Q3 2023 Corteva Inc Earnings Call

Please standby.

Good day and welcome to the Court Tivo third quarter 2023 earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to Ken Booth, Vice President of Investor Relations. Please go ahead ma'am.

Good morning, and welcome to <unk> third quarter 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and David Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn Executive Vice President <unk>.

And Robert King Executive Vice President crop protection business unit will join the Q&A session.

We have prepared presentation slides to supplement our remarks during this call which are posted on the Investor Relations section of the Cortez 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 are.

Our actual results could materially differ from these statements due to these risks and uncertainties, including but not limited to those discussed on this call and in the risk factors section of our reports filed with the SEC, we do not undertake any duty to update any forward looking statements.

Please note in today's presentation, we'll be making references to certain non-GAAP financial measures.

Reconciliations of the non-GAAP measures can be found in our earnings press release and related schedules, along with our supplemental financial summary, slide deck available on our Investor Relations website. It's now my pleasure to turn the call over to Chuck.

Thanks, Kim good morning, everyone and thanks for joining us today.

Just over a year ago, we unveiled a strategic framework to enhance <unk> competitive position, while achieving margin expansion and long term value creation.

What we didn't know at the time with how important the efficient execution of that plan would be delivering continued earnings and margin growth in 2023.

Year with no shortage of complicated geopolitical macroeconomic and egg specific factors.

We're making good progress towards our 2025 earnings and margin targets. Despite these challenges.

Through the first nine months of the year.

We've generated over 120 basis points of margin expansion.

What sets us apart is the strength and balance of our global seed and crop protection portfolio and our continued focus on controlling our controllable.

Our fee business is delivering exceptional performance in 2023 and is set up for continued growth with our pipeline of technology new hybrid.

For 2024, we will rollout over 200, new hybrids and varieties around the world after more than 302022 and 2023 combined.

This is helping farmers around the world increased yield in production, which is reflected in our price for value strategy.

Thanks to the continued success of our <unk> platform, where last quarter, we announced having become the number one selling soybean technology in the U S.

We're expecting to deliver royalty reduction benefits in 2023 of approximately $200 million with another $100 million expected in 2020 for.

This is about a year ahead of our plan to achieve royalty neutrality.

And just last week, we announced our next series of enlist <unk> soybeans in North America that builds off our industry, leading E series performance.

More to come on this soon.

In corn, we are delighted to say that we now have a decade view of corn trait technology, which represents a robust market opportunity including out licensing.

All of which will translate to significant value creation.

We're also running ahead and cost productivity across both of our businesses.

Last September we estimated cumulative run rate savings of $400 million. So we're now set to deliver over $300 million in 2023 alone.

And today, we're announcing the next steps in the plan to optimize our global crop production network.

The plan includes the exit of production activities at our site in Pittsburgh, California, as well as ceasing production at other select locations.

These actions will strengthen our competitive position in the market by improving our cost base and increasing supply agility.

Dave will describe the plan in greater detail, but I'll highlight that we're estimating annual run rate savings of approximately 100 million by 2025 that should significantly enhance our competitiveness and our customer service globally.

Overall, the AG markets remain constructive but mix.

Mobile AG fundamentals remain positive with farmer income still above historical levels.

Destocking in crop protection appears to be largely behind us in North America with an uptick in orders from the channel but.

But we expect Destocking to continue through the current season in Latin America, and the upcoming season in Europe.

Underlying farmer demand in terms of applications is on track with historical trends.

However, just in time order patterns, which are most pronounced in Brazil will likely persist into 2024.

So what does all this mean for the remainder of the year.

Our current expectation is that our 2023 full year results will still deliver operating EBITDA growth.

And over a 100 basis points of margin expansion.

We're responding to the local pressures, we're experiencing in Brazil, and we remain committed to long term value creation, including returning cash to shareholders as evidenced by the $750 million in share repurchases. This year.

Turning to the market outlook, we're seeing solid global demand for agricultural production.

Global demand for Biofuels in 2023 is at a record level and we expect continued growth in 2024.

Global production of many key crops is estimated to be up versus the 2022 2023 crop year <unk>.

Leading corn and soybeans.

Although current USDA estimates for the most recent crop year show it would be the fourth consecutive year of below trend corn yields in the U S. We're starting to see a rebound of U S ending corn stocks due to an increase in planted area.

This comes after several years of tight stock levels driven by weather challenges.

However, total corn and soybean stocks, excluding China are not back to pre pandemic levels and are dependent on critical southern hemisphere production, which is even more apparent and soybeans, where Brazil is a critical export.

Meanwhile, corn production in Europe remains markedly below pre conflict levels, particularly in the Black Sea region, where Ukraine production is down 30%.

Brazil is really a tale of two crop soybean areas expected to be up in the 2023 2020 for crop year based on relative production economics between soybean and corn.

Extreme weather varying by region and driven by the El Nino transition are adding an additional level of complexity. The current USDA and Kona crop area estimates.

This is all factoring into our latest operating assumption that both summer and the freemium area will be down.

Although the combination of factors at play in Brazil. This season are quite complex. This is part of the global agricultural markets ongoing balancing of supply and demand, which is expected to also result in a modest shift from corn to soybeans in the U S. In 2024.

To wrap up.

We believe we have one of the most competitively advantaged AG technology portfolios in the industry.

