Q4 2023 Corteva Inc Earnings Call
Yeah.
Good day and welcome to the course Shafer fourth quarter 2023 earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to Kitten Booth. Please go ahead.
Good morning, and welcome to Cortez fourth quarter and full year 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and Dave Anderson, Executive Vice President and Chief Financial Officer.
Additionally, Tim Glenn Executive Vice President seed business unit, and Robert King Executive Vice President crop protection business unit will join the Q&A session.
We have prepared presentation slides to supplement our remarks during this call which are posted on the Investor Relations section of the <unk> 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.
These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.
Operator: Good day, and welcome to the Corteva fourth quarter 2023 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kenton Booth. Please go ahead.
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.
Operator: Good morning, and welcome to Corteva's fourth quarter and full year 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President, Seed Business Unit, and Robert King, Executive Vice President, Crop Protection Business Unit, will join the Q&A session. We have prepared presentation slides to supplement our remarks during this call, which are posted on the Investor Relations section of the Corteva website and through the link to our webcast. During this call, we will make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to a number of risks and uncertainties, including but not limited to those discussed on this call and in the risk factor section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements.
Please note in today's presentation, we will be making references to certain non-GAAP financial measures reconciliations of the non-GAAP measures can be found in our earnings press release and related schedules, along with our supplemental financial summary, slide deck available on our Investor Relations website. It is now my pleasure to turn the call over to Chuck.
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Chuck: Thanks, Kim and good morning, everyone and thanks for joining us I hope your year is off to a great start.
Chuck: There are several key takeaways I'd like to share with you today, including an overview of the market fundamentals are solid 2023 performance.
Chuck: An update on our path to incremental value creation by 2025 with a closer look at what's ahead for 2024.
Chuck: First I would say that our 2023 performance validates the effectiveness of our value creation strategy and its key levers of portfolio simplification royalty neutrality product mix and operational improvements at.
Chuck: At our core we are a technology company and last year, we had more than 400, new product launches in seed alone. We introduced 300, new hybrids varieties to new product concepts and 41, new trade our stock registration approvals in crop protection, our team delivered and launched about 100.
Operator: 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. Now, it's my pleasure to turn the call over to Chuck. Thanks, Kim. Good morning, everyone, and thanks for joining us.
Chuck: 40, new products and two new actives advil and record mill, the latter being the first of its kind selective the motto side.
Chuck: That also has beneficial soil characteristics.
Chuck Magro: I hope your year is off to a great start. There are several key takeaways I'd like to share with you today, including an overview of the market fundamentals. Our solid 2023 performance and an update on our path to incremental value creation by 2025 with a closer look at what's ahead for 2024. First, I would say that our 2023 performance validates the effectiveness of our value creation strategy and its key levers of portfolio simplification, royalty neutrality, product mix, and operational improvement. At our core, we are a technology company, and last year, we had more than 400 new product launches. In feed alone, we introduced 300 new hybrids or varieties, two new product concepts, and 41 new trade or stack registration approvals. In crop protection, our team delivered and launched about 140 new products containing two new actives, Adevilt and Reclamil, the latter being the first-of-its-kind selective nematicide that also has a beneficial soil character.
Chuck: The outcome of the strategic and operational actions implemented over the last two years demonstrates the significant progress we have made in converting every dollar of sales into more cash and earnings.
Chuck: With this solid momentum, we enter 2024, well positioned and are confident in our ability to deliver value to our customers and other stakeholders as.
Chuck: As we look ahead overall AG fundamentals remain constructive.
Chuck: Large global crop production is being met with record demand for Green Oilseeds in Biofuels in North America, corn production and yield for the 'twenty three 'twenty four crop year is expected to hit a new record. Despite the productivity challenges that farmers must face related to weather and disease.
Chuck: A testament to the importance of AG technology.
Chuck: Brazil could be the exception with weather influence in crops tress and planting decisions.
Chuck: Commodity prices have declined from their peaks as global stocks to use have grown but remain elevated as demand continues to keep pace with production.
Chuck Magro: The outcome of the strategic and operational actions implemented over the last two years demonstrates the significant progress we have made in converting every dollar of sales into more cash and earnings. With this solid momentum, we enter 2024 well-positioned and are confident in our ability to deliver value to our customers and other stakeholders. As we look ahead, overall agricultural fundamentals remain constructive. Large global crop production is being met with record demand for grain, oilseeds, and biofuels. In North America, corn production and yield for the 23-24 crop year is expected to hit a new record despite the productivity challenges that farmers must face related to weather and disease, a testament to the importance of ag technology. Brazil could be an exception, with weather influencing crop stress in planting decisions.
Chuck: Global crop area is forecasted to increase in 2024 with a modest shift in the U S from corn to soybeans.
Chuck: In addition, U S farm income remains above the historical average, though down from its 2022 peak.
Chuck: What has not changed as farmer demand for breakthrough innovation in technology, including seeds that maximize yields which in turn boosts pharma revenue.
Chuck: With on farm demand remaining overall strong the crop protection industry is still going through what we would refer to as a rebalance as it recovers from the Destocking that had a challenging and abrupt impact on the market in 2023.
Chuck: While we expect this to continue to normalize throughout the first half of 2024, we're seeing signs of improvement, which gives us more confidence in what the crop protection market should look like as we entered the second half of this year.
Chuck Magro: Commodity prices have declined from their peaks as global stocks to use have grown, but remain elevated as demand continues to keep pace with production. Global crop area is forecasted to increase in 2024, with a modest shift in the U.S. from corn to soybeans. In addition, U.S. farm income remains above the historical average, though down from its 2022 peak. What has not changed is farmer demand for breakthrough innovation and technology, including seeds that maximize yield, which in turn boosts farmer revenue. With on-farm demand remaining overall strong, the crop protection industry is still going through what we'd refer to as a rebalance as it recovers from the de-stocking that had a challenging and abrupt impact on the market in 2023. While we expect this to continue to normalize throughout the first half of 2024, we're seeing signs of improvement, which gives us more confidence in what the crop production market should look like as we enter the second Once we get into 2025, we expect the imbalance between product going into the channel versus what is being applied on the farm to be back in sync. On full year results for 2023, Corteva continued to deliver with 5% operating EBITDA growth and 116 basis points of margin expansion.
Chuck: Once we get into 2025, we expect the imbalance between product going into the channel versus what is being applied on the farm to be vacuum zinc.
Chuck: On full year results for 2023, <unk> continued to deliver with 5% operating EBITDA growth and 116 basis points of margin expansion.
Our seed business in particular had an outstanding year with enlist <unk> soybeans, achieving the status of being the number one selling soybean technology in the United States, where it reached 58% market penetration.
Chuck: The enlist system, including our herbicide offerings reached $1 7 billion in sales in 2023 growing in a well supplied market.
Chuck: Our new product sales held steady year over year at about $1 9 billion for the full year and the biologicals business had a strong year delivering both top and bottom line growth.
Chuck: Between strong demand for our innovative <unk> technology costs, and working capital discipline as well as healthy farmer income levels in North America, our free cash flow in 2023 exceeded our previous estimate coming in at about $1 2 billion.
Chuck: We returned approximately $1 2 billion to shareholders via dividends and share repurchases for the full year, while also funding approximately $1 5 billion of acquisitions.
Chuck: Turning to 2024.
Chuck: And I'll turn this over to Dave in just a minute, but at a high level, we should expect to see another year of meaningful margin expansion with a heavy focus on cash generation.
Chuck Magro: Our seed business in particular had an outstanding year with Enlist E3 soybeans achieving the status of being the number one selling soybean technology in the United States, where it reached 58% market penetration. The Enlist system, including our herbicide offerings, reached $1.7 billion in sales in 2023, growing in a well-supplied market. Our new product sales held steady year-over-year at about $1.9 billion for the full year, and the biologicals business had a strong year delivering both top and bottom line growth. Between strong demand for our innovative seed technology, costs related to working capital discipline, as well as healthy farmer income levels in North America, our free cash flow in 2023 exceeded our previous estimate, coming in at about 1.2 billion. We returned approximately $1.2 billion to shareholders via dividends and share repurchases for the full year, while also funding approximately $1.5 billion of acquisitions.
Dave: As a result, we expect to deliver 2% top line and 6% operating EBITDA growth at the midpoint, which reflects another incremental EBITDA margin improvement.
Dave: Of nearly 100 basis points.
Dave: We foresee another year of strong cash flow generation and plan to execute $1 billion in share repurchases over the course of 2024.
Dave: Now, let's spend a few minutes on key themes as we transition from 2023 into 2024.
Dave: In 'twenty four we expect <unk> to have another strong year as farmers continue to look to effective technology to boost yields while offsetting the effects of climate change and increasing pest pressures.
Dave: In crop protection, we're expecting volume growth, but also continued pricing pressures so low single digit sales growth overall.
Chuck Magro: Turning to 2024. And I'll turn this over to Dave in just a minute, but at a high level, we should expect to see another year of meaningful margin expansion with a heavy focus on cash generation. As a result, we expect to deliver 2% top line and 6% operating EBITDA growth at the midpoint, which reflects another incremental EBITDA margin improvement of nearly a hundred basis points. We foresee another year of strong cash flow generation and plan to execute a billion dollars in share repurchases over the course of 2024. Now, let's spend a few minutes on key themes as we transition from 2023 into 2024.
Dave: We expect to increase our biological sales by double digits and nearly double earnings.
Dave: And although we expect the effects of Destocking to linger through the first half of the year in certain regions, we're beginning to see the benefits of cost deflation.
Dave: All in we believe volume gains from our differentiated portfolio as well as operational improvements and a modest recovery in Brazil were more than offset expected price headwinds.
Dave: We plan to launch more than 300, new seed hybrids and varieties.
Dave: Putting much needed solutions farmer's hands.
Dave: Our seed pipeline is the best in the industry.
Dave: Promising technologies like gene editing will make our innovation more effective sustainable and accessible to everyone from startups to large customers the.
