Q3 2022 Corteva Inc Earnings Call
Yeah.
Good day and welcome to the car T for third quarter of 2022 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Kim Booth, Vice President of Investor Relations.
Please go ahead.
Good morning, and welcome to Cortez 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.
Yeah.
We have prepared presentation slides to supplement our remarks during this call which are posted on the Investor Relations section of the courts have a 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.
<unk> 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.
Thanks, Kim good morning, everyone and thanks for joining us today.
There are several key messages and updates we would like to share with you.
Along with our solid results for the first nine months of the year to demonstrate our strategic plan is really starting to come to life.
Last quarter, you will recall, we announced key actions associated with the completion of a comprehensive portfolio review.
These actions include plans to exit non strategic geographies and product lines, emphasizing our strategy of differentiation to drive our competitive advantages, bringing unique sustainable AG technology solutions to farmers to bring advancements and global food security climate change.
And the energy transition.
Today wed.
We'd like to highlight a few proof points of our immediate execution of that strategy to accelerate performance in growth during the third quarter.
First let me reiterate.
That we are committed to disciplined and strategic portfolio management.
Prioritizing core markets products and crops to simplify operations and to focus investment and differentiated and sustainably advantaged solutions.
In terms of operational excellence.
We are continuously evaluating our business to optimize manufacturing costs and streamline our supply chain.
In that regard, we have decided to discontinue all U S commercial sunflower seed production servicing Europe .
By the end of 2022 crop production year.
Given our previous announcement to exit Russia, as well as various capacity expansions, we now have sufficient capacity to supply our European sunflower commercial seed needs from within the EMEA region.
On the CPE side, we announced last month that we signed a definitive agreement to acquire Sim Board.
Leader in microbial biological technologies.
As we've said before we will be utilizing M&A to supplement our organic growth by focusing on adjacencies and utilizing it to fill gaps in our portfolio, we are able to accelerate advancements in technology and our speed to market.
<unk> collaborated with <unk> to scale up and bring farmers nutrition and bloom, both nutrient efficiency products as part of a distribution agreement between the two companies respected.
Respected throughout the biologicals industry <unk> possesses a diversified existing portfolio.
In emerging bio controls pipeline and a very skilled workforce.
Biologicals are expected to represent about 25% of the crop protection market by 2035.
This transaction reaffirms, our commitment to biologicals and building a more differentiated and sustainably advantaged portfolio that provides cost effective solutions for farmers.
As well as our commitment to forming strategic partnerships to help accelerate innovation and growth.
As it relates to our AI portfolio, we sold our <unk> insecticide business outside of Brazil. In August . We also made the global business decision to exit commodity glyphosate products, meaning glyphosate not mixed with other herbicides.
Lastly, on an operational front, we've decided to cease production of certain intermediary products at the Pittsburgh, California manufacturing site by the end of 2025, allowing us to streamline and simplify our operations.
These moves enable us to redeploy capital for investment in growth markets to provide innovative and sustainable solutions for farmers.
We also remain very focused on bringing global farmers differentiated next generation solutions to help them be successful in this volatile and dynamic environment.
And seed our top tier genetics continue to be in high demand as growers prioritize yields to help offset inflation.
In crop protection, new product sales improved by almost 50% compared to prior year.
This was led by products like enlist herbicide, which has more than doubled in sales compared to the same period last year.
The enlist system continues to gain traction in the market given its superior performance and grower confidence delivering approximately $1 1 billion in net sales during the first nine months of the year, an increase of nearly 80% versus the same period last year.
We expect 2023 analyst market penetration in the U S to be in the mid 50% range, representing approximately 70% of <unk> lineup.
As I've said before this is a remarkable feat considering this technology has only been in the market for three seasons.
Our refined strategy and putting the farmer one has been quite successful. This year, we have delivered double digit sales growth and over 190 basis points of margin improvement so far.
As a result of this momentum we have raised the midpoint of our operating EBITDA guidance and now expect between three and $3 1 billion for the full year outlook, which David will address in greater detail shortly.
