Q2 2020 Corteva Inc Earnings Call
And our SEC filings provide discussion on some of the factors that could cause material differences in our actual result.
We provided pro forma basis discussion in our earnings release in flight.
Unless otherwise specified all historical financial measures presented today excludes significant items, which can be found in the schedule that accompany our earnings release.
We will also refer to non-GAAP measures a reconciliation to the most directly comparable GAAP financial measure where available is provided in our earnings release and on our website. It's now my pleasure to turn the call over to Jim.
Thank you, making great to be with all of you on the call today.
It's been a public company for over a year celebrating our one year anniversary in the second quarter scanning the unprecedented events that have punctuated our first year Im proud of the operation will Julie we have demonstrated in the marketplace and the determination and integrity of the team that is shaping our company.
Slide four captures the principles that are guiding our actions during this challenging time.
This quarter, our teams were call to respond to continued impacts from the global pandemic.
500 year flooding events at our manufacturing facility in Midland, Michigan and tragic events in the United States that brought racial and equity through the forefront globally.
We've maintained a common set of principles in values is how we're responding to these events that place employee safety and security.
Business continuity of our customers and carrying compassion for our communities at the heart of our response.
Im very proud of how our global team is operated through these challenges keeping our purpose of enriching lives skin focus.
Relative to covert 19 employee safety and security continue as a top priority and the global crisis management structure that we have activated at the outset of the pandemic remains in place.
We've also maintained our work from home stance, where possible and enhanced safety and security protocols that are works sites for central personnel.
In the second quarter, we completed detailed planning for our ultimate return to work sites.
We're also evaluating institutionalizing efficiencies gained as a result of our current bookstands, particularly our digital capabilities that enable more flexible and cost effective worker ranges.
Beyond employee safety. We're also actively engaged in keeping our supply chains opened and supporting our customers and communities.
In May our teams safely managed at emergency site shutdown and ultimately a restart as a result for the flooding event in Midland, Michigan with minimal cost or disruption to the business.
Here, we again leveraged our supply chain resiliency and global asset footprint to mitigate product supply disruptions. We were also active in the Midland community contributing to the local United way to support broader recovery efforts. There I'm proud to say that through all of this uncertainty we never missed a shipment.
Recently tragic events that have taken place in the United States have put all of our inclusion and diversity practices in the spotlight.
Portable believes the basic principles of human dignity equity inclusion and diversity are essential to every business in every industry.
The recent events make it clear that we have work ahead of us to build a fair and more equitable society.
It for Teva, we acknowledge this opportunity and have taken slipped and deliberate action to move these crucial conversations and the essential work needed to manifest change forward.
We have increased focus on inclusion and diversity in equity efforts already in place in our organization and within our communities to amplify the voices and programming vital to sustaining this important forward momentum.
Turning to our strategic update for the quarter progress on our priorities for shareholder value creation as noted on slide five.
Starting with culture with an owner's mindset our teams across the company are focused on reducing spending to both preserve cash and to help offset the impacts from the global can dinner.
This focus resulted in $50 million in savings in the first half. These additional actions include the implementation of a hiring freeze delayed employee promotions and relocations and holding our current work from home stance in place in several geographies for an extended period.
These actions are added to our previous efforts to eliminate non essential travel card marketing spend eliminate large in person meetings and scale our digital activities.
Regarding capital allocation in May we fortified our balance sheet and liquidity position with the issuance of $1 billion in long term notes.
We anticipate using a portion of the proceeds from the issuance to term out our intra year commercial paper borrowing needs to support seasonal working capital requirements.
We're also evaluating additional capital deployment actions for the remainder of the year.
In.
On opportunistic M&A acquiring the full ownership interest in the fight agency company and work to fulfill our commitment to return cash to shareholders. We've returned approximately $250 million to shareholders in the form of quarterly dividends and share repurchases through the first half of 2020.
Advancing our portfolio of innovative solutions I'm pleased to report that in the second quarter, we exceeded our expectations for enlist ethree soybeans across our brands scaling the technology platform to 17% of our soybean product volume in 2020.
Looking forward. The recently issued night Circuit Court ruling on enlist duo gives farmers added confidence in our technology and we are working aggressively to further expand the C volume available in the marketplace and in our portfolio in 2021.
Beyond enlist ethree soybeans, new crop protection product launches continued to drive both sales and earnings improvement.
We remain on track to deliver a $100 million and earnings improvement from new crop protection products for the full year.
On our priority around best in class cost structure, we delivered $130 million in cost synergies and productivity through the first half of the year exceeding the original target set for this timeframe.
We remain on track to deliver $230 million for the full year.
Finally on above market growth in the first half organic sales were up 5% overall with growth in every region.
Notably we delivered low single digit price improvements in court seed and soybean seeds in North America for the App.
