headwind driven primarily by European currencies. Standing back, you can see the organization's ability to meet increased customer demand while effectively managing cost headwinds through pricing, product mix and productivity. And again, we believe this performance really differentiates Corteva. Turning now to Slide 9. I want to take -- make several points about the updated outlook for the full year. With the backdrop of our strong performance through the first 9 months, we're affirming our full year revenue guidance to be in the range of $17.2 billion to $17.5 billion or 11% growth at the midpoint, including approximately 3% headwind from currency. And as Chuck said, ag fundamentals remain strong as we finish out the year. However, we're monitoring supply availability as well as volatility in currency markets. We're raising the midpoint of our full year operating EBITDA guidance, now expected to be in the range of $3 billion to $3.1 billion or 18% growth at the midpoint. This updated guidance includes an estimated $50 million EBITDA favorability in the third quarter that is expected to carry through for the full year. For the full year, high single-digit pricing is expected to offset headwinds from higher input costs and currency. Lower spend driven by cost actions that we discussed and strong collections resulting in lower bad debt accrual also supports this outlook. The updated earnings guidance translates into approximately 110 basis points of operating EBITDA margin expansion for the year, again, impressive in this environment. Our full year EPS guidance remains unchanged at a range of $2.45 to $2.60 per share, as higher operating EBITDA is expected to be somewhat offset by higher exchange gain and loss impact. On free cash flow, we continue to perform well against our working capital metrics, including our days sales outstanding and inventory days supply. DSO continues to improve, reflecting the strength of farmer income as well as customer collections. Inventory days sales, or IDS, is trending higher this year given the significant increase in seed costs and the replenishment of crop protection inventory. We're now expecting higher working capital balances in absolute dollars for the year, but working capital to sales relationship is tracking to prior forecast. Our current thinking is that these higher working capital levels will result in free cash flow closer to the lower end of our previous guidance range or roughly $1 billion free cash flow for the full year 2022. So now let's transition to a discussion on Slide 10 on the setup for 2023. You can see our initial planning framework. It's intended to provide key assumptions as we begin to transition. We see 2023 as a continuation of the momentum from 2022 while also balancing the uncertainty of the economic environment. Specifically, given the appreciation of the U.S. dollar in 2022 and continued volatility in foreign exchange markets, we expect additional currency headwinds in 2023. Now we're going to continue to use financial hedging to mitigate the risk from certain currencies and use local pricing in key markets to offset the impact wherever possible. Nonetheless, we see another year of foreign currency translation headwind in 2023. While we expect cost inflation levels to begin to moderate over the course of '23, we will see cost headwinds in 2023 in both Seed and Crop Protection driven by commodity costs as well as raw materials. Drought conditions in Latin America earlier this year have put pressure on seed supply in the region. This will be a headwind to our corn volume growth in the first half of 2023, but we expect inventories to recover in the second half of the year. Our current estimate for U.S. planted area is to be slightly up for the 2023 season with a slight bias towards corn acres based on the current relative economics for farmers. This is clearly a positive for Corteva. In addition, in Latin America, we expect corn planted area to increase low to mid-single digits. On price-for-value strategy, that continues to be a key lever to offset inflation. Pricing for our yield advantage technology and differentiated solutions is expected to more than offset higher cost of goods sold. And as Chuck said earlier, we're making progress on our portfolio simplification, exiting commodity glyphosate products among other nonstrategic product lines and geographies will create a headwind to our base business volume growth. However, it will be accretive to margins, and the overall impact to operating EBITDA will be positive. We'll see an estimated $100 million reduction in net royalty expense next year driven by continued Enlist penetration and the increase of units in our proprietary genetics. Enlist E3 soybeans will represent approximately 70% of our U.S. soybean sales in 2023, and we expect about 65% of those will be in our own Corteva germplasm. This will support increased overall market penetration of the Enlist trait and will, of course, be a direct EBITDA lift. And finally, on our productivity and cost actions, the expected savings from our productivity work and restructuring programs will more than offset the increased investment in R&D for next year. So coupled with a strong market outlook and solid grower economics, we believe we're well positioned for another strong performance year. Let's now go to Slide 11 and just summarize some of the key takeaways. The company has taken very important steps in its strategic road map, including portfolio simplification and investing in growth. By exiting nonstrategic product lines, we can focus on key markets and provide differentiated solutions to farmers. And with the acquisition of Symborg, we've taken another important step building our biologicals business. It's clear that our organization is executing well. We're very pleased with the strength of our results through the first 3 quarters. The strong year-to-date performance gives us confidence to raise the midpoint of our full year operating EBITDA guidance. And let me just say a few words about capital deployment. As a reminder, we plan to repurchase $1 billion in shares in 2022 with $800 million completed through the third quarter. Since 2019, we've returned more than $3.3 billion of cash to shareholders through dividend and share repurchase, a clear commitment to deliver value to our shareholders. And finally, we believe that we've continued -- with this continued favorable momentum that will carry us into 2023 as we look to continue both performance and growth. So more to come as we make progress to advance our strategic framework and drive continued operating EBITDA margin expansion. We believe these strategies will further differentiate Corteva and deliver increased value for years to come. And with that, let me turn it back over to Kim.

Operator:

[Operator Instructions] We will now take our first question from Vincent Andrews from Morgan Stanley.

Dave Anderson:

So Vincent, this is Dave. Thanks for participating. So let me give you sort of a broad statement. And then, Robert, if you'd like to fill in a little bit more on the details on the crop side. And Tim, obviously, anything you want to add on the Seed side. But broadly, obviously, this year is shaping up to be much larger than anybody ever anticipated. Right now, if you look at our implied numbers, it's in -- around 10%, 10% to 11% on a full year basis in terms of overall cost inflation to include commodity costs as well as input or ingredient costs, freight and logistics. Just incredible. And again, just want to reinforce what we've been able to do this year in terms of execution, pricing, productivity, what Tim and Robert combined have been able to do to be able to deliver the performance. For 2023 and specifically to your question, we -- as we said in our prepared remarks, we anticipate that inflation is going to continue, that it's going to continue to be a headwind. We are anticipating moderation in the rate of inflation. It'd be too early right now for us to say precisely or even within a kind of a guidance range what that could be. We'll provide that together with, obviously, more details around 2023 when we provide our formal guide. But it will be a moderation of the rate but a continued headwind for us. That's what we're anticipating, and that's what we're planning in terms of our execution. Robert, you want to talk about crop?

Operator:

We will now take our next question from David Begleiter from Deutsche Bank.

Dave Anderson:

So David, maybe I could start. Chuck, you can add to this. It's a really good question. And just to -- for everybody's benefit, the numbers David's referencing back to our September 13 Investor Day where we said at the midpoint, '23 to '25, looking at about a 5% CAGR on the revenue side and around 13% on the EBITDA side. We see right now, as we look out to 2023, and I use that term a balanced framework, but it's a constructive setup, we think -- Robert, you highlighted for crop very well, all the actions that we're taking and what we're anticipating in terms of an overall market. We would think that 2023 would be, call it, ratable or in a pro rata basis should be an important and relevant contribution to that overall goal. So we see that as a good setup for the beginning of that 3-year period. Chuck, anything you want to add to that?

Operator:

We will now take our next question from Joel Jackson from BMO Capital Markets.

Tim Glenn:

This is Tim. I'll take a shot at this. So in terms of soybeans in general, farmers can and do see some variation in fields for any kind of soybeans. And the soybean-grading process allows for that color variation. The varieties respond differently to the environment. Certainly, there's a genetic component and other factors play in as well. In the case of Enlist E3 soybeans, color variation can show up as a light brown shadow on seed coat on the side of the hilum. And the variation is from natural compounds, and it's on the seed coat and does not impact nutritional composition or quality. We continue to answer questions and inquiries that come up, and we're very much connected to processors and end users as well as our channel partners and farmer customers. Demand for the technology remains strong, and farmers continue to get full value from the technology. And the grain is accepted in the marketplace. So there is no widespread discounting on Enlist soybeans. So I do want to reinforce that. And clearly, farmers continue to support the technology. The technology will continue to grow, and we're out there and quite active and visible in terms of answering questions or inquiries that may come up.

P.J. Juvekar:

I have a question on your decision to exit glyphosate. I would imagine that it's based on how volatile glyphosate is, and you're focused on more sustainable products. Maybe you can comment on that. Where you do have a underpenetrate in some of your products. Do you expect that the generics will kind of fit in the gap? And you mentioned $300 million of sales. Was there an EBITDA number associated with that?

Tim Glenn:

Yes. I mean in terms of the Roundup Ready technology, I mean it is an integral part of our trade offerings today and will continue to be so. There's no -- certainly no intent to alter that. And it remains a technology that's highly valued by our customers, and they get great utility from it. And I think the other thing that plays into it is, as Chuck implied, farmers have a lot of choices on from where they source glyphosate. And there was really no, I'd say, direct linkage in terms of what we were supplying on the Crop Protection side and what we supplied on the Seed. They were very separate offers, and there was no incentive for -- really for a customer to purchase our glyphosate brand versus any other brand. And so from a Seed standpoint, it's steady as we go, and we'll continue to support the technology across multiple crops.

Operator:

We will now take our next question from Christopher Parkinson from Mizuho.

Dave Anderson:

Maybe, Robert, I could just do a quick introduction on that for Chris, this benefit. I think number one to point out -- while it wasn't specific to your question, I think it's important to point out, and we referenced that earlier, is that we will have some volume headwind, obviously, in 2023 as a result of these decisions. The second thing I would mention, while obviously beneficial, as Robert said, to margin and to EBITDA, The second thing I would mention is that we did reference methamel as well as one of those items. It's down the list in terms of significance or size, but it is indicative of what we've done in terms of some of that portfolio refinement and actions. And Robert, do you want to talk about anything else and -- both on what we're doing refinement-wise, but also in terms of growth?

Operator:

We will now take our next question from Kevin McCarthy from Vertical Research Partners.

Chuck Magro:

Sure. Kevin. So look, if you step back and you think about the landscape from a Crop Protection perspective, you can just see that the world is looking for nature-based, biological-based products to have biocontrol, biostimulants, bionutritional products as part of the overall portfolio. As we said in September, we don't see this replacing traditional chemistry. So I want to be clear on that. But by the time we get to 2035, we do believe that the biologicals will be a significant part of the overall CP portfolio, and we're calling it about 25%. We've got a very robust internal R&D and innovation program around biologicals, and that work is proceeding very well. We're increasing our R&D investments in this area quite rapidly. But as we called out in today's call but also in September, we also feel that M&A will be an important part of this journey to build a world-class biologicals business inside of our CP portfolio. And the Symborg acquisition was one of the first ones that we've pulled the trigger on right now. We do have a portfolio of other opportunities that we're looking at. But if you look at Symborg, they're a leader -- a global leader in microbial products. We know the company. We know the products. We've had this distribution agreement I referred to with them. They have phenomenal skill set. And they're based in the right part of the world. They're based in Europe, where I think biologicals, the market's going to lead. The European market will lead a biological journey. So we -- there's a lot to like there. And I guess, to answer your question specifically, what's next, I guess stay tuned. We're going to use M&A to accelerate our R&D innovation and development and to get access to the market. That's how we're going to use M&A. Now let me just be clear, though, we do have a phenomenal internal program going on right now. We reviewed the portfolio just a few weeks ago. And there's lots of exciting things there, which we will share with you over time.

Jeff Zekauskas:

In Seeds, it's relatively easy to have an idea of what pricing will be like for 2023. We look at your Seed cards in September and then extrapolate into next year. But how is it best to think about pricing in crop chemicals? Is that something that plays out each quarter? Are your prices set for next year? Is it easy to estimate? Do you have a view on pricing in crop chemicals in 2023?

Operator:

We will now take our next question from Steve Byrne from Bank of America.

Chuck Magro:

Steve, let Tim walk you through sort of our thinking on Enlist market growth.

Robert King:

Yes. Just to add to that, Steve, when you think about our platform in the CP side, we are still the only Enlist manufacturer for the herbicide that can go on the top of these beans as well. So that will give us some uplift there as well depending on how this plays out.

Operator:

We will now take the next question from Frank Mitsch from Fermium Research.

Dave Anderson:

Maybe I could talk a little bit -- I'll talk a little bit about the currency point and just kind of give you just a little bit of a backdrop. And then, Tim, you want to talk about the other point. I mean, I think currency, as we indicated, is going to continue to be a headwind. Right now, if you look at where the major currencies are trading, and we think in terms of the euro, obviously, the Brazilian reais, the Canadian dollar, some of the other European currencies, as being significant for us, right? And when you look at those numbers, if you just did a sort of a flash of where we are today, we'd be looking at currency headwind that would be comparable to what we were experiencing in 2022. And we talked about a 3% headwind, that's revenue headwind. That would be a comparable headwind that we would anticipate for next year. On the inflation side, I think we talked about that earlier in terms of the macro consideration. And that one -- and Robert did a nice job of handling that as well. That one, we see that we're just going to have to remain very, very vigilant. We don't see -- other than obviously lapping very strong inflation this year and some mitigation of the rate of inflation, we don't see, call it, a piece dividend related to a reduction in cost -- major cost for next year. Tim, do you want to address some of the fundamentals?

Operator:

Will now take our next question from Josh Spector from UBS.

Tim Glenn:

Josh, it was just a couple of months ago that we had to signal what the new potential was, so we raised it. And obviously, we're in the discovery phase of what the opportunity is. So I can't say we have an update to what that is. Clearly, it's going to be depending upon a number of factors, some of which we control, some of which we don't control. But the important thing is that as we go into 2023, we expect Enlist E3 to be the majority or the top-selling technology in that very important soybean seed market. So that's a very significant milestone that we're reaching. And again, based off of performance of the technology and the system, Seed and Crop Protection, I think the market is going to determine that. But we're comfortable with that 60% today. And certainly, as we go forward, we believe we're going to have very strong genetics. We know we'll have very strong genetics from us and other providers in the marketplace. And there's no better crop protection system in the marketplace. So we feel comfortable about what our long-term perspective is -- or long-term opportunity is there.

Ben Theurer :

Congrats on the results. Just wanted to stay along the lines around the royalties and some of the planning framework as you've mentioned that your expectation is that corn is going to lead the planted area in the U.S. next year. Are there any signs that you've seen that from like farmers' demand? Because obviously, that would be supportive to your royalty reduction if there's more demand for corn versus soy. So just to put a little bit into perspective, what if farmers' decision switching back to corn? And how much is really would you improve by accelerating Enlist and drive more of your own germplasm?

Operator:

We will now take our final question from Arun Viswanathan from RBC Capital Markets.

Chuck Magro:

Well, let me give you my perspective and then, Dave, you can get into a bit more detail. So look, if you go back to the September Investor Day, we laid out a 3-year plan that had significant value creation, right, getting to 21% to 23% EBITDA margins, $4.1 billion to $4.7 billion of EBITDA from where we were at in the last -- in fiscal 2021 at $2.6 billion of EBITDA. We also said today that we are feeling very comfortable that we're on track for that value-creation plan and that Dave said, it's very ratable. So I think that, that's -- we'll give you our more specific numbers, obviously, in February when we give full year guidance. But today, given everything that we see coming at us, we feel very comfortable that we're on that plan. Dave, any other final comment?

Chuck Magro:

Good. Thank you.

Kim Booth:

Good morning, and welcome to Corteva’s Second Quarter and First Half 2022 Earnings Conference Call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, 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 is now my pleasure to turn the call over to Chuck.

