Q2 2024 Corteva Inc Earnings Call
Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Corteva AgriScience 2Q2024 earnings.
Operator: At this time, I would like to welcome everyone to the Corteva AgriScience 2Q2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw yourself from the queue, simply press star and one.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw yourself from the queue, simply press star and 1.
Kimberly Booth: I will now turn the call over to Kim Booth, Vice President of Investor Relations. You may begin. Good morning, and welcome to Corteva's second quarter and first half 2024 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President, Seed Business Unit, and Robert King, Executive Vice President, Crop Protection Business Unit, will join the Q&A session.
I will now turn the call over to Kim Booth, Vice President of Investor Relations. You may begin.
Speaker Change: Good morning and welcome to Corteva's second quarter and first half 2024 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and Dave Anderson, Executive Vice President and Chief Financial Officer.
Speaker Change: 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.
Speaker Change: 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.
Kimberly Booth: We have prepared presentation slides to supplement our remarks during this call, which are posted on the Investor Relations section of the Corteva website and through the link to our webcast. During this call, we will make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including but not limited to those discussed on this call and in the risk factors section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statement.
Speaker Change: These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.
Speaker Change: 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.
Kimberly Booth: 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, Kim. Good morning, everyone, and thanks for joining us.
Speaker Change: We do not undertake any duty to update any forward-looking statement. Please note in today's presentation we'll be making references to certain non-GAAP financial measures.
Speaker Change: 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.
Speaker Change: Available on our Investor Relations website. It's now my pleasure to turn the call over to Chuck.
Charles Magro: We plan to update you today on our second quarter and first half performance, and share our latest expectations for the second half of this year. In the second quarter, Corteva delivered both top and bottom line growth at nearly 250 basis points of operating at the margin expense. This was driven by strong demand for our proprietary technology, which was also particularly evident in our seed business results. We also saw crop protection volumes grow, a sign that the industry is starting to stabilize after almost two years of decline. The seed continued its impressive trajectory in the first half of the year.
Chuck: Thanks, Kim. Good morning, everyone, and thanks for joining us. We plan to update you today on our second quarter and first half performance.
Chuck: Share our latest expectations for the second half of this year. In the second quarter, Corteva delivered both top and bottom line growth and nearly 250 basis points of operating at the margin expansion.
Speaker Change: This was driven by strong demand for our proprietary technology, which was also particularly evident in our seed business results. We also saw crop protection volumes grow, a sign that the industry is starting to stabilize, after almost two years of decline.
Charles Magro: 420 basis points of operating EBITDA margin expansion and broad-based pricing gains across all regions. While North America corn acres are down year over year, the team has managed to hold volumes relatively flat and gain share in the first half. A testament to both strong demand for our latest Korn hybrids, as well as the strength of the pioneer business. Performance and speed remain strong across products and technologies.
Speaker Change: Feed continued its impressive trajectory in the first half of the year, with 420 basis points of operating EBITDA margin expansion and broad-based pricing gains across all regions.
Speaker Change: While North America corn acres are down year over year, the team has managed to hold volumes relatively flat and gain share in the first half.
Charles Magro: We are proud to be number one in the North America seed market for both corn and soybeans. We are particularly pleased to see Enlist E3 continue to be valued by farmers, and we believe E3 technology is the future, and will be on at least 65% of U.S. soybean acres in 2024. Earlier this year, we announced the commercial availability of Pioneer brand Z series soybeans in the U.S. and Canada, which is the next generation of industry leading genetics with the endless trade.
Speaker Change: And we are proud to be number one in the North America seed market for both corn and soybeans. We are particularly pleased to see Enlist E3 continue to be valued by farmers, and we believe E3 technology is the future.
Speaker Change: is on at least 65% of U.S. soybean acres in 2024. Earlier this year, we announced the commercial availability of Pioneer Brand Z Series soybeans in the U.S. and Canada, which is the next generation of industry-leading genetics with the endless traits.
Charles Magro: This new class of soybeans offers farmers a strong defensive package, with a generational leap in yield potential and agronomic performance over any soybean lineup Pioneer has ever introduced. In extensive 2023 IMPACT trials, Z-series soybeans showed an average yield advantage. 2.7 bushels per acre over our own A-series soybeans, which deliver substantial economic benefits to growers. And I know most of you are well aware of how the enlist transition has supported our aim of becoming royalty neutral by the end of the decade.
Speaker Change: of 2.7 bushels per acre over our own A-series soybeans, which delivers substantial economic benefit to growers. And I know most of you are well aware of how the Enlist transition has supported our aim of becoming royalty neutral by the end of the decade.
Charles Magro: But it's worth noting that our royalty income stream is also accelerating quickly in corn. In the first half of this year, we grew our royalty income by an impressive 40% when compared to the same period last year, led by the strength of new corn trade technologies like PowerCornList. Our strategy of becoming a technology seller is gaining traction, as reflected in our margin. Now, turning to the CP business. We can say that here, too, our technology remains a driver for farmers. By the end of June, we had registered over 100 new crop protection products globally.
Speaker Change: But it's worth noting that our royalty income stream is also accelerating quickly in corn.
Speaker Change: In the first half of this year, we grew our royalty income by an impressive 40% when compared to the same period last year, led by the strength of new corn trade technologies like Power Corn List.
Speaker Change: Our strategy of becoming a technology seller is gaining traction as reflected in our margins.
Speaker Change: Turning to the CP business.
Speaker Change: We can say that here, too, our technology remains a driver for farmers.
Charles Magro: These new product registrations give farmers access to new, cutting-edge solutions that can help them increase yields and grow more food and fuel. Overall, the crop protection business continues to navigate an imbalanced market driven largely by residual destocking and competitive market dynamics. Still, we are encouraged by the 6% volume improvement in the second quarter. Although net sales and operating EBITDA were down for the half, we're still anticipating that 2024 will be another year of top and bottom line growth and margin improvement for Corteva. Record-setting demand for grain, oil, seeds, and biofuel is expected to continue through the end of 2024, while on-farm crop protection demand remains stable.
Speaker Change: continues to navigate an imbalanced market driven largely by residual de-stocking and competitive market dynamics.
Speaker Change: Record-setting demand for grain, oilseeds, and biofuels.
Charles Magro: Farmers prioritize technology to maximize yield, and we expect the market to begin to move towards more of a balance between sell-in and sell-out at the channel. We also anticipate that farmers will continue to prioritize investments in top-tier seed technologies, given their direct impact on yield, to reflect the impact of the competitive market dynamic. In weather-driven missed applications in North America and Europe in the first half for crop protection, we are lowering our full year net sales guidance by about 1% and operating EBITDA by about 2% versus the midpoints we guided to last quarter. A few comments on 2025. It's still early, and we need to see how the full year of 2024 plays out.