Chuck Magro: In 24, we expect seed to have another strong year as farmers continue to look to effective technology to boost yields while offsetting the effects of climate change and increasing pest pressure. In crop protection, we're expecting volume growth, but also continued pricing pressures, so low single-digit sales growth overall. We expect to increase our biological sales by double digits and nearly double earnings. And although we expect the effects of destocking to linger through the first half of the year in certain regions, we're beginning to see the benefits of cost deflation. All in, we believe volume gains from our differentiated portfolio as well as operational improvements and a modest recovery in Brazil will more than offset expected price headway. We plan to launch more than 300 new seed hybrids and varieties, putting much-needed solutions in farmers' hands. Our seed pipeline is the best in the industry. Promising technologies like gene editing will make our innovation more effective, sustainable, and accessible to everyone from startups to large customers.
Dave: The incremental yields from the advanced technologies and our pipeline allow us to continue our longstanding price for value strategy.
Speaker Change: <unk>, we have adjusted the 2025 financial framework.
Speaker Change: Just on current market factors the.
Speaker Change: The expectation is for continued strong EBITDA growth after 2023 base, an EBITDA margin rate of 21% to 23% in 2025 burner.
Speaker Change: Benefits from our self help actions give us the ability to invest in R&D and future innovation.
Speaker Change: The overall strategy is very much intact differentiation in our portfolio strengthening our route to market and cost performance are all driving value.
Speaker Change: This is a formula that has been working and will continue to work for <unk>.
Speaker Change: With that let me turn the call over to Dave.
Dave: Thanks, Chuck and welcome everyone to the call, let's start on slide six which provides the financial results for the quarter and full year.
Dave: You can see from the numbers that both for the fourth quarter and the full year, we continue to deliver operating EBITDA growth and margin expansion quick.
Chuck Magro: The incremental yields from the advanced technologies in our pipeline allow us to continue our long-standing price-for-value strategy. Importantly, we have adjusted the 2025 financial framework based on current market factors. The expectation is for continued strong EBITDA growth off the 2023 base and an EBITDA margin rate of 21 to 23 percent in 2025. Benefits from our self-help actions give us the ability to invest in R&D and future innovation. The overall strategy is very much intact. Differentiation in our portfolio, strengthening our route to market, and cost performance are all driving value. This is the formula that has been working and will continue to work for Corteva. With that, I will turn the call over to Dave.
Dave: Quickly touching on the quarter sales and earnings were largely in line with our expectations organic sales were down 8% compared to prior year with seed pricing gains offset by volume declines in both seed and crop protection.
Dave: Seed volume gains in North America, and Europe were offset by volume declines in Latin America and Asia Pacific.
Dave: In crop protection as expected we saw continued inventory destocking in both Latin America, and Europe, and importantly, we did see volume gains in North America as Destocking in the region seems to be largely behind us.
Dave: Turning to the full year organic sales were down 3% versus last year with pricing gains offset by lower volume. This includes a 4% impact from product exits total company pricing was up 7% with double digit seed pricing and price gains in all <unk>.
David John Anderson: Thanks, Chuck, and welcome everyone to the call. Let's start with slide six, which provides the financial results for the quarter and full year. You can see from the numbers that both for the fourth quarter and the full year, we continue to deliver operating EBITDA growth and margin expansion. Quickly touching on the quarter, sales and earnings were largely in line with our expectations. Organic sales were down 8% compared to the prior year, with seed pricing gains offset by volume declines in both seed and crop protection.
Dave: <unk>.
Dave: Despite the reduction in top line growth strong operational performance translated into operating EBITDA of nearly $3 4 billion for the year, an increase of 5% over prior year and margin expansion of 116 basis points.
Dave: And finally free cash flow for the year 2023 was approximately $1 2 billion or 35% conversion rate on the EBITDA the improvement in free cash flow from last year was driven by increased earnings and working capital improvement primarily inventory and accounts receivable.
David John Anderson: Exceed volume gains in North America and Europe were offset by volume declines in Latin America and Asia Pacific. In crop protection, it's expected that we saw continued inventory destocking in both Latin America and Europe. Importantly, we did see volume gains in North America as destocking in the region seems to be largely behind us. Turning to the full year, organic sales were down 3% versus last year, with pricing gains offset by lower volume.
Dave: A partial offset from accounts payable.
Dave: Let's now go to slide seven to review sales by segment.
Dave: <unk> net sales were up 5% to nearly $9 5 billion organic sales were up 7% on strong price execution as we continue to price for value.
David John Anderson: This includes a 4% impact from product exit. However, total company pricing was up 7% with double-digit seed pricing and price gains in all regions. Despite the reduction in top-line growth, strong operational performance translated into operating EBITDA of nearly $3.4 billion for the year, an increase of 5% over the prior year, and margin expansion of 116 basis points. And finally, free cash flow for the year 2023 was approximately $1.2 billion, or a 35% conversion rate on EBITDA. The improvement in free cash flow from last year was driven by increased earnings and working capital improvement, primarily inventory and accounts receivable with a partial offset from accounts payable.
Dave: Global seed pricing was up 13% with gains in every region and across the portfolio.
Dave: Seed volumes were down 6% versus last year gains in North America, driven by increased corn acres were offset by declines in Latin America due to lower expected corn planted area and delayed planting in Europe, driven by the exit from Russia, and lower corn planted area.
Dave: Exit from Russia represented a 2% volume headwind for the seed business.
Crop protection net sales were down 9% compared to last year to approximately seven 8 billion organic sales were down 12% with pricing gains more than offset by volume crop protection pricing was up 2% driven by demand for new products.
David John Anderson: Let's now go to slide 7, Review Sales by Segment. Seed net sales were up 5% to nearly $9.5 billion. Organic sales were up 7% on strong price execution as we continue to price for value. Global seed pricing was up 13% with gains in every region and across the portfolio.
Dave: Crop protection volumes were down 14% for the year impacted by channel Destocking in Brazil market dynamics. This was more than 400 million headwind or 5% impact from exits.
Dave: Finally, the biologicals acquisitions added approximately $400 million of revenue, which is reflected in portfolio and other.
David John Anderson: Seed volumes were down 6% versus last year. Gains in North America driven by increased corn acres were offset by declines in Latin America due to lower expected corn planted areas and delayed planting in Europe driven by the exit from Russia and lower corn planted areas. The exit from Russia represented a 2% volume headwind for the seed business. Crop protection net sales were down 9% compared to last year at approximately $7.8 billion. Organic sales were down 12%, with pricing gains more than offset by volume.
Dave: With that let's go to slide eight for a summary of full year operating EBITDA performance for the year operating EBITA increased approximately $160 million to about $3 4 billion pricing gains coupled with improvement in net royalties productivity and cost actions more than offset.
Dave: Declines in volume and higher costs and currency headwinds.
Dave: The approximately $380 million of cost headwinds was related to seed commodity costs and unfavorable yield impact as well as crop protection inflation on input costs.
Dave: Protection raw materials costs were up 2% versus prior year importantly, we're starting to see the impact of lower input costs.
David John Anderson: Crop protection pricing was up 2% driven by demand for new products. However, crop protection volumes were down 14% for the year, impacted by channel destocking and Brazil market dynamics, as well as more than $400 million headwind or 5% impact from exit. Finally, the biological acquisitions added approximately $400 million of revenue, which is reflected in portfolio and other. With that, let's go to slide eight for a summary of full year operating EBITDA performance. For the year, operating EBITDA increased by approximately $160 million to about $3.4 billion.
Dave: During the second half of the year crop protection raw material cost transition to a low single digit deflation.
Dave: Market, driven and other costs were mitigated by approximately $200 million of improvement in seed that royalty expense and $285 million of productivity savings SG.
Dave: SG&A spend for the full year was roughly flat versus prior year, including a $130 million in SG&A from the biologicals acquisitions.
Dave: If you exclude the acquisitions SG&A was down nearly 5% versus prior year as we maintained disciplined spending coupled with lower incentive comp accruals despite year over year inflation.
David John Anderson: Pricing gains coupled with improvement in net royalties, productivity, and cost actions more than offset declines in volume and higher costs due to currency headwinds. The approximately $380 million of cost headwinds were related to seed commodity costs and unfavorable yield impact, as well as crop protection inflation on input costs. Crop protection raw materials costs were up 2% versus prior year.
Dave: Let's now transition to a discussion on the guidance for 2004 on slide number nine.
We expect <unk> sales to be in the range of $17 four.
Dave: $17 7 billion, representing 2% growth at the midpoint driven by seed pricing and volume growth in both seed and crop protection on demand for new and differentiated technology.
David John Anderson: Importantly, we're starting to see the impact of lower input costs. During the second half of the year, crop protection raw material costs transitioned to low single-digit deflation. Market-driven and other costs were mitigated by approximately $200 million of improvement in seed net royalty expense and $285 million of productivity savings. SG&A's spend for the full year was roughly flat versus the prior year, including $130 million in SG&A from the biologicals acquisitions.
Dave: Volume growth will be muted by approximately $100 million of product exits in 'twenty four.
Dave: Operating EBITDA is expected to be in the range of three five and $3 7 billion or more than 6% improvement over prior year at the midpoint margin is also expected to improve with price and product mix cost deflation and productivity actions translating to 90.
David John Anderson: If we exclude the acquisitions, SG&A was down nearly 5% versus the prior year as we maintained disciplined spending coupled with lower incentive comp accruals despite year-over-year inflation. Let's now transition to a discussion on the guidance for 24 on slide number nine. We expect next sales to be in the range of $17.4 and $17.7 billion, representing 2% growth at the midpoint driven by seed pricing and volume growth in both seed and crop protection due to demand for new and differentiated technology. Volume growth will be muted by approximately 100 million product exits in 24. Operating EBITDA is expected to be in the range of $3.5 and $3.7 billion, or more than 6% improvement over prior year at the midpoint Margin is also expected to improve with price and product mix, cost deflation, and productivity actions translating to 90 basis points at the midpoint. Operating EPS is expected to be in the range of $2.70 and $2.90 per share, an increase of 4% at the midpoint, which reflects earnings growth and a lower average share count, partially offset by higher net interest expense and a higher effective tax rate.