Capitalizing on the yield advantage for chrome corn seed the launch of Leumi also seed treatment and solid grower demand for enlist ethree soybeans.
We also delivered strong organic results in Europe, and Asia Pacific in both seed and crop protection.
In Latin America, we faced headwinds from sharp currency devaluation timing shifts and a formulation challenge in the sorry, a fungicide that we expect to resolve in the near term.
Finally, our results in North America are supported by the acreage rebound, but tempered by a less favorable corn acreage increase in crop protection market competitiveness.
The next side frames several of the market related drivers for the quarter.
Looking at slide six while we expected to capitalize on more favorable weather conditions. This year. The coated 19 pandemic has created unexpected impacts across the agriculture sector.
So the AG industry has demonstrated resilience relative to other sectors, the global pandemic and economic downturn have impacted demand for the highest value goods, namely meat and ethanol.
Lower demand for both products and anticipated build and use corn stocks weaken the corn commodity prices relative to other crops at the outset of the North America planting season.
From the first of March to the ended the quarter use corn prices have fallen sharply declining 11% over the course of the planting season and pulled down the 2020 corn planted acres.
Based upon the U.S. The acreage report released at the end of June We believe 92 million acres of corn were planted which represents a 5 million acre reversal in expectations between the March and June reports. This is one of the largest swings in us da estimates in the last 20 years.
The lower corn acreage rebound reduce some of our volume and margin opportunity in the second quarter.
In addition to the deterioration in us corn area expectations. The pandemic related slowdown has also driven significant currency exchange rate volatility.
The strengthening of US dollar growth at to several foreign currencies through the first half has impacted our ability to deliver planned growth, particularly in Latin America, where the Brazilian reigh has weakened more than 30% to the US dollar since the beginning of the year.
Regarding trade expectations currency volatility as impacted the relative prices between the major exporters' too.
So China has recently increased purchases of corn and soybeans and week from US weak South America currencies have made South America Green offers to importing countries more competitive.
Moving to slide et cetera.
So our key performance indicators for the first half.
These indicators carry signposts of our success in overcoming some of the market adversity and highlight several execution imperatives for delivering a strong second half.
Net sales on a reported basis for the first half increased 2% versus the prior year.
Currency, particularly in Brazil, and Europe was a 3% headwind.
5% organic growth was propelled by 4% improvement in volume and a 1% improvement in price driven by organic gains in the seeds segment in every region and continued new crop protection product growth in Europe and Asia Pacific.
In seed organic sales were up 8% due to the acreage rebound and improved price in North America.
Market share gains in Brazil, and Europe, corn, and strong volume and price gains on new products, particularly chrome and power for ultra.
In crop protection organic sales increased 1% supported by continued growth in new products, notably Aeroflex herbicide and Isoclast insecticide, particularly offset by declines in Latin America in North America.
Unfavorable timing product formulation challenges and market competitiveness suppressed our second quarter crop protection results, we have an opportunity to change this course in the second half.
Operating EBITDA increased 3% and operating EBITDA margin improved by more than 20 basis points for the first back.
And see price and volume gains in all regions and productivity improvement drove a 160 basis point gain in margin for the segment.
The crop protection earnings expansion from new product sales synergies and productivity improvements were overcome by unfavorable geographic and product mix.
Currency reduced earnings by approximately $110 million for the first Tac.
During the quarter, we've taken steps to limit the further downside risk on currency by deploying new financial hedging instruments.
SDMA as a percent of net sales increased by approximately 15 basis points in the first pack. We made early progress to deliver on our spending actions. However, this was more than offset by spending in the form of higher commissions in seed.
Ti costs and product launch costs.
These indicators of from a solid regional execution and see that leveraged our differentiated technology position advantage route to market and flexible supply chain to overcome the challenges related to cobot 19.
In crop protection our results through the first half demonstrate the continued adoption of our new and differentiated products. While also highlighting areas, where we can and will do better.
Slide eight provides an overview of the key areas of momentum as well as the challenge related to the operating EBITDA for the first back.
Starting with see pricing, which has been an area of focus we successfully expected price improvement in corn globally consistent with the value of our portfolio, which was largely supported by the increased penetration of chrome and our broader us product portfolio.
We estimate that corn delivered approximately $80 million in pricing through the first half.
As we've now completed the bulk of our deliveries in soybeans I can also confirm that we exceeded our initial expectations on us soybean PRX with price gains of 1%.
This outcome as a result of our strong execution in the marketplace. Despite intense competitiveness.
As I noted earlier new product sales.
Tracking according to plan.
We are executing on synergies and productivity as we had expected and offsetting the seed costs of goods sold in an increased royalty costs headwinds, we anticipated for the year.
So we made early progress on spending action that helped to partially offset the increases in sta through to have.
This is an area, where we will gain more traction in the secretary.