Now, let's spend a few minutes on the AG market on slide five.
AG fundamentals remain robust with commodity prices above historical averages.
We are encouraged by resilient demand as well as healthy farmer income levels and see broad opportunities in both business units as customers drive farm productivity.
Farm income levels are expected to remain strong in 2023, following two record setting years.
We continue to believe that global grains, and oilseeds markets need two consecutive normal crop years to stabilize global supplies and.
In 2022 is not a year to rebuild stocks.
For the upcoming season, we're expecting U S planted area to be up slightly with a bias towards corn.
Outside of the U S market growth looks strong in key markets like Brazil, where planted area is expected to increase low to mid single digits.
Strong demand combined with tight supply and weather related reductions in estimated yields have continued to drive low stocks to use ratios for both corn and soybeans during the 'twenty two 'twenty three crop year.
North American harvest is nearly complete for both corn and soybeans with USDA crop progress and the high Seventy's for corn and high <unk> for soybeans.
While yields have been strong in the northern and eastern corn belt. They had been below normal in the western corn belt and plains, where it has been dry.
Overall yield estimates by the USDA had been in the low 100, seventy's for corn and about 50 for soybeans Keith.
Keeping crop prices elevated and farmer income strong in 2022 and into 2023.
We'll continue to monitor the ongoing effects of inflation and strengthening U S. Dollar while remaining focused on what we can control.
With disciplined execution on our refined strategy, we expect price mix and productivity actions to continue to outpace inflationary cost pressures give.
Given healthy market fundamentals, we believe farmers will continue to have strong margins and liquidity.
We will prioritize investments in top tier genetics, and crop protection technology to maximize and protect yields and with that let me turn it over to Dave to provide details on our financial performance as well as updates on the outlook.
Thanks, Chuck and welcome everyone to the call, let's start on slide six which provides the financial results for the quarter and year to date you.
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.
Of impressive growth and margin expansion.
Now it's important to note that the third quarter include 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 and the implied fourth quarter that will go through in a moment. This guide also includes third quarter performance favorability.
<unk> loops 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 nine 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 increase of almost 50%.
We delivered approximately 285 billion in operating EBITDA in the first nine months of 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.
As earnings improvement translated into more than 190 basis points of margin expansion year over year, reflecting execution, including the portfolio decisions that Chuck referenced earlier.
So with that let's go to slide seven.
You can see the broad based growth with double digit organic sales gains in every region through the first nine months in.
In North America organic sales were up 11% driven by crop protection, while demand for new technology, including list enlist herbicide.
<unk> volumes were down versus prior year, primarily due to a reduction in U S corn acres and supply constraints for canola and Canada soybean volumes were up 5% versus prior year driven by continued penetration over the list both segments delivered pricing gains was 6% pricing in seed 18.
Percent and crop protection more than offsetting higher commodity 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.
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 nine 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 or 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 of crop protection volume growth of 2% was again led by demand for new and different.
<unk> products.
Let's now turn to slide eight for a summary of our operating EBITDA performance.
Through the first three 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 in other costs driven by higher seed commodity costs crop protection raw material cost and freight and logistics, we have 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 could 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 core Teva.
Turning now to slide nine 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 nine months, we are affirming our full year revenue guidance to be in the range of 17, two to $17 5 billion or 11% growth at the midpoint, including approximately 3% headwind from currency and as Chuck said.
Fundamentals remained strong as we finish out the year.
We are 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 three 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.
Currency lower spin driven by cost actions that we've discussed.
Strong collections, resulting in lower bad debt accrual also supports this outlook.
The updated earnings guidance translates into approximately 110 basis points of operating EBITA margin expansion for the year again impressive in this environment, our full year EPS guidance remains unchanged at a range of $2 45.
<unk> to $2 60 per share.
Higher operating EBITDA is expected to be somewhat offset by higher exchange gain and loss impact.