We believe our performance over the past three years speaks for itself.

Since the beginning of 2021, our revenues are expected to be up about $3 billion.

While delivering an increase of over $1 2 billion of EBITDA.

But what perhaps is even more impressive is EBITDA margin improvement approaching 500 basis points.

No other company in our space has come even close to that level of performance.

And there is even more to come and now let me turn the call over to Dave.

Thank you Chuck and welcome everyone to the call, let's start on slide number six.

Which provides the financial results for the quarter and the year to date.

You can see from the numbers that we continue to deliver operating EBITDA growth and margin expansion. Despite the mixed market conditions that Chuck outlined.

Briefly touching on the quarter sales and earnings were largely in line with our expectations for organic sales were down 13% compared to prior year with seed pricing gains offset by volume declines in <unk>.

Both seed and crop protection.

Lower seed volumes were driven by lower expected planted area and delayed farmer purchases in Brazil and in earlier operational finish to the season in North America.

Crop protection volumes were impacted by approximately $95 million in product exits.

In addition, we saw inventory stocking in both North America, and Latin America, and delayed farmer purchases, particularly in Brazil.

Turning to year to date sales were down 1% versus prior year with broad based price gains offset by lower volume <unk>.

Global pricing was up 9% with gains in all regions and increases in both seed and crop protection.

Volume was down 5% versus prior year, largely driven by the decision to exit Russia.

Crop protection volume was down 16%, which includes a 5% impact from product exits.

Put it in perspective total exits year to date represent a $530 million impact to volume.

So despite the reduction in the top line growth strong operational performance translated into operating EBITDA of nearly $3 billion year to date, an increase of <unk>.

5% over 2022.

Pricing favorable product mix and productivity more than offset higher cost and volume.

And currency headwinds.

Having more than 120 basis points of margin expansion for year to date.

So let's now go to slide seven you can see the gains in the CS business were offset by crop protection market headwinds year to date for total company organic sales declined 1% compared to prior year, which again includes a 4% headwind to volume from the exits.

These net sales were up 7% through the third quarter to more than seven 8 billion organic sales were up 9% on strong price execution as we continue to price for value.

Offset higher input costs.

Global seed price was up 14% year to date with gains in every region led by North America and EMEA.

These volumes were down 5% versus prior year gains in North America, driven by increased corn acres were offset by declines in EMEA driven by the exit from Russia, as well as lower corn planted area in Latin America due to expected corn planted area and delayed plantings.

The exit from Russia represented a 3% headwind for the seed segment.

Crop protection net sales were down 10% versus prior year to approximately $5 7 billion.

Organic sales were down 12% with pricing gains more than offset by lower volume.

Global crop protection pricing was up 4% year to date is the high single digit pricing gains from the first half of the year moderate due to increased competitive pressures.

Crop protection volumes were down 16% through the third quarter impacted by channel Destocking.

Shifting timing of seasonal demand delaying farmer purchases in Latin America, as well as more than $330 million headwind or 5% impact from exits.

Currency headwind for the total company was 2%.

Largely driven by European currencies.

Finally, the biologicals acquisitions added more than $280 million of revenue, which is reflected in portfolio and other.

With that let's go to slide eight for a summary of the year to date operating EBITDA performance through.

Through the first three quarters operating EBITDA increased approximately $140 million to just under $3 billion.

Year to date, we've delivered more than $1 billion in pricing and product mix improvement pricing.

Pricing gains coupled with improvement in net royalties productivity and cost actions more than offset declines in volume and higher costs and currency headwinds.

The roughly $460 billion of net cost headwind.

To seed commodity costs, and unfavorable yield impact as well as crop protection inflation on input costs crop protection.

Raw material costs were up 5% versus prior year as we sold through higher cost inventory.

Market, driven and other costs were mitigated by approximately $190 million of improvement in net royalty expense and $240 million of productivity savings.

SG&A spend year to date is up less than 1% versus prior year, including nearly $90 million in SG&A from the biologicals acquisitions excluding.

Excluding acquisitions SG&A is down versus prior year by 3% as we maintain disciplined spending despite year over year inflation.

Currency was a 228 million headwind driven largely by European currency.

Yes, Chuck noted, we're taking several large steps to optimize the crop protection manufacturing footprint.

You can see more details on slide nine.

Although this analysis has been in process for some time.

The current global macroeconomic backdrop in the crop protection industry, we're taking the opportunity to accelerate these actions.

We expect to record pre tax restructuring and asset related charges.

$410 million to $460 million through the end of 2024, including $320 million to $340 million of non cash asset related impairment charges cash.

Cash payments related to these actions are anticipated to be $90 million to $120 million, primarily related to the payment of severance and related benefits and contract terminations and we're estimating annual run rate EBITDA improvement of approximately $100 million by 2025, which translates to a payback.

So have a little more than two years.

Of course, we'll keep you posted on the progress of this plan as we deliver a reliable flexible cost competitive supply network.

Turning now to slide 10, I wanted to take you through the full year guidance.

Now expect net sales for the year to be in the range of 17, and $17 3 billion were down 2% at the midpoint, including a 3% impact from portfolio exits.

This change from our August guidance, driven by lower <unk>.

Volume and pricing expectations in Brazil seed and crop protection.

We continue to expect over $400 million of net sales for the full year and the biologicals acquisitions.