As I noted earlier currency was a headwind on the first half during the quarter, we took pricing actions to partially offset currency. Fortunately in Latin America, and we launched new hedging programs to mitigate currency risk, notably in Brazil for the second half.
Finally, there were several headwinds that emerged in the second quarter that dampened our first half performance. The first is in corn acres in the United States, which were lower than we expected by 3 million acres and 5 million acres lower than the Ustašas earlier estimates as I mentioned earlier remember a 1 million.
Your change in corn in the us represents approximately $20 million in operating EBITDA.
Second we have formulation challenge with our sorry fungicide product in Brazil that resulted in product returns that we will rework and reposition in the channel in the third quarter.
On herbicide volumes, we saw increased market competitiveness in soybean herbicides in the United States, which impacted our volumes there.
In Latin America last year, we recognized $80 million in net sales in the second quarter on an early start to the season largely herbicides, we're seeing a more normal start to the season in Brazil. This year and expect to see those volumes realized in the third quarter.
With that I'll now hand, the call for Greg.
Thank you Jim as we have covered first half performance I'll provide more insight into our second quarter results on slide nine.
Net sales of 5.2 billion were down 7% versus prior year on 4% lower volumes currency headwinds of 3% and a 1% decline from portfolio.
Price was a 1% increase for the quarter, primarily due to pricing actions in Latin America to offset currency.
Early see deliveries in North America shifted volumes into the first quarter. This was coupled with the headwind related to a strong start to the Latin America crop protection season in the prior year.
Additionally, competitive pressures in North America herbicides contributed to lower volumes in the second quarter.
Partially offsetting this was continued penetration of new products in crop protection, where sales increased 8% for the second quarter versus prior year. This increase includes the unfavorable impact due to rework from the sorry of fungicide sales in Latin America.
Turning to operating EBITDA, we reported 1.24 billion or a 15% decline versus the second quarter 2019.
Overall declines were led by lower volumes and feed due to seasonal shifts in North America, higher SGN egg costs and the unfavorable impact of currency.
Partially offsetting headwinds in the quarter, we continue to see realization of synergies and productivity along with early progress on spending actions as a result of the global pandemic.
Our operating EBITDA margins were equally pressured in the quarter down 230 basis points from the prior year.
Again.
This is largely due to the shipment volumes and mix to the first quarter and headwinds from currency.
For the quarter operating earnings per share or $1.26 cents down 11% from the prior year period.
Turning to slide 10 for an update on our 2020 candidates.
Last quarter, we suspended our guidance due to the heightened level of uncertainty related to the global pandemic and economic downturn.
Eminently around currency and the set up for 2021 demand.
Today, we are updating our financial guidance for the year, our guidance does not contemplate any further operational disruptions significant changes in customer demand or ability to pay or further acceleration of currency impacts, resulting from the covert 19 pandemic.
Starting with net sales, we expect more than 700 million in currency headwinds for the full year, partially offset by pricing and the north American market rebound, resulting in 1% to 2% growth over the prior year on a reported basis.
On an organic basis, we expect growth between five and 6% with price and volume gains globally.
Turning to operating EBITDA, we now expect to deliver a range of approximately $1.9 billion to $2.0 billion.
This guidance reflects nearly 500 million of operating EBITDA headwinds from the prior year due to currency and the onetime gains of asset divestitures in 2019.
For operating EPS, we expect to deliver between a dollar and 25 cents and a dollar and 45 cents per share.
We have provided detailed modeling guidance in the appendix of our presentation.
To help illustrate our expectations on guidance slide 11 detailed some key assumptions on the second half.
Starting with sales, we expect organic growth of 6% to 7% in the second half over prior year.
This is largely due to growth in Latin America volumes in crop protection, which includes a favorable timing shift of 80 million in sales compared to the prior year.
Offsetting this is an anticipated reduction in see deliveries in North America for the fourth quarter, specifically, we have consider the uncertainty around our fourth quarter see deliveries in the U.S. as market dynamics for the 2021 season continue to take shape and we have appropriately adjusted.
Our expectations.
On pricing the large part of the year over year improvement is in Latin America. This improvement is predominantly due to changes in local prices as a result of devaluation of the Brazilian real.
In crop protection, new products will continue to ramp globally building on our first capital metric.
In total we expect an incremental 150 million and new product sales for the second half compared to the prior year.
Our estimate includes the sales related to rework the saria that negatively impacted our first half results.
On currency were estimating an approximate 500 million and sales headwinds over prior year, largely due to the devaluation of the reality.
This translates into an approximate 300 million dollar headwind to operating EBITDA.
During the quarter, we launched new hedging programs to mitigate further downside risk most notably in Brazil.
Im confident that we've put the necessary tools in place to manage future downside risks for the year and provide more predictability in our forecast.
Turning to costs, we remain committed and fully expect to deliver on the full year merger related cost synergies and productivity actions targeting about 100 million for the back half to hit our full year commitment.