Dave: Basis points at the midpoint.
Dave: Operating EPS is expected to be in the range of $2 70.
Dave: And $2 90 per share an increase of 4% at the midpoint, which reflects earnings growth and lower average share count partially offset by higher net interest expense and a higher effective tax rate.
Dave: We expect free cash flow to be in the range of one five and $2 billion with higher earnings and working capital improvements, partially offset by higher net interest and cash taxes at the midpoint translates to a free cash flow to EBITDA conversion.
Dave: <unk> of roughly 50%.
Dave: Note that the free cash flow was revised to utilize cash from operations on a continuing basis.
Dave: Turning to slide 10, you can see the operating EBITDA bridge for 2024 from approximately $3 4 billion in 2023 to $3 6 billion at the midpoint for 2024.
Dave: Total company pricing in 2024 is expected to be flat to modestly up with low single digit pricing in seed to be offset by declines in crop protection pricing given ongoing destocking, particularly in Brazil and global market dynamics.
Dave: Accordingly, we do expect volume gains in both seed and crop protection.
Dave: <unk> volume gains are driven by expected increased U S soybean acres and planted area in Brazil, Saphena for the 'twenty four 'twenty five season.
David John Anderson: We expect pre-cash flow to be in the range of $1.5 and $2 billion, with higher earnings and working capital improvements partially offset by higher net interest in cash tax. At the midpoint, this translates to a free cash flow to EBITDA conversion rate of roughly 50%. Note that the free cash flow was revised to utilize cash from operations on a continuing basis.
Dave: In crop protection, we expect mid single digit volume growth in 2024 led by Latin America, and driven by global demand for new and differentiated products.
Dave: New crop protection product volume is expected to be up high single digits driving incremental organic revenue. Additionally, we will benefit from this <unk> capacity expansion as we expect high single digit growth from the <unk> franchise.
David John Anderson: Turning to slide 10, you can see the operating EBITDA bridge for 2024 from approximately $3.4 billion in 2023 to $3.6 billion at the midpoint for 2024. Total company pricing in 2024 is expected to be flat to modestly higher with low single-digit pricing in seed, to be offset by declines in crop protection pricing given ongoing de-stocking, particularly in Brazil, and global market dynamics. Importantly, we do expect volume gains in both seed and crop protection. Volume gains in seed are driven by expected increased U.S. soybean acres planted in Brazil's safrinha for the 24-25 season.
Dave: 2024 will be another significant step in our path to royalty neutrality with a $100 million improvement in net royalty expense with increased benefits and both out licensing income and royalty expense driven by enlist <unk> penetration and.
Dave: And after two years of high levels of input cost inflation, we expect to see low single digit deflation in crop protection raw material costs productivity and cost actions in both seed and crop protection combined with input cost deflation are expected to add approximately $300 million of benefits.
Dave: We expect an increase in SG&A spend in 2024, driven by normalized bad debt and compensation accruals will also continue to invest in the future with increased investment in R&D, which is expected to now be approximately 8% of sales and.
David John Anderson: In crop protection, we expect mid-single-digit volume growth in 2024, led by Latin America and driven by global demand for new and differentiated products. New crop protection product volume is expected to be up high single digits, driving incremental organic revenue. Additionally, we'll benefit from the Spinozans capacity expansion as we expect high single-digit growth from the Spinozans franchise. 2024 will be another significant step in our path to royalty neutrality, with a $100 million improvement in net royalty expense, with increased benefits in both out-licensing income and royalty expense driven by enlist E3 penetration. And after two years of high levels of input cost inflation, we expect to see low single-digit deflation in crop protection raw material costs.
Dave: And finally, the biologicals franchise expense is expected to add approximately $90 million of operating EBITDA with improved margins in 2024.
Dave: Regarding the timing of sales and earnings in 2024, we're expecting over 60% of sales and roughly 80% of EBITDA to be delivered in the first half of the year. We also expect to see a timing difference between the first two quarters versus prior year due primarily to the strength of crop protection.
Dave: <unk> in the first quarter of 2023.
Dave: Youll recall the crop protections first quarter 2023 was prior to the significant impact of channel inventory Destocking.
David John Anderson: Productivity and cost actions in both seed and crop protection combined with input cost deflation are expected to add approximately $300 million of benefit. Additionally, we expect an increase in SG&A spend in 2024 driven by normalized bad debt and compensation accruals. We'll also continue to invest in the future with increased investment in R&D, which is expected to now be approximately 8% of sales. And finally, the biologicals franchise is expected to add approximately 90 million euros of operating EBITDA with improved margins in 2024. Regarding the timing of sales and earnings in 2024, we're expecting over 60% of sales and roughly 80% of EBITDA to be delivered in the first half of the year. We also expect to see a timing difference between the first two quarters versus the prior year due primarily to the strength of crop protection in the first quarter of 2023. You'll recall that crop protection's first quarter 2023 was prior to the significant impact of channel inventory on stocking. For SEAD, we're assuming a normal delivery pattern in the Northern Hemisphere, which could shift significantly between the first and second quarters, depending on weather conditions.
Dave: Proceed we're assuming a normal delivery pattern in the northern hemisphere, which could shift significantly between first and second quarter, depending on weather conditions.
Dave: With 2024 guidance in mind, let's go to slide 11 to review the key drivers of earnings growth in 'twenty four 'twenty five and as Chuck said, we've adjusted the 25 financial framework based on our actual results for 'twenty three and the expectation for continued earnings.
Dave: <unk> growth and margin expansion in both 2024 and 2025.
Dave: Now in 2023, which delivered an incremental $800 million in EBITDA versus 2021.
Dave: Given the market dynamics in 2023, this was no small feat and clearly differentiates us from our peers.
Dave: We have a plan to generate an approximate $800 million of additional EBITDA growth by 2025, which translates to low double digit compound annual growth rate between 23 and 25.
Dave: A number of the drivers of our anticipated performance of about $4 2 billion of EBITDA.
David John Anderson: With 2024 guidance in mind, let's go to slide 11 to review the key drivers of earnings growth in 2024 and 2025. And as Chuck said, we've adjusted the 2025 financial framework based on our actual results for 2023 and the expectation for continued earnings growth and margin expansion in both 2024 and 2025. Now, in 2023, we delivered an incremental $800 million in EBITDA versus 2021.
Dave: 22% margin in 2025 are within our control we've demonstrated our price for value strategy can seed and we expect this strategy to continue.
Dave: Our royalty neutrality strategy delivered more than $200 million in benefits in 2023 alone and it's going to add another $100 million per year in both 'twenty four and 'twenty five.
Dave: What's even more exciting is that we're starting to see benefits from our out licensing business as we migrate a greater portion of our portfolio to our own proprietary technology, and we expect that to meaningfully grow in the next decade.
David John Anderson: Given the market dynamics in 2023, this was no small feat and clearly differentiates us from our peers. We have a plan to generate an approximate $800 million of additional EBITDA growth by 2025, which translates to a low double-digit compound annual growth rate between 2023 and 2025. A number of the drivers of our anticipated performance of about $4.2 billion of EBITDA and 22% margin in 2025 are within our control. We've demonstrated our price for value strategy in seed, and we expect this strategy to continue. Our royalty neutrality strategy delivered more than $200 million in benefits in 2023 alone, and it's going to add another $100 million per year in both 2024 and 2025. What's even more exciting is that we're starting to see benefits from our outlicensing business as we migrate a greater portion of our portfolio to our own proprietary technology, and we expect that to meaningfully grow in the next decade. The rebalancing of the crop protection industry will take some time.
Dave: The rebalance in the crop protection industry will take some time, we expect it to be cheap be achieved by 2025, but underlying demand and applications at the farm gate remains solid.
The differentiated portions of our crop protection portfolio, including our new products together with the <unk> franchise, and our biologicals franchise will continue to outpace market growth in 2024.
Dave: The differentiation will also protect our business from the most severe elements of pricing competition, which are largely in the non differentiated portions of the industry.
Dave: Now, we delivered more than $350 million of combined productivity and cost actions in 2023 across the business and our plan is to deliver another $200 million per year.
Dave: Both 2024 and 2025 and this does not include.
Dave: An additional improved net royalty or the deflation benefit than we anticipate we'll grow into 2025.
Dave: Importantly, we will also continue to invest more in R&D and our future innovation.
David John Anderson: We expect it to be achieved by 2025, but underlying demand and applications at the farm gate remain solid. The differentiated portions of our crop protection portfolio, including our new product, together with the Spinosons franchise and our Biologicals franchise will continue to outpace market growth in 2024. The differentiation will also protect our business from the most severe elements of pricing competition, which are largely in the non-differentiated portions of the industry.
Dave: With that let's go to slide 12, and transition to the setup for 2025 and the assumptions.
Dave: <unk> in the base case, as well as what could drive EBITDA to the low and high end of the range.
Dave: Now in both 24 and 25, we expect low single digit seed pricing driven by demand for yield advantage technology.
Dave: One of the biggest variables in our assumptions is how much growth, we'll see in the crop protection business given the current market imbalance while on farm demand remains relatively consistent we're not assuming a significant rebound in the market, new and differentiated products, including biologicals will drive much of the crop protection growth in <unk>.
David John Anderson: We have already delivered more than $350 million of combined productivity and cost actions across the business, and our plan is to deliver another $200 million per year in both 2024 and 2025. And this does not include an additional improved net royalty or the deflation benefit that we anticipate will grow into 2025. Importantly, we'll also continue to invest more in R&D and future innovation. With that, let's go to slide 12 and transition to the setup for 2025 and the assumptions included in the base case, as well as what could drive EBITDA to the low and high ends of the range. Now, in both 24 and 25, we expect low single-digit seed pricing, driven by demand for yield advantage technology.
Dave: 24, and 2025 as we move towards differentiation in two thirds of the crop protection portfolio.
Dave: In 2024, we expect to see modest input cost deflation in crop protection with seed costs relatively flat.