Dave Anderson:

Thanks, Chuck, and welcome, everyone, to the call. Let’s start on Slide 7, which provides the financial results for the quarter and the half. As Chuck said and as you can see from the numbers, we’ve started the year strong. Quickly touching on the quarter, organic sales increased 13% compared to 2021, with gains in both segments and all regions. This translated into earnings growth of 18% and margin improvement of more than 150 basis points, another solid quarter of continued growth and margin expansion, and I think differentiating Corteva in this environment. Now focusing on the half, organic sales grew 14% over prior year, with broad-based price and volume gains. Global pricing was up 9% with notable increases in both, Seed and Crop Protection. Volume growth in Crop Protection of 16% was driven by strength of new products, which delivered approximately $400 million of sales growth year-over-year, an increase of more than 60%. We delivered $2.8 billion in operating EBITDA in the half, a 17% increase from the same period last year. This is noteworthy given the continued inflation of raw and energy costs, commodity price volatility and the war in Ukraine. Pricing and productivity more than offset the higher costs incurred as well as an approximate $200 million currency headwind, driven predominantly by European currencies. This improvement translated into almost 130 basis points of margin expansion year-over-year. Let’s go to Slide 8, where you can see the broad-based growth with strong organic sales gains in every region. In North America, organic sales were up 9%, driven by Crop Protection on demand for new technology including Enlist herbicide. Seed volumes were down versus prior year, primarily due to a reduction in U.S. corn acres and supply constraints in canola. Soybean volumes were up 4% versus prior year, driven by continued penetration of Enlist. Both segments delivered pricing gains with corn and soy up 6% and 7%, respectively, and double-digit pricing gains in Crop Protection, more than offsetting higher input costs. In Europe, Middle East and Africa, organic sales increased 19% compared to prior year, driven by both, price and volume gains, again in both segments. It’s an impressive performance by the organization considering the impact from the war in Ukraine and the recent dry weather condition in parts of Western Europe. Seed pricing increased 12% and helped to mitigate currency impacts. And for Crop Protection, demand remains high for new and differentiated products, driving volume growth of 15% year-over-year. In Latin America, we delivered 31% organic growth with double-digit volume and price gains. Pricing increased 13% compared to prior year, driven by our price for value strategy, coupled with increases to offset rising input costs. Seed volumes were flat due to tight supply of corn, while Crop Protection volumes increased 34%. We also had a timing benefit on an early customer demand in Brazil, shifting some forecasted volume into the second quarter. Asia Pacific organic sales were up 13% over prior year on both volume and price gains. Seed organic sales increased 24% on strong price execution and the recovery of corn planted area from last year’s COVID-related impacts. Crop Protection volume growth of 5% was again led by demand for new and differentiated products. Let’s now turn to Slide 9 for a summary of our operating EBITDA performance. First half operating EBITDA increased nearly $400 million to $2.8 billion. And as I covered on the prior slide, strong customer demand drove broad-based organic growth with price and volume gains in all regions. On costs, we incurred more than $500 million of market-driven cost headwinds in the half, driven by higher Seed commodity costs Crop Protection raw material costs as well as freight and logistics. The company achieved approximately $130 million in productivity savings in the half, which helped to partially offset this impact. Currency was a $200 million headwind, primarily by European currencies. The organization’s focus on meeting increased customer demand, while effectively managing cost headwinds through pricing, product mix and productivity resulted in nearly 130 basis points of margin improvement for the half. Let’s turn now to Slide 10. I’d like to expand just a little bit on our cost actions. In connection with the business realignment that Chuck referenced, we’ve completed a strategic assessment of our priorities and operational structure. As a result of this assessment, we anticipate incurring restructuring charges on a quarterly basis through the second quarter of 2023 of approximately $400 million. Roughly half of the $400 million of restructuring will result in cash payments and the remaining $200 million is related to long-lived assets, the Russia withdrawal, and some inventory write-off. This quarter, we recognized $68 million in restructuring and other charges. These charges were primarily a result of contract terminations, a reduction in headcount and a $45 million charge related to our previously announced withdrawal from Russia. We expect additional restructuring and other charges of approximately $325 million over the next 12 months, including charges from headcount reduction and rightsizing our operations and functional support structure. And finally, and a key point, we expect the restructuring actions will deliver more than $200 million in run rate savings by 2025. More to come on this, but we believe these actions will position us to deliver increased value in both, the short and long term. Let’s go now to Slide 11 and talk about the remainder of the year and our updated expectations for 2022. With the backdrop of our strong first half performance, we’re raising our reported net sales guidance to be in the range of $17.2 billion to $17.5 billion for the year, representing 11% growth at the midpoint and includes an approximately 2% to 3% currency headwind. We are also raising our operating EBITDA guidance to a range of $2.95 billion to $3.1 billion or 17% growth over prior year at the midpoint. This increase reflects continued strong price execution in both segments and all regions, both for our technology in response to rising input costs. We now anticipate $500 million of year-over-year improvement in sales from our new Crop Protection products, an increase of $200 million over our original annual assumption driven by strong demand in every region. And as we focus on the second half of the year, we expect pricing and productivity to more than offset cost headwinds, which are driven by Crop Protection raw material costs, Seed commodity costs as well as freight and logistics. Volume growth will be led by Crop Protection, primarily in Latin America as farmers look to the newest technology to drive productivity on the farm. Seed volumes are expected to be relatively flat in the back half of the year with tight seed supply in Latin America corn. And regarding the third and fourth quarter outlooks, we expect the distribution of both revenue and operating EBITDA between the quarters to be consistent with our historic patterns. The volatility of exchange rates continues to be a key variable that we’re monitoring, primarily the Brazilian real. While we are largely hedged for this currency exposure, we currently expect an approximately $50 million headwind in the second half. We continue to maintain disciplined spending we anticipate that SG&A as a percent of sales will improve by more than 100 basis points for the full year. Increased customer demand, coupled with the ability to manage cost headwinds through pricing and productivity is expected to result in approximately 100 basis points of margin improvement for the full year at the midpoint. We’re raising our operating EPS guidance to a range of $2.45 to $2.60 per share. A lower share count driven by the $600 million of share repurchases completed in the first half of this year, coupled with strong operating earnings is driving an expected 17% increase in operating EPS year-over-year. Lastly, we expect free cash flow to be in the range of $1 billion to $1.3 billion, lower than our earlier assumption of $1.3 billion to $1.6 billion. The change is led largely by higher accounts receivable balances on higher revenue. Despite the increase in working capital balances, all working capital metrics including days sales outstanding receivables and our inventory day supply continue to be strong. Let’s now go to Slide 12, just to summarize a few key takeaways. It’s clear that our organization, as Chuck has said, is executing very well. We’re obviously very pleased with the strength of the first half results. This momentum gives us confidence to raise our full year revenue and earnings guidance. And we’ve taken very important steps in our strategic road map to accelerate operational performance, and drive continued operating EBITDA margin expansion. We’ve completed comprehensive portfolio reviews. We’re taking cost actions to support our strategic priorities and our performance outlook. And finally, we plan to maintain our track record on capital deployment with our recently announced 7% increase in the dividend, and we expect to complete approximately $1 billion in share repurchases for the year. So, we’re excited to share more about this at our upcoming investor event. And with that, Kim, I’ll turn it over to you.

Operator:

Thank you. [Operator Instructions] And we’ll take our first question from Vincent Andrews with Morgan Stanley. Please go ahead.

Chuck Magro:

Good morning, Vincent. So, why don’t we do this, this morning? We’ll have Dave talk a little bit about the process that we went through. I will say it was an expensive process. We had many employees involved in the effort. And then, I’ll come back and I’ll give you a perspective on what we think where we are in the overall outcome and what we’ll share more for you in September. So, let’s start with the process this morning. Go ahead, Dave.

Chuck Magro:

Yes. So look, I think from a process perspective, we spent a lot of time and effort. We’ve made the decision to exit what we call some nonstrategic geographies and product lines. Where we’re still focused, Vincent, to be candid with you, is there’s some markets that we’re still analyzing when it comes to what level of resourcing should we have, what’s the route to market. So, these are some of the other pieces of work that are still on the to-do list. But the way you’ve referenced it is accurate. We, I think, did a very good analysis on the ability for the markets to grow the strategic fit that we’re trying to shape up for our focus and then how much money we make in some of these markets and different product lines. And we’ve made the decision, as you’ve referenced. So, there’s about 5% of our revenue that’s impacted here. But we’re going to keep essentially all of our EBITDA. But there’s some further work to be done. The reason we’re not talking about specifics today, just to be candidate, we still have to go through the internal communication process. We haven’t notified some of our other stakeholders around the specifics. And so, those plans are going to take some time. But I think that when you think about the $200 million that’s related to the $400 million write-down, what I would say to you today is that is one element of a broader strategic and financial framework, which we will share in our September Investor Day. So, I think the way you asked the question is this it? Is it done? I think you need to wait till September to see the overall financial framework that we’re going to lay out at the Investor Day, so that you’ll be able to measure to monitor our progress for value creation. We think that we’ve got a great plan now put together. Obviously, it’s going to be key to execute the plan. But we’ve, I think, looked at the company from, first of all, a strategic lens and then an R&D and innovation lens and now a financial lens. And when we put that together, I think what you’re going to see is a very comprehensive plan to drive shareholder value, but more than that, to really work on some of the world’s biggest challenges when it comes to food security and the energy transition.

Joel Jackson:

Maybe a two-parter on seeds. It looks like your soybean performance is really strong this year. The first part is, it looks like you’re taking share in soybean seeds. Are you maybe giving up some share in corn seed? And then my second question is if you look into now a little early, but it looks like there’s some really good trends happening in seed pricing and one of your competitors talking about double-digit -- low-double-digit price mix in corn and soybean seeds when we get into pricing season soon. Can you talk about that a little bit and where costs might trend for the next season versus now? Thanks.

Chuck Magro:

Yes. Joel, maybe just a good call out on Enlist. So, we mentioned in the prepared remarks that we’re now anticipating that we’re on 45% of the U.S. soybean acres. I’ve traveled through the South and the Midwest over the last two weeks talking to our customers. And I’ll tell you, there’s a lot of excitement around this technology. Just from multiple dimensions, I think it is a set of tools that farmers need. We’re just very pleased at how the farmers are adapting to the technology. I actually attended a couple of training sessions for some of our retail channel partners two weeks ago. And look, everything looks great when it comes to the Enlist system. And in the first half, we crossed the $1 billion range for the entire technology platform system. So, you start thinking about that. Now, it’s another $1 billion franchise that Corteva has, and I think that there’s some good things to come down the road. As I mentioned, we’ve only been on the acres for three seasons now. So, there’s still some more to come.

David Begleiter:

Chuck, just on Crop Protection, again, very good results here. Are you still seeing cost increases here? Are you still raising prices? And how durable are these price increases, going forward?

Robert King:

David, when you look at Crop Protection for the year, yes, we’ve seen some inflation in the first part of the year and been able to use our value for pricing strategy as we move forward there of more than offsetting with price and productivity. So, we’ve been able to hit those headwinds off. As you look into the second part of the year, we’ll continue to follow that same strategy, and we do expect to continue to have some headwinds, although we think that the inflation will begin to slow a little bit based on being able to lap the previous year increases, but we do anticipate there will continue to be headwinds. And so, we’re going to continue to follow the same strategy, watch inflation closely. But we think we’re in a very good position with the technology that’s being pulled onto the farm from our growers. If you look at our new products, right, we’re up 60%. And I think that’s a big I guess, shot in the arm for us from a standpoint of the demand for our new technology that is being pulled into the market. So I think that’s sort of how you should look at the second half.

Operator:

We’ll take our next question from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Dave Anderson:

Maybe I could just comment very quickly, Tim, on a couple of numbers. And then why don’t you follow a little bit with that strategic view that Kevin asked about. But Kevin, you’ll recall that basically, we’re even with 2021 in terms of that net royalty assumption that’s in the P&L that had to do with some benefits that we achieved in 2021 that were basically constant in 2022. There is a nice pickup that begins in 2023, and then we’ll continue to ramp. Again, we’re going to share more insights on that and more of a multiyear look of that when we get together in September. Tim, do you want to talk a little bit just about overall from your perspective?

Operator:

And we’ll take our next question from Chris Parkinson with Mizuho. Please go ahead.

Chuck Magro:

Go ahead, Robert.

Chuck Magro:

Yes. Chris, the way I think about CP and the journey we’re on for the next couple of years, it’s sort of more of the same. I think just if you look at the first half results, it’s clear we have the right strategy and the CP team is executing very well. And I would consider to be quite challenging market backdrop when it comes to supply chain challenges and cost inflation. So I think we do have the right formula. And where we’re trying to take the CP business is to be a seller of differentiated and unique CP products. And so, the new products plus the Spinosyns capacity as it comes on line over the next couple of years, what you’re going to see from us is that we’re going to continue to sell the higher margin differentiated type solutions to farmers, and that should -- continually to improve our business. Now, when I look at the first half, it’s a strong year by almost every measure when you look at our CP business. And some of that is the fundamentals and the timing from a customer demand perspective. Some of it is structural change that we’re making in the product portfolio. And as you look out to ‘23 and ‘24 and I’d even say ‘25, what I would expect you to see is just continued steady business improvement, margin expansion as we manage our controllable costs and we put new technology into the market.

P.J. Juvekar:

Your price cards for seeds typically come out in August or September, which is way in advance of the actual planting. And a lot can change between when the price cuts come out in the planting, especially in a year like this when there is so much volatility. So, how do you manage that volatility? How much of your seed production is hedged right now? And then, you also mentioned Brevant brand gaining share. Can you just give us an update on that in the retail channel? Thank you.

Operator:

And our next question comes from Jeffrey Zekauskas with JP Morgan. Please go ahead.

Dave Anderson:

Okay. Jeff, why don’t I start with the first one on pension? The pension status is another, I would call right now a good news story. Despite the -- some of the challenge in the equity markets, I think we’ve managed this very smartly. We’ve significantly reduced the percentage of asset allocation in our overall portfolio to return-seeking assets. And we’ve also been able to obviously benefit from interest rate increases. At the end of 2021, the pension-funded status was over 92% -- over 90% funded. So, that was very healthy. And you recall those numbers from our filings and from our previous discussions. And despite equity markets and some of the other challenges, the reality is we’ve been able to hold to an over 90% funded status through June 30th. In fact, I looked at the numbers just a couple of weeks ago, and we’re still in that, if you will, positive territory. We’ve recently recalculated all of the math looking forward. And as you know, it’s fairly complex statistical analysis that goes into that, using our outside experts and actuaries. And there’s little claim on the Company’s free cash flow within the foreseeable multiyear outlook in terms of pension liability. So, I think it’s something that’s been very, very well managed. I think it’s a really good news story when you think of Corteva. And what it translates to, obviously, is it gives us a fairly significant flexibility when we think about our capital deployment strategies and we think about the opportunity not only to return cash to shareholders and to invest, if you will, organically for growth. It also gives us opportunities selectively as we look at advancing our technologies and accelerating our market position in some of those key technologies. It really gives us a lot of flexibility going forward. Maybe on the last one on the restructuring, and then, Robert, you may want to talk a little bit about the CP volume without the new products. On the restructuring, there really isn’t a precise split that I can give you between the two business units between seed and crop. When you look at it in terms of the major categories and components of what we’re doing with the restructuring, it’s really across the organization. And it’s really, again, associated with an outcome of our portfolio reviews, our strategic review as well as looking at our overall cost structure and we think doing the right thing to set us up not only as you would suspect, for 2023 and as Chuck referenced, but really is taking a view over the, if you will, the midterm -- a multiyear midterm look at how to best position the Company going forward.

Robert King:

Yes. Sure, Chuck. Jeff, when you look at this, the new products grew $400 million for the half. But more importantly, your question of what would it be without it? A lot of things in that. Old products would still be sold in those plates oven, et cetera, but it’s not just straight math. There’s a lot of different moving parts to this. I think the big thing to understand here is the grower demand is very strong. And so, there would be -- there’s a continued need for products on the farm. And the new products are filling a need there with the technology, et cetera, that we give them as a new tool.

Operator:

And we’ll take our next question from Steve Byrne with Bank of America. Please go ahead.

Chuck Magro:

Yes. Good question, Steve. Thanks. I’ll comment from my travels and then Tim spends most of his days out there. So, let me just address the renewable fuels question for you right up front. So yes, I guess, the short answer is, we’re going to show you some of our technology pipeline at our Investor Day. This is an area we’re quite excited about to drive up higher oil, but also other elements of the genetic code, I think as well that Sam and his team are working actively on to do different things, even in alternative proteins. So, these are things that I think the world needs. There’s solutions that are going to be -- we’re working with some of our partners in different industries. There’s a lot of excitement around what we can do. And so, the key for us will be not only solving the technology formula, but then the regulatory arena and the freedom to operate. And we need to put all of that together. But I think that from what I’ve seen, certainly, is the science and technology is getting to a point where we can solve some of these -- at least make major steps to solve some of these really difficult challenges. Renewable fuels needs to be part of the energy transition. And I think that we’re going to demonstrate some of that for you in September. Dicamba drift. So, I did -- as I mentioned, I spent some time in the South. And certainly, I’ve seen the fields where there was dicamba drift and damaged the soybean fields, unintended consequences the way I would say it. So I won’t comment on whether this should be furtherly taken up by the EPA. I think the EPA needs to figure that out. But, what we’re trying to do, of course, is ensure that growers and even the retail channel have options and solutions. And when you look at the Enlist technology, of course, it doesn’t have that same characteristics. When you spray the Enlist herbicide, it stays where it is intended to stay on its target. And that’s one of the major reasons that’s driving, I think, a strong demand from a customer base. So, that is one of the things that I think the market, in general, is highly focused on is keeping these products where they’re intended to be applied. And I think the Enlist platform has demonstrated that it does that very well. Tim, observations?

Operator:

And we’ll take our next question from Michael Piken with Cleveland Research. Please go ahead.

Dave Anderson:

Maybe I could just start there and just comment quickly on the numbers. And then, Robert, why don’t you pick up and talk a little bit about those inventory levels in the overall market, as you see it in LatAm and Brazil? Estimate from -- kind of best estimate, this is a judgment is it’s about $100 million or approaches $100 million benefit that we got in the second quarter. It’s part of what -- when you look at our guide for the second half, we’ve factored that in, in terms of our thinking and also contributes to what I said earlier. When you look at the distribution of both revenue and EBITDA between third and fourth quarter, how our outlook or our guide matches or is consistent with our historic pattern. So, that’s one of the contributors in terms of that math. Robert -- and that’s really just reflective. By the way, the $100 million estimate is really attributed, I think, to two things. Number one, just the strength of demand; and the second thing is that we had product available to fulfill that demand. So, Robert, do you want to talk a little bit about just the overall conditions?

Operator:

That concludes today’s question-and-answer session. At this time, I will turn the conference back to Kim Booth for any additional or closing remarks.

Operator:

Thank you for your participation. You may now disconnect.