For FCX, <unk> and R&D, we expect costs to be approximately $20 million higher over prior year.
Higher investments to advance the pipeline in crop protection, along with cost to launch new products and operating expenses associated with the ERP implementation are driving the increase.
Partially offsetting this are the actions we're taking in the organization to curtail spending.
I'll now hand, it over to Tim for some perspective on our sales execution for the second half.
Thanks, Greg turning to slide 12 for the second half our fundamental priorities remain unchanged, we look to win in the market.
Working closely with pharma customers and channel partners to create demand for high value solutions, and delivering that technology to our customers to help drive productivity at our operation.
Starting first with global execution, our regional teams are focused on continuing to penetrate markets with new technologies techniques that protection with the path and relax and rents for herbicide in Europe and Asia Pacific.
After sector side in Latin America.
We're also managing some headwinds in the portfolio based on strategic decisions, we've made to exit certain banks globally like corporate costs and ramp down low margin third party products.
Latin America or approximately 40% of our second half sales are concentrated our sales teams are leveraging our strength positioning corn seed to deliver on the center and suffering as seasons in Brazil. This includes continued penetration of both our global feed grains pioneer and bravado differentiated fee trades like power for ultra.
Insect protection were focused on continuing to Greg They can fungicides with strong market demand for this area.
But there's another key area of success for us in the second half as we continue to drive growth in high value product extra notions light the class.
In North America, given the adjustments on fourth quarter delivery expectations. The Greg mentioned, we will continue to work closely with customers as we begin collecting feet orders towards the end of the third quarter and customers begin formulating planting plans for the 2021 crop season.
We will also work closely with channel partners to secure orders for the upcoming season and position product to capture the value we generate for yield advantage portfolio.
Includes leveraging the strength and velocity of a lift soybean system through ramping up paying bills for expected strong demand for the upcoming season during the fourth quarter.
I am confident that we have the right actions in place to address our second quarter gap and we have a team that is determined to deliver for the year.
Im line all regions will execute in the second half.
Ill now turn it over to reside.
Thank you again.
Turning to slide cooking.
Suspect through a few notable examples and key driver of how we had driving performance in Twentytwenty.
Starting on the left.
I've grown on technology is an experienced fully up launch and the significant contributor to the facing execution, we delivered in feed to the plus top.
For the second half, we will need to maintain this momentum as glum isn't indicative Pos for providing the high yielding fulfillment our customers are looking to secure.
Moving to enlist Ethree soybean.
Here.
Continuing strong adoption is enabling phase group, we expect and lift equally they contribute more than $200 million in NEXAFED in twentytwenty.
Importantly, this providence defaulted reinforced by the value, we expect UHPLC system to be.
And with the recent night so good decision as Jim mentioned, we're seeing increased bottom at confident enough in lift besides.
We are focused on continuing to deliver on a flat to further expand the presence of this technology in domestically and in that portfolio and Twentytwenty, while we have working closely with a contracted growers to ensure that you're managing production to align with continued strong demand.
Turning to crop protection, our portfolio of new products continues to deliver significant growth across video good up and geography and start to kick the contribution estimated $1 billion in theater Fuck Twentytwenty and expected Cookie people then improvement on Friday.
For the second half vet expecting 150 million in incremental favorable what criteria to deliver on other guide.
The balance diversity and new modes of action of the new back into an active ingredient is the partners some of the crop protection strategy.
Molecules like idyllic.
We're in school Isoclast I'm sort of it at all a backup business that is delivering a rapid ramp up in volume.
Another key differentiator active rehab is that's been Olson insecticide, which is expected to contribute approximately $750 million and Nick Facebook Twentytwenty, a double digit improvement look praveen.
The majority of the Twentytwenty growth is weighted to the second half in key markets, such as Latin America, where we see strong demand for the technology in a growing mark.
But twentytwenty, we estimate that the drilling segment of the insecticide market is growing between three and 5%.
We continue to deliver increased volumes from a capacity expansion investment and are on track to increase by more than 50% like twentytwenty today.
Bottom line these new technologies on an important growth catalyst for us steep and crop protection portfolios.
Present, a critically pocket, but flat for delivered in the second hop with that I turn it back to Jay.
Thank you hi, John to close despite the rebound in the North American market and encouraging growth in our key technologies 2020 has progressed as a very challenging year, given the global health crisis and associated economic downturn setting currency aside we're seeing solid fundamental performance in seed.
Our new herbicide offerings and across our insecticide portfolio, which is providing momentum for the second half.
As such I am confident we havent necessary strategy in place to deliver on our updated 2020 guidance.
So we have neutralize the downside risk on currency. We also recognize that market volatility is still a factor. So we're working to accelerate more aggressive efforts on spending.
Increasing volumes for high demand products and securing more in list Eathree seed volume for the 2021 season.