On free cash flow, we continued to perform well against our working capital metrics, including our days sales outstanding and inventory days supply DSO.
DSO continues to improve reflecting the strength of farmer income as well as customer collections inventory days sales are ibs 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 <unk>.
Guidance range or roughly $1 billion free cash flow flow for the full year 2022.
So now lets transition to a discussion on slide 10 on the setup for 2023, you can see our initial planning framework. It is intended to provide key assumptions as we begin to transition.
We see 2023 is 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 risks 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 'twenty three.
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 Teva. In addition in Latin America, we expect corn planted area to increase low to mid single.
<unk> 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 because cost of goods sold and as Chuck said earlier, we're making progress on our portfolio simplification exiting <unk>.
Addity glyphosate products among other non strategic 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 and our proprietary genetics enlist <unk> soybeans will represent approximately 70% of our U S soybean sales in 2023.
And we expect about 60% of those will be in our own core Teva germ plasm. This will support increased overall market penetration of the enlist trait envelope 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 were well positioned for another strong performance here.
Let's now go to slide 11, and just summarize some of the key takeaways the.
The company has taken very important steps in its strategic roadmap, including portfolio simplification and investing in growth by exiting non strategic product lines. We can focus on key markets and provide differentiated solutions to farmers and with the acquisition of <unk>, we've taken a.
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 three quarters. This strong year to date performance gives us confidence to raise the midpoint of our full year operating EBITDA guide.
<unk>.
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 dividends.
And share repurchase.
<unk> commitment to deliver value to our shareholders and finally, we believe that we've continued with its 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 EBITA margin expansion. We believe these strategies will further differentiate core teva and deliver increased value for years to come.
And with that let me turn it back over to Kim.
Thank you Dave now, let's move on to your question I would like to remind you that our caution 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.
Thank you if you wish to ask a question at this time. Please press star one on your telephone keypad.
Ensure the mute function on your telephone is switched off your larger signal to reach our equipment.
We will now take our first question from Vincent Andrews from Morgan Stanley . Please go ahead.
Hi, Thank you and good morning, everyone.
So just wanted to see if you could give us any sense on inflation for next year in both crop chemicals and.
<unk> seen sort of any order of magnitude.
<unk> this year that we saw.
Thinking about the model and maybe more specifically in crop chemicals could you talk about when you think raw material costs will peak and if there's the potential for any deflation at some point in 2023.
Yes.
So Vincent this is Dave good morning, 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, 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 soon.
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 just incredible and again just want to reinforce what we've been able to do this year in terms of execution pricing productivity.
Activity.
Tim and Robert combined with been able to do to be able to deliver the performance for 2023 and specifically to your question.
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 would be too early right now for us to say precisely or even within our kind of our guidance range, where there could be we'll provide that together with obviously more details around 2023, when we provide our formal guidance, but it will be a moderation of the rate, but a continued headwind for us.
What we're anticipating and that's what we're planning in terms of our execution Robert you want to talk about crop.
Sure. Thanks, Dave.
Yes, we're looking at looking at the crop protection business the cost inflation supply disruptions continue to be fairly widespread.
And as Dave said at this point, we don't see a whole lot of improvement into 2023, although where we've learned and we're in a better position to manage those into the future.
That said our.
Our track record of pricing our products based on the value that they add to the farmer plus the productivity.
I'd say he has been relentless with our teams.
It was more than offset the cost increases and we'll continue to do so.
We fully expect this momentum to curious into 2023.
As Dave said 2022, we've seen inflation in the low teens and but we do expect this to stabilize in the crop protection area as we begin to lap quarters.
From the higher inflation rates, we saw in earlier.
It will begin to stabilize a little bit.
Yeah.
But.
I want you to takeaway that we are deploying every tool that we possibly can to manage to manage cost inflations.
Our most effective tool is technology.
And when you begin to look at our technology drives farm productivity, allowing the farmers to make more yield and offset the cost inputs that they have.