Speaker Change: To reflect the impact of the competitive market dynamics.
Speaker Change: It's still early, and we need to see how the full year of 2024 plays out. Generally speaking, we remain constructive on 2025, and we are on a path that would get us into the framework.
Charles Magro: Generally speaking, we remain constructive on 2025, and we are on a path that would get us into the framework for operating EBITDA and margin improvement. We feel good about what we can control, delivering meaningful royalty benefits, productivity, and cost deflation on a year over year basis. Recall when we adjusted the 2025 framework back in February; we indicated that it was contingent upon stabilization in the crop protection market in 2024 and a return to growth in 2025.
Charles Magro: The volume improvement in the second quarter has given us some optimism in our second half growth assumptions, but we're monitoring the competitive pricing environment very closely. We'll be providing more of a detailed update on our views of 2025 at our Investor Day event in November. Now turning to the outside, the US crop mix shift from corn to soybeans played out as we expected.
Speaker Change: The volume improvement in the second quarter has given us some optimism in our second half growth assumptions, but we're monitoring the competitive pricing environment very closely. We'll be providing more of a detailed update on our views of 2025 at our Investor Day event in November .
Charles Magro: However, the main feature of the 2024 growing season thus far has been the US corn and soybean crop condition ratings have been running well above 2023, creating an expectation for strong yields. Time will tell, but it is clear that strong yields are being dialed into the corn future. As global stocks of major grains and oilseeds stabilize, commodity prices have started to come under pressure, indicative that we're now below the mid-cycle price. These lower prices, combined with higher interest rates, have led farmers to tighten their operating approaches.
Charles Magro: But there is still a lot of confidence in the vast majority of farmers, and they know the formula for success and how to be prudent with the investment decisions they make in their operations, and they know they have to drive productivity in order to be competitive in the market. Brand trust and the years of experience and expertise behind it are also extremely important. Farmers can always find cheaper seed.
Speaker Change: And they know they have to drive productivity in order to be competitive in the marketplace.
Speaker Change: Brand trust and the years of experience and expertise behind it is also extremely important.
Charles Magro: But with Corteva brands, they know they can trust our long history of incremental annual yield improvement, which gives them confidence in the outcome, as well as peace of mind. And like most of us, once you experience the best, it's hard for farmers to settle for anything less. With that, let me turn it over to Dave for insights on our financial results in our Thanks, Chuck, and welcome, everyone, to the call. Let's start on slide six, which provides the financial results for the quarter and the half.
Speaker Change: And like most of us, once you experience the best, it's hard for farmers to settle for anything less.
Charles Magro: You can see from the numbers here that sales in Opera and Ibiza for the first half were down slightly from the prior year, although a little better than our latest estimate, driven by a strong finish in North America's seed season. Briefly touching on the quarter, organic sales were up 2% compared to the prior year with gains in both seed and crop protection. Pricing for the quarter was up 2%, with gains in seed partially offset by continued competitive pressure in crop protection.
Speaker Change: Pricing for the quarter was up 2%, with gains in seed partially offset by continued competitive pressure in crop protection.
David Anderson: Second quarter volumes were flat, with volume gains in crop protection, led by Latin America and North America, offset by seed volume declines in North America due to first quarter and second quarter time. Top line growth and continued productivity and cost actions translated to earnings growth of 10% in the quarter, with nearly 250 basis points of margin expansion compared to the prior year. Now focusing on half as a result of the tough first quarter, organic sales were down 2%, with seed growth offset by crop protection.
Speaker Change: Top-line growth and continued productivity and cost actions translated to earnings growth of 10% in the quarter in nearly 250 basis points of margin expansion compared to prior year.
David Anderson: Seed pricing gains were mid-single digit compared to prior year and offset by seed falling declines, which were driven by lower planted area in EMEA and in Asia. Crop protection price and volume were both down in the half due to the competitive market dynamics and the really tough comp of the first quarter of 2023. The top line performance translated into operating EBITDA of approximately $2.95 billion for the half, down slightly compared to prior year.
Speaker Change: The top line performance translated into operating EBITDA of approximately $2.95 billion for the half, down slightly compared to prior year.
David Anderson: Seed pricing, the benefits from improved net royalty expense, and productivity savings drove nearly 60 basis points of margin expansion. Let's now go to slide seven and review sales by segment. Fee net sales were up 2% in the half versus prior year, and organic sales were up 4% on broad-based pricing gains as we continue to price for value. Global seed pricing was up 5%, with gains in every region and across the portfolio. However, in crop protection, both net sales and organic sales were down 11% in the half.
Speaker Change: Seed pricing, the benefits from improved net royalty expense, and productivity savings drove nearly 60 basis points of margin expansion.
Speaker Change: Seed net sales were up 2% in the half versus prior year. Organic sales were up 4% on broad-based pricing gains as we continue to price for value. Global seed pricing was up 5% with gains in every region and across the portfolio.
Speaker Change: In crop protection, both net sales and organic sales were down 11% and a half. Pricing was down 4% compared to prior year, driven by competitive price pressure and market dynamics.
David Anderson: Pricing was down 4% compared to the prior year driven by competitive price pressure and market dynamics. Crop Protection Pricing and EMEA were up 2%, largely in response to current. Crop protection volumes were down in the half, although we did see volume growth of 6% in the second quarter. The demand for new products in Spinoza's drove volume gains over last year, and importantly, we continue to expect volume growth in the second half, driven largely by Brazil.
Speaker Change: Crop Protection Pricing and EMEA was up 2%, largely in response to currency.
Speaker Change: Crop protection volumes were down in the half, although we did see volume growth of 6% in the second quarter.
David Anderson: With that, let's go to slide eight for a summary of the first half operating EBITDA performance. For the half, operating EBITDA was just under our record first half 2023 to just over 2.95. Pricing gains, coupled with improvement in net royalties and productivity action, were offset by volume declines in cost and currency.
Speaker Change: With that, let's go to slide 8 for a summary of the first half operating EBITDA performance.
David Anderson: Higher seed commodity costs and Crop Protection Inflation on Input Costs Reflecting the Sell-Through of Higher-Cost Inventory were more than offset by benefits for reduced net royalty expense and productivity. SG&A for the half was up 1%, including an additional $25 million of spend compared to the prior year related to biological sacrifices.
David Anderson: Excluding these costs, SG&A would have been approximately flat versus last year despite merit and inflation. Let's now go to slide nine and transition to the updated outlook for the year. The updated full-year guidance reflects the current seed and crop protection markets and the best judgment of our key variables for the second half. We now expect net sales to be in the range of $17.2 to $17.5 billion, or up 1% at the midpoint.
Speaker Change: Excluding these costs, SG&A would have been approximately flat versus last year, despite merit and inflation.