Dave: By 2025, we expect to see more benefit from cost deflation in both seed and crop protection our assumption.
Dave: Assumptions include increased SG&A due to normalization of bad debt and compensation accruals as well as increased investment in R&D as we reach our target of 8% of sales.
Dave: Together, we have a balanced set of assumptions, which gives us confidence in our ability to grow earnings and margins out to 2025 and beyond in both seed and crop protection.
David John Anderson: One of the biggest variables in our assumptions is how much growth we'll see in the crop protection business given the current market imbalance. While on-farm demand remains relatively consistent, we're not assuming a significant rebound in the market. New and differentiated products, including biologicals, would drive much of the crop protection growth in 2024 and 2025, as we move towards differentiation in two-thirds of the crop protection portfolio.
Dave: So with that let's go to slide 13, and summarize the key takeaways.
Dave: First full year operating EBITA performance for 2023 was in line with expectations led by the strength of the seed business and were able to grow EBITDA by 5%.
Dave: Self help levers helped to improve.
Dave: Operating margin by roughly 115 basis points and importantly, this is going to continue into 2024 and into 2025.
David John Anderson: In 2024, we expect to see modest input cost deflation in crop protection, with seed costs relatively flat. By 2025, we expect to see more benefit from cost deflation in both seed and crop protection. Our assumptions include increased SG&A due to the normalization of bad debt and compensation accruals, as well as increased investment in R&D as we reach our target of 8% of sales. Together, we have a balanced set of assumptions, which gives us confidence in our ability to grow earnings and margins out to 2025 and beyond in both seed and crop protection. So with that, let's go to slide 13 and summarize the key takeaways. First, full year operating EBITDA performance for 2023 was in line with expectations, led by the strength of the seed business, and we were able to grow EBITDA by 5%. Self-help levers helped improve operating margin by roughly 115 basis points.
Dave: The bottom line is that our guidance for this year and the setup for next year 2025 that we shared with you today reflects continued earnings and margin growth much of which is in our control.
Dave: And finally, the significant financial strength and balance sheet flexibility gives us confidence in our ability to continue to grow and supports our track record of returning cash to shareholders.
Dave: And with that let me turn it back over to Kim.
Kim: 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.
Kim: Thank you and if you'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Kim: Again, Thats star one to ask a question and we ask that you limit yourself to one question.
David John Anderson: And importantly, this is going to continue into 2024 and into 2025. The bottom line is that our guidance for this year and the setup for next year 2025 that we shared with you today reflects continued earnings and margin growth, much of which is in our control. And finally, the significant financial strength and balance sheet flexibility give us confidence in our ability to continue to grow and support our track record of returning cash to shareholders. And with that, I will turn it back over to Kim.
Kim: And we'll go first to Vincent Andrews from Morgan Stanley.
Vincent Stephen Andrews: Thank you and good morning.
Vincent Stephen Andrews: Can I ask on the crop protection business.
Could just talk about volume and price in the following manner.
Vincent Stephen Andrews: On a volume perspective in 2024 could you talk about markets, where destocking is still ongoing how bad are you expecting the volume to be versus markets, where you think it sort of finished what are you expecting from a volume perspective, and then likewise on the price side of the equation can you differentiate at all about how prices performing and destock.
Operator: Thank you, Dave. Now, we'll move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions. Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment.
Vincent Stephen Andrews: <unk> markets versus those markets that are that may be completed or closer to the end of it.
Speaker Change: Yes, good morning, Vincent as Chuck what I'll do is I'll give you the overview and then Robert can talk about some of the specifics in the market and we'll try to do this as quickly as we can.
Speaker Change: If you think about the overall situation last year was a pretty tough year in and global CP.
Speaker Change: Where we think we are this year is the CP market.
Operator: And again, that's Star 1 to ask a question, and we ask that you limit yourself to one question. And we'll go first to Vincent Andrews from Morgan Stanley. Thank you and good morning.
Robert: What I would say broadly speaking, there's still imbalanced, but only in a few regions. So Brazil is still a market, where we have ample supply and there are pockets I would say in Europe.
Chuck Magro: Could I ask, in the crop protection business, if you could just talk about volume and price in the following manner. From a volume perspective in 2024, could you talk about markets where destocking is still ongoing? How bad are you expecting the volume to be versus markets where you think it's sort of finished? What are you expecting from a volume perspective? And then likewise, on the price side of the equation, can you differentiate at all about how prices are performing in destocking markets versus those markets that have maybe completed or are closer to the end of it? Good morning, Vincent. It's Chuck.
Robert: But the U S that the Destocking is largely behind US now and the market is functioning quite quite normally and I would say is healthy.
When you look at it globally, though the situation that we see for 2024 is that the overall global industry. Most likely will be will be down low single digits and that is as you rightly called out.
Robert: It's really a function of price.
Robert: Volume seemed to be stable and growing and we expect that in 'twenty four.
Robert: And then our early look so then if you think about the first half I think is going to be fairly tough in CP.
Chuck Magro: What I'll do is I'll give you an overview, and then Robert can talk about some of the specifics in the market, and we'll try to do this as quickly as we can. Look, if you think about the overall situation, last year was a pretty tough year in global CP. Where we think we are this year is that the CP market, what I'd say, broadly speaking, it's still imbalanced, but only in a few regions. So Brazil is still a market where we have ample supply, and there are pockets, I would say, in Europe. But the US, the de-stocking is largely behind us now, and the market is functioning quite normally, and I'd say it is healthy.
Robert: Should normalize and stabilize in the second half of the year and this is a broad statement globally and then as we look to 2025, we believe that 25, what will look more like that the historical CP industry. So.
Robert: Low single digit returned to normal growth is how we're sizing up 2025, and then that growth will be on off of a new lower base. So that's sort of the setup for 24 and a first look at 25, Robert you want to just talk specifically around markets.
Robert: Had a little bit of color there around markets and some of our some of our product groups.
Robert: Start with Chuck talked about the industry being down.
Chuck Magro: When you look at it globally, the situation that we see for 2024 is that the overall global industry will most likely be down low single digits. And that, as you rightly called out, is really a function of price. Volumes seem to be stable and growing, and we expect that in 2024. And then, if you think about this, the first half, I think, is going to be fairly tough in CP.
Robert: Overall, but growth in volume and we will reflect that as you think about you walk around the world with our regions that <unk>.
Robert: By and large we're up everywhere on volume price, we'll continue to be a competitive market and all of our regions specifically.
Robert: Specifically in Brazil, where destocking as you as you pointed out still needs to take place.
Robert: We will be watching to see how the rest of the season works out to sea.
Chuck Magro: Things should normalize and stabilize in the second half of the year, and this is a broad statement globally. And then, as we look to 2025, we believe that 2025 will look more like the historical CP industry. Low single-digit returns to normal growth is how we're sizing up 2025, and then that growth will be off of a new lower base. So that's sort of the setup for 24 and a first look at 25.
How are we positioned for that 'twenty four 'twenty five season season there.
But as you look at our portfolio, we're able to really begin to.
Use our leverage our differentiated portfolio of new products, and biologicals and agile you'll have seen in 2023 new.
Robert: New and differentiated products were up 5% on pricing.
Robert: With with a market that was in very much of a headwind of price.
Robert King: Robert, do you want to just talk specifically about markets? Yeah, I can add a little bit of color there about markets and some of our product groups. Start with, you know, as Chuck talked about the industry being down overall, but growth and volume, and we will reflect that as you think about, walk around the world with our regions, that by and large, we're up everywhere on volume. Price will continue to be a competitive market in all of our regions. Specifically in Brazil, where the stocking, as you pointed out, still needs to take place. We'll be watching to see how the rest of the season works out to see, you know, how we are positioned for that 24-25 season there.
Robert: So we expect that those products the new products <unk> biologicals are all going to see.
Robert: Upward upward gains in price and volume over this next year.
Robert: Specifically in our biologicals, when you think about the acquisition and the pricing that that.
Robert: That's part of the portfolio users.
Robert: Our EBITDAX is going to be up to X on a year over year basis with biologicals as you look at the the second year of the integration of the acquisitions and coming to full fruition. There. So we're looking for great things out of those three areas of our of our portfolio.
Robert: And then spin.
Robert: Specific to pricing.
Robert: We will continue to follow the strategy that we had a price for value.
Robert: Yes, it's competitive there's always going to be a price volume pull but like I said, when you think about our portfolio of new differentiated and biologicals, making up.
Robert King: But as you look at our portfolio, we're able to really begin to use or leverage our differentiated portfolio, the new products and biologicals. And as you'll have seen in 2023, you know, new and differentiated products were up 5% on pricing with a market that was in very much a headwind of price. And so we expect that, you know, those products, the new products, spinosins, and biologicals are all going to see upward gains in price and volume over this next year. Specifically, in our biologicals, when you think about the acquisition and the pricing that that part of the portfolio uses, our EBITDA actually is going to be up 2x on a year-over-year basis with biologicals as you look at the second year of the integration So we're looking for great things out of those three areas of our portfolio. And then, you know, specific to pricing, we will continue to follow the strategy that we have of price for value. Yeah, it's competitive.
Robert: Nearly a majority of our entire earnings we think we're in a pretty good position to be able to price through this as we continue to work through the year.
Yeah.
Robert: Thank you we'll go next to David Begleiter letter from Deutsche Bank.
David I. Begleiter: Thank you good morning Chuck.
David I. Begleiter: Chuck on your 2000, and 425 guidance Youre expecting at the midpoint EBITDA of $2 million in 'twenty, four but up 550 and 25 can you discuss why the accelerated growth in fiber to 'twenty four on EBITDA. Thank you.
David I. Begleiter: Yes, yes, yes, good morning, David.
Speaker Change: And Dave can give me.
Dave: Some perspective as well here, but if you start thinking about the situation just just the way we've looked at the market. The seed market remains very healthy and we've talked about sort of on farm demand for top technology in seed, but also for CP being being very very stable and very steady.
Dave: So that is sort of a backdrop and then when you consider the fact that you've got the CP industry and if you take that the comments. We have just made where we still have some destocking in in 'twenty, four and thats going to impact our business and Thats reflective in how we've set up sort of the guide and the and then where we.