We know a lot can happen in a growing season, and we are closely monitoring crop conditions in the us in Latin America as most of broader market backdrop, including further coated related impacts to ensure that we are adequately adapting and adjusting our plans to deliver for the full year.
I'll now turn it back to measure.
Thank you again.
Now, let's move onto your question I'd like for a nine year that are cautioned on forward looking statement non-GAAP measures and pro forma financial apply fault I prepared remark and the following can.
Operator, please provide instructions.
Thank you.
I'd like to ask a question. Please press star followed by the did get one.
Are you said the speakerphone. Please make sure your mute button in Teradata will allow you signaled privy to equipment once again star one and we'll pause for just a moment.
And our first question today, we'll hear from Joel Jackson.
Hi, good morning, everyone.
Good morning, though Jim Greg I Wonder if you can help.
Roots.
Prior guide you hadn't forces funding, we're talking about 2.2 billion you didn't guide down.
Not to be million dollars now.
Specifically in groundless possible can you help bridge.
Prior guide to the current Guy I'm on the buttons.
I guess, it's too early to get in 2021 by any idea, though you know where you might see some drivers had women, telling and even quantify the 21 would be helpful.
Great. Thanks, Joel for further questions. So.
You're right, we can it's actually pretty straightforward when you think about the previous guide of 2.2. It comes down to two main elements.
There's about $400 million of currency headwind versus that guide that we gave back in January and that is kobin related due to a basket of currencies everywhere in the world, Brazil being the biggest component of that but its is a number of currencies. The second element is just some markets.
Operating part of that was the 3 million acres that left us here right at the end of the second half that that's about $60 million per our formula of.
20 million for every million acres.
And then some softening that were seen in the fourth quarter of its also posted related primarily ethanol foreign demand commodity pricing.
And that's another 14, so you add those all together respire hundred million dollars of headwind versus that previous guide 400 currency 100 of it is market related and so we've worked hard throughout this first half to offset about half of that 500 million.
Some of that is seed PREIT corn pricing. So our first half very strong performance in North America around corn price.
So I mean pricing lot of predictions at the beginning the year.
We would fall short on soybean pricing and we offer we drove very strong performance there.
And some of that is rest of world volumes. So if you look at RC business in places like Europe, We're up low teens, you look at Asia Pacific were up high teens.
Look at Latin America were up high 20 percents.
In terms of rest of the world RC business, So really strong rest of world performance.
And then overall crop protection pricing and spend volume.
As part of that offset and then we've got some spending actions that we've taken so overall down 500 back about 250 on actions that we've taken and that gets you to under the midpoint of the new guide that we put out there.
We believe this guy is is a solid base.
I've got a lot of confidence in it and so does the team and we're all working hard from now through the ended the year to go grab as many of the upsides as we can.
I think a final point to make about the plan that we have here today versus what we gave you in January is pretty much everything else in that plan our pricing programs are selling expense the projects that we had in place to drive productivity. The synergies that are flowing through the Cogs improvement program.
You know what all of that style has played out exactly according to plan.
So big news here 400 currency 100 of market both of those Kobin related and we're working hard to offset half of that today and working on that other half through the remainder of the year.
Now on 2021.
It's little early to be talking about 21.
But if you if you just step back for a moment and think about all the things I just talked about the momentum that we're carrying and the underlying business the organic price volume growth that you're seeing both in seating in crop protection.
We're going to have another strong seed year next year I think from is well positioned.
In list, we'll see the ramp starting their bravado, we've got that launched and some additional work on Cogs crop protection that pipeline is still delivering this the nose in capacity starting to come in into into play.
And we'll get additional chemistry business from in list than spread over the top of those enlisting occurs and then we'll still have the final year end of our synergies and additional productivity. So all those things said I feel really good about the underlying foundation of the business and the momentum that we'd be carried into.
So starting.
And that's something that David Begleiter.
Good morning.
Jamie This is looking back right now. Thank you wouldn't backup is growing season North America.
Thank you do with your share of market share, both beans, and corn this past season.
Yes, yes, David.
Our first mission in North America. This year was focused on value.
We were very disciplined in driving new processes around pricing, especially in corn.
And as I talked about a minute ago inside beans, and there's a lot of predictions that it was using it and it's always a competitive year, but but I couldn't be prouder of the team and so first and foremost we focus on value rather than you know I'm specifically focusing on here.
So it's a little too early right now to call market share, even though we've got kind of the macro numbers from U.S.P.A. in terms of where we think planted acres came out and obviously, we've got our visibility it really matters exactly where those acres came out there you know some parts of the country where were stronger and so.
We really got to get this down to a county level. So.
We're in the process of working through that I can say pretty confidently we saw some share gains in other parts of the world or Tim do you want to you and talk a little bit about but those areas. Yeah. Jim Yeah. I think we're very confident that we gained share in the past, Brazil safrinha season that wrapped up here in the first quarter.