Jeff Rudolph:

Good morning, and welcome to Corteva’s first quarter 2022 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President, Seed Business Unit; and Robert King, Executive Vice President, Crop Protection Business Unit will be part of the Q&A session. We have prepared our 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 the Risk Factors section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statement. Please note, in today's presentation, we will be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in our earnings release and related schedules along with our supplemental financial summary slide deck available on our Investor Relations website. It is now my pleasure to turn the call over to Chuck.

Dave Anderson:

Thanks, Chuck, and welcome everyone to the call. Let's start on Slide 6, which provides the financial results for the quarter. As Chuck said, as you can see from the numbers, we've started the year strong. 2021 organic sales increased 16% with gains in both segments and all regions. Global pricing was up 9% with notable increases in seed and crop protection. Crop protection volume growth was driven by strong early demand in North America and the strength of new products, which delivered approximately $180 million of sales growth year-over-year. We delivered more than $1 billion in operating EBITDA on the quarter of 15% increase from the same period last year. This is impressive performance given higher costs incurred in the quarter as a result of inflation. Pricing and productivity more than offset this expected impact as well as an approximate $160 million currency headwind driven by the Turkish Lira and the Euro. This improvement translated into almost 100 basis points of margin expansion year-over-year. Going to Slide 7, you can see the broad based growth with double-digit organic sales in every region. In North America, organic sales were up 15% driven by crop protection on early demand for herbicides, including Enlist. Seed volumes were down versus prior year, primarily due to seasonal timing of U.S. Pioneer brand corn deliveries, both segments delivered notable pricing gains, a testament to the demand for our technology in our ability to price for higher input costs. In Europe, Middle East and Africa, organic sales increased 12% compared to prior year driven by strong price execution. Local pricing helped to mitigate currency impacts, which was a 13% headwind in the region due again to the Turkish lira and the euro. Demand remains high for new and differentiated products, including Arylex herbicide and Inatreq fungicide driving 6% crop protection volume growth year-over-year. The region overall performed well in the quarter, despite the war in Ukraine that started in late February. Speaking of Ukraine, demand was strong in military free areas for both crop protection and seeds. We did experience some supply constraints in the country due to logistical challenges of importing product. Our local teams were resilient. They were committed to deliver products and support our customers when able to do so. Farmers continue to plant crops and per local estimates, we expect more than 70% of Ukraine’s spring crops will be planted. In Latin America, we delivered 26% organic growth with double digit volume and price gains. Pricing increased 12% compared to prior year driven by our price for value strategy, coupled with increases to offset rising input costs. Seed volumes increased 11% despite tight supply driven by Brazil safrinha, while crop protection volumes increased 16% on demand for new products, including Isoclast insecticide. Asia Pacific organic sales were up 22% over prior year on both volume and price gains. Seed volumes increased 49% on the recovery of corn planted area from last year’s COVID-related impacts. Crop protection organic growth of 13% was led by continued demand for new and differentiated products, including Rinskor herbicide and Zorvec fungicide. Let’s now move to Slide 8 for a detailed review of operating EBITDA performance. First quarter operating EBITDA increased by $130 million to over $1 billion, as that previously covered strong customer demand drove broad-based organic growth with price and volume gains in all regions. On costs, we incurred approximately $200 million of market driven cost headwinds in the quarter driven by higher seed commodity costs, crop protection raw material costs as well as freight and logistics. The company realized $80 million in productivity savings in the quarter, which helped to partially offset this impact. Currency was $160 million headwind again, primarily driven by the Turkish lira and the euro. Setting back, focused execution by the organization to meet increased customer demand and effectively managing cost headwinds through pricing and productivity resulted in almost 100 basis points of margin improvement for the quarter. Let’s go now to Slide 9, I’d like to expand a little bit more on what we’re observing in the current marketplace. Starting with our current planted area assumptions, we are aligned with USDA estimates for a 4 million acre reduction in corn, or approximately a 4% decline and a corresponding increase in soybean acreage. Additionally, on planted area assumptions, an important reminder, 1 million acre shift in the market from corn to soybeans in the U.S. represents an approximate $10 million earnings headwind to Corteva. And as Chuck mentioned, we’re closely monitoring the pace of planting given the slow start in the U.S. Inflation remains a challenge as we face pressure from rising costs in commodities, energy and raw materials, operational levers, such as pricing and productivity actions are key for us to keep pace with these higher costs. And as you saw, the company recently announced plans to stop production and operations in Russia. Russia represents approximately 2% of total Corteva annual revenue with approximately 75% of that in the Seed segment. For 2022, we expect an immaterial impact from lost revenue. In addition, we expect charges in the range of $25 million to $75 million in connection with this decision with the majority to be treated as a significant item, therefore, will not be included in our operating results. Currency markets have been volatile to start the year as we saw relatively broad appreciation of the U.S. dollar. An exception of that is the recent strengthening of the Brazilian real. Looking at the second half of the year, the Brazilian real is our largest foreign currency exposure. And while we’ve largely hedged the BRL with a rate around 5.50, we do have some sensitivity to currency movements and would see a partial benefit from a strengthen BRL. Now, given this backdrop, let’s turn to the discussion regarding our outlook. As Chuck covered earlier, we’re affirming our full year revenue and earnings guidance for 2022. And as shared last quarter, we expect net sales for the year in the range of $16.7 billion to $17 billion. And we’re likely trending towards the higher end of the range. For the first half, we expect high single digit reported revenue growth. Turning to EBITDA. We remain on track to deliver between $2.8 billion and $3 billion, a 13% increase over prior year at the midpoint. For the first half, we expect mid single digit operating EBITDA growth given the disproportionate waiting of cost headwinds recognized in the first half. And lastly, we’re adjusting our operating EPS guidance to arrange of $2.35 per share to $2.55 per share, represents approximately 14% growth over prior year at the midpoint. This increase is largely driven by anticipated lower share count due to the good start we’ve had in the first quarter on share repurchases. Let’s go now to Slide 10. I want to leave you with some of the important takeaways from today’s call. First of course, market demand is strong and combined with solid execution, it’s led to a great start for Corteva, including impressive margin expansion in the quarter. We remain confident in our ability to deliver 2022. We plan to maintain our track record on capital deployment. We expect to return more than $1.2 billion to shareholders in 2022 in the form of dividends and share repurchases. Additionally, our balance sheet provides capacity for attractive innovation and targeted growth opportunities. Finally, the company has taken very important steps in its strategic roadmap to accelerate operational performance and drive continued operating EBITDA margin expansion. More to come on this, and we believe these strategies will further differentiate Corteva and position us to deliver increased value in years to come. And finally, on Slide 11, we’d like to provide an update about a significant upcoming event. We’re excited to announce that our 2022 Investor Day will be held on September 13 at our Global Business and R&D Center in Johnston, Iowa. The management team will provide updates on the company’s strategy, our financial framework, along with a special showcase on innovation in our pipeline. Chuck, Tim, Robert, Sam, and I all look forward to seeing as many of you as possible at this event in September. And with that, let me turn the call back to Jeff.

Operator:

Thank you. [Operator Instructions] And we’ll go first to Vincent Andrews with Morgan Stanley.

Chuck Magro:

Good morning, Vincent. Thanks for the question. So look, let me give you a couple opening comments and then I’ll turn it over to Tim to talk about your specifics around the split between Q1 and Q2, first half, second half. We’re sitting here today in our headquarters in Indianapolis. We’ve been here all week. It’s cool and it’s wet. Probably no surprise to many that’s been watching the weather. But certainly it’s been a slower start to this season than last year. That is impacting our results when it comes to the seed business, certainly for quarter, because of some weather delays here in North America, but also in Europe. We’ve got significant market volatility in terms of pricing and the planting decisions that farmers need to make are being impacted by the weather. So Tim will walk you through the dynamics. We did mention in the prepared remarks, we’ve got a strong – a very strong order book, and Tim can walk you through that. I just want to remind though, the group here though, that if you look at the longer-term value catalyst that we have, the Enlist seed platform is really performing very well beyond our expectations. We did say we expect 40% of the U.S. acres to be on that platform. And that will set us up nicely next year for meaningful royalty reductions in 2023. And then just the call out Bravante our new multi-channel technology, it continues to perform very well. We’ve got very good demand across the channel in that we are now selling it in North America, Latin America and Europe. And that is exceeding expectations as well. So now I’ll just turn it over to Tim to talk a little bit about the dynamics we’re seeing here in the first – we saw in the first quarter and what we expect in the second quarter and the remainder of the year. Go ahead, Tim.

Dave Anderson:

Yes. Those are all really, really good points, Tim. And by the way, just back on that currency, you stated dollar terms. But Vincent for your benefit and everybody, it’s over 200 basis points when you do the walk. Now some of that, obviously we expected in the course of our guide for the year. But incrementally, that turned out to be significant. So regarding the equity investment, we had a loss in the quarter of mark-to-market on a – this compares to first quarter of 2021 that represented an impact of almost $30 million or as Tim said about 100 basis points. The company that where we’ve held an investment technology based and have had it for over six to seven years and IPO-ed in the third quarter of 2021. So we’re on a mark-to-market accounting now. So that’s really the background on that. Appreciate the question.

Dave Begleiter:

Thank you. Chuck and Dave, I think you guided Q2 being a little bit below consensus, referring the full year. So what’s the offset in the back half you guys coming in maybe a little bit better than we expected for you guys.

Dave Anderson:

Yes. I think probably the starting point is what we shared on the call, which is consistent with what we originally provided by way of the 2022 guide, which is given the – call it the slope of the cost curve over the course of 2021. What we’re seeing is that those costs ramped and particularly by the way into the second quarter of this year, we see that ramping, accelerating a bit and that’s built into our guides. So on a year-over-year basis, we see the first half revenue, like we said, high single digits growth, but EBITDA more in the range of mid single digits growth. Again, that’s consistent with the guide that we’ve provided to you – provided to you previously. And that relationship is again, just related to the comps in terms of the period over period, or year-over-year change, particularly on the cost curve that we’ve seen. Now the second half appears to be setting up pretty nicely. And that’s included in our full year guide in the range. I would say that our expectation is we’re likely to be at the high end of the revenue range. And that’s again, reflective of what we see and anticipate in terms of ongoing inflation and pricing to offset those cost impacts. And despite those inflation headwinds, we anticipate to be in that range again, that we guided to in terms of the full year EBITDA. The other thing of course we’re seeing is Brazil planted area improvement. Tim referenced that a little bit when he was talking about seed. And Tim, you may want to comment a little bit more about Brazil. But that Brazil planted area is clearly also something that’s positive for us when we look at the second half of the year. Tim, any comments you would want to add on that?

Operator:

We’ll go next to Chris Parkinson with Mizuho.

Chuck Magro:

Good morning, Chris. Yes, I’ll have Robert comment on the specifics and we’re very pleased with the trajectory that we’re on, so maybe just the few high level comments. So the CP business this quarter, we saw strength basically across the board. And it’s really from customer demand really asking around the latest technology, the new products to drive productivity on the farm. So one of the best ways that farmers can help offset the inflationary pressure they’re seeing on the farm is to drive productivity. And with that, they’re going to need technology. And our pipeline, as we’ve talked about is growing quite rapidly with our new products. And so when we look at it, we think what’s happening in our business is you’re starting to see and it’s early days, but you’re starting to see the impact of our new product portfolio on our bottom line. And Robert will talk to the specifics. The other thing that I’ll just call out is later this year we will bring up our new Spinosyns capacity late this year. And so you’ll start to see the impact of that incremental capacity and of course, margin that will follow with it late this year and into 2023. So we like the setup in the portfolio for the CP business, and that’s what I think you’re starting to see in the results. Now when you think about the inflationary response and how we manage price, but I’d also say productivity in that business. I’ll turn it over to Robert.

Operator:

We’ll go next to Kevin McCarthy with Vertical Research Partners.

Dave Anderson:

Yes. Kevin, I can give you a little bit there. I may ask you given the list that you just went through, I may ask for a little bit of a reminder of each item that you had on that. But let me talk a little bit about the bridge and the update on the bridge. I mentioned that just a little bit earlier, it’s sort of embedded in what we’ve assumed in our guide. I think the most important thing is the fact that that we see inflation continuing, and that impact is going to be particularly felt in terms of our costs. It’s going to be particularly felt on the crop protection side. So the assumption is in the guide that we’ve given you is that we expect to be at the higher end our revenue range. So that $16.7 billion closer to the $17 billion in terms of the full year outlook, it’s really based on inflation and then pricing. So, that’s really sort of fundamental. So if you looked at that EBITDA bridge, it’s really those two items that are increased on a prior guide to now update here at the end of the first quarter. Second, with regard to foreign currency, as we mentioned, we had fairly significant impact to foreign currency. If you look at the total Corteva, as you know, it was about 225 basis points of impact in the first quarter. Currency is going to abate to some degree as a percent as an impact as we go through the year. And there’s two things there. One is just, again, the comparables compared to the prior period, which get a little bit easier on the currency side. And the second thing is that we have some potential for improvement on the BRL, the Brazilian real compared to our assumption. We’re hedge currently at 5.50 in the second half. As you know the real is closer to 5.0. I think it’s a little bit below 5.0 today in terms of where it is trading. So we have some potential upside there against what we’ve – against what we’ve assumed. And then on the cost piece, I think it was a third component of what you asked about. And let me say two things that I think are very important. Number one, again and Robert emphasized this and his response to the earlier question is that we are – because of our advantage technologies, we are able to price against the costs that we’re seeing in the marketplace. That’s very, very important. And we expect, again, those costs headwinds to continue over the course of the year. Second thing I would mention on the cost side is the productivity that we’re seeing on the SG&A. I mean, wage inflation is in the headlines everywhere today. We’re experiencing the same kinds of pressures. The reality is, you’ll see this in the financial backup to our earnings release, the SG&A, we’ve been able to hold flat on a period over period basis, which is I think quite impressive. Despite by the way, underlying bad debt accrual increases, we normalize that over a very favorable set of conditions in 2021. So that’s the other thing that you should be aware of. It’s not just the – let’s call it cost of goods sold management that we’re doing both productivity as well as pricing to offset inflation impacts. We’re also managing if you will, the below the line to support costs as we look over the course of 2022. And by the way, something that we think is also going to serve us well, as we set up for 2023. So thanks for the questions.

Patrick Cunningham:

Hi. This is Patrick Cunningham on for PJ. Good morning, everyone. So with the current run up in corn prices, what does that mean for your seed costs next year and pricing next year, given that this season’s pricing was fixed back in the fall? And also how much of your corn production is hedged for next year? Thanks.

Tim Glenn:

Yes, I will. So obviously we’re worried about getting the last 85% of this season’s crop in the ground. But we are working hard on 2023. So in terms of COGS, obviously price is one of the most important factors that impact seed COGS. And so we're looking closely at that right now and there is clearly going to be a headwind on a year-over-year basis. There's no question about it. And it's not as simple as saying the commodity prices were X and now they're Y and extrapolating that because there are a number of factors, including the hedging approach that we have that have an impact on that. So we're in the process sizing that up and I would say we’re probably not prepared to share what that increase would be but we're working on that as well. And in terms of how we manage that, we're in the early stages of putting together our total plan for 2023. So the commercial organization is finalized what the mix of products are that we're going to be bringing to the market in 2023. We’re in the process of planting our seed crop for this year that will be in the market in 2023. And obviously, we're in the same situation as farmers in terms of wanting to get that in the ground. And finally, we're developing our market offer in terms of price and programs and so very way too preliminary to get into the specifics around that. Underlying, we continue to expect there to be favorable economics for our farmer customers. And so demand for premium products is going to continue to be high. We also do have a strong record of capturing value for our technology. And so we have products that growers want and we have strong execution in the field and we know that our – the levers – the key levers that we have to deal with those escalating commodity prices, clearly productivity is a big part of that. And we're constantly working to get the most efficient operations we can, but also pricing. And again, we're working on sizing that up. We're confident that as we go into 2023, we will be able to cover our cost headwinds in terms of commodity, either through productivity or pricing, and that it will be accretive to our underlying margins for seed.

Alex Chen:

Hi, this is Alex Chen on for Joel Jackson. Thanks for taking my question. With respect to higher crop prices and inflation, how are you seeing farmers demand change with respect to crop chemicals? Are there any particular buckets of products, demand is seeing stronger/weaker trends and maybe why? And if you can maybe elaborate on when you expect costs to fund out for crop protection. Thanks.

Robert King:

Yes, Alex, thanks for the question. When you look at our portfolio and what we're doing, you're beginning to see the new products starting to show up in the marketplace. And that technology is again is being something that's adding value to the farm gate. So it helps our farmers be much more productive. So in terms of what would we see moving forward, we're working heavily on the robust pipeline to continue to move this forward. As Chuck mentioned earlier, our Spinosyns manufacturing is under expansion and we'll finish about 50% capacity increase there as well. So overall, we're going to continue to balance this thing moving forward with price and productivity for the rest of the year in the crop protection area. Tim, you may want to add a few things for seed.