Robert King: There's always going to be a price-volume pull. But like I said, when you think about our portfolio of new differentiated and biologicals making up, you know, nearly a majority of our entire earnings, we think we're in a pretty good position to be able to price through this as we continue to work through the year. Thank you. I'll go next to David Begleiter from Deutsche Bank. Thank you. Good morning.
Dave: Believe we can hit in 2025 is really the impact of of having that global CPE market stabilize and then start to grow again in 2025, and then there is this large bucket of sort of value creation, which is we call. It controlling our controllable itself help its cost its productivity.
Chuck Magro: Chuck, on your 24 and 25 guidance, you're expecting at the midpoint EBITDA up $200 million in 24, but up 550 in 25. Can you discuss why the accelerated growth in 25 versus 24 on EBITDA? Yeah. Good morning, David.
Dave: It's the royalties.
Dave: That we've seen improvement in expenses in our out licensing royalty growing.
Dave: If you think about that in 2023 that number was approaching a while it was over $500 million.
Chuck Magro: And Dave can give me some perspective as well here. But if you start thinking about the situation, just the way we've looked at the market, the seed market remains very healthy. And we've talked about sort of on-farm demand for top technology in seed, but also for CP, being very stable and very steady. So that is sort of the backdrop.
Dave: And we are going to see now going forward in 2024, and then again in 2025 somewhere between.
Dave: $350 and $450 million of sort of self help controllable and that has some deflation, but that's really one of the big issues. Here is we're starting to see deflation move through our P&L.
Primarily now in CP and because of how we manage risk management and hedging in in our seed business theres going to be even more benefit as we get into 2025. So to your specific question. Some of it has to do with just the rate and the timing of seeing some of the deflation come through the P&L and then there are some account.
Chuck Magro: And then when you consider the fact that you've got the CP industry, and if you take the comments we've just made, where we still have some destocking in 24, that's going to impact our business. And that's reflective of how we've set up sort of the guide and then where we believe we can hit in 2025 is really the impact of having that global CP market stabilize and then start to grow again in 2025. And then there's this large bucket of sort of value creation, which is, you know, we call it controlling our controllables, it's self-help, it's cost, it's productivity, it's the royalties that we've seen improvement in expenses and are out-licensing royalties growing. If you think about that, in 2023, that number was approaching, well, it was over 500 million.
Dave: <unk> normalization, Dave that you should hit.
Dave: Yes, I think the other key thing David related to this is in 2024, we've got.
Dave: Some assumed headwinds and really known headwinds we've got those particularly in <unk>.
Dave: SG&A.
Speaker Change: As we lap 2023, where we had benefits of lower incentive compensation accrual. We've also got increased in our assumption in terms of Merit and then Theres just a number of other sort of discrete items that affect 2024.
Speaker Change: And so.
Speaker Change: As a result 2025 when you look at <unk> 25, compared to 24, you won't have those same increments facing us. So that provides some of the lift as well in addition to the controlling the controllable that Chuck referenced and maybe one last point here David.
Chuck Magro: And we're going to see now going forward in 2024 and again in 2025, somewhere between 350 and 450 million of sort of self-help controllables, and that has some deflation. But that's really one of the big issues here is we're starting to see deflation move through our P&Ls, primarily now in CP. And because of how we manage risk management and hedging in our seed business, there's going to be even more benefit as we get into 2025. So to your specific question, some of it has to do with just the rate and the timing of seeing some of the deflation come through the P&L.
Speaker Change: If you think about the last two years <unk> actually grew by about $800 million of EBITDA.
Speaker Change: That's the same plan for 'twenty four 'twenty five a little less than 24 or more than 25, but we saw that in 2022, and then a little less in 2023. So it should give at least when we look at it it gives us some comfort that this path that were on the 25 with the adjustments we've made and by the way we did not adjust the margin.
David John Anderson: And then there are some accounting normalizations, Dave, that you should hit. Yeah, I think the other key thing Dave related to this is that in 2024, we've got some assumed headwinds and really known headwinds. We've got those, particularly in SG&A as we lap 2023, where we had benefits of lower incentive compensation accrual. We've also got increased in our assumption in terms of merit. And then there's just a number of other sort of discrete items that affect 2024. And as a result, in 2025, when you look at 25 compared to 24, you won't have those same increments facing us. So that provides some of the lift as well, in addition to controlling the controllables that Chuck referenced.
Speaker Change: We're feeling very comfortable about that.
Speaker Change: We feel we are on the right path here.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you we'll go next to Joel Jackson from BMO capital markets.
Joel Jackson: Hi, good morning, everyone.
Joel Jackson: I want to go back to slide 10, which is the 2024 operating EBITDA bridge.
Joel Jackson: So looking at the brands look at the drivers the axillary inside the.
Joel Jackson: The cost component testing, because we're talking a lot about.
Joel Jackson: Controllable costs, but actually your bridge is showing that net net costs.
Speaker Change: Not driving any of your growth and earnings in 2010. So you've got all these cost benefits cost program <unk> royalties out hanging out you also have I guess higher costs in SG&A and R&D can you explain that a bit in China.
Speaker Change: Otherwise net net high level youre showing cost is not driving growth in our slides, our talking points and the right hand side.
David John Anderson: Yeah, and maybe one last point here, David. If you think about the last two years, Corteva actually grew by about 800 million euros of EBITDA. That's the same plan for 24 and 25, a little less than 24, more than 25.
Speaker Change: Yes, it's a really really good question Joel it really plays into.
Joel Jackson: The response that I gave to the prior question, but let me, let me give you a little bit more color.
Joel Jackson: Number one the cost benefits, we took a really.
Chuck Magro: But we saw that in 2022 and then a little less than 2023. So it should give us some comfort that this path that we're on the 25, with the adjustments we've made. And by the way, we did not adjust the margin. We're feeling very comfortable about that.
Joel Jackson: Very much there were going to get.
Joel Jackson: In CPE manufacturing.
Joel Jackson: As well as overall productivity between both businesses, we've got an important contribution.
Joel Jackson: Coming through so probably call it let's call it around $250 million of benefit of goodness, another $100 million in terms of net royalties now offsetting that we've got higher R&D and I'm talking now just the cost lines some of the benefits and some of the self help shows up and either price.
Chuck Magro: We feel we are on the right path. Thank you. We'll go next to Joel Jackson from BMO Capital Markets. Hi, good morning everyone.
Joel Jackson: I want to go back to slide 10, which is the 2024 Operating EBITDA bridge. So looking at the bridge, looking at the drivers, and the techs on the right-hand side, the cost component is interesting because we're talking a lot about... Controllables, costs, but actually, you know, your bridge is showing that net net cost, not driving any of your growth and even earnings in 2010. So you've got all these cost benefits, cost programs, lower seed loyalty out, and paying out. You also have, I guess, higher costs in SG&A and R&D. Can you explain that a bit and try to put us all together why, net-net, high level, you're showing cost is not driving growth, but it's a lot of your talking points on the right-hand side? Yeah, it's a really, really good question, Joel. It really plays into the response that I gave to the prior question, but let me give you a little bit more context.
Joel Jackson: Our volume, but just on the cost piece of the work, which is reflected in the slide that you're referencing.
Joel Jackson: So $100 million of R&D, and then over $200 million.
Joel Jackson: SG&A and SG&A again is made up of mirrored incentive comp accrual. We've got some additional bad debt as you know we begin each year with a normalized accrual in terms of bad debt.
Joel Jackson: That's about $40 million and then we've got other items, including the annualized nation of the SG&A for the biologicals business and Thats against the backdrop of what Robert reference in terms of the significant increase in EBITA that we believe we will experience and deliver in 2024.
Joel Jackson: Then we just have a lot of other things that comprise the tail one of those prominently which you would recognize as ERP in 2023.
Joel Jackson: With our Latin America deployment, which is our last major deployment in the in the ERP sector, having completed U S and Europe, We're now Latin America.
David John Anderson: Number one, the cost benefits we think are really, you know, very much there. We're going to get in CP manufacturing as well as overall productivity between both businesses. We've got an important contribution coming through. So, you know, probably let's call that around $250 million in benefit of goodness, another $100 million in terms of net royalties. Now offsetting that, we've got higher R&D, and I'm talking now just about the cost line. Some of the benefits and some of the self-help show up in either price or volume, but just on the cost piece of the walk, which is reflected in the slide that you're referencing.
Joel Jackson: That will shift from capital in 'twenty three to expense in 'twenty, four and Thats about $40 million. So when you add it all up that's why the line shows optically.
Joel Jackson: What it is so significant self help some of that is outside the cost area shows up in price and volume that that shows up in costs, we've got some headwinds as well, but importantly, and references in the earlier question that if you.
Joel Jackson: You will increase for 2024 it becomes cigna.
Joel Jackson: Significantly less in fact goes that increase goes away.
Joel Jackson: For 2025, so looking at that lift as part of the lift from $24 25, I hope that helps.
David John Anderson: So, $100 million of R&D, and then over $200 million in SG&A. And that SG&A, again, is made up of merit, and incentive comp accrual. We've got some additional bad debt. As you know, we begin each year with a normalized accrual in terms of bad debt. That's about $40 million.
Joel Jackson: Okay.
Kevin Mccarthy: Thank you well go next to Kevin Mccarthy from vertical research partners.
Kevin Mccarthy: Yes, Thank you and good morning.
Kevin Mccarthy: As it relates to your direct input costs for each segment and crop protection. It seems to me that maybe you're baking in for 2024.
David John Anderson: And then we've got other items, including the annualization of the SG&A for the biologicals business. And that's against the backdrop of what Robert referenced in terms of the significant increase in EBITDA that we believe we'll experience and deliver in 2024. And then we just have a lot of other things that comprise the tail.
Kevin Mccarthy: $100 million of raw.
Kevin Mccarthy: Material cost relief for 2% to 3%.