And also in terms of Europe for both corn and soy and sunflowers, both significant businesses for us. So it's a it's a you know just carrying on the momentum we've had in those in those geographies as well, but as you say, it's too soon to call we got to get a little bit more granularity about where those final acres are and ultimately be able to get down to the detailed.
To be able to make a call on market share for the for the U.S.
Great Thanks to them.
[noise] [noise] next summer.
Xcar.
Hi, good morning, guys.
I was wondering I realize it's early but I was wondering if he can talk about your expectation or in this next year and and how you're looking at the two for de sales as well.
Yeah, Great Jonas Thanks, Thanks for the question.
For for this year her for 2020, we did see very strong performance with the system and this is I would say really our very first full year of of commercial launch. So we had originally expected that about 10% of arm. Our seed units would be in list and we were happy to repay.
I I'm talking about an earlier that we were at 17% of RC volumes and then we now believe with more than 20% of the acres in the U.S.
We're we're working listing or so.
Jim glamorous instead of a grower meeting here, just just two or three days ago, and everybody's really excited about the system and how it performed and the and they're all you know ready to sign up for acres going into 21. So the other thing that that I think gives us.
Some some positives here are some momentum as the decision that we just saw in the ninth circuit court. The on the list dual registrations continuation it really since one more message to growers. It reinforces that they can count on is that they can have confidence.
Even though in the technology. So we are preparing for a significant ramp up in the 2021 season, where we're working with as many of our production growers as we can to try to maximize.
See units that we would have available and so right now we believe that acres can grow by about 50% moving to roughly a third of the soybean acres in the marketplace.
And then inside for Teva, we think we can more than double our analysts see volumes for 2021 for in this ddrthree and we're clearly going to continue to provide you more updates as we work through our production plan.
So that takes us from the maybe to 17% or so that we're here this year to kind of a low 30 percents Ferrara for our RC units, so going forward, but obviously a lot of that's going to depend on our ability to go out and secure additional supplies.
On the chemistry sign we saw about two thirds of the planted acres received the treatment of enlist chemistry, and we'd expect that trend to continue as we see the acres expand and we're going to be in great shape in terms of production to be able to meet that demand. If it is a little a little bit higher.
We'll have the Oh, we will have the chemistry in the ability to go after it.
Rather than anything else you would add to that nothing in the southern just limited to think about the immune system unit.
These are things that can also half a billion dollars. It looks Steve. This is nothing huge there's really been other last movie and doesn't today and he is not what type of doubling back in when he's made me wonder based upon the adoption numbers that diesel so it.
It's playing out they didn't make it up on everything we discussed that are excited about that and just system a significant part of a portfolio.
Next year.
[noise] Jones.
And next to move on to Vincent Andrews.
Thank you. Good morning. Thank you. Good morning, everyone just want to understand that the hedging caught mark can you hear me.
Yep.
Okay, sorry, just wanted to understand that the hedging comments a bit both in terms of I believe you said, you're implementing a new type of strategy them. The much done in the past. So if you can help us understand that and then just more specifically the comment on the the 300 million a of EBITDA X hedges.
Yeah, I understand you help us understand how much that would be if you hadn't pads and is there any risk to the hedges roll off the currency stayed the same way that that no. Good benefit from the hedges becomes a arista 21.
Yes, great Great Vincent maybe I'll, just make a few comments here and I'll ask Tim and and granted to save you points. So as we mentioned in the opening comments you with $700 million of currency related had headwinds in our in sales and about 400 million in op.
But even on a big chunk of that is Brazil. Some of the European currencies are part of that as well and so we have we have a few tools.
The first two in that list is our yeah is our use of price and then we've got new tools that I'll have great talk about that are related to a hedging instruments. So that with the hedges allow us to do is managed to go forward volatility pricing allows us to kind of recover that value and then we have.
Natural hedges with local production that we do in some of those markets. So why don't we serve Tim you want to talk a little bit our pricing strategies to says a lot of ahead of currency yeah, absolutely. Jim So pricing is clearly one of the key tools you have to help offset currency and you know this this year, we saw tremendous amount of volatility, particularly the.
Early March or April and it and it was almost always moving against us.
Some cases, we were really limited in terms of how we could.
Offset that currency because it was after we'd already priced in the negotiated a sale with a customer and you know we saw that in both Europe, and Latin America, particularly in the first half, but as we move through the first half and you know we look forward to the bulk of our business, particularly in Latin America. The happens in the second half of the year.
We're able to go out there and and the kind of pull back in our pricing and we actually do that at least a couple of times there and during the season, you know and reprice based off of a where currencies were and obviously, we've got to be aware of where we set from a competitive standpoint, and other options that customers have but we were able to make a pretty significant.
Dancing and what that potential currency impact could have been in the second half through those pricing actions.