Chuck Magro:

Yes and just Alex on this backdrop. So look, we said that the fundamentals are going to be quite strong. Really, if you look at crop commodity prices, what it's telling us is that the world needs to produce more food. So we not only need – we're talking about a mix here, which is important, but we need more acreage to be put into production. And then of course, we need technology to drive productivity yield on every acre we have. And so, there seems to be a shift underway to take the top technology in terms of genetics and traits for seed. And then of course, the top technologies in CP to drive every last bushel per acre, we think that this will continue. If you look at farmer economics around the world things are quite robust. Farmers are in a good financial position. In fact, if you look at the U.S. farmers, the predictions are that this year would be a record revenue year for U.S. farmers. And I believe the second most profitable in the last decade. So there's high motivation as Tim mentioned to get that crop in the ground and then to protect and grow that crop and I think what you're going to see that, that we're very well positioned as an integrated company to catalyze it on that trend, but also to help farmers drive productivity sustainably.

Operator:

We’ll go next to Steve Byrne with Bank of America.

Tim Glenn:

Yes, Steve, thanks for the question. So in terms of mix of products, what I would say is the price level we're capturing is very similar to we would have taken to the marketplace in terms of our price card movement as we came into the year. So I guess two parts of the question in terms of North America, is there a major shift in terms of the trait mix? And I would say generally not, you have these modest shifts on a year-to-year basis in terms of our trait mix, question on genetics, absolutely farmers are always looking to plant new and better genetics. And so typically think about our turnover every year in our lineup, we have 20% to 25% of our seed lineup would be new and improved genetics. And as Chuck said, as Dave said, that productivity that farmers are striving for in their operations, largely that's going to come from those new and improved genetics. So I'd say that is clearly something we're seeing this year, but we see that every year, just because it's that pursuit of that next level of productivity. So it is a great start to the year, I think very consistent what we expected. And I wouldn't say that it was mix driven. It was really driven by the fact that we came out with a strong lineup of high performing products. And we were able to capture the value and feel very good about where we sit there, in terms of Europe specifically on the price side, very limited seed in EMEA would be transgenic, very small amount in Spain would be transgenic. So that is nearly all non-transgenic seed. And again, the same dynamic around new and improved genetics is at work there. I would tell you to some extent, Europe is a little bit impacted because the Turkish Lira and so you're getting a little bit more pricing there because we're aggressively pricing that severe devaluation that we faced in Turkey and so that's skewing the numbers in Europe a little bit there, but the same approach to capturing value for our high performing genetics is very good. And we feel good as we roll out of North America and move into the rest of the world for the rest of 2022, that we're going to continue to see that caught mid single-digit, good, strong mid single-digit growth on seed throughout the year.

Michael Piken:

Hey, good morning. Just want to dig a little bit deeper on the soybean side. You mentioned that Enlist might be about 40% of the acres. I'm curious what percentage of those acres are actually going to be sprayed with Enlist herbicides. And then secondarily, if you could talk about how the transition toward Pioneer bread and Enlist genetics is going for this year and what your target is for next year? Thanks.

Operator:

We’ll go next to Joshua Spector with UBS.

Robert King:

Yes, Lucas, this is Robert. Thanks for the question. Yes, we did have a good start in Q1 and thanks for recognizing the margins. As you look at where we are, and as we're moving forward here, we're in improvement process, our new products are starting to show up. We just talked about quite a bit and this mix is helping us not only with the farm productivity, but with the value that you're seeing and it's getting pulled forward. When you begin to look at the rest of the year, we do expect to have some headwinds. And as you know, in the crop protection, our business will shift to the South into Latin America. So their mix would be a little bit different, but we've got new products coming on like the Spinosyns we talked about earlier. And we think that some of these things are going to help improve our offerings around the world and specifically into Latin America. So we're going to continue to balance inflation with cost increases of – with price and productivity to help offset those. And overall, we expect margin to hold across the year.

Frank Mitsch:

Hey, good morning. Looking forward to Iowa in September, for sure. And since last conference call, you guys have made the move to one single headquarter in Indianapolis, you've spoken about the new organizational structure and also mentioned that optimizing the costs – support costs and so forth. And so I was wondering if you could kind of size how we should be thinking about the productivity improvements for the company, sort of how the pace of that layers in over this year and next year?

Operator:

Our last question comes from Arun Viswanathan with RBC Capital Markets.

Operator:

Okay. We'll go to our next caller from Adam Samuelson with Goldman Sachs.

Chuck Magro:

Yes. So Adam, good question. So I would say that the products that we're selling today are highly value and Pioneer's been very supportive of Enlist E3. So this isn't about all of a sudden Pioneer's going to be in the game with Enlist 3, our overall reach in the soy market with our brands is somewhere in the – call it in the mid-30s would be what our brand share is. And the majority of that would be in the Pioneer side. So clearly, we've got a strong reach in the marketplace with our owned seed brands and we've got over 100 licensees that are in the marketplace selling Enlist E3. So it's a material move and as we ramp up our proprietary genetics, it's going to have a strong impact, not just in terms of I think the performance of our products and the experience that our customers receive but it's also going to have a very positive impact on our financial performance as well. And the underlying financial health of our soybean seed business specifically and also our overall seed business. So a strong move forward as we move into 2023.

Operator:

This does conclude today's conference. We thank you for your participation.

Jeff Rudolph:

[Technical Difficulty] 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 statement. 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 is now my pleasure to turn the call over to Chuck.

Dave Anderson:

Thanks, Chuck and welcome everyone to the call. Let's start on slide 6, which provides the financial summary for the fourth quarter and the full year. We ended the year with another solid quarter of continued growth. Compared to prior year organic sales in the quarter increased by 9% with gains in both segments. Global pricing was up 8% by continued focus on our price for value strategy with double-digit pricing gains in seed led by Latin America. We delivered more than $260 million of operating EBITDA in the fourth quarter, an 11% increase from the same period last year. For the full year 2021, organic sales were up 9% to $15.5 billion. Crop Protection growth was led by continued demand for new products, which saw an increase of more than $450 million year-over-year. Seed sales improved on strong pricing execution particularly in corn which was up 5% globally coupled with increased planted area in the US and strong demand for corn in Latin America. Full year operating EBITDA of $2.58 billion was up 23% over 2020. Pricing and productivity more than offset cost headwinds driving almost 180 basis points of margin improvement. This improvement is a result of focused execution by the team, while managing through challenging supply chain dynamics and also continued cost inflation. Let's go now to slide 7 where you can see the strong top line results across every region. In North America organic sales were up 4% for the year. Seed sales benefited from increased planted area for both corn and soybeans as well as the continued industry-wide penetration of Enlist E3 soybeans which represented about 35% of the US soybean market in 2021. We finished the year with corn price up 2% in North America while soybean price was down 2% driven by competitive pressure in the market. North America Crop Protection delivered organic sales growth of 6% on continued demand for new technologies including Enlist herbicide. Both herbicides and fungicides finished the year with double-digit growth in the region compared to prior year. Crop Protection prices were up 6% in response to rising input costs. Crop Protection volumes were flat year-over-year in part due to the phaseout of select low-margin products and an approximate $70 million sales impact in the fourth quarter from supply constraints. In Europe, Middle East and Africa, we had organic sales growth of 6% driven by strong price execution and record sunflower seed volume. In Crop Protection demand remains high for new and differentiated products including Arylex herbicide and Zorvec fungicide, which enabled us to drive price and volume and gain market share in the region. In Latin America, we delivered 27% organic sales growth on strong volume and price gains. Execution on our price for value strategy, coupled with price increases to offset rising input costs led to price gains of 10% compared to the prior year. Seed volumes increased 14% driven by market share gains in Brazil safrinha, while crop protection volumes grew 19% on strong demand for new and differentiated products such as Isoclast and Jemvelva insecticides. Asia Pacific organic sales were up 3% compared to the prior year, with both volume and price gains. Seed volumes were down largely due to COVID-related demand impacts and competitive dynamics primarily in Southeast Asia. Crop Protection organic growth of 4% was led by continued demand for new and differentiated products, including Rinskor herbicide and Pyraxalt insecticide, both of which had volume gains in the region of more than 40% versus 2020. Let's now move to slide 8 for a summary of our 2022 guidance. We expect net sales to be in the range of $16.7 billion to $17 billion, representing 8% growth at the midpoint driven by pricing and strong customer demand for new products and our best-in-class technology. 2022 operating EBITDA is expected to be in the range of $2.8 billion to $3 billion, a 13% improvement over prior year at the midpoint. Margins are also expected to improve with pricing and productivity actions more than offsetting further cost inflation leading to an approximate 80 basis point improvement at the midpoint over prior year. Operating EPS is expected to be in the range of $2.30 to $2.50 per share, an increase of 12% at the midpoint, which reflects lower average share count, but also a higher effective tax rate assumption compared to 2021. Lastly, we expect free cash flow to be in the range of $1.3 billion to $1.6 billion, which reflects more normalized receivables assumptions and replenishment of inventory in 2022. At the midpoint, it translates to an EBITDA to free cash flow conversion of approximately 50%. Let me talk about now the phasing of the first half versus second half revenue and operating EBITDA for 2022. On revenue, we expect strong revenue growth in the first half with 9% to 10% recorded growth, which would imply mid-single-digit growth for the second half. However, given the slower pace of inflation in early 2021 versus where we are today, we're expecting approximately 70% of our 2022 estimated cost headwinds will flow through in the first half. This is largely driven by the seasonal timing of seed costs, associated with higher commodity prices, and the pace of cost inflation in Crop Protection in 2021, which was more than weighted to the second half of the year. As a result, we expect mid-single-digit growth in operating EBITDA for the first half compared to prior year, whereas our full year guide for operating EBITDA growth is 13% at the midpoint. Let's now go to slide 9, where we'll provide some further detail on the key drivers included in the EBITDA guidance. Consistent with prior views pricing in seeds will more than offset the impact from higher commodity costs. For the year, based on demonstrated value creation of our seed products, we expect a global price lift of mid-single digits in local currency. Partially offsetting this is approximately $375 million of commodity costs largely from the US and Brazil. And again, we expect the majority of the cost headwind in seed will be recognized in the first half of the year. Increased planted area in Latin America and global demand for our best-in-class technology, including continued penetration of Enlist E3 soybeans are expected to drive volume increases in this segment. In Crop Protection, demand for new products remained strong and is expected to drive an additional $300 million in revenue for the full year. In addition, we expect cost headwinds to be approximately $300 million as the complex supply chain dynamics and cost inflation will continue at least through the end of the year. Similar to seed, the majority of these costs are expected to be recognized in the first half as we lap a lower cost basis in the first half of the prior year. Price increases will help mitigate these cost headwinds including another mid-single-digit price increase across the majority of our US Crop Protection portfolio that was implemented in early January. As it relates to SG&A, we're expecting $100 million in higher costs from investments to support growth and also more normalized bad debt accruals compared to 2021. In addition to pricing, we will continue to use productivity initiatives to drive margin improvement. For 2022, we expect productivity savings of approximately $200 million across both segments. And with a stronger US dollar, relative to other key currencies, on a year-over-year basis, we estimate a $200 million headwind from translation impact and hedging program costs. In addition to our implemented hedging programs, we'll continue to pursue local pricing where possible to mitigate this currency impact. Turning now to slide 10. I want to leave you with what we view to be the key takeaways from today's call. Obviously we delivered and very, very pleased with our 2021 commitments, including impressive margin growth and cash flow while navigating a dynamic operating environment. As Chuck mentioned, we enter 2022 from a position of strength. We expect a year of attractive growth supported by strong customer demand across the backdrop of a solid global ag fundamentals. We remain confident in our disciplined execution including pricing and productivity, which will in turn drive margin expansion for the year. Our balance sheet is strong, which provides us flexibility with our capital deployment strategy and allows us to build our track record of returning cash to shareholders while also continuing to fund growth opportunities. This is bolstered by improved funded status in our US pension plan which improved to better than 90% at the end of 2021. In 2022, we expect to return $1 billion to $1.5 billion of cash via dividends and share repurchases. This is on top of the more than $1.3 billion of cash returned in 2021. And it's a clear indication of our commitment to deliver value to our shareholders. Combined, we believe this further differentiates Corteva as we're well positioned to deliver value in 2022 and the years to come. And with that, I'm going to hand the call back over to Jeff.

Operator:

Thank you. [Operator Instructions] We ask that you please limit yourself to one question. [Operator Instructions] We will now take our first question from Joel Jackson at BMO Capital Markets. Your line is open. Go ahead.

Chuck Magro:

Yes. Good morning, Joel. So, yes, the short answer is you're absolutely right. The difference -- the way we would look at it what's new would be currency. Let me give you the backdrop though of the guidance and what we're seeing in the market and then I'll turn it over to Dave to drill down on the currency situation. So, first of all, 2021 was a really strong year in ag. We saw very strong demand for our products higher prices across the board and farmers' balance sheets are strong in their income statements. And we expect very similar behavior in the ag markets in 2022. And right now our order book is full. So this market it's all about supply and price execution. And I think Corteva is set up to succeed in both of those areas. The guidance that we laid out today $2.8 billion to $3 billion of EBITDA, we think that that appropriately reflects the time of the year. Don't forget that the crop is not in the ground in Europe or in the United States yet as well as some of the market uncertainties that we're seeing, namely around cost and inflation. To your question though, so the midpoint of -- our midpoint of $2.9 billion it is double-digit growth. It is still in line with the previous targets that have been provided. But it does have a new assumption which is really around currency headwinds. Now, what I think is happening here is this is our current and best thinking today. The Corteva team is really focused on cost, cost mitigation, really taking the downside risk off the table, while at the same time reinforcing our supply chain resiliency, driving up execution both in price and supply chain to reach up as high as we can in terms of our guidance range here. And we're feeling pretty good about things, but it is so early in the season right now that this is our best thinking. And we'll -- like usual we'll reflect this as we go through the quarters -- every quarter. And I would expect that we would narrow our range over time. But to drill down on the specific question around currency I'll turn it over to Dave now.

Joel Jackson:

Thank you.

Vincent Andrews:

Thank you., Good morning everyone. Maybe you could speak a little bit to the incremental seed cost inflation versus what you laid out three months ago which I think is about $100 million higher? And I guess a couple of ways to go about this is first you're now anticipating a greater gross amount of inflation in 2022 than you estimated for 2021. And clearly the commodity price increases in 2021 are far more significant than in 2022. So, I wonder if you could just bridge that. And maybe if you can just also help us understand how much of this inflation is coming in corn versus soybeans versus the balance of your seed portfolio and if it's related to any particular geography or associated with the uptick in Enlist acres to that 40% penetration that you're looking for?

Rajan Gajaria:

Absolutely, Dave.

Rajan Gajaria:

So just to build on that and Vincent to answer your specific question. The crop that we are talking about from a commodity standpoint in Europe would be gone I think. In fact, from a North America perspective, all the numbers were baked into the third quarter so nothing has changed. From a yield standpoint, we and the whole industry has had a tough thing with canola especially in Canada. And the yield impact there is increasing costs up versus what we had expected the last time we had said this. And the freight and warehousing this really goes across the board. We've got big increases not only in Brazil but also in North America. We've got some actions planned with advanced analytics et cetera to try and see what we can do to mitigate. But at this point of time that's where our cost increases versus the last time are coming in. That said, we feel very good about our ability to expand margins. The cost increases are here but the pricing actions we have and the productivity actions that we have planned should continue to drive the margin expansion in the seed business, like we saw in 2021. I think we will reinforce that in 2022.

Operator:

We'll take our next question from Kevin McCarthy of Vertical Research Partners.

Chuck Magro:

Sure. Hi, Kevin. So you're right. There are obviously puts and takes. And it depends if we're talking about our commodity portfolio or our differentiated and new product portfolio. There are some differences there. But I'll have Tim just kind of walk you through a few of these, and that should hopefully set the context.

Operator:

We'll take our next question from Chris Parkinson at Mizuho. Your line is open. Please go ahead.

Chuck Magro:

Hi Chris, yes. So Rajan can maybe drill down on a few of the questions that you've got there. And then maybe Dave can wrap up with sort of the higher level how we did overall in 2021 and expectations for 2022?

Dave Anderson:

And Chris was the other element of your question to make sure, I'm answering it correctly. Let me just share with you 2021. And I think we had talked about this, but just make sure we've got these correct for you. Crop Protection 2021 full year, 11% organic growth. We had price gains in every region. We had 6% volume gain. And by the way that 6% volume gain is net of nearly a 4% impact from discontinued products so pretty significant performance. And then operating EBITDA was up 20%. Margins improved more than 100 basis points. So, I think that Rajan really sets the stage as we think about 2022. And again what we talked about and reinforced was the contribution of new products $300 million in terms of our planned number of our planned number of, guidance number for new product contribution revenue in 2022.

Chris Parkinson:

Yes, thank you.

P.J. Juvekar:

Hi, good morning. I have a specific question on insecticides. Despite new products there, insecticide volumes were down in 4Q and for the full year. And I know that you stopped selling some low-margin products. Was that a big impact in insecticides? And then taking a step back on insecticides. I think there are new chemistries in insecticides that are becoming popular like biodegradable insecticides. And they're taking share away from older chemistries like carbonates and Chlorpyrifos. Can you talk about your portfolio and how much of that is in the older chemistries versus how much is the new chemistries? And what's the negative volume impact from the old chemistries? Thank you.

Operator:

We'll move to our next question David Begleiter at Deutsche Bank. Your line is open. Please go ahead.