Kevin Mccarthy: Is that fair and then on the seed side of the equation are you anticipating any cost relief in 2024, given the decline in commodity prices or.
David John Anderson: One of those prominently, which you would recognize, is ERP. In 2023, with our Latin America deployment, which is our last major deployment in the ERP sector, having completed U.S. and Europe, we're now in Latin America, that will shift from capital in 2023 to expense in 2024. That's about $40 million. So, when you add it all up, that's why the line shows optically what it is.
Kevin Mccarthy: Is it really more of a benefit to you in 2025, maybe you could speak to that flow through would be helpful.
Kevin Mccarthy: Sure.
Kevin: Kevin insurer so in.
Kevin: Crop protection as we as we indicated.
Anticipated benefit we're going to see on that on the direct.
Kevin: Materials side.
David John Anderson: So, significant self-help, some of that is outside the cost area, shows up in price and volume. And that shows up in cost, we've got some headwinds as well. But importantly, in reference to the earlier question, that, if you will, increase for 2024 becomes significantly less. In fact, that increase goes away for 2025. So, looking at that lift, that's part of the lift from 2024 to 2025. Hope that
Kevin: In terms of looking looking at really the call it the addressable spend and the opportunity for improvement and what we're experiencing in the second half of this year. So that low single digits. I think is an appropriate kind of range to be thinking about for 2024.
Kevin: On the seed side.
Kevin: As you know what you have is you have a delay when you look at spot or commodity costs in the market versus what shows up in the P&L associated with as Chuck said and as you know the commodity hedging strategy that we that we utilize so for 2024.
David John Anderson: Thank you. We'll go next to Kevin McCarthy from Vertical Research Partners. Thank you, and good morning.
Kevin Mccarthy: My question relates to your direct input costs for each segment. For crop protection, it seems to me that maybe you're baking in about 100 million dollars of raw material cost relief or two to 3%. Is that fair?
Kevin: Important percentage of those costs in terms of the commodity cost is actually related to.
Kevin: Grow overcompensation in procurement activity that occurs in 'twenty, two and 'twenty three.
Kevin: The other part of it is the FIFO accounting, which also influences the numbers.
Kevin: On the seed side Theres, a lot of other variables besides commodity costs, but as Chuck said, we don't anticipate arent currently plan havent baked into our guidance a meaningful change in terms of year over year cost of goods sold for the seed business.
David John Anderson: And then on the seed side of the equation, are you anticipating any cost relief in 2024, given the decline in commodity prices? Or is it really more of a benefit to you in 2025? Maybe you could speak to that flow through to be helpful.
Kevin: Okay.
Kevin: Thank you, we'll go to Frank Mitsch from Fermium research.
David John Anderson: Kevin, sure. So in crop protection, as we've indicated, the anticipated benefit we're going to see on the direct, material side. You know, in terms of looking at what's called the addressable spend and the opportunity for improvement of what we're experiencing in the second half of this year, so that low single digits, I think, is an appropriate kind of range to be thinking about for 2024. On the seed side, As you know, what you have is you have a delay when you look at spot or commodity costs in the market versus what shows up in the P&L. It's associated with, as Chuck said, and as you know, the commodity hedging strategy that we utilize. So for 2024, a very important percentage of those costs in terms of that commodity cost is actually related to grower compensation and procurement activity that occurs in 22 and 23.
Frank Mitsch: Thanks, so much.
Frank Mitsch: I wanted to focus in on our Latin America, Obviously, you had a weather impacts, which you had kind of.
Frank Mitsch: Foreshadowed in the last conference call I'm curious as to what you thought that might overall impact have been and then just staying with that region.
Frank Mitsch: Obviously, you're expecting destocking to continue into the early part of the year, but you also referenced.
Speaker Change: Market dynamics in CPC, which I assume is referring to generic competition I'm wondering what if you could provide an update on what youre seeing there in terms of the generic impact in Brazil. In particular, thank you. Okay. Good morning, Frank So yeah, let me give you the high level and then I think it would be instructive if Tim.
Tim: It gives you a situation that is happening in seed and then if Robert has anything to add in CP.
Speaker Change: But you are right, so and I'll just zero in Latin America.
Speaker Change: No big diverse.
Frank Mitsch: By region for Us, but really this is a Brazil phenomenon and if you look at 2023 I would call. It the perfect storm right. We had at CPD stocking was probably the most pronounced in that country.
David John Anderson: The other part of it is the FIFO accounting, which also influences the numbers on the seed side. There are a lot of other variables besides commodity costs, but as Chuck said, we don't anticipate our currently planned, and we haven't baked into our guidance a meaningful change in terms of year-over-year cost of goods sold for the seed business. Thank you. Now, we'll go to Frank Mitsch from Fehrman Research. Thank you so much. I want to focus on Latin America.
Frank Mitsch: Hit with pretty severe weather challenges, which actually slowed down the destocking and certainly has impacted planted acreage of suffering of the safari new crop and then you've got all of that kind of macroeconomic conditions on top of that so it is going to take some time to sort out we do see that we are heading in the right direction the pause.
Speaker Change: <unk> I think comment I can make is the long term trends in Brazil, the structural opportunity that we see in that country has not changed this will be an AG growth market for the future, but there's been some moving parts in seed and CP and I'll turn it over to Tim now to talk about seed, yes, Thanks, Chuck and good morning, Frank So, yes, I mean, you go back to.
Chuck Magro: Obviously, you had weather impacts, which you had kind of foreshadowed in the last conference call. I'm curious as to what you thought the overall impact might have been. And just staying with that region, obviously, you're expecting deep stocking to continue into the early part of the year, but you also referenced, quote, market dynamics in CPC, which I assume is referring to generic competition. I'm wondering if you could provide an update on what you're seeing there in terms of generic competition in Brazil, in particular. Thank you. Good morning, Frank. So yeah, let me give you a high level, and then I think it would be instructive if Tim gave you a situation that's happening in seed, and then if Robert had anything to add in CP. But look, you're right.
Tim: Kind of a backdrop heading into the season, we saw pretty significant and rapid decline in commodity prices that was a result of the big yields and the resulting high carryover stocks.
Tim: From the last Sapremia season, and then when you couple that with the what I would describe it as highly variable weather conditions that really delayed the start of the soy planting season and in the key markets across the.
Tim: The marketplace in Brazil, and in some cases that was drought or lack of moisture early on or in some places. It was it was excessive moisture issue as you went further into the south and what it ended up doing was pushing a significant share of the soy into a later planting window that really impacts the ability of the farmer.
Chuck Magro: And I'll just zero in: Latin America is a big, diverse region for us, but really, this is a Brazilian phenomenon. And if you look at 2023, I'd call it the perfect storm, right? We had CPD stocking was probably the most pronounced in that country.
Tim: To follow up with the corn crop that that falls into an ideal planting window. So.
Tim: As we as you said, we talked about that in November and we were sort of at that call. It at that critical point, when we needed to get that crop planted in and my best guess is somewhere around 2025% of the corn or excuse me of the soybeans were planted in a window that was not ideal for following up with corn and I'm not going to.
Chuck Magro: It was hit with pretty severe weather challenges, which actually slowed down the de-stocking and certainly has impacted planted acreage of the safrinha crop. And then you've got all kinds of macroeconomic conditions on top of that. So it is going to take some time to sort out, but we do see that we are heading in the right direction. The positive, I think, comment I can make is the long-term trends in Brazil. The structural opportunity that we see in that country has not changed. This will be an agricultural growth market for the future. But there are some moving parts in seed and CP, and I'll turn it over to Tim now to talk about seed. Thanks, Chuck, and good morning, Frank.
Tim: I'm not going to try to peg how much corn won't be planted at this point in time.
Tim: I've spent a lot of time in the marketplace over the last three months traveling across the major Supreme Youre growing areas discussing those with customers and channel partners and certainly a lot of feedback from our frontline commercial team there, but as we sit here today, we believe it'll be somewhere call. It a double digit reduction in terms of.
Tim Glenn: So, yeah, I mean, you go back to kind of the backdrop heading into the season. We saw a pretty significant and rapid decline in commodity prices that was a result of the big yields and the resulting high carryover stocks from the last safrinha season. And then you couple that with what I would describe as highly variable weather conditions that really delayed the start of the soy planting season in the key markets across the marketplace in Brazil, and in some cases, that was drought or lack of moisture early on, or in some places, it was excessive moisture as you went further into the south.
Tim: Of the area, that's playing to the corn for both <unk> and the summer season that has already been been planted.
Tim: Being said farmers are still planting corn sectors, where the timing works out and last week I was in Brazil, and I saw it firsthand, where they were harvesting beans, and Kevin right and with corn. So the momentum is still there for corn and a lot of support even with the reduced commodity price.
Tim Glenn: And what it ended up doing was pushing a significant share of the soy into a later planting window that really impacts the ability of the farmer to follow up with a corn crop that falls into an ideal planting window. So, you know, as you said, we talked about that in November, and we were sort of at that, call it, that critical point when, you know, we needed to get that crop planted. And, you know, my best guess is somewhere around 20, 25% of the corn, or excuse me, the soybeans, were planted in a window that was not ideal for following up with corn. And I'm not going to, you know, I'm not going to try to peg how much corn won't be planted at this point in time.
Our expectation is is as Chuck just said that we're going to see something more back to a typical.
Tim: Level of corn planning as we go into next year.
Tim: Think of something on the order of the Supreme reactors for 'twenty, two and 'twenty three being a reasonable target for the 2425 crop that that'll be important in the second half of next year corn remains a profitable crop demand for grain in Brazil is still growing and so.
Tim: That's very important and the other thing that we've seen is that there's a real strong agronomic reason to plant corn and soy that is being harvested right now that followed corn from last year is performing better than those that were not on on <unk>.
Tim: Okay to acres from corn so we.
Tim: We're still very optimistic on the fundamentals remain strong, but it is a really challenging suffering a season in Brazil, So pass it over to Robert for CP.