They're already coming out of them, such as gas fuel and fertilizer prices.
We do see a continued strong demand for this latest technology that will continue to help the farmers as we move into 2023, and we think we're in a good position to be able to handle it.
Great.
We will now take our next question from David Begleiter from Deutsche Bank. Please go ahead.
Thank you good morning.
Okay back in September you gave a three year EBITDA growth target of 13%.
On the headwinds next year from FX and costs would be fair to think about that.
Think about maybe sub 13% growth in 'twenty three above that 13% in 'twenty four and 'twenty five is that a decent way to think about the.
Three year target.
So David maybe maybe I could start and Chuck you can add to this.
Really good question and just to.
For everybody's benefit the numbers, David 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 on the revenue side.
Brown, 30% on the EBITA side, we see right now as we look out to 2023.
<unk>.
I use that term a balanced framework, but it's a constructive set up 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.
Pro.
Pro rata basis should be an important and.
Relevant contribution to that over our overall goal. So we see that as a good setup for the beginning of that three year period, Chuck anything you want to add to that David look obviously, we're at the point, where we're looking pretty deeply at 2023.
Let me just give you sort of our current thinking so first of all we think 2023 is going to be a very similar year and setup.
<unk> 2022 was.
And we think core Teva based on some of the early decisions. We've made in 2022, we're feeling pretty good about 2023.
I think the bottom line. The takeaway is that we feel that we're on track to deliver that value creation plan that we outlined in in September now Theres puts and takes right. So that the macroeconomic environment, we talked already about inflation today, we're watching that very carefully.
Dave and Robert gave you our view there the other headwind, we clearly see coming at us as global currencies and Dave can talk more about that but.
But the AG fundamentals are very constructive.
Got low inventories below trend yields high crop pricing this sets up the AG economy, very very well for 2023.
We need rain, so we're not going to talk too much about the weather today, but North America, Latin America, and even Europe . They all need rain, so assuming that we get some rain over the next several months.
We're thinking that the AG economy is quite strong and then for <unk>.
Just to take you back to September the value creation plan that we put in place.
Within that backdrop of the market context, a lot of those levers are within our control. So we're going to see the first meaningful step of royalty neutrality in 2023, and we can talk more about that.
We're going to see continued growth in our new CPE products, they're adding a lot of value on the farm. We've got the new <unk> capacity coming online and there is more portfolio.
Moves that we will announce as we make those decisions all within this context of this this three year journey that we laid out so we're feeling pretty good even though there are some headwinds facing the organization in the industry, but we think we're pretty well positioned.
We will now take our next question from Joel Jackson from BMO capital markets. Please go ahead.
Hey, good morning, there's been some color in the markets about enlisting in a slightly different.
She had a color maybe maybe attractive maybe a 5% discount to the being just on the elevators. They look at rating Standalone grading can you comment on that the extent of it what youre doing for it.
Sure.
And I guess, Dan Patrick Thanks.
Okay.
Hey, Joel Good morning. 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 soybean grading process allows for that color very variation.
Variety varieties respond differently to the environment certainly there is a genetic component and other factors.
Playing as well in the case of enlist <unk> soybeans color variation can show up as a light Brown shadow on the C code.
On the side at a high level and the variation is from natural compounds and it's on the C code and does not impact nutritional composition of quality we can.
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.
Demand for the technology remains strong and farmers continue to get full value from.
From the technology and the grain is accepted in the marketplace. So there is no widespread discounting on enlist soybeans 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.
Yeah.
Okay.
We will now take our next question from P. J <unk> from Citi. Please go ahead.
Yes, good morning.
A question on your decision to exit glyphosate.
I would imagine that is based on how volatile glyphosate is and you're focused on more sustainable products.
Maybe you can comment on that but you do have roundup ready trait in some of your products do you expect that the genetics will kind of filling the gap.
And.
You mentioned $300 million of sales EBITDA number associated with that thank you.