Operating EBITDA is now expected to be in the range of $3 two five to 345 billion, 4% growth versus prior year at the midpoint. The updated guidance is driven by lower topline growth, partially offset by productivity and cost actions.

These updates translate into the expected operating EBITDA margin of 19, 5% at the midpoint of guidance approximately 100 basis points of margin expansion over 2022 led by the strength of our seed business performance.

Operating EPS is now expected to be in the range of $2 50 to $2 70 per share down 3% versus prior year at the midpoint. The change in guidance reflects lower operating EBITDA, partially offset by lower interest expense and lower forecasted effective tax rate and lower share.

Count.

Free cash flow is now forecast to be in the range of $600 billion and 1 billion with a change in guidance, reflecting the lower earnings range into.

Forecast for higher inventory and lower payables.

As Chuck mentioned, we expect share repurchases to be approximately $750 million for the year, which includes roughly $580 million that we completed through the third quarter.

Let's now transition to the setup for 2024.

Slide 12 presents presents the initial high level view of our planning framework and provides key assumptions as we begin our internal planning process for 2024.

Importantly, using this framework as a starting point, we expect to deliver earnings and margin growth again in 2024.

After a 7% increase in U S corn acres in 2023, we expect a shift back to soybeans in 2024, while also expecting lower planted area for Brazil Sabrina.

But the AG fundamentals remain relatively healthy with U S farmer income and commodity prices above historical average. However, we expect Brazil farmer margins to remain generally tight, particularly in corn due to macro factors, including higher interest rates and lower commodity prices.

Our price for value strategy continues to be a key lever driving organic growth.

I think for our yield advantage technology and differentiated solutions is expected to drive low single digit pricing gains for the total company in 2024.

We continue to make progress on our portfolio simplification, we expect another $100 million of volume headwinds related to product exits and despite the impact of the product exits.

Crop protection volume gains in the U S led by new and differentiated products.

<unk> volumes are expected to be muted due to ongoing expected market dynamics biologicals are expected to grow double digits with both price and volume gains.

Cost and productivity will remain a focus for the organization as.

As we drive improved margins, while we're seeing the prices of raw materials fall.

Cost improvements in seed and crop protection will lags commodity price trends.

Driven by the timing of inventory turns.

In seed, we expect another $100 million of improved royalties as we shift to more proprietary technology and we expect a combined 100 million of productivity in seed and crop protection.

We'll continue to tightly manage our SG&A costs with core SG&A expenses, increasing less than inflation.

R&D will continue to increase as we invest in innovation for the long term.

To summarize and highlight we expect lower revenue growth in 2024, as well as in 2025 versus the level of implied in our multi year revenue targets.

Despite this.

We're confident in our ability to continue to deliver earnings and EBITDA margin within the range of our 2025 financial framework.

So with that let's go now to slide 13, and just summarize the key takeaways.

Importantly, our third quarter year to date operating EBITDA performance is in line with expectations led by the strength of our seed business.

Continued cost discipline and productivity actions, coupled with significant improvement in royalty expenses is making a difference to the bottom line and helping to drive more than 120 basis points of margin expansion year to date.

The current guidance range reflects updated fourth quarter outlook, and importantly, still forecast operating EBITDA and margin growth for the year.

The planning framework for 2024 that we shared today supports continued earnings growth and as you would expect we will be followed with detailed market analysis and planning assumptions when we release full year 'twenty three results in early February.

With that let me turn it over to Kevin.

Thank you Dave now lets move onto your questions 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'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and again that is star one for your question well pause for a moment to assemble that Q, but wolf.

First take our first question from Vincent Andrews from Morgan Stanley.

Alright, Thank you and good morning, everyone.

Dave can I just ask you you made the comment in the slide that you're expecting low single digit pricing for the company in 2024. It seems like it's driven mostly by sea, but I'm just trying to get the bridge there because we see pricing in crop Chem was down I think 4% in the third quarter, you're citing competitive pressures in two of your four major regions.

What's the algorithm for next year in terms of getting the total company to flat.

His crop chem going to are going to be positive or is it going to be down slightly.

And then.

Is the seed order book, giving you confidence in the U S that you are going to achieve.

You know kind of mid single digit ish price.

On the fee side of the equation to get us to low singles for the total company.

So let me let me just.

Share with you a couple a couple of highlights and then Tim maybe you could comment a little bit on.

<unk> point about seed.

Vincent you're right so low single digit for the company overall is the expectation right now and again. This is an early indication in our Cola preliminary review as part of our framework for 2024.

For seed.

And Tim will comment more specifically, but but obviously, we're looking at continued positive we call. It price for value as you know so we think that's going to lead the way in terms of our year over year.

Pricing performance for Roberts business, the crop protection business.

Thank the price is going to be generally favorable with the exception significantly.

Our Latam business, where we continue to see pricing pressures.

In the aggregate, we think crop protection pricing will be.

Up slightly to neutral to down slightly compared to 2024.

Taking all of that together gets us to the low single digits for the company again early Tim.

Tim you want to comment on <unk>, Yeah, absolutely good morning, Vincent and I'll, just reemphasize, what Dave said on pricing. This year, we had exceptional pricing roughly 14% year to date and.

A very broad by crop and geography.

A testament to our technology and how we've executed across the board as an organization.