Tim Glenn: You know, I've spent a lot of time in the marketplace over the last three months traveling across the major safrinha growing areas, having discussions with customers and channel partners, and certainly a lot of feedback from our frontline commercial team there. But as we sit here today, we believe it will be somewhere, you know, call it a double-digit reduction in terms of the area that's planted with corn for both the safrinha and the summer season that has already been planted. You know, that being said, farmers are still planting corn hectares where the timing works out. And last week I was in Brazil, and I saw firsthand how they were harvesting beans and coming right in with corn.
Robert: For equity when we.
Robert: To look at.
Robert: Unpack a little bit more of a Brazil, what's going on there I think it's fundamental to reflect on what Chuck said, Brazil will get back to growth. It's just going to take a little bit of time from looking at 2024.
Robert: This destocking is going to last a little bit longer we need to work through the work through this.
Through the first part of the year to have a little better view, but overall. This next year, we see the industry down in low single digits overall, but we expect to be up modestly <unk>.
Robert: Primarily due to the further penetration of our new products.
Robert: The differentiated products and then admin biologicals there spin.
Robert: Specific to your question, though around generics and the pressure there of pricing and competitive environment.
Tim Glenn: So, you know, the momentum is still there for corn and a lot of support, even with the reduced commodity price. And our expectation is, as Chuck just said, that we're going to see something more back to a typical level of corn planting as we go into next year. You know, I think of something on the order of the safrinha hectares for 22 and 23 being a reasonable target for the 24-25 crop that will be important in the second half of next year.
Robert: Patent in generics have always been part of this of this market.
Robert: Overall in the global market. It is a little bit stronger in Latin America, and Asia, but we've not seen any further pricing degradation coming out of the generic manufacturers.
Robert: Production capacity, we have not seen any significant changes there either however, there have been some plants built of late that are focusing on big molecules that are coming off patent in the next few years.
Tim Glenn: You know, corn remains a profitable crop. Demand for rain in Brazil is still growing, and so that's very important. And the other thing that we've seen is that there's a really strong agronomic reason to plant corn.
Robert: <unk> will play a factor there, none of which or any of our molecules.
Robert: In the last half of 2023, Brazil imports began to slow overall and we continue to see that.
Tim Glenn: And the soy that is being harvested right now that followed corn from last year is performing better than those that were not on rotated acres from corn. So, you know, we're still very optimistic, and the fundamentals remain strong, but it is a really challenging safrinha season in Brazil. So, pass it over to Robert for CP.
Robert: Eric profits are struggling in this low price low pricing environment. So we expect that.
Robert: There'll be some changes there as we work through this year and next year.
Robert: Specific to the pricing pressure, yes, it is exasperate, a little bit in Brazil, due to the pharma profit environment and the macroeconomic factors that Chuck mentioned there earlier.
Robert: What this does is farmers began to look at what are the next best alternative to save on the input cost.
Robert King: Yeah, Frank, when we began to look at or unpack a little bit more of Brazil, what's going on there, I think it's fundamental to reflect on what Chuck said. You know, Brazil will get back to growth. It's just going to take a little bit of time. From looking at 2024, you know, this destocking is going to last a little bit longer. We need to work through the first part of the year to have a little better view. But overall, this next year, we see the industry down in low single digits overall, but we expect it to be up modestly, primarily due to further penetration of our new products, the differentiated products, and then adding in biologicals there. You know, specific to your question, though, around generics and the pressure there on pricing and, you know, the competitive environment. Off-patent and generics have always been part of this market, overall in the global market.
Robert: But our strategy that focuses on the higher value the differentiated products and the highest higher service is one that we think is still a winning combination.
Robert: These high technology products and high quality Agronomic service.
Robert: Being excellent in these areas as things that will differentiate us from the competition and we think we're in pretty good position as we head into 'twenty four and then 2025 with our strategy in those areas. So thank you.
Robert: Yeah.
Robert: We'll go next to Steve Bryan from Bank of America.
Steve Byrne: Yes. Thank you I assume your seed order book for North America is full at this point.
Steve Byrne: And just wanted to ask your view on on within that.
Steve Byrne: How much of an increase in enlist are you expecting and as a percent of soybeans for for 2024.
Steve Byrne: And can you can you partition that 100 million reduction in net royalty.
Robert King: It is a little bit stronger in Latin America and in Asia, but we've not seen any further pricing degradation coming out of, you know, the generic manufacturers. Production capacity, we haven't seen any significant changes there either. However, you know, there have been some plants built of late that are focusing on big molecules that are coming off patent in the next few years that will play a factor there, none of which are any of our molecules. In the last half of 2023, Brazil imports began to slow overall.
Steve Byrne: Into the buckets, how much of it is is.
Steve Byrne: C versus germ plasm fee, both out licensing and in licensing those four buckets. There can you split that $100 million in and do you see any risk of seed pricing going into the spring.
Steve Byrne: With potential competitive actions.
Alright, Steve Hey, good morning to all.
Steve: Take a shot at all of those that we're going to we're going to spend a little bit of time on North America seat here. So.
Robert King: And we continue to see that generic profits are struggling in this low-pricing environment. So we expect that there'll be some changes there as we go through this year and next year. Specific to the pricing pressure, yeah, it is exasperated a little bit in Brazil due to the farm profit environment and the macroeconomic factors that Chuck mentioned earlier. What this does is farmers begin to look at what are the next best alternatives to save on input costs. But our strategy that focuses on higher value, you know, differentiated products, and higher service is one that we think is still a winning combination. These high technology products and high quality agronomic services. Being excellent in these areas is something that will differentiate us from the competition.
Steve: I'd say, where we're at right now you touched on it I mean, we've been live in the market since August 1st and we spend kind of that August December window, working closer with customers building proposals and securing commitments in and when we feel very good about where our order book sits today.
Steve: And I'd say pattern order pattern in terms of timing was consistent with past experiences and our expectations and we're not seeing it.
Steve: Any any change in terms of the mix of technology.
Steve: And so that feels like a good spot right there.
Steve: In terms of the question on pricing.
Steve: It's always a competitive marketplace and I'd say this year.
Steve: Soybeans are probably a little bit more competitive than.
Steve: Then maybe on the corn side and a lot of folks battling.
Steve: For the spots there.
Steve: As we sit here today, and we're roughly 70 days out from the planting window opening.
Robert King: And we think we're in a pretty good position as we head into 24 and then 2025 with our strategy in those areas. So thank you. We'll go next to Steve Bryne from Bank of America.
Steve: In the heart of the corn belt are prices are holding and.
Steve: And we feel good about where we sit there customers understand the value proposition and our team is focused on staying close and executing our plan and so.
Steve Byrne: Yes, thank you. I assume your seed order book for North America is full at this point, and just wanted to ask your view on within that, how much of an increase in enrollment are you expecting as a percent of soybeans for 2024? And can you partition that 100 million reduction and net royalty into the buckets? How much of it is a trade fee versus a germplasm fee, both out licensing and in licensing? There are four buckets there.
Steve: Never know whats going to happen as I said 70 days until until the season really breaks here, but but I think we're in a in a positive spot in terms of let's call. It the stability around price when you get into <unk>.
Steve: I would say, where we sit today order position is tracking as expected.
Steve: And.
Steve: Our best estimate in terms of the market right now is about 60%, we see the soy market at about 60% converted to <unk>. This year and again remember we don't have full visibility to our license fees and it was over 100 other companies that are selling.
Tim Glenn: Can you split that 100 million? And do you see any risk of seed pricing going into the spring with potential competitive actions? All right, Steve. Hey, good morning. I'll take a shot at all those.
Steve: Enlist <unk> soybeans, and so we don't have perfect visibility there, but I think that 60% level is confidence so no surprises.
Tim Glenn: We're going to spend a little bit of time on North America Seed here. So, you know, I'd say where we are right now, you touched on that. I mean, you know, we've been live in the market since August 1st, and we spend kind of that August, December window working closely with customers, building proposals, and securing commitments. And we feel very good about where our order book sits today. And I'd say, you know, the order and the order in terms of timing was consistent with, you know, past experiences and our expectations, and we're not seeing any change in terms of the mix of technology. And so that feels, you know, like a good spot right there.
Steve: Things are tracking as part as expected in terms of that royalty bucket.
Steve: I would say this year and I don't know if I can split it and before I, probably won't try too, but the majority of the.
Steve: The benefit that we're getting this year would be from <unk>.
Steve: Reduced payment of royalties, primarily in soybeans, so that they could add as the primary bucket.
Steve: I think as maybe Chuck had said earlier in his comments, we're going to see that transition, especially beginning in 'twenty, five and beyond where royalties and the benefit from royalties and will will be greater than what the benefit is from reduction of royalties paid so.
Steve: So pretty significant that'll be a significant milestone as we transition there. So I think I touched on all your points there.
Tim Glenn: You know, in terms of the question on pricing, you know, it's always a competitive marketplace. And I'd say this year, you know, I'd say soybeans are probably a little bit more competitive than maybe on the corn side, and a lot of folks are battling for spots there.
Yeah.
Steve: Thank you we'll go next to Adam Samuelson from Goldman Sachs.
Adam Samuelson: Yes. Thank you good morning, everyone.
Adam Samuelson: I was hoping to maybe just get a little bit more color on the free cash flow outlook.
Tim Glenn: But as we sit here today, and, you know, we're roughly 70 days out from the planting window opening in the heart of the Corn Belt, our prices are holding, and we feel good about where we sit. You know, customers understand the value proposition. And, you know, our team is focused on staying close and executing our plan. And so, you know, you never know what's going to happen, as I said, 70 days until the season really breaks here.
Adam Samuelson: The outperformance in the fourth quarter.
As well as kind of the cadence.
Adam Samuelson: 2024.
Adam Samuelson: How do we think.
Adam Samuelson: About the normalization in crop protection.
Adam Samuelson: Production, which.
So your payables balance increase.
Adam Samuelson: Just how is that working capital.
Adam Samuelson: Kind of inflection maybe work through the year and maybe any differences you would call out and working capital trends between seed and crop protection, because obviously, they're very divergent trends happening in those two businesses.