Yes P. J, let me give you the overall strategic decision framework, we used and then Robert and Tim can talk the specifics around what's in and what's out in that decision and the impact to our seed technology, which will be done by the way but.
We will cover that in detail.
So we just feel as an organization that we wanted to tilt our portfolio.
Two solutions that are value added and unique in the marketplace.
And so these decisions are always difficult but.
The decision for US is one of just providing very unique differentiated technology to farmers that create long term value.
And Thats really the simple part of it the other point, though is that we did run that through a financial lens and the cold hard truth of our glyphosate commodity businesses that we don't make a lot of money on it.
So why allocate precious resources to this when we can put it to something else that have much higher margins and move the needle for farmers. So.
Tim why don't you talk about sort of the thinking around seed, yes, I mean in terms of the run.
Roundup ready technology I mean, it is an integral part of our <unk>.
Paid offerings today and will continue to be so theres no.
Certainly no intent to alter that and it.
It remains a technology that is highly valued by our customers and they get great utility from it and I think the other thing that plays into it as Chuck compliant farmers have a lot of choices, where they source from 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 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 says steady as we go and we will continue to support the technology across multiple crops.
Yes.
Yes, and then from a crop protection just little more specifics on the glyphosate exit.
This really falls into what we shared at our Investor day.
Back in September where we talked about one of the key key pillars to our strategy is portfolio differentiation.
Glad to say, it's not one of those it fits that fits that model.
When you look at look at where we are today. This differentiated portfolio is going to continue to be led by.
By improved market penetration by these new products and and that's going to be a key piece of us as we move forward. These sales can be around $2 billion. This year.
We expect these to continue to grow in the high teens low 20. This next year.
Glyphosate as part of this exit plan of 2020% of our your eyes over the over time.
This is one of the first ones that you see moving out the revenue number of that around 300. This next year is what we will lose the answer specific question there and for.
From a margin standpoint, it's just part of that differentiation driving our margins better we expect to have a favorable favorable impact to the bottom line because of it.
We will now take our next question from Christopher Parkinson from Mizuho.
Please go ahead.
Okay, great. Thank you. So much you mentioned a few things that can affect CPC margins heading into 'twenty three and ultimately two.
24 inclusive of exiting the business is a two part question. Just firstly are there is there anything else that youre assessing within the CBC portfolio that would have comparable margins.
Like I say business or potentially higher.
And then what's your latest assessment slash enthusiasm about some of your newer technologies that have already been launched but seem to be ramping pretty well, whether it's an attract ice class <unk> CT <unk>. So on and so forth. Just if you could just give us some framework on how youre thinking about that heading into 'twenty three it would be incredibly helpful. Thank you.
Maybe Robert if I could just two quick introduction on for Chris has been I think number one to point out.
<unk>.
Specific to your question I think it's important to point out and we referenced that earlier is that we will have some some volume headwind obviously in 2023 as a result of these decisions.
One thing I would mentioned well, obviously beneficial as Robert said to margin and to EBITDA.
Second thing I would mention is that we did reference method metal as well.
One of those items.
Down the list in terms of significant size, but it is indicative of what we've done in terms of some of the portfolio of refinement and actions.
And Robert you want to.
To talk about anything else.
Both on the what we're doing refinement wise, but also in terms of growth.
Yes, when you look at back to your question around the around the new products.
We had shared earlier that we have about eight new products out on the market since 2000, 2017, and two more to come over the next couple of years.
This new technology as I referenced earlier is really being driven by the demand it's helping the growers.
The attack.
Challenges that they have not been able to in the past and so we expect that to continue as we move forward.
As Dave said, the glyphosate is one of the first ones.
Our announce and <unk> ex Brazil outside of Brazil.
The one that we've announced we have others that will follow in 2023.
That will have similar impacts thus the headwinds that we think we will have on the revenue as we move forward in 2023.
But overall overall this is again this is part of our strategy as we move forward to shift our portfolio to improve our margins and to get us get us to the goals that Chuck laid out for 2025.