Certainly as we look towards the latter part of this year and into 2021, you know where in a work in all markets, where we've had.
Erosion due to currency to help offset that and regain what we could not offset this year Greg.
Great. Thanks, so so our personal expenses.
As Jim said medicine is price.
Yeah, the second might have a defense here is.
Financial hedging and just as if it when it let me clarify.
Part of a question that you have you asked about the 300 million.
Hedges.
Really were saying here is there's $400 million occurrence exposure 300 million of that in the second half a year and that 300.
Excluding the impact of pricing.
Not excluding the impact of hedging.
So so just again to attack the impact us a a little bit more.
More than 70% of our currency exposure is in the Brazilian real Guy.
And and that exposure is heavily weighted to the second half of the here.
The other the other piece of work or large exposure is related to European currencies, but.
But that business is largely completed in the first half of the year and so that is already in our first half results.
So so working very closely with our commercial teams who is sitting medicines are out there looking business in the first half of your for delivery in the third and fourth quarter, we've been able to to put financial hedges on.
On on those transactions to ensure that we lock him the price and offset any future volatility due to.
Movement in.
If the currency rates so this.
It's a this financial hedging strategy has been able to give us some confidence and predictability in our earnings in the second half of the year I.
I would also mentioned that in the path and currently we also do has your balance sheet from a net monetary assets perspective, you know that includes our receivables and and that process and program does continue as well.
Great. Thanks, Greg.
Thanks visit.
Next we'll hear from Jeff you talked.
Hi, Thanks, very much like.
Hi, good morning.
We also have a question on a currency issues I think on slide 11.
Said, the EBITDA headwind would be about 300 million in the second half and I think in your prepared marks remarks.
You said that the sales effect and the second half would be about 500 million.
So.
300 on 500 million, it's about 60%.
And warmly I would think that the EBITDA effect would be pretty close to your EBITDA margin level, a little bit more than 20%.
So I would've thought the currency effect would have been maybe.
10 million subs something like that.
Why is the EBIT da effect, so large relative to the sales total it's the cells television spot.
Yeah right, yes, so so the largest impact is really on on a.
On the sales line.
And that does translate largely into into earnings because of.
Because of the pricing, we have or offset by the pricing impacts. So we were what we see as a downside in revenue.
It was largely translate into earnings.
A couple offsets there one is.
Where we're able to recapture some price.
And in the other is is where we have natural hedges in place for Uh Huh.
The seed and crop protection in a in the local area.
And we don't.
We don't have as much of an offset.
Because a lot of our manufacturing of crop protection.
Yes.
So we are producing.
<unk> for 'em for fraud protection in the U.S. moving here and as part of our supply chain into into Brazil, and so we don't have that national has.
There if you recall when we talk about our supply chain last.
On the last fall, we mentioned that at about 65% or others, Texas supply chain or actually U.S. base.
Great. Thanks, Greg Thanks, Jeff.
And that's I hear from Teekay can't the car.
Yes, hi, good morning.
Okay.
Jim I have a comment and then a question.
My comment is that sometimes your reserves can be very confusing because you have won the forward of demand in sort of in the region or pushing back of seeds and chemicals because of weather et cetera.
So if you be easier to understand your results. If you align your core doors with the blanking cycle.
And that's what the all Monsanto did when you know they had the same issue.
And so they had modest you bring then made together because that's the planting season and June July August together, because that's the application season.
Is that just doesn't get something I'm, not saying you should do that.
But that would make it easier for investors to understand the company.
Yep Yep, Thanks, BJ for that for the comment you know you're exactly right the timing of the AG market in the northern Hemisphere, the first quarter second quarter split.
For the financial results is really really difficult because you know the season unfolds differently every single year, and so calling that which is why we talk a lot about our business on the first half basis. It provides a more seasonal view of the results and then we can kinda talk about the southern hemisphere.
We're in a I mean, a seasonal basis in this in the second half.
We have discussed a lot about adjusting our fiscal calendar to be more in line with the with the cropping calendar and you know we're working right now to get audited financials, and some history behind or a belt. So that when when we can make that change you know we can we can do it appropriately we've got.
Some financial systems, our ERP systems.
We're currently you know kind a re wiring down to bring it all together. So so we want to get the ERP system kind of locked down and ready to go and then we're going to take a hard movie, making that movement, making that adjustment you had a question any Jay yes. Thank you and my question is I mean, you will see because those were down only duplex inorganically after.
Being up 27% in one Q.
Yeah. So clearly you know at least the P. launches going Wow as you ramp up at least easily next year, how much of that would be into buying you know jump blossom and then if you can just talk about how much kind of jump on the fee on and lives do you want me to Stein this year. Thank you.
Great. Let me talk about CP volumes in into two for just a moment new this quarter was up to your previous point, a little bit of an aberration.