Tim Glenn: But I think we're in a positive spot in terms of, you know, the stability around price. When you get into E3, you know, I'd say where we sit today, order position is tracking as expected. And, you know, our best estimate in terms of the market right now is about 60 percent. We see the soy market at about 60 percent converted to E3 this year. And again, remember, we don't have full visibility to our licensees, and there are over 100 other companies that are selling enlist E3 soybeans, and so we don't have perfect visibility there, but I think that 60 percent level is confident, so no surprises, and things are tracking as expected. In terms of that royalty bucket, I'd say this year, and I don't know if I can split it into four, I probably won I think, as Chuck had said earlier in his comments, we're going to see that transition, especially beginning in 2025 and beyond, where the benefit from royalties will be greater than the benefit from the reduction of royalties paid, so pretty significant.
Adam Samuelson: Sure Adam this is Dave so.
Dave: As you know in 2023.
Dave: We benefited we had a strong finish particularly in receivables.
Dave: And also advanced payments, which by the way it really underscores the health of.
Dave: The U S farmer in terms of the incumbents as well as their liquidity. So we had strength in terms of collections, which really enabled us to achieve.
Dave: That round numbers.
Dave: $1 $2 billion in terms of cash flow.
Dave: Our 2023 for 2024, what our guide includes.
Dave: Continued progress in working capital, notably, though the mix is going to be a little different.
We had accounts receivable in terms of the change of change and the same with inventories were positive in 2023 and significant.
Dave: Payables.
Dave: It was a use net.
Dave: For the reason you cited in terms of just the reduced procurement, particularly in the crop protection side related to management managing inventories for 2024, we're going to see receivables.
Dave: And payables.
Both being again change or the change being contributors.
Dave: In terms of cash and receivables is going to go the other way we've got a little moderation assumed in terms of the cash to credit ratio for the collections at year end and we've got just with some of the.
Tim Glenn: That'll be a significant milestone as we transition there, so I think I touched on all your points there. Thank you. We'll go next to Adam Samuelson from Goldman Sachs.
David John Anderson: Yes, thank you. Good morning, everyone. I was hoping to maybe just get a little bit more color on the free cash flow outlook, both the outperformance in the fourth quarter, as well as kind of the cadence in 2024. How do we...
Dave: Market conditions, we think DSO is going to go up on a year over year basis modestly still very healthy.
Dave: On a year over year basis, but essentially that mixed shift.
Dave: And working capital, but in overall the theme is overall continued benefit from.
David John Anderson: Think about normalization and crop protection production, which will see your payables balance increase. How does that work in terms of capital? kind of inflection, maybe work through the year, and any differences you would call out in working capital trends between seed and crop protection because obviously there are very divergent trends happening in the. Sure, Adam, this is Dave. As you know, in 2023, we benefited from a strong finish, particularly in receivables, and also advanced payments, which, by the way, really underscores the health of the U.S. farmer in terms of income So we had strength in terms of collections, which really enabled us to achieve that round number of $1.2 billion in terms of cash flow for 2023.
Dave: From working capital in terms of cash contribution in 2024, So we're excited to be at near 50% conversion in.
In terms of the guide that we're giving you precise numbers more like 49%, but round numbers, 50% conversion cash flow to EBITDA for 2024.
Dave: Okay.
Speaker Change: Thank you we'll go next to Keith for Snow from Keybanc capital markets.
Speaker Change: Thanks, Good morning, everyone last.
Speaker Change: Last quarter, you discussed an influx of generic crop protection and for us into Latin America situation changed at all.
Keith: In the fourth quarter.
Keith: Yes, So I think Robert covered some of this already good morning, I'd say look.
Keith: What we saw in the <unk>.
David John Anderson: For 2024, what our guide includes is continued progress in working capital. Notably, though, the mix is going to be a little different. We had accounts receivable in terms of the change in change, and the same with inventories was positive in 2023, and significant payables was a use net for the reason you cited in terms of just the reduced procurement, particularly in the crop protection side related to managing inventories. For 2024, we're going to see receivables and payables, both being, again, the change in change, being contributors in terms of cash. And receivables are going to go the other way. We've got a little moderation assumed in terms of the cash-to-credit ratio for collections at year-end. And we've got just with some of the market conditions; we think DSO is going to go up on a year-over-year basis, but modestly, still very healthy on a year-over-year basis.
Third quarter without elevated imports from broadly speaking from generics entering Latin America.
Speaker Change: What we've seen since then as we work our way through the fourth quarter and so far in 2024 is that generally speaking imports into Latin America are down.
Speaker Change: And they are trending they are slowing down they're trending down and that includes generics.
Speaker Change: So I think we commented that what we're seeing at a price level is that we didn't expect that that what we saw at I'll call. It the peak was.
Speaker Change: With sustainable and Thats exactly what we think is happening here is is there is a rebalancing happening I think there is a kind of a view of that that you need to be profitable when you're moving these products around the world and into these regions and so that's exactly what we size is a slowdown, but I will council generic.
Speaker Change: A part of this market, they're not going away.
Speaker Change: They serve a role but it's not the it's not the primary area. In fact, we've made portfolio decisions to move almost our entire portfolio away from these product lines, because we feel that where we want to add value is differentiated technology.
David John Anderson: But that essentially, that mixed shift in working capital, but overall, the theme is overall continued benefit from working capital in terms of cash contribution in 2024. So we're excited to be at near 50% conversion in terms of the guide that we're giving you. I think the precise number is more like 49%, but the round number is 50% conversion of cash flow to EBITDA for 2024.
Speaker Change: <unk> with strong agronomic support because I think thats, what farmers need and they are willing to pay for that.
But to answer your direct question, yes, we've seen a slowdown in imports into Brazil, including generics.
Speaker Change: Okay.
Speaker Change: Thank you and we'll take our last question from Josh Spector with UBS.
David John Anderson: Thank you. We'll go next to Elske Efremov from KeyBank Capital Markets. Thanks, good morning everyone. Last quarter, you discussed the influx of generic crop protection imports into Latin America. Has the situation changed at all during the fourth quarter?
Josh Spector: Yes, hi, Thanks for taking my question just a quick one if I could ask.
Josh Spector: You didn't talk about a shift from corn to soy as being a negative in your EBITDA bridge, just given where you're at from a profitability insulated with higher unless share is that a meaningful factor you look at the acreage shifting between quarters until they are at that one neutral what's affected you should be looking at thanks.
Chuck Magro: Yeah, so I think Robert covered some of this already. Good morning. I'd say, look, what we saw in the third quarter was elevated imports of generics entering Latin America. What we've seen since then, as we work our way through the fourth quarter and so far in 2024, is that, generally speaking, imports into Latin America are down. They're slowing down, they're trending down, and that includes generics. So I think we commented that what we're seeing at the price level is that we didn't expect that what we saw at, I'll call it, the peak was sustainable. And that's exactly what we think is happening here, that there is a rebalancing. I think there's a kind of view that you need to be profitable when you're moving these products around the world and into these regions. And so that's exactly what we saw: a slowdown.
Josh Spector: Hey, Josh Good morning, I'll take a shot at this so yes, I mean I don't.
Speaker Change: Think it's any secret that corn is always more profitable for us than soy in North America I think what's changing is that first we anticipated. This this isn't a shock.
And so we've been planning for this and it's and it's baked into and into our numbers right now and I together important part is it's still there still is a difference but the difference isn't quite as great as it had been and the reason is today because we're not we're not dependent on somebody else's technology on soybean soy relative to where we are.
Speaker Change: Would have been 345 years ago, it's much more profitable. So that there is still a difference there we factored it in but it's not quite the difference we would have had prior to the significant shift to enlist <unk> three within our within our business.
Chuck Magro: But I would counsel, you know, generics are part of this market. They're not going away, they serve a role, but it's not the primary area. In fact, we've made portfolio decisions to move almost our entire portfolio away from these product lines, because we feel that where we want to add value is through differentiated technology.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Thank you and I'll turn it back over to Kim for any additional or closing remarks.
Kim: Great and that concludes concludes today's call. We thank you for joining and for your interest in core Teva and we hope you have a safe and wonderful day.
Chuck Magro: YouNeedToNothing.com, Thank you, and we'll take our last question from Josh Spector with UBS. Thank you. Thank you. Thank you. Yeah, hi, thanks for taking my question. It's just a quick one. If I could ask, you didn't talk about the shift from corn to soy as being a negative in your EBITDA bridge. Just given where you're at for profitability in soy and higher and less share, is that a meaningful factor that you look at acres shifting between corn and soy, or is that more neutral? What's the sensitivity we should be looking at?
Speaker Change: And that does conclude today's conference. Thank you for your participation you may now disconnect.
Speaker Change: We're back in a private post conference.
Speaker Change: Okay. Thank you I think I'll, let you need anything more from US I think we're good thanks for the support.
Speaker Change: You're welcome have a good day alright. Thank you.
Josh Spector: Thanks. Hey, Josh. Good morning. I'll take a shot at this. So, yeah, I mean, you know, I don't think it's any secret that corn is always more profitable for us than soy in North America. I think what's changing is that, you know, first, we anticipated this. This isn't a shock.
Speaker Change: Okay.
Speaker Change: Yeah.
Tim Glenn: And so, we've been planning for this, and it's baked into our numbers right now. And I think the other important part is that it's still, you know, there still is a difference, but the difference isn't quite as great as it used to be. And the reason is that today we're not dependent on somebody else's technology for soybeans. So, soybeans, relative to where we would have been three, four, five years ago, are much more profitable. So, there is still a difference there. We factored it in, but it's not quite the difference we would have had prior to the significant shift to Enlist E3 within our business.
Tim Glenn: Thank you, and I'll turn it back over to Kim for any additional or closing remarks. And that concludes today's call. We thank you for joining us and for your interest in Corteva, and we hope you have a safe and wonderful day. And that does conclude today's conference. Thank you for your participation. You may now disconnect, and we're back in a private post conference. Okay, thank you. I think, unless you need anything more from us, I think we're good.
Operator: Thanks for the support. You're welcome. Have a good day. All right. Thank you, too.