Speaker Change: Let's now go to slide 9 and transition to the updated outlook for the year. The updated full year guidance reflects the current seed and crop protection markets and the best judgment of our key variables for the second half.
David Anderson: The lower guidance and revenues are primarily due to North American EMEA crop protection price and volume in the first half of the year, as well as the updated second half BRL to U.S. dollar assumption. Operating EBITDA is now expected to be in the range of 3.4 to 3.6 billion, 4% growth compared to the prior year at the midpoint. The updated guidance is driven by lower top line growth, partially offset by less discretionary spending.
Speaker Change: The lower guidance and revenues is primarily due to North American EMEA crop protection price and volume in the first half of the year in the updated second half BRL to U.S. dollar assumptions.
David Anderson: We also now expect a cost tailwind for the year driven by improved royalty expense. Crop Protection Raw Material Deflation and Productivity Better And while we still expect increased R&D and SG&A for the year, the increases will be more modest than our prior guidance. With the strength of seed performance in the first half and crop protection volume and cost improvement in the second half of the year, we now expect operating EBITDA margin for the year of approximately 20% at the midpoint of guidance, or approximately 55 basis points above margin expansion over last year.
Speaker Change: And while we still expect increased R&D and SG&A for the year, the increases will be more modest than our prior guidance.
David Anderson: Operating EPS is expected to be in the range of $2.60 to $2.80 per share, roughly flat versus last year at the midpoint. The change in EPS from our prior guidance primarily reflects lower earnings at the midpoint. We're reaffirming our pre-cash flow guidance of $1.5 to $2 billion, or approximately $1.75 billion at the midpoint, and cash flow to EBITDA conversion rate of 45% to 50% for And finally, we're on track to complete $1 billion of share repurchases for the year, including $500 million completed during the first half.
Speaker Change: Operating EPS is expected to be in the range of $2.60 to $2.80 per share, roughly flat versus last year at the midpoint.
Speaker Change: The change in EPS from our prior guidance primarily reflects lower earnings at the midpoint.
Speaker Change: And finally, we're on track to complete $1 billion of share repurchases for the year, including $500 million completed during the first half. We also recently announced a 6.25% increase in the annual dividend, consistent with the dividend growth strategy.
David Anderson: We also recently announced a 6.25% increase in the annual dividend, consistent with the Dividend Growth Strategy. Now, both of these are testimony to the strength of our balance sheet and the cash flow out. Going now to slide 10, let's look at the key drivers for the first half performance and the setup for the remainder of the year.
Speaker Change: Now both of these are testimony to the strength of our balance sheet and the cash flow outlook.
Speaker Change: Going now to slide 10, let's look at the key drivers for the first half performance in the setup for the remainder of the year.
David Anderson: Again, the first half results were overall slightly ahead of our expectations, driven by the strength of the seed business. North America delivered an impressive performance with 4% growth in organic sales compared to the prior year, despite the 3% reduction in U.S. corn age. Crop protection first half results were impacted by competitive market pressures. Overall crop protection industry conditions have begun to improve, but not yet fully stabilized. Crop protection experienced low single-digit rate inflation on input costs through the first half.
Speaker Change: Again, the first half results were overall slightly ahead of our expectations, driven by the strength of the seed business. North America delivered an impressive performance with 4% growth in organic sales compared to prior year, despite the 3% reduction in U.S. corn acres.
Speaker Change: Crop protection experienced low single-digit rate inflation on input costs through the first half. Those market-driven cost headwinds were offset by benefits related to reduced seed net royalty expense and productivity actions.
David Anderson: Those market-driven cost headwinds were offset by benefits related to reduced seed net royalty expense and productivity actions. SG&A and R&D, as expected, were up modestly compared to last year. Now, if you turn to the right side of this slide.
David Anderson: Regarding the second half, our assumptions are largely consistent with what we shared with you in early May. In seed, we expect a rebound in Brazil's safrinha corn area after a reduction in the 2023-2024 season. However, an additional risk in Latin America is Argentina's planet area due to corn stocks.
David Anderson: Crop protection volume gains will drive much of the growth in the second half with pricing expected to remain challenged. Our assumption is for volume growth versus the prior year led by Brazil and demand for new products and biologics. Importantly, the order book for the second half of crop protection sales in Brazil is trending ahead of last year, but available data suggests channel inventories are trending down.
Speaker Change: Crop protection volume gains will drive much of the growth in the second half with pricing expected to remain challenged.
Speaker Change: Importantly, the order book for the second half crop protection sales in Brazil is trending ahead of last year.
David Anderson: These data points are positive signals that the market is moving towards more stabilization and supports the assumptions for volume growth in the second half. And as you know, we expect to see input cost deflation and crop protection during the second half of the year. Combined with productivity and cost actions, we anticipate a cost tailwind for crop protection. And as a reminder, we expect an increase in SG&A spend for the full year 24, driven by normalized bad debt and compensation accruals, and we'll also continue to increase the investment in R&D.
Speaker Change: Available data suggests channel inventories are trending down. These data points are positive signals that the market is moving towards more stabilization and supports the assumptions for volume growth in the second half.
David Anderson: So the balance of improved crop protection market conditions in Brazil and the continued focus on cost controls will drive second half growth. It's important to point out the allocation of earnings between the third and fourth quarters. We expect a normal earnings pattern for the second half, which implies an operating EBITDA loss in the third quarter and therefore all of the second half earnings delivered in the fourth quarter.
Speaker Change: It's important to point out the allocation of earnings between third and fourth quarters.
Speaker Change: We expect normal earnings pattern for the second half, which implies an operating EBITDA loss in the third quarter, and therefore all of the second half earnings delivered in the fourth quarter. So let's now go to slide 11 and summarize the key takeaways.
David Anderson: So let's now go to slide 11 and summarize the key takeaways. First, operating EBITDA performance for the first half was largely in line with expectations, led by the strength of the seed business. Regarding the full year, driven mostly by the current market dynamics and crop protection, we're updating our full year guidance, but still on track for sales and earnings growth in 2024. Seed momentum continued through the first half, driven by the strength of the portfolio and strong demand for our latest technologies, particularly in North America, with market share captured in both corn and soybeans.
Speaker Change: First, Operating EBITDA performance for the first half was largely in line with expectations led by the strength of the seed business.
Speaker Change: Seed momentum continued through the first half, driven by the strength of the portfolio and strong demand for our latest technologies, particularly in North America, with market share captured in both corn and soybean.
David Anderson: Overall, it's been an impressive first half for the seed business and continues a strong trend by seed. Looking forward to the second half of the year, crop protection volume gains in Latin America and cost improvement from raw material deflation and productivity actions will drive much of the year-over-year EBITDA growth. And finally, the strong first-half cash flow results keep us on track to deliver the midpoint of our free cash flow guidance range of $1.75 billion, or approximately a 50% conversion rate. And with that, I will turn it back over to Kevin.