Next year, we do expect that to return to more of a typical call. It low single digit type of.

Our growth on a global standpoint.

And.

At where we're at in North America, maybe the set up there to touch on that and including.

How things are going from a pricing standpoint, and what the what the order position looks like we do expect a rotation.

Corn to soybeans, you know call it 3% to 4% of the area shifting back.

We're well advanced in terms of harvest in North America from a from a farmer standpoint, and I would say farmers are very satisfied with the performance of our product and that puts our current order book in a good spot for this time of year.

Allowing for the shift from from corn to beans.

That said the next 45 or 45 days are really critical for us as we lock up our business for 24 and secure payment, but the order position is good our price position in the marketplace. We've been out there since August.

In front of customers and putting proposals in place and it is holding strong. So we feel very good about what our pricing opportunity there and we continue to have excellent momentum in the marketplace in North America, So strong value proposition and strong execution by the team in and so we feel good about how we're setting up for 24 in North America.

Despite this shift from corn to beans.

Thank you and we will take our next question from David Begleiter from Deutsche Bank.

Thank you good morning.

Chuck has any of the changes you've seen in crop protection impacted your confidence in achieving the midpoint of the 25 EBITDA guidance of $4 4 billion.

Yeah. Good morning, David So obviously, it's a pretty dynamic market that we're operating in right now.

Let me just give you sort of what we're thinking.

And it's a very good question and obviously, we will have a lot more to say and as we give final results for the full year of 'twenty three in February and then we will.

Well really be able to talk about 2024 and with.

The level of degree of specifics that we just can't get into today, but I'd say right now the entire <unk> organization.

It's remaining very highly focused on hitting that four 1% $4 7 billion of EBITDA with a 21%, 23% EBITDA margins I'm not going to talk about the specifics in terms of exact numbers because I think that the key I think for US is that we're still very feeling very good that we're within that range.

And if you think about that just for a minute.

Couple of years ago, just look at what's happened Ryan over the last two years, we've had the Russia invasion of Ukraine, We've had a global chemical Destocking and now we're seeing weakness in Brazil, which we haven't seen weakness in Brazil since 2015.

But when you put all that together, it's pretty clear that we've also over achieved when it comes to some of the controllable. So if you recall that the framework that we laid out last year. It had four buckets portfolio simplification royalty neutrality product mix in what we call the operational excellence and these were largely.

In our control and we've made very good progress in fact on a lot of these dimensions and elements Dave in his prepared remarks commented, we're running a year and sometimes a little ahead of our program. There. So we're finding ways as a management team and as an organization to offset some of the market headwinds that we've been that's been put in front.

All of Us So I guess, what I'd say right now is that when we look at the 2025 targets, we're still very comfortable we're well within that range.

And that of course assumes that we don't see another significant step down in Brazil. For example, because we are planning as part of that 25 framework that there's modest growth in Brazil over the next couple of years.

So if that was not to unfold then we would we would obviously have to find ways to offset that weakness and we've been pretty good at offsetting the weakness. If you think about just the acceleration of enlist on those acres.

That royalty neutrality.

<unk>, we're making.

Better progress than we thought there the productivity and cost management issues in this organization I've been very impressed with our SG&A barely hasnt moved on an apples to apples basis.

Now that just yesterday, we announced that next level of our operational efficiency program. This is something that's been in the work for a very long time, we're quite pleased with the progress and that will add to the operational excellence and cost management of the organization. So when you put it all together, there's always puts and takes but we're feeling very good.

That we're still.

On the on the right track when it comes to delivering that framework.

Thank you and we'll next go to Joel Jackson from BMO capital markets.

Hi, Good morning, Thanks, taking my question.

And looking at your crop can manufacturing rationalization plan can you maybe highlight some of the major change that you did highlight at high level on the slide.

Maybe talk about some of the low hanging fruit, which molecules are you moving externally, which ones did you want to make sure you're keeping internally maybe maybe just some really good maybe a few anecdotes or low hanging fruit you can you could talk about that is really driving us plan. Thank you.

Yes, good morning, Joe Let me start with sort of the Genesis of the program and the framework and the objectives and then I'll turn it over to Robert to give you a bit more specifics.

So yes.

As you well know I hired Robert about a year and a half ago to run the global chemical business.

And the program started almost immediately thereafter.

We've been on this journey for well over a year when it comes to looking at CP ops and really what we did in Robert led the charge here for the organization as we went out and we looked at sort of chemical operation best practices from literally around the world. So it's been a very comprehensive review, it's been underway for a very long time, and it's a multi program.

Graham.

Kind of.

<unk> that we're thinking about that will take us through I'd say the next couple of years and the benefits that youre going to see we laid out some of the benefits for 2025 on a run rate basis of about $100 million that was some of the work that we accelerated but the real benefit for the program won't really bite until kind of post 2025.

We're thinking that theres going to be very significant benefits between 2025 and 2030.

And really the objectives are if you think about our vision is we want to bring our CP ops into kind of the modern operating world of chemicals.

Safety is one of our core values, it's very important to our company and that would be at the first and the top of the list. When it comes to the objectives that we're trying to implement here. We also want to improve our supply reliability. We think we handled COVID-19 pretty well I think our performance was very good but there's always room for improvement there and then of course cost competitive.