We will now take our next question from Kevin Mccarthy from vertical Research partners. Please go ahead.
Yes, good morning.
Back at your Investor Day, you outlined tremendous growth potential that you see in biologicals and since then you announced the <unk> deal can you just.
Provide an update on the growth opportunities as you see them today for core Teva in terms of organic growth and how you think the pipeline.
Deals could it could evolve and support your growth in the years to come.
Sure.
Kevin So.
Look if you step back and you think about that.
The landscape from a crop protection perspective, you can just see that the world is looking for.
Nature based biological based.
Products to have bio control.
Stimulants bio nutritional 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.
It will be significant part of the overall <unk> portfolio.
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 Sim Board.
Acquisition was one of the first ones that we.
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 <unk>.
We'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 are based on the right part of the world. They are based in Europe , where I think biologicals.
It is going to lead the European market will lead a biological journey. So there's a lot to like there.
And I guess to answer your question, specifically, but snacks 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 them 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 theres lots of exciting things, there, which we will share with you over time.
I will now take our next question from Jeff Zekauskas from Jpmorgan. Please go ahead.
Thanks very much.
<unk>.
In seeds.
Relatively easy to have an idea of what pricing will be like for 2023, we look at your CCAR et cetera.
Okay.
Timber and then extrapolate into next year.
But how.
How is it best to think about pricing in crop chemicals.
That's something that plays out each quarter are your prices set for next year is it easy to estimate.
Have a view on pricing in crop chemicals.
2023.
Okay.
Yeah.
Jeff when you think about pricing in crop protection.
Youre spot on it is different from seed but.
It's something that we do plan for it's not something that we're reacting to what we planned for into the future.
And when you look at what we've been able to do so far.
It's really about the strategy around our differentiated products.
Plus the adoption that we're seeing by farmer supports this value proposition that we've that we've seen we don't see that changing as we as we move into 2023.
Our track record of pricing for the products pricing for value is something that coupled with our relentless productivity has been able to help us offset the rising inflationary costs from raw materials.
We don't see raw materials slow in this next year are we seeing them stabilizing but we see it we will continue to increase and so we will have to continue to work on that as well.
But as you look at the year, we're up 13% on pricing on a year over year basis.
And we expect that momentum to carry us through into next year as well.
Specific to your question around how do you think about it there's three buckets that we think about when it began to talk about pricing in crop protection. It's differentiated products. It's netback NIST excuse me next best alternative products.
And it's those that are close generic <unk>.
<unk> products is one that there is really a core to our strategy and thats where were shifting our portfolio towards because this is a non elastic.
Less price sensitive because this is a true value add to the to the grower. It actually helps improve the yield on a per acre basis. The next best alternative is once we began to think about there are a few more substitutes available than then.
The differentiated.
So it's a little bit more elastic, but it's it's still far from the generics, which gets us back to that close generic those we're going to have to manage with the market and the commodity price nature there.
But overall our increase in differentiated products is one that.
That over time.
We will put us in a good position as it comes to how we extract value from the market.
And as.
As Chuck talked about in Biologicals earlier. This also plays out and our overall shift of this portfolio to become more differentiated and to get ready for the future. So hope that helps.
We will now take our next question from Steve Byrne from Bank of America. Please go ahead.
Yes. Thank you. So if I heard you right. Chuck you are looking for the enlist penetration in 'twenty three.
Soybean seed to be somewhere in the mid <unk> with.
With 70% of your own lineup.
No.
The math on that would suggest there might be.
30% of the enlist seeds out there that are sold that are.
So other.
So through other seed companies can you comment on.
How much of that other 30% will generate.
Our fee for courts have.
And could some of it generate a a germ plasm loyalty to you.
As you start to rollout.
Your own licensing of pioneer genetics through through GDS.
Steve.
Jim walk you through sort of our thinking on unless market growth, yes, Steve.
Good to hear from you this morning.
We're wrapping up another strong season with enlist and very outstanding performance.