Chuck Magro:

Yeah. Thanks David. Sure. So, you're right. I've been on the job now for three months. It's been great. I've seen a lot of the operations primarily in North America. I haven't went to internationally yet because of COVID, but obviously integrating with the global team. First of all, what I'd say is, I'm quite pleased with the financial and the operating performance throughout 2021 and certainly how we ended the year. And I would say that I'm more optimistic today than when I first joined. There is significant value in this company to be delivered. We're doing that work now. It's a little early for me to give you numbers. But some of the areas that I think we need to focus on. Obviously, in this environment what we're talking about is price execution and supply chain resiliency. And I think that the company has invested a lot of force into that area. But there's probably more work we need and should be doing just like every company in that area. The other is our technology and innovation pipeline. I think it's a great asset for the organization. I think we have some wonderful future products coming out of the pipeline that's going to drive long-term value. And I'm really pleased with what I've seen so far. Then some of the remarks we've already made. So we are having a really good look at the global portfolio and what I would call the operational footprint. So, we're looking at where we make money and where we spend money, just to be candid with you. And we're unlocking -- we think there's a lot of opportunity in these areas. And we've got a team that's actively working around the clock on these issues. And it's probably a little like I said a little early to get too far ahead of this work, but we're quite excited about it. So, what we plan to do is we plan to have an Investor Day likely in the summer or late summer, where we would like to share with the world some new targets, some new financial targets, some new operating targets. We would also like to showcase the technology pipeline. I think it is going to be a great thing for the world to see what we're doing from a technology perspective. And putting on all this together what it means for long-term value creation for Corteva. So the work -- the hard work is being done now. I think there's a lot of excitement. I think that this management team is up for the challenge and the change. And we'll be back to you, probably by the summertime for our Investor Day.

Jeff Zekauskas:

Thanks very much. A two-part question. Can you talk about how much your royalty payments decreased in 2021? And what were the factors behind that and what you expect for 2022? And secondly, your operating cash flow was higher than your EBITDA in part because you were able to elevate your level of payables by maybe $500 million year-over-year. Can you run with a much higher level of payables than you've been doing historically, so that your operating cash flow levels remain pretty high relative to EBITDA?

Dave Anderson:

Sure.

Rajan Gajaria:

Yes. Good morning, Jeff. On the royalties part we did see a step improvement in our royalty reduction in 2021. Some of that is the continued ramp-up of the Enlist portfolio. But we also had work done on the corn side with some non-assert that we've had negotiations done. So we did see a step improvement about $80 million to $90 million on royalty reductions in 2021. We are on track for our long-term royalty to making royalty neutral by the 2028, 2029 period. We see some marginal improvements in 2022, primarily continued by driving the Enlist portfolio. We are also beginning to launch Enlist in our own Corteva germplasm, which will be a further reduction of royalties in 2022. But the big step changes are going to come in from 2023. There are some offsets, where we do have some increased royalties for molecule for the traits that we use in soybeans in Latin America, et cetera. But all in all, we are on track for delivering against the commitment of being a net positive. We had a big improvement in 2021 and we'll see some changes in 2022 with step improvements 2023-odd.

Chuck Magro:

Yes. And Jeff just maybe a couple of comments. It's interesting how you put these two questions together. So, if you look at it from an operating perspective, what we're trying to do with royalties our new CP products, driving some of the operational work I just described, that's going to drive enhanced margins. And then Dave and his team are really focused on cash, cash management and trying to get as much of that margin into the cash as we can. And I think that there's just a tremendous opportunity here for this company to generate more cash flow.

Operator:

We'll move next to Steve Byrne with Bank of America. Your line is open. Please go ahead.

Rajan Gajaria:

So, Steve, this is Rajan. Nice to hear from you. Well, the Enlist franchise continues to grow. And Enlist as a system actually this year, I think, we'll be crossing $1 billion in there. And the Enlist herbicide is a big part of it. Our estimate is that Enlist system when it crosses 40% this year, more than 80% of the acres that have the Enlist system actually use the Enlist herbicide. We do have a very strong asset and a strong supply chain. So, as opportunities come up to expand Enlist, I think, we have the flexibility and capability of growing the Enlist herbicide business. Also happy to say that, we did get the seven-year registration done. Our regulatory and R&D team did a fantastic job of getting that. So the customer demand gets the confidence in the system. And so we see continued growth of where the Enlist system would go. About dicamba, we'll wait and see how the market reacts. But I think we've got the flexibility and the confidence to be able to continue to grow the Enlist system franchise. And we do have the supply chain flexibilities to grow the Enlist herbicide as the need arises.

John Roberts:

Thank you. Chuck, back to your first impressions. You bring a lot of experience in the retail channel and Corteva uses retail for pesticides and for some of the seeds like Brevant. Anything surprising in how Corteva uses retail or in the bundling programs or in the Pioneer brand's direct strategy?

Tim Glenn:

Yes. Absolutely Chuck. And John great question. We've been talking about Brevant the US for a little while here, but we got to remember that 2021 was really the completion of our first season a business with Brevant in the US. And the good news is, we met or beat our price and volume goals that we had. One of the things we talked about and your question really goes to it is building that credibility with our channel partners. And we needed this Brevant business to not only be good for us, but also good for their business. And that is very important for us. And finally, we obviously needed to satisfy our farmer customers. The good news coming out of 2021 is we're happy with how it turned out for our business. Feedback we're getting from our channel partners is exceptional. And I had an opportunity earlier this week to meet with a couple of retail groups out of the Northern Corn Belt and got very good feedback from them on how we're doing and also product performance was outstanding. So farmers are very satisfied with how the Brevant business performed for them. So it really has translated into a much greater point of growth for our business in retail. I think over time, our objective is not to go out there and do cross-sells and things like that. It's to build these deep relationships with our retail partners on how we can go out and do good business together across both seed and crop protection and that's what's important. And as we go into 2022 year two of Brevant, we're expecting growth similar to what we had in 2021 in terms of volumes. So that's very good where we're at. And our order position supports that right now. And certainly the strong feedback, we've gotten from our channel partners supports that their enthusiasm for what we're doing there. So it is a great story for our business. And also it is a very strategic action for Corteva as we build our relationship with our distributor and retail partners.

Michael Piken:

Yeah, good morning. I was hoping to get a little bit more of an update on, kind of, in South America in the back half of the year, Conkesta and your outlook for the acreage there over -- for this year and then over the next couple of years and what it might mean for incremental sales in the West herbicides as well.

Tim Glenn:

Yeah. Michael, I mean, obviously we're still wrapping up the 2021-2022 season in Latin America and working through that and really excited about how that's gone. And looking at the 2022-2023 season here in the second half. Conkesta was an important part not necessarily from a financial or impact on our results but in terms of a big step forward in terms of a strategic initiative. And the way we positioned our Conkesta business this year was really to go out there and do this as a pilot allow our customers to get experience and get a good idea of how the technology will work in the marketplace. As we go into 2022-2023, so that crop will be planted in the second half of the season, I would still think of it in terms of that scale. And the reason is we're still introducing the technology. We're still filling out the portfolio of products that are available so farmers have a good selection of varieties that fit their needs. And also we want to get -- we want to make sure that customers have a very positive experience with the technology not just from an insect control but also weed management standpoint as you said. So we're still in that I'd say slow ramp-up phase. It's meaningful and important work for us and we're very committed to it. As we go down the road, obviously, as the portfolio fills out we'll continue to ramp that up. I think that the herbicide system, it's an important part. There's tremendous focus in Latin America and especially Brazil on insect control within soybeans. But I think our ability to position Enlist herbicide alongside that strong insect protection is going to bring new value and help differentiate Conkesta in the marketplace. So I'm sure as we go through and do our Technology Day we'll update what that growth trajectory might look like. But think about this next half of the year, it really is sort of an expansion of that pilot so that we can really get that technology well-established and understood in the marketplace.

Arun Viswanathan:

Great. Thanks for taking my questions. I just wanted to clarify. So it sounds like you've incorporated a $50 million currency headwind for 2022 into the guidance. Where, I guess, are you most concerned about? I know you also expressed that you potentially could have some pricing actions that would offset that. So I guess where would you think that you could actually be successful in gaining price? And maybe if you could -- to offset the currency specifically, and maybe if you could comment on channel inventories as well in certain of those regions that would be great? Thanks.

Tim Glenn:

Yeah, absolutely. When you look at our business in 2021, obviously, we had very strong out-the-door sales. And the focus -- it's great to be able to record those sales. But the focus of our field sales organization is to make sure that that product gets on the ground. Sell it to the distributor, have it go through the channel and ultimately get in the hands of our customers. And so we track this very closely throughout the season and as we wrap up seasons really to understand where we sit across the entire portfolio. Overall, I'd say, we feel very good about where we sit in terms of inventories in the major markets. Clearly, we're in the -- towards the tail end of the season in Latin America and Brazil, always gets a lot of interest here, and especially with the strong growth that we've seen across the board in Brazil from a crop protection standpoint. I think our belief right now is that we are seeing some increases in terms of overall industry inventory levels in Brazil and that's sort of a general statement. It's going to be probably different by segment within the market and geography within Brazil. But as we look at where we sit today, we believe that we are lower than the market overall and that we're still at a very healthy level for our business in Brazil. So in terms of the impact as we go through the season, we'll continue to track that as things ramp up and business gets completed on this part as we go to the next season, but we still feel like we're in a good spot there. In terms of other markets, I'd say inventory levels the way I'd describe it is from comfortable, meaning that there's kind of a regular or normal amount of inventory in the channel to it even being tight. We have a lot of business that's going kind of hand to mouth here. So we talked about challenges around supply. It's not just cost. It's also just getting product in the hands of our customers on a timely basis. And our teams are tremendously focused on that. So we also have segments of the markets where there's very little inventory out there, uncomfortably little inventory that we're working with. So we're watching it on a daily basis. But as we sit here right now, we do not see this as a limiting factor for our 2022 business.

Frank Mitsch:

Thank you. As I listen to the commentary, it seems like there's a lot of positives moving over the next few years on the profit improvement side of things. So I was just wondering, you have a pristine balance sheet. Was there any thought -- and you are guiding roughly $800 million in buybacks plus or minus a couple of hundred million this year. Any thought to maybe using that pristine balance sheet and taking on a little debt and adding to the buybacks ahead of all of the profit growth that you guys are talking about?

Chuck Magro:

Yes. Frank, so it's a good question. And certainly, when I think about the balance sheet, it's a strategic asset. We're going to be disciplined of course, but it's -- we're going to put it to work to drive long-term shareholder value. It is clean like you mentioned. It can certainly -- when I think about the financial horsepower that this company has with the balance sheet plus what we generate from a free cash flow perspective, we have a lot of opportunity to do both, right? We're in a really positive position, where we can invest for EBITDA and margin expansion and we could return significant capital to shareholders through dividends and buybacks. So we're working with the Board to figure out what that formula exactly looks like. There'll be more to come on that. The other thing I'll just introduce is that, I believe that we need a good M&A capability inside of Corteva. It is something that I'm looking at quite carefully. Again, we will be disciplined. We will do M&A to drive earnings, to drive margin and ROIC. But that is something -- when we went for finished with our look at our global portfolio and how our asset footprint looks around the world. If there's some gaps, we'll either look to build it or to buy it. So, we've got just an exciting future when it comes to using, not only the operational capability, but the balance sheet that we have in the company.

Jeff Rudolph:

Thank you. That concludes today's call. The Investor Relations team is here for your follow-up questions, so we look forward to those. We thank you for your interest in Corteva and wish you a great day. Thank you very much.

Jeff Rudolph:

Good morning. And welcome to Corteva's Third Quarter 2021 earnings conference call. Our prepared remarks today will begin with introductory remarks by Chuck Magro, Corteva 's newly appointed Chief Executive Officer, followed by an overview of the quarter and year-to-date financials from Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President and Chief Commercial Officer, And Rajan Gajaria, Executive Vice President of Business platforms will the join the Q&A session. We've prepared presentation slides to supplemental remarks during the 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 for statements 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 the risk factors section of our reports filed with the Securities and Exchange Commission, we do not undertake any duty to update any forward-looking statement. On our Investor Relations website, you can find our earnings press release, and related schedules along with our supplemental financial summary slide deck, which is intended to supplement our prepared remarks for today's call. These items provide a reconciliation of differences between reported GAAP and non-GAAP financial measures and should not be considered a substitute to the measures of financial performance prepared in accordance with GAAP. It is now my pleasure to turn the call over to Corteva, Chief Executive Officer, Chuck Magro.

Dave Anderson:

Thanks Chuck, and behalf of the Corteva team, I want to say we're all very excited to have Chuck join us at this time. It's a terrific position for the Company and we've got tremendous value that we can deliver. I want to welcome everybody also to the call. Let's start on Slide 5, which shows our financial results for the quarter and also year-to-date. Starting on the left side of the chart, you can see it was another solid 3 months of continued growth and margin improvement. Compared to the prior year, we delivered 24% organic growth gains in both seed and crop protection, led by Latin America and North America. In the quarter, we saw accelerated demand from customers, particularly in Latin America which translated into an estimated a $100 million in sales in the quarter that was previously forecasted in the fourth quarter. Looking at earnings, we delivered seasonal loss of $51 million of operating EBITDA in the quarter, which is an improvement of greater than a $120 million compared to the prior year. Turning to the year-to-date results, organic sales were up 9% to just over $12 billion. The growth was led by continued demand for new products, driving more than $330 million in growth from new crop protection products. Seeds sales improved on increased planted area in U.S. soybeans and also strong demand for corn in Latin America. EBITDA of $2.31 billion year-to-date, up 25% compared to the same period last year. And year-to-date pricing coupled with volume gains, more than offset cost headwinds, driving nearly 220 basis points of margin improvement compared to prior year. And this is particularly impressive given the challenges we're seeing in global supply chains and the cost inflation we continue to face. And we believe it's a clear differentiator for Corteva. Let's go then to Slide 6, with more detail on our global sales growth, here you can see the balance and diversity of the global business in the results. In North America, organic sales were up 5% through the first 3 quarters. Seed sales benefited from increased planted area for both corn and soybeans, as well as the continued penetration of Enlist E3 soybeans. Consistent with last quarter, Enlist E3 represents about 35% of the U.S. soybean market in 2021. Feedback from growers on performance to this point is quite positive. Corn price was up 2% or soybean prices were down 3% as we continue to see competitive pressure in that market. North America crop protection delivered year-to-date organic sales of 10%, demand for new technologies, including Enlist Herbicide remained strong herbicide and fungicide growth were both up double-digits. Price increased 3% through the third quarter on price execution in response to rising input costs, including raw materials, freight and logistics. In Europe, Middle East, and Africa we had strong organic sales growth of 7% resulting from price execution in record sunflower seed volumes. This growth was muted by an approximate $80 million to $100 million sales impact from corn supply shortages in '21. In crop protection the portfolio of new and differentiated products remain in high demand, including technologies such as Arylex herbicide and Zorvec fungicide, which enabled us to drive price, volume and gain market share in Europe, despite the impact of discontinued products. In Latin America, we realized 27% organic sales growth on strong volumes in price gains, driven by execution on our price for value strategy, coupled with increases to offset rising input costs. In seed volumes grew 16% driven by market share gains in Brazil, safrinha in earlier shipments for the Brazil summer season. In crop protection, volumes grew 18% on significant demand for new and differentiated technologies, such as ISEH class and Jemvelva insecticides. In Asia-Pacific, we delivered 7% organic sales growth compared to prior year, with both volume and pricing gains. Seed volumes were down largely due to COVID, related demand impacts, particularly in Southeast Asia, in India. Crop protection, organic growth of 11% was led by continued demand for new products, including [Indiscernible] herbicide, and also Paraoxon insecticide. Let's move now to Slide 7 for a detailed review of our operating EBITDA performance through the third quarter. Through the first 9 months, operating EBITDA grew more than $460 million to approximately $2.3 billion. This was driven by strong organic growth with combined price and volume benefits of more than $600 million. As we continue to benefit from new and differentiated products against a strong market backdrop. We recognized pricing gains in both segments in all regions during the period. Global corn price was up 4% year-to-date, demonstrating the value that we bring to customers. Sales of new crop protection products grew more than $330 million versus the prior year and price increased 4% for the segment, which helped offset higher raw material and logistics costs. With respect increased costs, we recognized roughly $350 million of market-driven cost headwinds year-to-date, as well as $70 million of increased compensation costs and investment spend to support growth. This was partially offset by approximately $200 million in productivity initiatives resulting in a net cost headwind of $220 million through the first 3 quarters. Very importantly, disciplined execution while managing through complex supply chain dynamics, translated into more than 200 basis points improvement in operating EBITDA margin through the first 9 months of the year. Again, a clear differentiator. Let's go down to Slide 8, where I would like to discuss the current state of the global supply chain. Like other companies and obviously various industries, we continue to face supply chain challenges and cost inflation. And to reiterate the theme we discussed at the end of the second quarter. We believe these challenges will continue through 2022. We've seen the cost of some of our key raw materials and co-formulas increase more than 20% in the past year, driving expected overall cost inflation to low, to mid-single-digits as a percent of our cost of sales. In addition to longer shipping times, we've also experienced additional downtime from supply constraints. Impart due to the more than 60 [Indiscernible] declared directly from suppliers, or indirectly from other raw material suppliers. Now to help offset the impact of inflated in input costs, we're utilizing operational levers such as pricing in very focused productivity initiatives. As an example, on October 1st, we announced one average mid-single-digit price increases in the U.S. on the majority of our Crop Protection products, this includes externally source polite to say, where we expect our pricing will be up approximately $90 million for the full year. Now, just for context [Indiscernible] sales represent less than 5% of our total annual crop protection sales but the inflation impact has been significant. With this backdrop, it's impressive that we're achieving attractive performance measured by on-time delivery to customer request. The agility and flexibility that our teams are demonstrating has enabled us to capitalize on evolving market conditions, including increased demand for both seed and crop protection products. With that, let's go to Slide 9. I'd like to provide the update on our full-year 2021 outlook. We're raising our full-year revenue guidance, We now expect reported net sales in the range of $15.5 to $15.7 billion, up 10 at the midpoint over 2020. We feel confident in this growth based on strong market fundamentals, continued demand for new and differentiated products globally in both crop protection and seed segments, and price execution in all regions coupled with pricing for higher input costs. They're mostly as a result of market-driven factors mentioned earlier, we're raising our estimate for full-year costs by 100 million for the year, per top -- predominantly in crop protection. We're now expecting a total increase of $475 million versus prior year. In addition to these headwinds, we also expect increased SG&A and R&D costs of about $50 million, which includes spend for increased compensation, as well as investment spent to support growth. Importantly, we're reaffirming and firming the full-year expectation to deliver operating EBITDA in the range of $2.5 to $2.6 billion for the year. And improvement of 22% over 2020 at the midpoint. This translates to approximately a 150-basis points of margin expansion for the full year. And lastly, we're now forecasting a base tax rate in the range of 18% to 20%. coupled with a lower average share price count due to our share repurchase activity, we have increased our operating EPS guidance to a range of $2.05 to $2.15 per share for the year. Let's now -- let's go to slide 10 and focus on 2022. As you can see on slide 10, we've given you our initial planning framework and you recall that we shared this with you last quarter. It's intended as a reminder of the key assumptions as we frame out the '22 plan, including organic revenue growth, seed pricing versus commodity costs, strong penetration of new products, royalty cost improvement, and continued cost inflation, partially offset by productivity initiatives. Importantly, this is all with the backdrop of continued strong market outlook, and solid grower economics, which will drive customer demand in 2022. Turning to Slide 11, aligning with our midterm EBITDA target range for 2022. On the left of Slide 11, we've shown you at a high level, the bridge from our 2021 operating EBITDA guide to the EBITDA range implied by our mid-term targets. Now let's go to the right side and cover a few of these key points. Market fundamentals remain positive in our early views are that use corn and soy acres will be approximately $180 million in total with a slight shift to soy, based on relative economics at this time. Outside of the U.S., market growth looks strong in markets like Brazil where planted areas expected to increase 4 to 5%. In terms of organic growth, we expect that the global seed portfolio will continue to deliver on our price for value strategy. Where we expect 2022 pricing to be an excess of estimated seed costs headwinds from higher commodity prices. Crop protection, new and differentiated products, including Arylex and Enlist Herbicide, and Isoclast Insecticide will be a primary driver in delivering above-market in that segment. Turning to our early assumptions on costs, we've increased our estimate of seed commodity price impacts and expect to see seed cost increases in the range of $250 to $300 million, largely driven by North America and Latin America. As I mentioned earlier, we expect seed pricing to outpace these costs in 2022. In crop protection, market-driven inflation will continue through 2022 and we expect cost headwinds of at least $150 million. This includes the impact of the sell-through of inventory and continued cost inflation as a result of the supply chain conditions, we've already discussed. It's too early to comment on when we think costs will level off. However, we will be using operational levers, such as pricing and productivity initiatives to mitigate cost headwinds. This provides additional transparency into our preliminary planning for 2022 and how that bridges to our midterm target EBITDA range. Put simply, price and volume will be critical to earnings and margin growth against the backdrop of strong customer demand and also continued cost and supply chain challenges. We will be providing more specifics during our fourth quarter earnings call in early February and communicating the full '22 guidance at that time. With that, I will now turn the call back over to Jeff.