Now this industry is shifting it's quite dynamic and we want to maintain our global cost competitiveness. So what youre going to see is that we're going to shift the model to sort of more asset light and use.

Really some third party manufacturing, but really drive supply redundancies, that's going to be critical and then some of the key technology that we own and as you know our portfolio is increasing in this area. Those are assets that we're going to manufacture molecules from ourselves and really invest in modernization driving <unk>.

Vance control technologies and in some cases and this is important we're going to be moving to sort of the next generation of CP manufacturing, which is modular or flexible type technology because in today's world. The next generation of CP, we don't require big volumes and massive plants anymore. These and then of course you know the.

<unk> footprint is.

Is accelerating so when you think about what's needed in that in the next generation of CP, we need smaller more nimble facilities that we can produce these plants relatively cheap products relatively cheaply.

And that will move us into sort of that modular manufacturing mode. So that's kind of the vision that we had for CP and then Robert maybe you can just give a little bit specifics in terms of the announcement that we made yesterday.

Yes, the announcement yesterday is one that.

It will be a big step forward for us.

When you look at the pieces that Chuck laid out there.

Really focusing on.

What can what can we control and this one is a big part of the strategy that we laid out in Investor day.

Our journey is to become excellent and operations.

And we don't take that lightly it really underscores the approach of.

Of shifting more to an external supply balance with our asset light capital.

That's going to improve our cost competitiveness and our network flexibility to be able to respond and change with average ever changing markets that we're in.

The thing about this is that it.

This is something that we started on about a year ago I think as Chuck said.

But we've been able to do some acceleration environment allowed us to do so acceleration, but we've been working on this for some time so yes.

The execution of these actions will allow us to not only drive profitability, but we're going to be much more competitive in the market from a from a cost standpoint, and it puts us much further down the road.

Thank you and we'll next go to Kevin Mccarthy with vertical research partners.

Yes, good morning, everyone.

Question on cash flow and deployment, if I consider your updated guidance on free cash flow as well as the remainder on your share repurchase commitment for 2023. It seems like you could end the year with more or less zero net leverage.

So two questions will be is that fair or not.

More broadly Chuck what are you thinking about deployment for 2024 and beyond.

Yes.

Dave you're talking maybe a numbers and then I'll answer the deployment question, Kevin. So yes. Thank you Chuck So Kevin exactly I think youre right.

Refresh.

We've updated.

The free cash flow guide.

As of today.

$600 to $1 billion for the full year really the differences we pointed out.

In the prepared remarks really has to do with some higher inventory levels as a result of.

Reduce volume outlook as well as lower payables, which goes with what Robert also stated just in terms of managing our current production capacity in light of the softer market demand our overall volume.

So.

Your estimate.

About essentially being zero net debt I think thats a reasonable forecast at this stage when you think about.

Where we are in translating that cash flow.

And it does include as we as we mentioned.

$750 million of share buyback for this year Chuck.

Chuck you want to comment a little bit about 24, yes, sure so Kevin the.

We're thinking about it.

The $800 million at the midpoint that they've provided.

And then the strength of this balance sheet, we have a lot of financial flexibility as an organization. We also have an a minus credit rating. So when you put all that together and.

And we've made very good progress I think on an.

Managing our working capital it's been challenging because of.

The Destocking that went through the global industry, but we don't think that next year will require David a significant investment in working capital in fact, it could be a source of cash yes definitely so when you put all that together, we think that there'll be incremental free cash flow in 2024. So that your question is a good question.

How are we thinking about it and the way we're thinking about it is we think that the formula that we've got right now works.

We prioritize.

Organic growth in the organization and as you know, we're increasing investment in R&D, we're absolutely committed to that we think it's the right thing to do longer term.

But we also are now returning significant capital to shareholders, which we have been.

Very good track record of doing that in this year 750 is a testament to that and I would expect these decisions are obviously board decisions, but I would expect that that that formula that has served us well I think it's something that we will certainly have a very good look at going into 2024.

The other area, though will be inorganic growth. So last year, we made two acquisitions in biologicals and I'd say, we're very pleased about the performance even in this market backdrop. The biologicals businesses are performing very well and Dave gave some of those numbers today.

And even next year. These businesses are expected to grow double digits.

We would be looking for other acquisitions or mergers or commercial relationships in the biological space for sure.

And then of course any other opportunities that we think will drive long term shareholder value.

I think what youre going to expect to see is really a balanced approach to the allocation of capital organic growth some inorganic growth, perhaps and return of capital.

Okay.

Thank you we'll next go to Frank Mitsch with for me in research. Please go ahead.

Good morning, just just curious now that chlorpyrifos as is back in the news and the courts have rejected.

The Epa's decision of a couple of years ago and is now, allowing it I know that you guys said I believe you stopped producing it.

Years ago I'm, just curious if you have any updated thoughts there.

Regarding <unk> in a recent rulings and what your future strategy might be there.

Really no change in our thinking Frank at this point in time.

It's a business we made the decision to exit strategically it fits as well that decision as well with our overall portfolio criteria today. So I appreciate the question, but no no real change no update in terms of our thinking.

Thank you and next we'll go to Steve Byrne with Bank of America.

Yes. Thank you.

Don't your crop chemicals have registration so that specify where they are manufactured in the US is that is that a challenge for you to shutter facilities continue to have to have the respect the registrations in countries in crops revised.