Both thermos herbicide program and as we roll through harvest.
<unk> that we had in the marketplace are performing well and strong satisfaction.
With our customers this year, despite really variable yield levels in some challenging environmental conditions.
And as you say 2023 is a very important year for us because it's when our proprietary genetics really kick in and we will have an impact.
And what I would tell you is in terms of our licensing focus right now we see that as a very important longer term opportunity.
In the near term, it's most important that we convert our own branded business to our proprietary varieties and so we're in that process right now as you say, it's going to be a major ramp up this year, so I wouldn't expect.
In the immediate future do.
Jump on.
Or think about licensing opportunities is as as.
First priority, but as we convert over our own branded business, which is substantial we have a major share of the market both in the pioneer brand and our other brands.
It's going to open the door for us to I think really participate and have a strong position in that and that licensing opportunity.
Yes.
Just to add to that Steve.
When you think about our platform in the CPE side, we're still the only enlist manufacturer for the herbicide that can go over the top lease of these beans, as well so that'll give us some some uplift there as well it's been and how this plays out and then Steve just the Big picture is we're expecting in 2023 about 100 million.
Of royalty reduction. So this is the first.
A year, where youre going to see meaningful value creation from the technology and as obviously as the market continues to be penetrated we expect that number to grow to approximately 250 by 2025, So a really good value creation in the next three years on the enlist technology platform.
We will now take the next question is from Frank Mitsch Fermium Research. Please go ahead.
Okay.
Hey, good morning folks.
I want to come back to the slide I wanted to come back to slide 10, and certainly appreciate the color that you've already provided in terms of the 'twenty three outlook, but I want to come to this the three buckets.
Of concerns for next year between the FX inflation in Latin American seed supply as we sit here today, how would you rank order those concerns into next year.
Maybe I can talk a little bit of I'll talk a little bit about the.
The currency point.
And just 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 real.
The Canadian dollar some of the other European currencies.
<unk> significant for US and then when you look at those numbers if you just did.
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 the revenue headwind that would be a comparable headwind that we would anticipate for next year on the inflation.
<unk> side, I think we talked about that earlier in terms of the macro consideration and that one.
And Robert doing 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 peace dividend.
Related to a reduction in costs major costs for <unk>.
Next year.
Tim do you want to address some of the fundamentals yes.
Yes in terms of spin.
Specifically in the Latin America.
<unk>.
Frank.
Season is progressing well and we've seen a timely planting of soybeans in central and north part of Brazil, and that's favorable for the upcoming spring season, and typically the plannings initiated in January .
We've talked for a little while now about the tight feed supply and it's based off of many factors and it's really going to impact the first half of 2023.
In terms of our ability to serve the market in the fourth quarter, we feel comfortable with that.
But it's going to be.
Tight supply as we get into the call. It the mid to later part of freemium season, and we're working closely with our customers on that so because of the production challenges we are left with less inventory than we'd like.
For this season is certainly around capturing value more than volume in the marketplace and I want to emphasize that so team is extremely focused on capturing value there.
Going to rebuild our inventories as we move into Brazil. The bulk of our sales are certainly in the second half of 2023 and the focus is on is getting back to a comfortable level of inventory by mid year. So we're going to be able to meet full.
Demand in the second half of 2023, so I think on a full year basis will be recovered and actually will be.
Youre not going to feel an impact.
Even though there may be some timing differences from what we would've seen in prior years.
Yes.
Yes.
We will now take our next question from Josh Spector from UBS. Please go ahead.
Yes. Thanks, just your analyst penetration comment that 2023, and you have to target 25 is 23 now ahead of your plan and does that change what you think the ceiling could be in 2025 could you be above 60%.
Yes.
Josh It was just a couple of months ago that we had to signal the what the new potential was so we raised it in 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 and let's see three to be the majority or the the top selling technology in that very important soybean seed markets. So that's a very.
A significant milestone that we are reaching and again based off of performance of the technology and the system seed and crop protection I think the market is going to 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.