Speaker Change: Overall, it's been an impressive first half of the seed business in continuing a strong trend by seed.
Speaker Change: and cost improvement from raw material deflation and productivity actions will drive much of the year-over-year EBITDA growth.
Speaker Change: And finally, the strong first half cash flow results keep us on track to deliver the midpoint of our free cash flow guidance range of $1.75 billion, or approximately 50% conversion rate.
Kimberly Booth: Thanks, Dave. Now, before we get into Q&A, Chuck, I believe you'd like to make a few closing remarks. Thanks, Kim. I'd like to say a few words about the announcement we made after the market yesterday, that we will have a new chief financial officer starting September 16. David Johnson will join Corteva from Atcor, a publicly traded company and leader in electrical safety and infrastructure solutions, where he also served as CFO
Speaker Change: And with that, let me turn it back over to Ken.
Ken: Thanks, Dave. Now, before we get into Q&A, Chuck, I believe you'd like to make a few closing remarks. Thanks, Kim. I'd like to say a few words about the announcement we made after market yesterday that we will have a new chief financial officer starting September 16.
Charles Magro: David is an accomplished CFO with a proven track record of delivering strong results, operational efficiency, and financial discipline to large global organizations like ours. He has nearly three decades of experience, and as I've gotten to know David throughout this process, I believe he is the perfect choice for Corteva. David will, of course, succeed Dave Anderson. To ensure a smooth transition, Dave will continue to serve on the executive leadership team as a strategic advisor to me until his retirement in the first quarter of 2025.
Speaker Change: David Johnson will join Corteva from Atcor, a publicly traded company and leader in electrical safety and infrastructure solutions, where he also served as CFO .
Chuck Magro: David is an accomplished CFO with a proven track record of delivering strong results, operational efficiency, and financial discipline to large global organizations like ours.
Speaker Change: To ensure a smooth transition, Dave will continue to serve on the executive leadership team as a strategic advisor to me until his retirement in the first quarter of 2025.
Charles Magro: Dave joined Corteva over three years ago, which was, as many of you will remember, both a pivotal and critical time in our history. With his wealth of experience and his considerable expertise across industries, Dave gave this company, its board, and its leadership assurance that this company's financial strategy was in the best of hands. And I think the results speak for themselves. So before I turn it over to Dave, I'd like to thank him for his service and his dedication to Corteva, to our investors and shareholders, and to our customers and employees. Dave, thank you. It's been an absolute privilege to serve alongside you.
Chuck Magro: with his wealth of experience and his considerable expertise across industries.
David Anderson: And with that, over to you. Thanks, Chuck. I really appreciate the kind words.
Chuck Magro: Dave, thank you. It's been an absolute privilege to serve alongside of you. And with that, over to you.
David Anderson: It's obviously just been a true terrific opportunity to work with Corteva and work with you and the organization over the last several years, and I'm proud of what we've been able to accomplish. And I'm really pleased with the strengthening of Bennett's team and the alignment of the finance organization to support our crop protection and seed business unit. And I'm looking forward to supporting David in this transition. I know it's going to be a successful one. I know he's going to be a terrific CFO for Corteva.
Dave Anderson: And I'm proud of what we've been able to accomplish, and I'm really pleased with the strengthening of Bennett's team and the alignment of the finance organization to support our crop protection and seed business units.
Chuck Magro: And I'm looking forward to supporting David in this transition. I know it's going to be a successful one. I know he's going to be a terrific CFO for Corteba. So thanks very much.
Kimberly Booth: So thanks very much. Thanks, Dave. Now, let's move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions. At this time, I would like to remind everyone that, in order to ask a question, press the star then the number one on your telephone keypad.
Speaker Change: Thanks, Dave. Now let's move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.
Operator: Our first question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open. Thank you, and first of all, Dave, congratulations on your retirement, and thank you very much for all the help over the past three years. Chuck, if I could ask you about your sort of initial comments on 2025, and please, you know, correct me where I'm wrong, but it sounded to me like you were sort of softening your stance on 25 and sort of not saying, hey, I took 24 down by 100 million dollars, so just take that existing 3.9 to 4.4 range down by 100 million dollars.
Dave Anderson: and please correct me where I'm wrong.
Speaker Change: But it sounded to me like you were sort of softening your stance on 25 and sort of not saying, hey, I took 24 down by $100 million. So just take that existing 3.9 to 4.4 range.
Operator: So I want to check in on those bridge items and see what's still intact versus what your incremental concerns might be. So you had 100 million dollars of royalty improvement for 25, another 200 million of productivity and cost actions for 25. And, you know, I know we had been talking about, but hadn't quantified, some seed cost deflation for 25. And then I, at least, I expected some more crop chemical deflation for 25.
Speaker Change: down by $100 million. So, I want to check in on those bridge items and see what's still intact versus what your incremental concerns might be. So, you had $100 million of royalty improvement for 2025.
Speaker Change: And, you know, I know we had been talking about but hadn't quantified.
Vincent Andrews: So if you could update us on those items, if there's any change, then also indicate whether or not it is the crop protection pricing that you're concerned about maybe deteriorating further? Or are you worried about being able to get a seed price mix in 25 if the futures curves stay where they are? Thank you. Yeah, good morning, Vincent.
Speaker Change: Received cost deflation for $25.
Speaker Change: And then at least I expected some more crop chemical deflation for 2025. So if you could update us on those items, if there's any change, then also indicate, is it the crop protection pricing that you're concerned about?
Speaker Change: may be deteriorating further, or are you worried about being able to get seed price mix in 2025 if the futures curves stay where they are? Thank you.
Charles Magro: So great question. I guess, let me start by just saying that we still have a lot of conviction about 2025. You know, we feel very good about the things that are obviously in our control. And if you've looked at sort of how we describe the controllable levers, whether it's seeding out licensing, the productivity and cost improvement that we're working through, biological growth, all these things, we said 350 to 450 million in both 2024 and 2025.
Speaker Change: Yeah, good morning, Vincent. So great question. I guess, let me start by just saying, we still have a lot of conviction over 2025.
Speaker Change: You know, we feel very good about the things that are obviously in our control. And if you've looked at.
Speaker Change: sort of how we describe the controllable levers, whether it's seed out licensing, the productivity and cost improvement that we're working through, biologicals, growth, all these things.
Speaker Change: We said $350 million to $450 million in both 2024 and 2025. We're thinking that that number now is certainly north of $400 million for each of the years. So, very good around the controllables.
Charles Magro: We're thinking that that number now is certainly north of 400 million for each of the years. So very good around the controllable. When you think about seed, we remain very comfortable with our base assumptions for 2024 and moving into 2025. And I would even go beyond 25.
Speaker Change: When you think about seed, we remain very comfortable with our base assumptions for 2024 and moving into 2025, and I would even go beyond 2025.