Operator:

Thank you. [Operator Instructions] We ask that you please limit yourself to one question. [Operator Instructions]. We'll take our first question from Vincent Andrews with Morgan Stanley.

Vincent Andrews :

Chuck, you have a very unique vantage point on this coming from coming from nutrient and obviously being one of the largest agri retailers and you competed with Corteva on the seed side of the equation. You had level end and you competed with everybody on your proprietary products over there. So, you highlighted everything that you thought was the strengths of the Company, but where do you come into this with from the outside as a prior competitor thinking that there's some things that you need to firm up or some things that could be done a bit better that differently or were some blind spots are that you need advantage point on that you come into the organization and really hit the ground running with?

Chuck Magro :

And then finally, we have some commitments out there. We're going to deliver on those commitments. So, the execution of the strategic plan will become a very top priority. And if you've heard me talk before, I'm a very big believer in controlling what we can control. And that we really want to be known as the best operator in the industry. Because I think that that really complements our technology platform. So hopefully that gives you a bit of color of some of the initial impressions in some of the things that the Corteva team was already talking about, but will be of interest to me as well as I integrate myself with this wonderful team.

Joel Jackson :

Hey, Chuck. Chuck, we think the Chinese product contract is going to sell out. No, I'm just kidding. But seriously, you've moved from one part of the industry to another part of the industry. And you put out this slide deck on day 3 on the job, fair enough. But I want to know these are targets at Corteva had for some time for 2022, you call them initial planning framework, cleaning and planning framework would ever want to call them. But Chuck, you're probably going to be judged on whether you hit these numbers next year. And so, I have to believe you must have had a lot of comfort level that you can hit at least the midpoint of its guidance range with maybe some cushion above it to want to own these numbers. Can you specifically as possible talk about that and your confidence that you can hit those numbers?

Vincent Andrews :

new products, extension of its channel strategy. These are all things that the management team is highly focused on, and when you add it all up, that's why we felt it was important to at least put the outlook numbers out there. And just to reiterate, I will look into it in a lot more detail, but I have confidence in this management team.

Patrick Cunningham :

Hi, this is Patrick Cunningham on for P.J. Good morning, everyone. You mentioned growth from biological. And Chuck, you briefly touched on our growth engine. You mentioned 17 new launches in '21 and '22, how big is this business for you? And where do you think it could go in 5 years?

Rajan Gajaria :

Sure, Chuck and thank you for the question, Patrick, when we think about the opportunities in the biologics business, the first message I want to leave with you is, we see this as an indicatively with the rest of our crop protection business. So, I think that the strength of our Crop Protection franchise, coupled with very, we're headed with biologics is the reason for our optimism. A strategy I would say, I will explain 3 prongs to it. The first part is in licensing very unique technology. And our team has worked to get more than ten of these signed up in the last 12 months where a lot of our optimism is coming from. And these are global companies from Israel, France, Brazil, Spain, to name a few. Very strong in-licensing. The second thing we are working on is we've got a very strong commercial organization, which I know you are familiar with. We're working to build capabilities within our commercial organizations, supply chain, formulation and packaging. And last but not the least, R&D to continue to supplement the in-licensing technologies that we get. And with that Jeff onboard now we will continue to explore opportunities to have bolt-on acquisitions with the support from the board to see how we can further accelerate. So really very exciting space for us, we do have a very strong franchise in the natural products that you're familiar with, the spin-off and franchises already more than $800 million. We are familiar with this space and really looking forward to seeing how further launches will help but continue to accelerate the growth.

Kevin Mccarthy :

Yes. Good morning. And congratulations to you, Chuck. A couple of questions. First on the financial side, you increased your free cash flow guidance $300 million on the low-end to $550 million. Can you talk through the drivers of that presumably working capital played a role and I'd be interested to know how much you view as structural versus transitory. And then secondly, on the fundamental side, one of your competitors has been quite vocal about short stature corn. Be interested to hear your thoughts on that subject and whether that might play a role for Corteva in the future.

Dave Anderson :

Good. Yeah. So, Kevin, thanks very much. Good morning. So, on the cash flow, you'll recall, you may have referenced the previous cash map operation slide that we had or guide rather that we had of 12 to 16. We're now at 17 to 19. So reflects a couple of things, I think number 1, as you know, we have focused a lot on basic operational disciplines around [Indiscernible] cash and particularly on working capital. So, there's a portion of this, back to your structural, it's really related to that in both --

Dave Anderson :

guide increase also reflects a little bit more on the EPS front reflects some a little bit lower share count compared to what we had in there previously. Given the strength of our share buyback program. So that's really it in a nutshell. And so, to distribution to your point in terms of structural and more temporary. But the structural part is very, very important in terms of what we're going to be able to deliver. We feel confident in that updated guide. And that's obviously very supportive of our shareholder value objectives. And then the second part of that?

Operator:

Go to our next question from David Begleiter with Deutsche Bank.

Vincent Andrews :

Thanks, David, so I've always been impressed with as a customer with Corteva seed technology. We are seeing very solid demand in corn and soybeans really strong demand in line with our expectations for the Enlist lineup. And Tim can take the specifics around the pricing. So, go ahead, Tim.

Operator:

We'll take our next question from Chris Parkinson with Mizuho.

Dave Anderson :

Yeah. I'll jump in there and talked about that in, and obviously our markets are very local. So, when we talk about CP pricing, I'll talk about it in aggregate basis and we report it in an aggregate basis, but we are pricing locally. It's based off individual product formulations and what their fit is in the marketplace. And our teams are focused on ensuring that we are as locally competitive, understanding that we've got these global headwinds that we're constantly dealing with. So, we are going to be dynamic. And most of the world's, I'd say isn't such a driver of price. So, it is our differentiated products that our teams are focused on. And when we talk about that 3% year-to-date price increase, and when we talk about the mid-single-digit price increase that we've already implemented in the Northern Hemisphere for next year. That is across our new and differentiated products as well. So, it's something that we're going to continue to focus on. We will execute that locally knowing that we've got these global headwinds that we're dealing with. And in terms of the contribution from new products going forward, it's been a huge part of what's helped us continue to perform above-market on the crop protection side. And in most parts of the world and will be again in 2022. So, we've got a robust pipeline. We've got great new products like Isoclast and Arylex and Zorvec, which are continuing to accelerate their growth pattern. We continue to get new registrations literally every month -- we're getting new registrations and so new products will be a very important part of our 2022 plan.

Jeff Zekauskas :

Hi, good morning. It's [Indiscernible] for Jeff. How are you?

Jeff Zekauskas :

I was wondering if you can speak about the [Indiscernible], the E3 being launched in Brazil like that holler ramp up of that might look like. I guess probably very small for the additional growing season, but I was running if you look 2 or 3 years out. How many acres do you think you might achieve? And secondly, I was wondering, I can also like one more time as cost price issue for 2022. So, in general, like the outlook that you have for 2022, to me doesn't look that [Indiscernible] Like if you can have with its 3 or 4 or 5% price increases on sales of 15 and a half billion, like that should offset what were all of your costs. And so, having EBITDA growth in 2022 shouldn't be that difficult despite all of the cost headwinds. What do you see a different than that? Because I see a much more optimistic than I hear in your voice. Thanks.

Tim Glenn :

Sure. I'll jump really quickly on the Zekauskas questions. So obviously. We were very excited in August when we were able to announce that we received authorization from the European Union that enabled grain from Conkesta E3 to be exported for food and feed use. So as a result, we have a limited launch of Conkesta E3 right now in Brazil. Farmers are able to plant product for the 2021, '22 season, so it's an important step forward. What I would reinforce though is it's really not a meaningful financial impact as we look at '21 or '22 as we are working on ramping up production,

David Begleiter :

Zekauskas, good morning. This is Dave, I will take the second part of that related to 2022. As you said, and Chuck, really, I think articulated it well. It's really constructive setup when you look at 2022 with the backdrop of our markets. And the strength of what we're bringing, continue to bring to the market. And as you said, on price, we continue to execute against our strategy of pricing. Both Rajan and Tim have spoken about that, spoken to some of the specifics. And again, specifically for 2022 related to seed, we expect global pricing to be accretive to earnings after the impact of

Operator:

We'll take our next question from Steve Byrne with Bank of America.

Tim Glenn :

Yes. Thanks, Steve. And where we're sitting right now is, I would characterize this as kind of the middle part of our booking season in North America. We go out and see customers, call it September 1st, more or less, is when we begin to move in the marketplace and that booking period really extends through the end of the calendar year. And so, we will expect by that time to have the majority, nearly all of our order position in place by the end of the year. We're in that middle position right now. And I'd say that orders are tracking well with where we would expect to be right now for both corn and soybeans. In terms of technology shifts, If anything, I would say that Enlist E3 demand on the pioneer side is running a little bit stronger than maybe what we had originally planned as we came into the year. In terms of the acre mix between corn and soy. I think it's very preliminary and way too early to make a call based off of our orders. Right now, customers are going to go through the next several months and really have to figure out on an individual basis what, what their crop mix will be. And Dave made the comments about where we see the market going into next year, roughly a 180 million planted acres between corn and soy in the U.S. that's there. And right now, when you look at the corn soy ratio, it's about 2 to 7, which isn't so, which is actually pretty neutral I'd say on a year-over-year basis, but it feels like the economics are saying that we could trend a little bit more towards soybeans in terms of that 180 mix than last year, can't call it off the order position. I'd say the corn technology mixers consistent with what we would expect it to be. Farmers have been planting high-technology seeds and continue to want to do that. And really, I'd say where we sit today really supports what Chuck and Dave already talked about in terms of our setup for 22% in terms of good healthy markets and also very strong demand for our technologies.

John Roberts :

Thank you. 2 questions on pricing. And welcome back Chuck. On Crop Protection pricing, it ranges from flat in Asia-Pacific to 5% in Latin America. Does that basically track where the new products are having the most impact or is there something else behind the range in pricing, like the bundling rebates would seats.

Operator:

We'll now go to our next question from Michael Piken with Cleveland Research.

Rajan Gajaria :

Thank you, Michael, I'll take that this is a Rajan Gajaria, so first and foremost, just taking a step back, the overall adoption of the Enlist system really continues to meet our expectations the demand at the grower level across the U.S. is really very strong. And as we think about our own jump blossom, we've got a very strong pipeline of new products coming through. Most of them are going to start hitting in '23, '24, but we will start making an impact in 2022. The germplasm is going to continue to grow within the Corteva germplasm as the trade gets integrated into our own portfolio. That said, I think the overall adoption is going to be higher than what we had said in 2021. As you know, we had expected about 30% and we grew to more than 35. And looking at the 2022 setup, we continue to see that continuing to grow. Some of the challenges that we have had in the south with dicamba continues to be a challenge of but when we look at the Enlist Herbicide performance of, I think we continue to get encouraged there. The south is lagging in terms of adoption. But as we continue to work on the different varieties, how they're available, and we talk about the dicamba challenges. I'm very optimistic that we will be able to make some progress there too. The bigger issue in the South as I'm sure you're familiar, Michael is more about the entrenched dicamba capabilities that harvest. And as we work through some of those things, I think we will get to where we need to relate it to Enlist adoption.

Frank Mitsch :

Yes. Good morning. Congratulations, Chuck. Good to speak with you again, looking forward to seeing you on Monday. You mentioned that your second priority was on the sustainability front and during the quarter. Corteva announced that their day-to-day carbon capture initiatives joint venture with Indigo. And I was wondering if perhaps someone on the team can talk about what the financial ramifications of this are? How does it fit into your current product offerings and any sort of initial feedback that you've received from this?

Operator:

And our last question will come from Alexi Yefremov with KeyBanc Capital Markets.

Rajan Gajaria :

Yes. Hi, this is Rajan. I think taking a step back, we'll talk about our seed neutrality journey, we will continue to be on track for that. The seed royalty reduction in 2022 will be in the similar ballpark to what we have done in 2021. Give or take around $50 million. But the important thing is that, all the element in-play for us to continue to work with the royalty reduction. Are there of which is the Enlist adoption that we have been talking about is a big part of it. So that's how we look at royalties for 2022.

Jeff Rudolph :

Thank you. We appreciate everyone joining the call today. And again, thank you for your interest in Corteva. Have a great and safe day. Thank you.

Jeff Rudolph:

Good morning, and welcome to Corteva's second quarter and first half 2021 earnings conference call. Our prepared remarks today will be led by Jim Collins, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President and Chief Commercial Officer; and Rajan Gajaria, Executive Vice President of Business Platforms will join the Q&A session. We’ve 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 for or statements 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 Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. On our Investor Relations website, you can find our earnings press release and related schedules, along with our supplemental financial summary slide deck, which is intended to supplement our prepared remarks for today's call. These items provide a reconciliation of differences between reported GAAP and non-GAAP financial measures and should not be considered a substitute for the measures of financial performance prepared in accordance with GAAP. It is now my pleasure to turn the call over to Jim.