No we will have very strong genetics from us and other providers in the marketplace and there is no better crop protection system in the marketplace. So we feel comfortable about what our long term perspective is that our long term opportunity is there.
Okay.
We will now take our next question from Ben Theurer from Barclays. Please go ahead.
Thank you very much good morning, congrats on the results.
I just wanted to to stay along the lines around the royalties and some of the planning framework as you've mentioned that your expectation is that core and that's 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 theres more demand.
For corn versus sorry, so just to put it a little bit into perspective, what if farmers decision switching back to corn and how much is really what you improve by accelerating and lift.
And drive more of your own germplasm. Thank you.
Yes, maybe I'll take a shot at this to start off with and so as we look at 2023, obviously.
From a North America perspective, it's early.
But we expect that.
That theres going to be that approximately 180 million acres of corn and soy that will be planted that'll be slightly up from a year ago. As we certainly hope that we don't have a repeat of the prevent plant area that we saw this year, which was above what we would typically see and when we talk about why the markets.
<unk> are tilting towards corn, we're really basing it off of the market fundamentals and.
The other thing I always come back to is take the November 'twenty, three soybean price and divide that by the December 23, corn price and that ratio is really indicative of where farmers profitability is in right now that ratios at about $2. One five to $2 two moving around every day.
But that is in a bullish range for corn and it's actually probably the most favorable we've seen for corn in several years. So that's our signal right. There in terms of getting to the finer points of what our customers signaling I'd say hard to hard to base. It off of the book of orders we have right now.
We're out there.
In the end.
The marketplace with customers and helping them make those decisions, we're talking about what their intentions are and booking seed for next season, but farmers are going to step back and theyre going to continue to monitor several things I mean first is in and Chuck talked about it earlier the weather is going to be a factor and we got a long way to go before.
Customers plant, a crop and so I certainly don't see this as a barrier right now, but it is dry right now and.
We need to get closer to normal precipitation.
Through this through this winter so that we can be in better condition for all for all crops. As we go forward. So farmers will continue to look at that and certainly farmers are going to follow the markets and what the relative profit opportunity is for each crop and that is a very farmer by farmer decision that they have to make and the types of shifts we're talking about were.
Looking about a couple of percent shifting one way or another here so.
It's subtle.
And it's and it's hard to feel it in mass you really have to look at it on a on an individual customer basis to see see where that's going but we're going to continue to be with our customers every step of the way from now until that crop goes in the ground in and as they make their hybrid and variety decisions will be we'll be partnering with them, but that's kind of what the motivation is y.
We talk about the market.
Elting towards corn right now.
We will now take our final question from Arun Viswanathan from RBC capital markets. Please go ahead.
Great. Thanks for taking my question I.
I just wanted to get your thoughts maybe on growth topline and EBITDA in the next year or so on the top line.
The slide with some of the positives and negatives looks like.
Can get to about a mid single digit level of revenue growth and.
Given maybe the $100 million of royalty reduction in some of the other drivers that can be levered to maybe high single digit EBITDA growth.
Is that the right way to think about.
Preliminary thinking about 'twenty three.
Well, let me give you my perspective, and then Dave you can get into that more detail. So.
If you go back to the September Investor Day, we laid out a three year plan that had significant value creation right getting to 21% to 23% EBITDA margins for 1% to $4 7 billion of EBITDA from where we were at.
In the last in fiscal 2021 at $2 6 billion of EBITDA.
Also said today that we are feeling very comfortable that we're on track for that value creation plan and that Dave said, its very ratable. So I think that that will give you our our more specific numbers. Obviously in February when we give our full year guidance, but today given everything that we.
We see coming at US we feel very comfortable that we're on that that plan, Dave any other final comment I think that summarizes very well.
Good thank you.
Yeah.
Okay and that concludes today's call. We thank you for joining and for your interest in quick. However, we hope you have a safe and wonderful day. Thank you.
Yeah.