Charles Magro: The technology pipeline that we've built, we think is second to none in the industry. And our out licensing is now ramping up very nicely, as we made comments in our prepared remarks. And then, as you rightly called out, we can see deflation now in the P&L in both seed and CP. You're right.
Speaker Change: The technology pipeline that we've built, we think is second to none in the industry and our out licensing now is ramping up very nicely as we made comments in our prepared remarks.
Speaker Change: And then as you rightly called out, we can see deflation now that's in the P&L in both seed and CP. You're right, we have not given you full quantities yet. We will do that at the right time.
Charles Magro: We have not given you the full quantities yet. We will do that at the right time. But we think that that could be a significant tailwind as we think through 2025 and even beyond that. So when you put all that together, you know, we're very comfortable with if you look at the forward guide now for 24 and then you look at some of the ranges we've provided for 2025 and what we call the value framework. We're very comfortable that we're on a path to that range.
Speaker Change: So, when you put all that together, you know, we're very comfortable with, if you look at the Forward Guide now for 2024, and then you look at some of the ranges we've provided for 2025 in what we call the Value Framework, we're very comfortable we're on a path to that range.
Charles Magro: The biggest question, though, and we can't ignore it, right, is whether or not when we think about CP price. So we needed to see a few things in this quarter, and so we're feeling pretty good that we saw volume growth in Q2 when it comes to CP, but it's been a pretty competitive environment when it comes to price. And so that's the thing that we're watching. We're not overly concerned, but it's something we're keeping an eye on.
Speaker Change: The biggest question, though, and we can't ignore it, right, is not when we think about CP pricing.
Speaker Change: So, we needed to see a few things in this quarter and so we're feeling pretty good that we saw volume growth.
Charles Magro: And the 2025 framework then needs to connect to that. And what we're hoping to see now is further stabilization in the CP industry. And then, eventually, this market will return to growth because we've got two years now where we've seen declining organic growth. And to see three years, it would be quite unprecedented. It has happened before, but it's been quite rare.
Speaker Change: And the 2025 framework then needs to connect to that, and what we're hoping to see now is further stabilization in the CP industry, and then eventually this market will return to growth, because we've got two years now where we've seen declining organic growth.
Charles Magro: And so we're still feeling that our base assumption of some growth in 2025 makes sense. And when you put all that together, I think the value framework would still be very comfortable for Corteva. And our next question comes from the line of Joel Jackson with BMO. Your line is open.
Speaker Change: And so we're still feeling that our base assumption of some growth in 2025 makes sense. And when you put all that together, I think the value framework would still be very comfortable for Corteva.
Speaker Change: And our next question comes from the line of Joel Jackson with BMO. Your line is open.
Joel Jackson: Good morning, I'm just following up on that. In the last hour, one of your competitors was talking about seeing kind of 6% revenue growth next year in crop chems. Speaking to what you're talking about, a volume recovery, but competitive prices price decline. So I know it's following up on the prior question here, but is that in the ballpark of what you're seeing, higher or lower? Why would you be higher lower than to say that?
Charles Magro: Yeah, let me give you a perspective, Joel, and then I'll have Dave just talk about how we built the forward guide, and Dave can give you some specifics. So, when we look at CP for the second quarter, you know, our price was down approximately five percent, but our volumes were up six, and we really needed to see the volume grow. I think, you know, from a Corteva perspective, and I'm only going to speak about Corteva today, I think what we wanted to do was make sure that we managed the inventories going into the channel because look, we need to learn from what happened right, and we want our recovery when we look at Corteva to be sustainable as we work through the quarters. And so we're very comfortable.
Speaker Change: Yeah, let me give you a perspective, Joel, and then I'll have Dave just talk about how we built the Forward Guide, and Dave can give you some specifics. So
Speaker Change: When we look at CP for the second quarter, you know, our price was down approximately 5%, but our volumes were up 6%. And we really needed to see the volume growth.
Speaker Change: I think, you know, from a Corteva perspective, and I'm only going to speak about Corteva today, I think what we wanted to do is make sure that we manage the inventories going into the channel.
Speaker Change: because look, we need to learn from what's happened, right? And we want our recovery, when we look at Corteva, to be sustainable as we work through the quarters. And so we're very comfortable. We like the path that we're on.
Charles Magro: We like the path that we're on. I think when we think about how we guided the market, it's important to say that the midpoint came down about a hundred million dollars. Really, that was sort of a first half impact, right? But we had some pretty significant weather that impacted the CP business. We lost some sprays, both in Europe and the US.
Speaker Change: I think when we think about how we guided the market, it's important to say that
Speaker Change: then the midpoint came down about $100 million. Really, that was sort of first half impact, right? But we had some pretty significant weather that impacted the CP business. We lost some sprays, both in Europe and the US.
Charles Magro: And then there was the pricing dynamic, which we've already called out. So now when you think about how to think about the rest of 2024, Dave, I'll let you kind of comment on that. Sure, Chuck.
Speaker Change: And then there was the pricing dynamic, which we've already called out. So now when you think about how to think about the rest of 2024, Dave, I'll let you kind of comment on that.
David Anderson: And I think too, just related to 2025, Chuck, we would get into any details and any specifics regarding that, you know, at a later time. It's really too early to comment on that. But importantly, Joel, as you know, for the first half, let me talk about our pricing assumptions just a little bit. And then we can talk about the overall market, and Robert, you may want to comment a little bit on what we're seeing at the farm gate in terms of just the continued demand there and the steadiness. But for the first half, as you saw, in round numbers, we were around 4%.
Dave Anderson: Unknown Attendee Sure Chuck, and I think to just relate it to 2025, I think
Speaker Change: Chuck, we would get into any details and any specifics regarding that, you know, at a later time. It's really too early to comment on that. But importantly, Joel, as you know,
Robert: For the first half, let me talk about our pricing assumptions just a little bit, and then we can talk about overall market. And, Robert, you may want to comment a little bit just on what we're seeing at the farm gate in terms of just the continued demand there and the steadiness of that demand.
Robert: But for the first half, as you saw, round numbers, we were around 4%.
David Anderson: Pricing headwinds in the business, the crop protection business, three and a half percent, specifically for the first half. And our expectation is for the full year, that's going to be a little greater, probably in the low to mid single digits, really driven by the mix, the geographic mix. We've got a much larger, as you know, an increase in Latin America's percent of total for the second quarter. So that's what it is. That's really influencing that number.
Speaker Change: Pricing headwind in the business, car protection business, three and a half percent specifically for the first half.
Speaker Change: And our expectation is, for the full year,
Robert: That's going to be a little greater, probably in the, I'm going to call it the low to mid-single digits, really driven by the mix.