Dave Anderson:

Thanks, Jim, and welcome everyone to the call. Let's move to Slide 8 for a detailed review of our operating EBITDA performance for the year -- or for the first half. You'll see that for the first half 2021, operating EBITDA grew $335 million versus the prior year to nearly $2.4 billion, a clear indication of how well we've executed in the first half and a reflection of our ability to capitalize on robust demand for our products. Driving the increased operating EBITDA were strong price and volume, with combined benefits of approximately $340 million. This came from focused commercial execution and penetration of new and differentiated products across all regions. To illustrate this, sales of new Crop Protection products grew over $260 million versus the prior year. And at the same time, we delivered nearly 30% of organic seed growth in Latin America, driven by strong corn sales in Brazil. And finally, we continue to extract value for our yield advantage technology; and as Jim said, global corn pricing up 3% during the half. Costs were about a $60 million net headwind to operating EBITDA for the half. This includes delivery of approximately $175 million from productivity initiatives, including the ongoing benefit from asset footprint rationalization and other cost improvements. This helped to partially offset $240 million of cost headwinds in the half, which are primarily market-driven. And we continue to operate in an environment marked with challenged supply chains and cost inflation. In the first half, we experienced higher freight and logistics costs as global trade markets saw shipping demand outpace supply. Additionally, prices of certain active ingredients and intermediates continue to rise compared to the same period last year, including glyphosate. Now we continue to take action to mitigate these impacts where possible, including passing through certain inflationary costs for our Seed and Crop Protection products and delivering against our productivity initiatives. As evidence of our disciplined focused execution, we delivered more than 190 basis points of margin expansion in the half. It's notable in terms of the agile operations team delivering strong performance. Let's go now to Slide 9 to cover a few highlights from the Crop Protection segment for the half, where organic sales grew 10%, which included a 4% headwind from the strategic decision to phase out certain low-margin products, primarily in insecticides. Again, strong demand for our new technology led to sales gains, including an increase of more than $260 million in new product sales when compared to the same period last year. Herbicides were up 13% compared to the first half of 2020, led by continued penetration of Arylex and Enlist. Fungicides grew 26%, driven by strong demand for Zorvec and Inatreq, primarily in Europe, Middle East and Africa. And lastly, insecticides grew 3% in the half, which included a 16% negative impact from discontinued products. Growth was largely driven by our differentiated Spinosyns technology, including Jemvelva and Qalcova actives, which were up 14% in the half. Favorable product mix and strategic price increases drove pricing gains in all regions for the half, led by a 9% improvement in Latin America and a 3% price improvement in North America. Operating EBITDA for Crop Protection grew 26% from the prior year, driven by strong demand for new products and pricing execution. We did experience cost headwinds of approximately $130 million for this segment during the period. Overall, the headwinds more than offset our productivity actions. In most cases, we see these higher costs representing a new baseline, which will continue to work to mitigate by taking pricing actions where possible and delivering ongoing productivity. Now despite these challenges, we drove over 220 basis points of operating EBITDA margin improvement in Crop Protection in the half. Very impressive performance. Let's go to then Slide 10 and talk about the Seed highlights. You can see on Slide 10, organic sales for Seed were up 4%, driven by solid pricing, coupled with market share gains in Brazil Safrinha, demand-driven earlier shipments for Brazil summer season and also volume growth in North America on increased planted area aligned with USDA estimates. On pricing, we maintained our track record in extracting value for our yield advantage technology, with corn prices up 3% compared to prior year, led by double-digit price improvement in Latin America. Soybean volumes were up 7% for the half, led by an approximately 5% increase in U.S. planted area. Soybean pricing was down 2%, consistent with our expectations, as we continue to see competitive pressure in the U.S. market. Other oilseeds were up 21% versus the first half of 2020, reflecting record sunflower volumes in Europe and also higher canola volumes in Canada. Operating EBITDA for this segment improved 13% on strong price execution globally, ongoing cost and productivity actions, lower royalties and bad debt and a favorable impact from currency. And while we experienced higher input costs, the teams continue to manage through these headwinds, and we're able to deliver operating EBITDA margin improvement of over 200 basis points for the segment for the half. So now let's go to Slide 11 and talk about our full year 2021 guidance. You can see there that for the remainder of the year and our updated expectations for the full year, and with the backdrop of the strong performance for the first half, we're raising our reported net sales guidance to be in the range of $15.2 billion to $15.4 billion, representing 8% growth at the midpoint, which includes an approximately 2% tailwind from currency. We're also raising our operating EBITDA guide, and now expect to be in the range of $2.5 billion to $2.6 billion, representing 22% growth at the midpoint. This increase reflects continued strong demand for our new products globally in both Crop Protection and Seed, coupled with strong price execution in key regions on technology and also improved currency. Specific to the second half, we expect price to largely offset cost headwinds, which are notably Seed-driven. And as a result, volume, primarily in Latin America Crop Protection, is driving second half earnings growth. Now the volatility of exchange rates will continue to be a key variable we're watching, notably the Brazilian real, where we assumed a rate of 5.25 for the back half of the year. In Crop Protection, we anticipate $400 million of year-over-year improvement in sales from our new products, $100 million more than we originally estimated. The additional growth is a testament to strong demand that we're seeing globally for our best-in-class technology. As we think about costs, the current inflationary environment is expected to continue through at least the end of the year. As a result, we now expect a net cost headwind of approximately $125 million for the full year 2021. This represents about $75 million in additional cost inflation from our previous estimate. It's driven by higher input costs as well as freight and logistics. Now we're actively monitoring supply chain pressures in the market, and the operational teams remain agile in meeting customer demand. As it relates to SG&A, the organization continues to maintain disciplined spending. And we anticipate that as a percent of revenue, SG&A is expected to improve by approximately 50 basis points for the year despite higher commissions and also variable compensation. Taken together, it's an impressive improvement and impressive outlook and really highlights the strong focus by the full organization to execute on our strategy. Going now to Slide 12 with a few comments on cash flow. I'll give you a view on our 2021 cash flow expectations. We now believe cash from operations will be in the range of $1.2 billion to $1.6 billion for the year. It reflects both increased earnings, but also the investment we're making in working capital to support growth. The organization continues to focus on cash cycle time. It's working. As a result, we're targeting improvement in net working capital turns for the full year. We're increasing our CapEx spending target from $550 million to between $600 million and $650 million for 2021. The increase allows us to fund projects with high return on investment to support growth. And it follows a complete midyear review that we completed of all of our capital programs. We've experienced an improvement in the funded status of the U.S. pension plan year-to-date, driven by both asset returns and discount rate. The improvement provides increased probability, there will be no required contributions to the plan in '21 or 2022. Finally, as Jim stated, we're committed to the return of cash to shareholders as evidenced by more than $1.2 billion we expect to return via dividends and share repurchases by the end of the year, which includes expected progress on the new $1.5 billion program that we recently announced. Now if you move to Slide 13, I just want to give you some early insights on our planning process and thinking as we start to frame out 2022. Importantly, carrying forward our momentum from 2021, we expect to see organic growth globally. This will largely be driven by execution and further penetration of new and differentiated products across all regions, reflecting the strength of our portfolio and our pipeline, which are expected to drive increases in both volume and price in 2022. For example, we continue to remain excited about the growth opportunities for Spinosyns, which we believe will approach sales of $1 billion in 2022. We expect seed pricing to be additive to earnings when netted with the impact of higher cost of goods sold as a result of higher commodity costs. And with our transition to Enlist, we expect royalty improvement for 2022 as part of our journey towards royalty neutrality by the end of the decade. Royalty reduction is anticipated to be more significant in '23 and '24, but next year will be an important next step on continuing net royalty improvement. And lastly, we remain focused on delivering against productivity as input costs continue to evolve with the current market environment. So to manage this pressure, we're going to continue to drive execution on productivity initiatives, which are expected to partially offset any increased costs. And this is just our preliminary take on the setup for next year. We're going to share more details later this year. But certainly, we view 2022 as a solid opportunity for earnings and margin growth as we execute our strategy and we leverage our global footprint and our diversified portfolio. So before turning it back to Jim, let me just do a quick summary, focus on both our 2021 delivery and the setup for 2022. This year is characterized by first half operating EBITDA margin improvement of nearly 200 basis points and full year margin expectations also improve by approximately 200 basis points. And that setup for 2022 is positive. We're driving growth in all regions, across a strengthening portfolio and delivering solid operating leverage. And with that, let me turn it back to Jim.

Jeff Rudolph:

Thank you, Jim. Now let's move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

Joel Jackson:

I appreciate the early look at 2022. You seem to have a comment in the slide deck that reiterating that you're on track with your midterm targets of 12% to 16% EBITDA CAGR between 2019 and 2022. That imply -- I wanted to just understand if that's true. And that implies EBITDA range next year of $2.8 billion to $3.1 billion. Can you just maybe comment as much as you can if that's true that you are comfortable that you will be in that range next year?

Operator:

And we'll move on to Vincent Andrews from Morgan Stanley.

Jim Collins:

Yes. Great. Vincent, thanks. Thanks for the question. As we've talked about this a number of times before, there are a bunch of variables that go into how we think about seed cost as we go into the season, obviously, into our pricing model. First is yield. How we do in seed production around our yield factor, the quality of what comes out of our seed production fields and how much discard that we have as we spread that cost over a fewer units. Growers lock in at the market quote that they lock in at on all of those seed production fields, and they have a 12-month window to do that. So that factor adjusts and change as we kind of go through all of that. So we're sitting here today with some assumptions around average commodity prices and yield and quality. So if I put all of our current assumptions today into our model, we would estimate that our Seed cost of goods in North America could increase in a range of somewhere between $175 million to $225 million. Now this can change. It's still early. We still got a seed crop that's maturing out there and it's based on our assumptions today. So we have -- we feel like we now have a pretty good estimate of what to expect the flow-through in cost of goods will be. So with that said, then as you've asked, pricing is obviously our biggest lever to really help manage and cover that increase in costs. And so I won't comment specifically on what our price cards are going to be. We're still finalizing those details. Our plans, as you suggested, are to release those cards later this summer, consistent with our normal timing approach there. But the way I think about it, rather than specifically talking about cards, I think about it overall in terms of earnings. And so at this point, I'd anticipate that by -- for 2022, that our Seed pricing approach, net of all of those cost of goods increases that I just mentioned, would be incremental to EBITDA for that market. So at the end of the day, Vincent, what you have to do is look at our track record, right? The track record that we've delivered in 2020, the track record you're seeing now through this year. And we're building momentum. So just pricing this year through the first half of 3% global seed shows you that we've got the team focused on that and we're going to continue to drive that momentum.

Jim Collins:

Yes. It's always a really competitive market in that space. And clearly, we have a big technology transition going on. But maybe I'll ask Tim to say a few words about the soybean competition. Tim?

Jim Collins:

Yes. And Vincent, I'd just add, when I kind of summarize that and I talk about pricing approach in Seed being earnings positive, I'm kind of all-inclusive there, corn and beans. So just -- it's kind of just the full package. So while we might pushed in some areas, we'll have some opportunities in others.

Kevin McCarthy:

Two-part question for you on the price cost spread. I guess the first part would be, with regard to the incremental cost pressure that you referenced, how much of that is occurring in Crop Protection versus Seeds? And then the second part would be, on the Crop Protection side, what is your outlook for pricing? You used the word agile a few times in describing the disposition. Maybe you could talk through where you're more confident or less confident in obtaining price, by region or product line, and how we should be?

Dave Anderson:

Yes. Maybe I can just talk a little bit about -- Jim, about some of the market headwinds. Just Kevin, give you a little bit of color there. And specifically, I think one of the things you asked was in terms of the increment of $75 million, where we're seeing that, that's largely in Seed -- kind of breaks down $50 million in Seed, $25 million in Crop Protection. And if you look at it sort of overall, what we're seeing is a lot of that is freight and logistics. So if you look at it sort of by element, it's freight and logistics. And then you get into the Seed yield and commodity costs next, glyphosate and actually a little bit of a break in the updated numbers in terms of precious metals, just because of the actions we've taken operationally with precious metals and the use of palladium. So I think we've got a good handle on it. And we -- I think, really credit to the teams in terms of looking at early indicators and being on top of this. And we think that really -- I mean, from my perspective, coming into the organization, I think it's one of the things that's actually quite impressive when you look at the results against that as a backdrop. Maybe, Rajan, you want to talk a little bit about the other piece of Kevin's question?

Operator:

And we have a question from P.J. Juvekar from Citi.

Jim Collins:

Great, P.J. Thanks for the question. And you're right. You're really -- we're starting to see now that flow-through of royalty expense reduction. Through the first half of 2021, royalty expense decreased somewhere between $40 million and $50 million compared to last year. And I'll just point to a couple of messages there. First, this was broad-based. It's across our whole portfolio of corn and soybeans. And that's a really good step. It represents really good progress against that royalty reduction commitment that we've talked about before. As you start to think about how that begins then to roll off over the decade, we've talked before about the effect of the Enlist roll-off. And that will really get you about half of that reduction towards that royalty neutrality that we've shared many times before. So by the middle of the decade -- and that's just directly tied to the ramp-up of the Enlist system as we back-down on Roundup Ready to expand and really start to drive not only the ramp of units of Enlist but also the ramp of the proprietary nature of those units as well. The second half of this decade that we’ve talked about before where you really get that second tranche is really more related to royalty income that is offsetting a residual number of expenses that we're still going to continue to have. We'll still have a few traits that we'll be licensing in. So we offset that. And it takes a little while, right? When you license a trait to a third-party, it takes them a while to do their own breeding and integrates the trait into their germ plasm. Then it takes them a little while to begin ramping those units. And so those royalty incomes, they come in based on units sold, not units breed or units licensed. So it just takes a little while for that to spool up. And then that, that just becomes a continued long-term margin opportunity kind of through the remainder of the decade as we get through that ramp-up on the first phase of that as Enlist.

Dave Anderson:

Sure. Yes, P.J. Let me just give you a kind of a summary there. We're essentially 100% hedged for the second half of this year. We've got some EBITDA exposure even with the hedge. We're assuming, I think I mentioned in my remarks, 5.25 is the BRL, is the real assumption for the second half. And basically, we're hedged at around 5.50. So there's a little bit of exposure between the 5.25 and the 5.50. But really, we think, very manageable in the context of the balanced outlook that we've given you for the full year. Certainly, one of the considerations. But it's -- we take a sophisticated best-in-class capability and approach that we're taking in terms of that exposure. So thanks for the question.

David Begleiter:

Jim and Dave, just on the productivity savings. Looking at next year, should they be equal to above what you're realizing this year, which is, I guess, roughly $200 million?

Dave Anderson:

I think the thing I would just say too is, we'll provide specifics, Jim, subs of list of in-flight productivity initiatives. And we'll provide more specifics as we get into the 2022 outlook and provide more color around that. So -- but count on us. I mean, I think that's a very important item.

Jeff Zekauskas:

I have a couple of questions around cash flows. Your cash flow from operation estimate is pretty wide, $1.2 billion to $1.6 billion. And so why is it so wide? Why is it so low relative to your EBITDA of $2.55 billion? So it's like 50% or 60% of EBITDA. On your cash flow statement, it looks like there's about $800 million that went out for pension and OPEB benefits, but your pension line just went down by about $400 million. So can you explain the cash flow constellation? What normally should be your ratio of operating cash flow to EBITDA?

Jeff Zekauskas:

All right. And then quickly for my follow-up. When you look at herbicides, fungicides, insecticides, is there a meaningful difference in operating margin between those 3 subdivisions? Or are they all the same?

Rajan Gajaria:

Yes. I think, Jim, you are spot on. I think the biggest difference is not between the indications, but it is about the newness of the technology. So there is a lot of herbicides which would be "commodity" type of businesses. And the margin there would be lower than the new products. With the new herbicides, like Jim mentioned, Arylex and Rinskor come, 2 examples, their margin would be as high as what a differentiated insecticide would be. But just the fact that there is a lot more herbicides which would be more commodity base, it might feel like the margins are lower in herbicides. So typically, across the industry, you would say that insecticides and fungicides have higher margins than herbicides, but that changes when you launch new products.

Arun Viswanathan:

Just wanted to build on some of the drivers for next year. So you mentioned price is probably going to be incrementally better than cost assuming inflation is -- ultimately stabilizes here. And you have the productivity as well and you have the new product pipeline. I would imagine acreage also is a positive driver. Could you just touch on how we should start thinking about '22, if at all possible?

Arun Viswanathan:

Great. And just as a quick follow-up. On the raw materials side, have you guys looked into any strategic sourcing alternatives? I know that there are some issues on the chlorine side. But what can you share as far as raw materials and how those should evolve over the next couple of periods?

Rajan Gajaria:

Absolutely, Jim. Arun, I just wanted to share 2 examples to reinforce what Jim said. And these examples are 2 that it's an ongoing process. But the first one that comes to mind is precious metals. So we use our key products manufacturing. And we were working with rhodium. And when we saw the prices of rhodium beginning to go through the roof, our technical teams worked very closely and made a shift to the catalyst they use to palladium. So that's an example. And that really helps does not only make sure that we have reliable supply and product, but also manage cost. Another example is in the broad category of co-formulants. We've had some co-formulants which essentially were a real challenge because of the Texas freeze. And our teams pivoted, have made some significant changes and ensured that there was no disruption of supply. So a short answer, yes, absolutely looking at that, but those are 2 specific examples here.

Operator:

And our final question today will come from John Roberts from UBS.