Or is that less of an issue for the plants you are targeting you mentioned Pittsburgh, California.

Where are we right on that that's where you make your.

Your nitrogen stabilizer.

Have any.

Any any relevance to registration is that right and then maybe one broader crop chem question and that is.

Any any lessons learned on this destocking.

You've seen this year.

That.

You had a competitor yesterday that doesn't seem to have that same issue is there. Some fundamental reason why this is more challenging for some than others.

Good morning, Steve maybe Robert you can answer the registration questions and I can come back with the lessons learned.

Sure.

Yeah Frank.

Youre right anything that we produce does have registrations.

It does tie to where it is made.

And then of course, where where it's applied optimized as one of the main product set that is made out of.

Pittsburgh that is or not.

The stabilizer it goes into one brand name and serve an instinct nextgen.

And both of those are our leading industry leading.

Not freaking stabilizers that is a good business for us.

So we have plans to move that production to another location. We will continue to serve our customers seamlessly through this time and we will be in a better position in the future for this product to continue to serve the market. So the registrations and things are our par.

Part of the planning process, one anytime we move products are we many times. So we always have redundancy built into our system and so we have other plants registered many times. This is one that will be move.

Move into registration and Thats all in the plans and timing of the overall transition here. So yes. Good question, absolutely something we have to do and it's always in the planning when we go to rearrange our network.

And Steve on the global CPG stocking.

Look I think every every player in the industry has has been involved in this and some dimension or degree so.

Are there lessons learned obviously.

There is and when we look back on it.

Are there signs.

A sort of a buildup in the channel yes. There was we watched this data very carefully we have.

A lot of insights in terms of what's going to ground and what's going into the channel and when you look back over the last couple of years. It was pretty clear that the demand on the farm was nice and consistent and that was a good that was a good observation.

Still remains that way today, but there was more product going in the channel than going out of the channel.

And so that that was clear, but like we have internally discussed. These were orders that were coming from long established partners in the channel. These are major players that manage their inventory quite well and these were real orders.

And so when we start to think about this I am not sure. We missed that I think that there was a view that that perhaps the on farm demand would continue to increase.

And that didn't happen, obviously, but the demand has been quite steady I would say if there was one area, where when we look back now and we see what's happening in Brazil.

Because look the U S destocking.

<unk> is is more or less and there are pockets, but more or less behind us, which is which is the good news, but in Brazil. We are seeing is that there is still elevated channel inventories and that that dynamic is different.

Influence there that we're finding is that there is a significant.

Can amount of generic supply coming into the country, which is impacting the overall.

<unk> that are available in Brazil, and that is slowing down the destocking and some of this data is visible in some of the data is less visible and it was very difficult to put it all together, but it is pretty clear to us now that we've got sort of a unique situation in Brazil that where we're seeing sort of generic pressure coming into the marketplace.

And that is an area, where we whether we are the only company that missed it I don't know about that but it is something that was that when once we started to look for it you can clearly see that there is elevated in inventories now coming in from offshore from mostly from China.

Thank you and next we'll go to Jeff Zekauskas from Jpmorgan. Please go ahead.

Thanks very much.

Sorry, two questions in terms of your operating cash flow.

Your.

$460 million behind where you were last year, when you generated roughly $900 million in operating cash flow so to get to the bottom of your operating cash flow range of $1 2 billion, you've got it to $3 8 billion in the fourth quarter.

Versus roughly three last year and your inventories are higher and receivables are higher and payables are lower can you really get to that to the bottom of the range.

And then secondly on a normal basis, what should your operating cash flow be in general or relative to your EBITDA.

Gyrate, so much positively and negatively.

Yes, Jeff This is Dave those are good questions. So.

Youre right Theres, a lot a lot of free cash flow, our cash from operations to be generated in the fourth quarter.

When you look at it though on a year over year basis, if you will the change on the change.

It's significant related to receivables.

Slowdown reduction.

Which is very understandable in light of the revenue outlook and by the way.

Dsos have ticked up a bit.

Still within Theres still within a very healthy parameters compared to historic averages and then the other thing is inventory because we are bringing inventories down as a result of the volume declines and as I mentioned earlier and Robert referenced also the reduction in procurement or purchasing as a result of those lower volume.

<unk>.

Both receivables and inventory will be sources of cash on a year over year basis, an important deliverable in the fourth quarter payables on the other hand represented represent a headwind to <unk>.

<unk> revenue is is is not much of a change.

<unk> to prior year, so that's really not significant doesn't play.

Intuit, it's really a working capital story in terms of run rate kind of where we where we want to be where we need to be.

I'm using I'm going to use free cash flow as opposed to cash from operations. So after capex free cash flow, we think in again in the range of building to 40 than 50%.

And so forth is very very reasonable for the company.

2024, when we look forward, we will again.

Positive from working capital, where we believe we'll have a little bit of increase as a result of what we just mentioned on.

On the restructuring for the crop protection business in terms of cash outflow on a year over year. There are some other puts and takes but next year should be a good year for cash flow for the company.

Thanks, Thanks for the question.

Thank you we'll next go to Adam Samuelson from Goldman Sachs.

Yes. Thank you good morning, everyone.

I wanted to maybe come back to the Brazil.