Speaker Change: The geographic mix, we've got a much larger as you know, an increase in the Latin Americans percent of total for the second half. So that's what's really what's really influencing that number.
David Anderson: When we look at volumes and volume expectations for the industry, and I'll let Robert comment on this more, I mean, all of what we're seeing, signs of what we're seeing, as Chuck said, are pointing to some return to normalcy, stabilization, if you will. And we're seeing that in terms of demand, in terms of usage of products, including differentiated products that are, you know, in terms of technology, possess the technology and efficacy that the farmer needs. Robert, you may want to just comment a little bit on that because I think that bears on the health of the overall business and the outcome. Thanks, Dave.
Speaker Change: When we look at volumes and volume expectations,
Robert: for the industry. And I'll let Robert comment on this more. But I mean, all of what we're seeing, signs of what we're seeing, as Chuck said, are pointing to
Robert: Some return to normalcy, stabilization, if you will.
Robert: And we're seeing that in terms of the demand, in terms of usage.
Robert: of product, including
Robert King: [inaudible] We finished up about as we expected in the first half. And so, as you begin, as we move into the second half. You're going to see growth from really three areas in crop protection, new products, spinosins, and biologicals. These will account for about 65% of our total growth for the business in the second half. And these are product areas that have product lines that are performing better than the market, and definitely better than the rest of our portfolio and historically have done so as well, further to that confidence of what we're seeing and our expectations. Yeah, Brazil's order book is very healthy.
Robert: Thanks, Dave.
Robert: Joel Weig
Speaker Change: We finished up about as we expected in the first half, and so as we move into the second half, you're going to see growth from really three areas in crop protection. New products, spinosins, and biologicals.
Robert: These will account for about 65% of our total growth for the business in the second half. And these are product areas, product lines that are performing better than the market and definitely better than the rest of our portfolio and historically have done so as well.
Speaker Change: [inaudible]
Robert: further to that confidence of what we're seeing and our expectations.
Robert King: And much more so than it was last year; we're about 20% ahead of where we were last year. So again, that gives us confidence that things are moving. And then we think when you look at our biologicals, we have 70% of our full year orders already in hand. And so once again, it gives us lots of optimism for the second half, that we'll be able to do what we're saying we can do. And that'll roll into 25.
Speaker Change: Brazil order book is very healthy and much more so than it was last year. We're about 20% ahead of where we were last year. So again, that gives us confidence that things are moving. And then we think when you look at our biologicals
Speaker Change: We have 70% of our full-year orders already in hand, and so once again, it gives us lots of optimism for the second half that we'll be able to do what we're saying we can do, and that'll roll into 2025.
Christopher Parkinson: And your next question comes from the line of Chris Parkinson with Wolf Research. Your line is open. Good afternoon.
Speaker Change: And your next question comes from the line of Chris Parkinson with Wolf Research. Your line is open.
Timothy Glenn: So one of your competitors put out its preliminary US seed price card fairly early. I think, you know, 10 years ago, it would have been on our herd of to go in August. And now we have somebody putting out in early July, you know, what are your presumptions in the marketplace of why that was done in terms of your current share gains in certain row crops, you know, presumably soy, as well as your, you know, ongoing field performance? It's probably a little bit early to comment on the latter. But just any commentary and insight on why you think that was done would be particularly helpful. Thank you. Hey, Chris, this is Tim. I'll take a shot at this.
Chris Parkinson: Good afternoon. So, one of your competitors put out its preliminary U.S. seed price card fairly early. I think, you know, ten years ago it would have been on our herd of to-go.
Speaker Change: Earlier in August , and somebody putting it out in early July , what are your presumptions in the marketplace of why that was done in terms of your current share gains in certain row crops, presumably soy?
Speaker Change: As well as your, you know, ongoing field performance. It's probably a little bit early to comment on the latter, but just any commentary and insight on why you think that was done would be particularly helpful. Thank you.
Timothy Glenn: So, you know, it's hard to comment on what the motivations were for putting a price card out early. You know, when you put a price card out early, there's, you know, there's, I'd say a gap in details in terms of what you understand. You don't necessarily know what the mixed products that they're going to sell; you don't necessarily know what their gross net is going to be. And, you know, my best guess right now is there's not a farmer who's made a buy decision yet based on that. So you know, we're in the process of developing our 25 plans. And I'd say we're weeks away from North America.
Chris Parkinson: Hey Chris, this is Tim. I'll take a shot at this. So, you know, it's hard to comment on what their motivations were for putting a price card out early. You know, when you put a price card out early, there's...
Speaker Change: I'd say a gap in detail in terms of what you understand. You don't necessarily know what the mixed products that they're going to sell. You don't necessarily know what their gross net is going to be. And my best guess right now is there's not a farmer who's made a buy decision yet based off of.
Chris Parkinson: All of it. So, you know, we're in the process of ...
Timothy Glenn: You know, we're generally pretty consistent in terms of timing, and we'll stick to that timing as well, a little bit later in Europe, but more like a month or two out from the start of most of Europe. You know, as we think about going into this market, obviously, every year is a little bit different. And it's different in terms of the environment you're selling into, as well as what you're bringing to the market.
Speaker Change: Developing our 25 plans, and I'd say we're weeks away from North America. You know, we're generally pretty consistent in terms of timing, and we'll stick to that timing as well. A little bit later in Europe , but more like a month or two out from most of Europe .
Chris Parkinson: As we think about going into this market, obviously every year is a little bit different and it's different in terms of the environment you're selling into as well as what you're bringing to the market. What I'd say is in 2025, as we put together our pricing plans, especially in North America, it's really driven by innovation and new technology.
Timothy Glenn: You know, what I'd say is in 25, as we put together our, our, our pricing plans, especially in North America, it's really driven by innovation and new technology. And the value approach that we take in terms of delivering value to our customers doesn't change here.
Timothy Glenn: So on corn, we have a very favorable mix enhancement as we think about introducing new hybrids with four seed and power core, two very exciting and important technologies in corn that will be ramping up this year. And as was mentioned earlier in the prepared remarks, we're also going to have a significant ramp-up of our Z series soybeans, which will be within list and will really take our value proposition to the next level with farmers. So, you know, overall, our philosophy never changes. It is value-driven, it's technology-driven, and it's a focus on innovation and making sure that our customers have access to that new technology.
Chris Parkinson: value approach that we take in terms of delivering value to our customer doesn't change here. So on corn, we have a very favorable
Timothy Glenn: And we have that long, I'd say long-standing trust and understanding from our customers, as we bring them something new and better, we're going to share in that value. So certainly, a different market environment; I can't really speculate on our competition and what their motivations are. But, but our focus and our approach really don't change in this environment. And the next question comes from the line of Kevin McCarthy with Vertical. Your line is open. Thank you, and good morning.