We had some you know in a very early start to the Latin America season last year. So there was a bunch of herbicides business that was into Q last year, we're going to get all of that in Threeq you that matter fact, I had the orders in hand, right now to deliver most of that the other reason at the CP results in Twoq you are a little bit like is this the sorry.
Yeah issue that we talked about we've got a fantastic fungicide in Brazil growers in the <unk> has tremendous performance or there was no issue with the product performing itself going from one to get their hands on it.
It's just as formulation issue means that we need to hold it a little bit later little tighter little closer to right. When the demand is needed and so we had to pull some back and rework it and get ready to go it's staged the warehouse ready ready to rock when the when the season unfolds.
But because of that rework and pulling it back and created a little than depression in twoq as well. So all of that comes back to us in the second half and matter of fact on an organic basis, if I, if I look that up.
For your kind of see tea.
Guide if you can get the second when the second half kind of plays out like we think we're going be high single digits organically in sales in our in our crop protection segment. So with respect to list rather than do you want to talk a little bit about them show, Jim I think all other than guidance earlier, but then you think about enlist.
A budget for the whole market you believe that you're going to get good part of the market Nickelodeon Visteon was more than 20%. So the enlist the easily be my faith in the technology is going to be as sort of equal next year relative to our own Jones doesn't you think that they're going to double the number we have so lets say between 30.
Hi, import people are saying right now is vending and looking at all the production NV decide finally, but did you get all hands on next thing for them that technology significantly and looking forward to seeing home that adoption goes into the market is very excited at this point of time with all the feedback you're getting from customers and Oh.
Zinc.
Thanks, Thanks BJ.
Next we'll hear from John Roberts.
Thank you. Good morning, how are you ramping down production of seed would be extend trade the season or do you need to actually produced for inventory flexibility or because of the minimum royalty arrangement that you have.
Yeah, I think some things John So obviously a lot of the plan for production for extend is out there and so the main message here is we're going to have choices.
For growers no matter, how this and how this really plays out.
You know, we're watching that situation closely.
Thanks, John.
And we'll move on to Chris Parkinson.
Hi, Chris.
Hi, sorry about that I was on mute. Thank you.
So it's clear that you know there were few moving parts into Brazil, CPQ performance, including the difficult comp are you mentioned your prepared remarks.
And then there were formulation issue in the good series Fungicide can you speak to you know the performances parsed out those issues and just kind of break down your outlook for the second half I'm, especially in the formulation issue and just how you think about your before does normalize grew three in the region for the second half the 20 as well as how we should.
Begin to think about Twentytwenty one thank you very much.
Yeah, Yeah, Chris So I'm really the two main issues $80 million, Oh, sorry, Oh are $80 million of sales that were in the second quarter last year that that will now recognizing this in the back half of this year in Threeq, you, a and like I said I have those orders in hand, no no no concern.
Earns about that at all and sorry, a is all about those sales. We had last year will have again. This year, we anticipate a really strong product. So best way to think about Latin America is just a little bit of an aberration around reporting.
Go forward strong performance with our insecticide business in Latin America, and the second half as well Isoclast is really setting up to be a real strong contributor. So as I said and I think one of the previous answers here if I look at this guy and the CP business for the full year at the at the end of 2020.
You know, we're gonna be high single digits on on that revenue line organically X X currency. So feel really good about you know kind of where our competitive.
Performance since versus the market.
Thanks, Chris.
Oh, probably no question today, we'll hear from wash or.
Hi, Thanks for taking my question I just wanted to ask about your supply chain has I know you know with regard to market Kobin hadn't had a large impact but have you reevaluate your supply chain kind of in light of Kobin any disruption or you took any actually to diversify your project.
Oh, yeah, Thanks, or you know first of all a very large percentage of our portfolio I think the numbers, 80% of our crop protection portfolio is dual source at least from two sources and a big chunk of that is out of the United States. One of those sets the sources would be out of.
Yes, I think the number is north of 60% of our of our active ingredients. So we already have tremendous resiliency and flexibility and he message. There you don't wake up the first day of this Toby prices is designed to diversify your supply chain is something we've been working on for years and it really paid off.
So as the crisis rolled through Asia, we sourced from Europe, and the U.S. as we had some things that hit the U.S. like the flooding in Midland, we were able to head to that and and source those products from Asia Pacific. So no no additional changes we feel really good about where we stand today.
Well that's question and answer session at this time I'd like to turn the call back over to make or break for any additional for closing remarks.
Thank you before we close the call today I want her I'll remind everyone at the upcoming Investor webcast on August 17th during this virtual event, Jan and Brac will provide strategic update including portfolio updates on key product launch it typically our planning on their way to accelerate inlet T. Three fighting penetration.
Your next year, we look forward to your attendance on that call.
With that we're going to close the call. Thank you so much for joining.
And that will conclude today's tali. Thank you for your participation.
Oh.