Jim Collins:

Great, John. Thanks for those comments. And look, what I can say right now is I'm 100% focused here and in the role and continuing to drive the business, working with my team. We're very solidly focused on delivering 2021. I've committed to working hard to make sure that we're setting up a really strong start for 2022. And my job right now is supporting this organization through that transition. This team is well positioned to continue to drive the business forward. And I think what we've just delivered here in our first half is a good indication of that. But the strategy is on track, that we're accelerating the penetration of some of the new technologies. And that, as Dave has shared, we've got a great handle now on our capital allocation model. So I'll admit it's a little bit sooner than I had expected. But if a change was going to happen, it needed to happen when the organization was really hitting on all cylinders. So I couldn't be more proud and thankful of the team and how they remained really focused. The Board is driving that succession process. And there's not much I can comment on today about the -- in terms of timing or possible candidates. I know the Board remains very focused on identifying the right talent to help carry forward Corteva's success. And until then, I'm here extremely focused on making sure that we don't miss a beat.

Jeff Rudolph:

We thank you for joining our call today and your interest in Corteva. And we hope you have a great day. Thanks again.

Operator:

Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation.

Jeff Rudolph:

Good morning and welcome to Corteva’s first quarter 2021 earnings conference call. Our prepared remarks today will be led by Jim Collins, Chief Executive Officer and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President and Chief Commercial Officer and Rajan Gajaria, Executive Vice President of Business Platforms, 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 the call, we will make forward-looking statements, which are our expectations for or 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 Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. On our Investor Relations website, you can find our earnings press release and related schedules, along with our supplemental financial summary slide deck, which is intended to supplement our prepared remarks for today’s call. These items provide a reconciliation of differences between reported GAAP and non-GAAP financial measures and should not be considered as substitute for the measures of financial performance prepared in accordance with GAAP. It is now my pleasure to turn the call over to Jim.

Dave Anderson:

Thanks, Jim, very much and welcome everybody to this morning’s call. Let’s go to Slide 8 for a more detailed review of our strong first quarter operating EBITDA performance. You can see that operating EBITDA grew from $794 million last year to $904 million in the first quarter of 2021, representing a $110 million improvement. It’s a clear testament to the momentum that Jim mentioned. Driving this increase were price benefits of $125 million and volume benefits of $50 million from strong commercial execution and penetration of our new and differentiated products across all regions. It represents important progress on our targets and really reflects the strength of our portfolio and pipeline. On new Crop Protection products, we recognized sales growth of over $120 million. At the same time, we delivered record corn and sunflower volumes in Europe and strong safrinha sales in Brazil, which helped to offset the seasonal timing of seed deliveries in North America. Finally, we continue to extract value for our yield advantage technology in corn, with global corn pricing up 2% for the quarter. Now, costs were a $70 million net headwind to operating EBITDA for the quarter. This reflects approximately $50 million in productivity and other cost actions positively, which were more than offset by higher input in freight costs, which are primarily market-driven. Let me give you some color on that. As economies across the globe start to emerge from the pandemic-related shutdowns, global trade markets are experiencing a higher shipping demand leading to higher freight costs. Additionally, prices of certain active ingredients and intermediates have risen compared to the same period last year. As a result, we incurred approximately $120 million of cost headwinds in the quarter due to increased freight and logistics, higher raw material costs and unfavorable seed yields in Europe. Now, we are taking action where possible to mitigate these impacts, including delivering on our productivity initiatives and passing through certain inflationary costs for our seed and crop protection products. For example, late in the first quarter, we initiated on average mid single-digit price increases in the U.S. on our Crop Protection products. Taken together, we delivered over 150 basis points of margin expansion in the quarter as a result of the discipline and focused execution despite the cost increases that we encountered. Let’s go now to Slide 9 focused on crop protection for the quarter and cover a few highlights. As you can see, Crop Protection organic sales grew 12% in the quarter, driven by a 6% increase in volume and a 6% increase in price. Now keep in mind, including with this volume, growth is a 5% headwind from our strategic decision to phase-out certain products, primarily in the insecticides portfolio, including Chlorpyrifos as well as Telone. Now, strong global demand for our new technology led to an increase of more than $120 million in new product sales when compared to the same period last year. Herbicides were up 20% compared to the first quarter of 2020 led by continued penetration of Arylex and Enlist. Fungicides grew 14% driven by strong demand for Zorvec and also Inatreq, primarily in Europe, Middle East and Africa. And lastly, insecticides grew 2% in the quarter, largely driven by our differentiated Spinosyns technology, notably Jemvelva as well as Qalcova. These were up 29% in the quarter. Now, this growth was again muted by our decision to phase-out select insecticides, as mentioned earlier. Favorable product mix in Crop Protection and strategic price increases drove pricing gains in the quarter, including an 18% price improvement in Latin America and a 6% price improvement in North America. Operating EBITDA for Crop Protection improved 35% for the quarter, driven by robust demand for new products and pricing execution. Now, we experienced cost headwinds of approximately $70 million for this segment. And again, these included increased raw material costs, such as precious metals used as catalysts as well as increased freight and logistics. Taken on the whole, these headwinds more than offset our productivity actions. As we go forward, we are aggressively managing controllable factors and at the same time, proactively mitigating this cost through delivering against our productivity programs, passing through certain costs for our products wherever possible. Very impressively, despite these challenges I mentioned, we drove over 300 basis points of improvement of operating EBITDA margin in the segment in the quarter. Let’s go now to the seed segment on Slide 10. You can see organic sales per seed were up 3%, driven by strong Brazil safrinha sales and record corn and sunflower volumes in Europe on an early start to the spring. These gains were partially offset by the seasonal timing of deliveries in North America, where seed volumes in the quarter were down 6%, driven by the U.S. where we had a very early start in the prior year. Overall, global corn volumes were flat, reflecting these seasonal shifts. On pricing, we maintained our track record in extracting value for our yield advantage technology, with corn prices up 2% for the quarter. Soybean volumes were also flat for the quarter, with price down 4%. Now keep in mind, the first quarter is a meaningful quarter for soybeans since the large majority of the deliveries occur in the second quarter. And as Jim mentioned, our expectations for Enlist E3, the ramp there is on track. Other oil seeds were up 19% versus the first quarter of 2020 reflecting record sunflower volumes in Europe and higher canola volumes in Canada. Operating EBITDA for this segment improved 6% on strong price execution globally, ongoing cost and productivity actions and a gain on the remeasurement of an R&D technology-based equity investment, which is included in the other column. These improvements were partially offset by the unfavorable impact of currency and higher input costs, which were primarily market related. These cost increases included again higher freight and logistics costs, coupled with the impact of unfavorable seed yields on European corn. The teams continue to manage through these headwinds and still delivered operating EBITDA margin improvement of over 100 basis points per seed for the quarter. So, now let’s go to Slide 11, talk about our first half 2021 updated expectations and full year 2021 guidance. With the backdrop of the segments, you can see we expect top line growth of about 3% for the half, led by continued strong demand for our new Crop Protection products globally. This growth includes an approximately $130 million sales headwind from strategic decisions to phase-out certain Crop Protection products. On the seed side, we are monitoring what ultimately gets planted this season in North America given recent strengthening in commodity price levels. Globally, we expect first half seed volumes to be about flat with the prior year. We are confident that we will maintain our momentum and we continue to extract value for our yield advantage technology in corn globally. Turning to costs, we remain committed to the execution and realization of our productivity programs, which we believe will be more than offset by anticipated headwinds from increasing freight and logistics, higher raw materials and unfavorable seed yields in Europe, resulting in a net headwind of $50 million for the half. Taken together, this translates to operating EBITDA of $2.15 billion to $2.25 billion for the half, an increase of 8% over 2020 at the midpoint and an approximate 120 basis point increase to operating EBITDA margins. Turning to the full year, we are raising our revenue guidance. We now expect reported net sales to be between $14.6 billion and $14.8 billion, up 3% to 4% over 2020. This increase reflects continued demand for new products globally in both our crop protection and seed segments, coupled with strong price execution in key regions on technology and pricing for higher costs, where possible. On cost, we expect a net headwind for the year of $50 million as the higher input costs and freight logistics are more than offsetting productivity savings. Specific to G&A spend, we are maintaining our post-COVID spending levels with anticipation that G&A will be essentially flat for the year, with the organization driving inflation impacts to a net zero for G&A. Reflecting the strength of what we are seeing in the market and focused execution, we remain on track to deliver operating EBITDA between $2.4 billion and $2.5 billion for the year, an improvement of 17% over 2020 at the midpoint and approximately 200 basis points of margin improvement. Standing back, here are the key takeaways for the quarter. First, we delivered an impressive start to the year in both top and bottom line, driven by penetration of technology advantaged products despite some headwinds. And second, we remain on track to deliver strong double-digit earnings improvement for the year. So, before turning the call back to Jim, I just want to take a second to provide a few initial observations since joining Corteva last month. Coming into the company, I have been impressed with the tremendous franchise that Corteva represents. It’s backed by a strong culture and high-value assets, which I believe in combination are capable of delivering on the significant growth potential. Leveraging what I have referred to as the CFO skill set, it provides a great opportunity to help deliver the operating leverage we see for the business. Those are early thoughts. I look forward to sharing more with you in the future and working with the team on executing Corteva’s strategy. And with that, I will turn it back over to Jim.

Jeff Rudolph:

Thank you, Jim. Now let’s move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator please provide the Q&A instructions.

David Begleiter:

Thank you. Good morning Jim.

David Begleiter:

Jim, just on costs and productivity, can you remind us what you were expecting for the year initially versus what looks like a $50 million net headwind right now?

Dave Anderson:

Sure. Thanks Dave, by the way, good morning and nice to meet you. So, I think a couple of things, just to add a little bit to what Jim said and kind of back to your question. Number one, as you would suspect, we spent a lot of time on the subject. I mean, this is something that has really been a focus and attention of this leadership team, with this management team. And it’s a headline item, obviously, not just for Corteva, its industry wide phenomena that you are seeing in a number of the releases. Some of the things that I think stand out, just to add a little bit to what Jim said. Number one, we are on track in terms of our annual productivity. That’s the key message. The $250 million guide that we gave you at the beginning of the year, we are on track for that. So, what we are really talking about is what is the incremental impact relative to that. So, seed yields and commodity costs, that’s the biggest item. For the quarter, we are impacted about – estimate of about $30 million and about $150 million for the full year. Sea freight and logistics would be second, followed by glysophate, precious metals, the catalyst in terms of use in our crop protection processes. And then the core protection supply and freight. These make up in total, the delta that we are talking about in terms of impact for the year, so whereas previously, we had net of productivity positive for the year. Now what we are looking at is negative $50 million impact for the year as a result of all of this. So, that’s a big impact for us. The delta, previously, if you looked at, again, productivity of $250 million, our previous guide would have been that we would have had positive, about $150 million net. Now we are looking at net $50 million negative. So, that’s the $200 million swing that we talked about for the year. Hopefully, that helps. And then, just to reinforce what Jim said, the best judgments we have right now we will continue to refine this and also taking a step back just to reinforce that we are on track for the full year in terms of that EBITDA growth and that EBITDA margin improvement.

Jim Collins:

Yes. Absolutely, Dave. It is always hard to call that first quarter, second quarter mark. And while we talked in the opening comments about a strong finish to the Latin America season and really strong start to Europe, I would say North America is a little bit behind the pace that we had last year, and you will see that North America pace tick up in 2Q. If we had 3 or 4 more good days of weather, North America might have been pretty much right on top of where they were last year. That’s how much business can move in just those few days right around that quarter end. So as I sit here today, we have caught up on all of our shipments in North America to where we were this same day last year. I feel really good about where North America is going to finish. And you called it exactly right, Dave. We are on our plan for the half, and we expect to be right on plan for full year at this point.

Operator:

We will now take our next question from Joel Jackson from BMO Capital Markets. Please go ahead.

Jim Collins:

Good morning Joel.

Jim Collins:

Sure, Joel. Let me mention a few comments. We will let Dave cover a little more of the details on those costs, and then maybe we can come back and talk about additional levers we have for the year. I want to reinforce one point that Dave made earlier, that our productivity programs that we launched at the beginning of the year are still on track. And that $250 million of productivity year-over-year is in flight. I feel really good about that. And as you mentioned, we have seen some of these headwinds. So Dave, do you want to talk about a few of those again?

Jim Collins:

I will just close it out, Joel, as we asked about, as we look forward, other levers that we have. We are going to obviously finish through the first half here, get this North American market kind of behind us. We still have a lot of seed to put in the ground in North America. But then we have got that second hemisphere season ahead of us in Latin America. And I feel really good about the setup there, but we still have some pricing opportunities in the second half that we are going to explore. We still might have some volume. We are hearing that the Safrinha season, as acres expanded last year, we think we could see some acreage expansion. We found a little of that in already, but we are going to watch that really carefully. And then as I mentioned before, one of the big keys for us are those productivity initiatives. They are well underway. We have got good momentum there, and we are going to keep pressing those forward. So, as I said before, it’s early. We are taking a real balanced view right now with this outlook that we have given, and we are going to keep updating it as the year unfolds. Thanks, Joel.

Vincent Andrews:

Thank you and good morning everyone. If I could ask and start out in seed, the $112 million gain on the re-measurement of the equity investment. I guess, what is that equity investment? Was that $112 million in the original EBITDA guidance you gave at 4Q? And is it one-time in nature, such that if you don’t revalue it higher again in the first quarter of next year, it’s actually a headwind in the bridge from ‘21 to ‘22. So, maybe we could start with that? Thank you.

Jim Collins:

Yes. And Vince, as you look at that chart, just to reinforce the message, the margin impact from that gain was 112 basis points, not dollars. So, as you look at the bottom of the chart, those are basis point numbers, not dollars.

Vincent Andrews:

Thanks guys.

P.J. Juvekar:

Yes. Good morning, Jim, and welcome, Dave. With corn prices approaching almost $7 per bushel and farmers flush with government payments, this would be the best time to raise seed pricing in North America. And I know, Jim, at your Analyst Day, you talked about your molecular stacks and your dual mode of action with the seeds. Why would your seed price down in the quarter and why aren’t farmers buying better germplasm or traits?

Tim Glenn:

Yes, absolutely, Jim. And good morning P.J., I would say, as you said, corn pricing has been consistent with our expectations through the course of the season and good strong execution and I think we are getting paid for our advantaged portfolio. The thing we don’t see is farmers switching their seed purchases based off of necessarily the price of grain corn. And they purchase technology package based off of the pest pressure that they deal with, and that really doesn’t vary that much. And through good times and bad, they are very consistent with their purchases. So, that’s there. We did have a slight phenomenon here in the first quarter where we had a different brand mix in the U.S., as Jim said, a little bit less Pioneer with the revenue recognition kind of that last mile to the hands of the farmer, so that impacted pricing a little arbitrarily there. But I think we are consistent with where we are. And obviously, as we look into 2022, we have got that lever, and we are clearly going to be looking at all factors around the value of our offer, what the market conditions are. And clearly, product cost considerations have to be part of that. Just to touch on soybeans a little bit. As we said earlier, we are very happy with where we are positioned in the marketplace in terms of the acceptance of Enlist E3, very widely available today and well accepted in the marketplace. But we are in a situation right now in the U.S. market for soybeans, where we are in a period of technology transition and that transition is, we have got Enlist E3 being rapidly adopted. We have had around [indiscernible] kind of transition around [indiscernible] quickly. And I would say that there is a battle for growers’ attention in that marketplace. Clearly, there is an attempt to ensure that there is penetration of those technologies and gaining rapid adoption. And the other thing we dealt with, both on corn and soybeans this year, is that prices were set and released to farmers in advance of when we had the significant run-up in commodity prices. So I think prices were set fairly from where we sat in terms of that period point in time when we released prices. But clearly, we had this dramatic run-up in the fourth quarter and here into the first quarter as well. So as you think on a more global basis, we’re looking aggressively at our situation in the second half of the year, where we’re currently pricing and re-pricing some of our products. And we’re going to factor in those points that I made around market conditions, our cost considerations, and clearly, that product value is at the foundation of it. So – but it’s been, I think, consistent with our expectations, but obviously, it’s a little confusing because of the near-term run-up we’ve had in commodity prices, that’s different from when we release pricing.

Operator:

[Operator Instructions] We will now take our next question from Silke Kueck from JPMorgan. Please go ahead.

Operator:

Please ensure your mute function is turned off.

Jim Collins:

It’s okay.

Jim Collins:

Yes, great. So on the half, what you’re seeing overall, you can see strong start in first quarter, and that was led off by the finish to Latin America and an early start to Europe. As we put that on a first half basis, really, what’s happening there is you’re right, we’re going to grow in North America where we’re seeing acres return in soybeans and strong, kind of, flattish acres in corn. But we’re going to be down overall in Europe on some – mostly supply constraints in corn. So on balance, it’s about flat. Now, on volumes, now you’ve mentioned the USDA outlook, and we’re watching that very, very carefully. And with our route-to-market approach and kind of that real tight connection right to the acre, we feel like we’ve put ourselves in a really good spot, that if we do see some acres come back into this market, we’re well positioned to capitalize on that. In terms of price and mix, it’s just the flow-through of the different products. In first quarter, the heavy flow-through of the Pioneer brand is really ahead of us in 2Q. So in first quarter, you’re kind of seeing some of that other route to market, other channel brands that are flowing through, as well as the effect of both the European and Latin America flow through. So I don’t know if, Tim, anything else or Dave, anything else you have to add?