Kevin Mccarthy: Chuck, in adjusting the guidance, you called out a number of different factors, including, you know, corn stunts, and the impact on acreage in Argentina, some flooding in southern Brazil, and the crop protection chemical pricing environment, and perhaps there are other factors. And so my question would be, how would you sort of rank the relative importance of those? And then, with regard to the pricing dynamic in particular, I was wondering if you could expand on the question of whether or not you had any one-time incentives embedded in the 5% price erosion, as one of your competitors seemed to highlight earlier this morning. Good morning, Kevin.
Speaker Change: Thank you, and good morning. Chuck, in adjusting the guidance, you called out a number of different factors, including, you know, corn stunt.
Speaker Change: and the impact on acreage in Argentina.
Chris Parkinson: Some flooding in southern Brazil.
Speaker Change: and the crop protection chemical pricing environment and perhaps there are other factors. And so my question would be, how would you sort of rank order the relative
Speaker Change: importance of those. And then with regard to the pricing dynamic, in particular, I was wondering if you could expand on
Speaker Change: The question of whether or not you had any one-time incentives embedded in the 5% price erosion as one of your competitors seemed to highlight earlier this morning.
Charles Magro: So let me start and then Dave should certainly comment. So, as we've mentioned already, the lowering of the guide was really a lot driven by where we are in the, after the first half, right? So, whether there are missed applications and then the CP pricing dynamic. In the second half of the year, when we start thinking about it, what we're looking for is CP volume growth and a similar pricing dynamic that Dave just called out. And really, the determining factor for confidence in the second half will be two things.
Speaker Change: Good morning, Kevin. So let me, I'll start and then Dave should certainly comment. So, as we've mentioned already, the lowering of the guide was really a lot driven by the, where we are in the, after the first half, right? So, whether missed applications,
Chris Parkinson: and then the CP pricing dynamic.
Dave Anderson: The second half of the year, when we start thinking about it, what we're looking for is CP volume growth.
Dave Anderson: and a similar pricing dynamic that Dave just called out. And really the determining factor for the confidence in the second half will be on two things.
Charles Magro: It'll be on controlling the cost and the productivity controllables that we have, and we feel very good about that, and then Brazil. And really, it's Brazil volume that we're focused on. When you start thinking about the range, though, the upside and the downside and the guide range, we kept it this time a little bit wider than we normally do at this time of the year.
Dave Anderson: It'll be on controlling the cost and the productivity controllables that we have and we feel very good about that.
Speaker Change: and then Brazil and really it's Brazil volume that that we're focused on.
Speaker Change: When you start thinking about the range, though, the upside and the downside and the guide range,
Charles Magro: And that's really to reflect some of the uncertainty we're seeing in Argentina when it comes to the corn stunt. And, you know, Argentine farmers right now are not looking to buy the seed. So it is uncertain, and there are a lot of different estimates out there. So we feel we're pretty nicely captured between, if you think about the guide range, between 3.4 and 3.6. We would fall into that range, I think, with what we know today.
Speaker Change: We kept it this time a little bit wider than we normally do at this time of the year, and that's really to reflect some of the uncertainty we're seeing in Argentina when it comes to corn stunts.
Dave Anderson: and you know Argentine farmers right now are not looking to buy the seed so it is an uncertainty and there's a lot of different estimates out there. So we feel we're pretty nicely captured between if you think about the guide range between 3.4 and 3.6.
Charles Magro: And this is evolving. The story is evolving from the planted acres in Argentina. And then the assumption for the midpoint was certainly captured when we said this before in Brazil to capture some of the planted acres that we lost last season. And that was really driven by weather.
Dave Anderson: We would fall into that range, I think, with what we know today, and this is evolving, the story is evolving.
Speaker Change: from the Planet Acres in Argentina.
Dave Anderson: And then the assumption for the midpoint certainly captured when we've said this before in Brazil to capture some of the planted acres that we lost last season. And that was really driven by weather. So we think things are looking better in Brazil, but time will tell, and it's still a little early.
Charles Magro: So we think things are looking better in Brazil, but time will tell. And it's still a little early to call victory on that as well.
Charles Magro: And then if you think about the upside of the guide range, and Dave, you should weigh in on this, that would have the global CP market starting to stabilize and more of a return to growth, which isn't out of the question in this market environment, but we did put that as the upside for the guide range. Dave, did I miss anything? I think you captioned it very well, just to maybe state the Unknown Attendee, Kevin McCarthy, Jeffrey Zekauskas, Joshua Spector, Arun Viswanathan, in terms of being particularly driven by Latin America but also to some degree, AIPAC.
Dave Anderson: to call victory on that as well. And then if you think about the upside of the guide range, and Dave, you should weigh in on this.
Dave Anderson: That would have the global CP market starting to stabilize and more of a return to growth, which isn't out of the question in this market environment, but we did put that as the upside for the guide range. Dave, did I miss anything?
Dave Anderson: I think you captioned very well, just to maybe state the...
Dave Anderson: the perspective, just in a slightly differently, just to reiterate to some degree what Chuck said. Kevin, in that base 3.5 billion, we've obviously got, as Chuck said, when talking about prepared remarks.
Speaker Change: The Brazil area recovery as well as the CP bond growth. He spoke to that, Robert spoke to that in terms of particularly driven by Latin America, but also to some degree, APAC and in North America increased in the second half but really significantly driven by.
David Anderson: North America increased in the second, really significantly driven by Brazil. Pricing, we've given you the assumptions there. We feel that's good in terms of what we're seeing and our expectations. And then the other key point is what we've got dialed in terms of cost deflation for crop protection raw materials. So those are the kind of base, and then Chuck did a good job of just outlining sort of the plus and minus of that.
Dave Anderson: by Brazil.
Speaker Change: Pricing, we've given you the assumptions there. We feel that's good in terms of what we're seeing.
Speaker Change: and our expectations. And then the other key point is what we've got dialed in in terms of
Speaker Change: Cost deflation
Dave Anderson: or for the crop protection raw materials.
David Anderson: And obviously, one of the things we're monitoring, Tim, you're monitoring, and we'll know more later is the overall origin of the corn planted area in Argentina, just that phenomenon. So I would say that's the way we would see it. And your next question comes from the line of David Begleiter with Doja Bank. Your line is open. Thank you, and good morning.
Chuck Magro: So those are the kind of the base, and then Chuck did a good job of just outlining on sort of the plus minus of that. And obviously, one of the things we're monitoring, Tim, you're monitoring, and we'll know more later, is the overall Argentina corn planted area, just that phenomenon.
Dave Anderson: So I would say that's the way we would see it, Kevin.
Speaker Change: And your next question comes from the line of David Begleiter with Doja Bank. Your line is open.