Destocking in crop protection volume outlook, a little bit Barclays closely and maybe just can you feel are clear on what the volume expectations would be for Brazil, and Latin America broadly.

In the fourth quarter.

On volumes and how at this juncture are you thinking about the shape of that volume.

Through 2024.

Given what potentially could be some carryover more carryover inventory of channel inventories are still.

Hi, and planted area.

Actually for corn.

Isn't actually growing.

Okay.

So Dave you want to cover that and I can provide some comments.

So so we will see.

Some growth in the fourth quarter.

In Brazil, and part of the reason is the compares.

Two and this is on the crop protection side.

Compares to an or.

Order pattern and a sales pattern.

Last year, which as you recall was much more significantly accelerated we saw basically.

A very significant increase in orders last year for Brazil.

Compared to this year in terms of the quarterly quarterly pattern.

When we look for 2024.

Our preliminary thinking and I think I had mentioned this earlier in the prepared remarks, we're looking at basically.

Kind of flat flattish or muted volume growth.

On a year over year basis, we expect some of the macro conditions to continue that are characterizing the second half of this year.

Adam the way I think about this is if you think about Q4 CP Brazil.

The midpoint of the guide or the guidance range.

To see continued weakness both in volumes in CP.

In our business and price because of the influence that that Dave just described.

And the channel still has to go through some destocking. So the way the way to think about Q4 is is continued weakness in terms of volumes and some stress on price because of the destocking that we expect will continue at least into the first couple of quarters of 2024.

<unk>.

Because the channel is destocking the rate of Destocking, though is just lower than we had expected and so when I look at this I would say we are going to get to a destock, Brazil I can't tell you exactly when but from a planning perspective, we're going to assume that at least for the first two quarters.

2024 that that we're going to see some weakness when it comes to overall volumes because of the destocking.

Let me, let me correct I was looking at.

Another data point when I referenced.

Latin America crop protection, we're actually can see volume declines.

In the fourth quarter in crop protection, so correct that thank you.

Thank you and next we'll go to Alexia <unk> from Keybanc capital markets.

Thanks, and good morning, everyone I just wanted to follow up on the competitive dynamics in Brazil, specifically the shift to more generic supply.

Do you think this is going to evolve in terms of.

Long term.

Competitive status of that market and also pricing next year.

Yeah, So I guess at the highest level.

We still think Brazil is a fantastic market. It's one of the only markets in the world that will continue to grow production.

And certainly <unk> is absolutely committed to the market.

In fact, if you think about Brazil over the last since 2015. The last time, we sort of had a pause in that market soybean hector's are up something like 30% corn after is up something like 40%. So it's just been a.

Great growth market.

And a lot of companies have enjoyed that but Brazil has never been a straight line up nor will I believe that it will.

Ever be an easy market to do business in and Theres going to be periods, I think where we're going to see a pause or even a step back, but we're still highly committed to that to this market now.

When I talk about generics I guess, let me define it for you.

These are these are organizations that produce molecules better it's not be off patent companies. These these organizations have no local representation in country and no service, which is very important they ship the bulk molecule into the country.

And then they assume that it'll be picked up by by distributors or a lot of times. It goes direct to large farmers.

That's how we define generics and generics have always been a part of the global <unk> market I don't think theres anything new here, except potentially.

Potentially one thing so generics have always been part of the global market has always been a slightly larger part of the Brazilian CP market, where I think we've been.

Observing in the last I'd say three months or so is that there is a new level of aggressiveness when it comes to pricing.

In fact, we would say that a lot of these molecules the prices that they are selling four would not cover their their full costs.

So where does this go to your question.

We think that this is.

Is not sustainable.

And Theres a lot of reasons why that is but there is a performance trade off for these AI is that.

I think it's important many of these AI as our older chemistry, and so they'll have resistance issues.

And a lot of the farmers.

I would say many or most of the farmers really want the service.

And then in Brazil, especially technology does matter.

Given the insect and disease pressure that that country has you can get away with generics for a short period of time, perhaps and make the cost performance tradeoff, but longer term I think that theres going to be a growing place for differentiated technology, especially when it's backed by high service and so we don't.

Think that this is a structural change in the country.

But it is a reality today that we have to deal with.

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

Hi, yes.

Good morning, and thanks for taking my question.

Just wanted to ask you.

You can maybe elaborate a little bit also on what youre seeing in the other markets. We spend a lot of time in North America, and South America right now.

But looking into into some of the dynamics in EMEA and Asia Pacific.

Like early stage, how do you think about these two regions looking into 2024 and in a similar way you've provided US a framework for North America, Brazil, and some of the commentary anything you can share on EMEA and APAC are thank you.

So let me give you the backdrop and then I'll turn it over to Tim maybe you can cover seed and Robert you can cover CP.

The backdrop I think we.

We said in the prepared remarks that the fundamentals are still there is still robust.

They're mixed given the Brazil weakness, we're seeing but there has been record demand for biofuels.

And in fact feed demand is quite high in North America, So global stocks to use.

Picking up a little bit, but overall, what we're expecting is that there is still be healthy farmer dynamics and that's exactly what we're seeing farmers are still prioritizing their investments in yield and production either they are managing this very very well and we don't see a very significant shift in sort of buying behavior except for.

That kind of thing we've talked about many times the move the just in time. So the overall AG market fundamentals are healthy and maybe Tim you can talk about go around the regions and seed and then we'll do the same thing in CP, yeah check so EMEA.

As you can see from our results this year.

A lot of volume pressure in EMEA with really strong pricing so.

Excellent results, considering how the volume was down but.

Brush off the table.

Is that was a big chunk of our volume decrease in Europe.

Saw a general reduction in the planted area. This year for corn as a lot of what I would say stranded corn in Ukraine was migrating into Europe and put a lot of pressure on the local commodity price farmers planted last corn.

Go into next year, we see that situation I would describe it as stabilizing so not necessarily a recovery.

Stabilization is the way I would think about it from it from a European seed standpoint, which is a positive step that was thats a very positive step we talked about North America. So I won't touch on that Latin America. Obviously this year heavily influenced by the by the I'll call the glut of corn in Brazil, reducing the summer and Sapremia area.

And I would say a sort of a recovery in Argentina, although theyre still dealing with a little bit of weather issues.

As we go into 'twenty four 'twenty five we get past this season.

Our assumption is that Brazil, we will absorb that stranded corn. That's that's that's been putting pressure on the commodity and that there'll be back to more of a typical call. It a recovery kind of a flat will assume more like flat to slightly up low single digit growth on corn area next year and in terms of Asia Pacific very.

Small for us in seed, we do business in specific countries, there I'd say in <unk>.

Leon countries heavy dependence upon the El Nino effect, and what that does to local weather conditions markets are generally strong just sort of weather dependent Asia Pacific or excuse me, India or South Asia healthy market.

I'd say, a good demand for corn and.

Oilseeds, there, which is hybrid mustard and again, a little bit of weather dependents. There as we go through but fundamentally strong and businesses are in a good spot for us Robert CP.

So the walk around Cps will start over in EMEA.

This year.

And moving forward, we're seeing a good good pull on our high technology molecules and the new products over there with the challenges that you see from a CP.

I guess regulatory environment, social pressures in Europe.

Have a special they have a special challenge that we don't have everywhere else yet.

Our products are doing very well there when you think about some of the products like <unk> that is that is a herbicide that is in the cereals area. There is one that's that's doing very well in.

The low use rate of that is something that that plays to the environmental regs.

<unk>. There. This is the one you think about a sugar packet covers two hectares.

The technology Thats going into that the other thing in Europe that is is going to be an opportunity for us as we move forward as is the acquisitions around the biologicals and the growth that we'll begin to see in Europe as we as we progress over the next few years with registrations and new products. There it plays right into the knee.

He'd there, especially in the fruits and vegetables market of of Europe. There is a big need for new technology for these growers.

And so we're seeing good progress in Europe, we expect to regain market share. This last year and we're positioning for a good year. This next year as we move forward.

Shifting over to Asia.

As Tim said, the whether there has been a challenge shifting from from into to El Nino from Lavina <unk>.

That is that is put India.

Planted acres this year down but those will recover. This is this is a shift in weather and we will see that that rice planted acres rebound. This next year.

The thing about about Asia is that we have some really good products going into the rice market rent score being a new one that has been launched that controls herbicide.

Rice, and then mix that with our Brown planthopper product Parex salt and we've got two leading technology products there that.

We will grow in this in this rice market of Asia that we have.

When you look at the.

Inventory in Asia, we're in a pretty good spot despite the weather despite.

The slowness that we've seen in some places.

I would say that we're in a much better position than others that have some pretty hot inventory on the channel and we expect as soon as some of the things shifts there we're going to be in really good position moving forward.

Finally, I'll leave you with with Japan, and as you think about that market. We don't speak speak about it a lot because it's not huge for us, but again large fruit and vegetable market biological plays well into that area plus some of our low use rate.

New products and so overall in Asia, we expect.

Our continued growth we expect that technology is going to continue to play a big part and we're well positioned for both.

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

Good morning. This is like a starwood answer Josh. So I was just wondering if you can place.

Please expand on your comments regarding the flow through of seed and crop Chem costs next year, and you mentioned sort of more of a lag of high costs that are flowing through inventory and into the P&L down to 70, if you can sort of disaggregate some of that for us into like whether you expect cost base, it up or down next year between seed and crop chems and Matt.

Overall like if you need to split it between first half second half to help us kind of highlight the lag impact that'd be great. Thank you.

Okay. So this is this is Dave.

Thanks for the question. So we're starting to see as you know, we're seeing price cost of raw materials fall.

We indicated in our prepared remarks that we are seeing continued inflation in the third quarter.

The crop protection business, but that's going to now start to come down in the fourth quarter.

We anticipate again early but we anticipate favorability.

In 2024 on a year over year basis.

Both seed and crop it's could be influence by inventory turns which is a result of inventory translating to cost of goods sold the timing of that.

That's going to that's going to be a little bit of a buffer. If you will against just MX, either spot ingredient or input cost or spot commodity cost in the case of of seed.

It will be a little bit also slower to actually translate in terms of cost benefit in the first half of the year, just because of that phenomenon.

It takes a while.

<unk>, we are heading in the right direction.

Feel very good and more to come in 2025, So we'll see another lift another improvement as we look out to.

2025.

Thank you I'd like to now turn the call back to MS. Kim for any final remarks.

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

Thank you and ladies and gentlemen that does conclude today's conference you may now disconnect.