David Begleiter: Chuck, just again, back on CP, I think you said you're not overly concerned about the pricing pressure here. Why is that? And specifically, is the threat from generic producers in China, in your view, more or less than it was a year or two ago? Thank you. Yeah. So, look, we think that there's a lot going on in the CP industry, David, and a lot of this that we'll reference now, we think will run its course, and it's on a pathway to having an improved and what I would consider to be a healthier CP market overall. So when you start thinking about all of the moving parts,
David Begleiter: Thank you, and good morning. Chuck, just again, back on CP, I think you said you're not overly concerned on the pricing pressure here. Why is that? And specifically, is the threat from generic producers in China, in your view,
Speaker Change: More or less than it was a year or two ago. Thank you.
Speaker Change: Yeah.
Speaker Change: So, look, we think that there's a lot going on in the CP industry, David, and a lot of this that we'll reference now.
Speaker Change: We think we'll run its course, and it's on a pathway of having an improved and what I would consider to be a healthier CP market overall. So when you start thinking about all of the moving parts here.
Charles Magro: What we're finding is that a lot of the industry players are now moving through their high-priced inventory, which is natural, and it's part of the healing process that we would consider as part of the overall industry dynamic. But what I would say is that the fundamentals, what you have to keep sort of first and foremost, and the reason we're not overly concerned, and we've said this in the prepared remarks, but it's important to state again, on farm demand is health.
Speaker Change: What we're finding is that a lot of the industry players now, they're moving through their high-priced inventory, which is natural and it's part of the healing process that we would consider as part of the
Speaker Change: the overall
Speaker Change: industry dynamic, but what I would say is that the fundamentals, what you have to keep sort of first and foremost, and the reason we're not overly concerned, and we've said this in the prepared remarks, but it's important to state again, on-farm demand is healthy.
Charles Magro: And for the first time in two years, I'd say what's going into the channel is now coming out of the channel. And so this is just a much healthier overall structure that we haven't seen in a couple of years. So you've got this dynamic where what's generally going into the channel is coming out of the channel.
Speaker Change: And in the first time in two years, I'd say what's going into the channel is now coming out of the channel.
Speaker Change: And so this is just a much healthier overall structure that we haven't seen in a couple of years. So you've got this dynamic where what's generally going into the channel is going out of the channel.
Charles Magro: On-farm applications are healthy. Of course, farmers are being smart about their investments and their applications. They always are.
Speaker Change: on-farm applications are healthy. Of course, farmers are being smart about their investments and their applications. They always are. But what we're seeing is that that channel is a lot healthier. So that gives us some confidence. And then what we needed to see was
Charles Magro: But what we're seeing is that that channel is a lot healthier, so that gives us some confidence. And then what we needed to see was volume growth into the channel in the second quarter. That was the first sign of what I would consider to be a stable market. And so the pricing dynamic is the way we've described it, but as we work through this journey a little bit more, and we need now to finalize this with Brazil, because we would say from a destocking perspective, the U.S., and now I'd say Europe, they're more or less destocked. And if you notice, we haven't used that language too much today because we feel that the industry is finally behind that We have to go through now the Brazilian environment.
Speaker Change: the volume growth into the channel in the second quarter. That was the first sign of what I would consider to be a stable market.
Speaker Change: and so that the pricing dynamic is the way we've described it but as we work through this journey a little bit more and we need now to finalize this with Brazil because we would say that from a destocking perspective
Speaker Change: The U.S. and now I'd say Europe, they're more or less destocked.
Speaker Change: And if you notice, we haven't used that language too much today because we're feeling that the industry is finally behind that.
Charles Magro: But, like Robert said, certainly, our order book is healthier than it was this time last year, and farmers are planning to apply the product in the fourth quarter. So when you put it all together, I think we are on a journey of stabilization. We feel like this is where we need to be at this time of year, but we do need to see how the second half actually unfolds.
Speaker Change: We have to go through now the Brazil environment, but like Robert said, certainly our order book is healthier than it was this time last year.
Robert: and farmers are planning to apply the product in the fourth quarter. So when you put it all together, I think we are on a journey of stabilization. We feel like this is where we needed to be at this time of the year, but we do need to see how the second half actually unfolds. But that that's why we have.
Charles Magro: But that's why we have, I think, guarded optimism is the way I would. And your next question comes from the line of Josh Spector with UBS. Your line is open. Yeah, hi, good morning.
Speaker Change: I think guarded optimism is the way I would describe it.
Speaker Change: And your next question comes from the line of Josh Spector with UBS. Your line is open.
Joshua Spector: Two things, if I can quickly here. First, I apologize if I missed this. But can you talk about your volume expectations in CP for the second half, as you go through 3Q and 4Q? You know, one of your peers just talked about a healthier 4Q versus 3Q. I wonder if you're seeing that the same way.
Josh Spector: Yeah, hi, good morning. Two things if I can quickly here. First, I apologize if I missed this, but can you talk about your volume expectations in CP for the second half as you go through 3Q and 4Q?
Speaker Change: peers just talked about a healthier 4q versus 3q. I wonder if you're seeing that the same way.
Chuck Magro: And then secondly, thinking more longer term, I guess Chuck, particularly given your experience in the industry, I think you guys have talked about confidence on seed pricing.
Speaker Change: But you know, what typically have you seen? You talked about you're not concerned about trade down But what have you seen in prior cycles particularly year one of a more pinched farmer?
Joshua Spector: And then secondly, thinking more longer term, I guess, Chuck, particularly given your experience in the industry, I think you guys have talked about confidence in seed prices. But you know, what you typically have seen, you're not concerned about trade down. But what have you seen in prior cycles, particularly year one of a more pinched farmer? Yeah, good morning, Josh.
Chuck Magro: Yeah, good morning Josh. So, do you want to talk about volumes Robert and then I'll come back and we should hear from Tim as well on seed.
Charles Magro: So do you want to talk about volumes, Robert, and then I'll come back, and we could hear from Tim as well on seed. Yeah, thanks. Well, on the volume stem for the second half and in crop protection, I'll let Dave talk specifically about some of the splits, but relatively balanced. Dave can reference some more numbers if needed there, but when you think of us in Q3 and Q4, we don't have a large swing. It's about normal is the way I would think about it. Things are moving, as Chuck talked about, more stabilized. Brazil's inventories are approaching normal ranges.
Speaker Change: Yeah, thanks. Well, on the volume stem for second half in crop protection, I'll let Dave talk specifically about some of the splits, but relatively balanced. Dave can reference some more numbers if needed there.
Dave Anderson: When you think of us on Q3 and Q4, we don't have a large swing. It's about normal, is the way I would think about it. Things are moving, as Chuck talked about, more stabilized. Brazil inventories are approaching normal ranges.
Robert King: And a large part of our business is Latin American second half. Specific to volume, we're going to be in the mid-teens up on a second half basis. And again, that gives us optimism about how we see things shaping up for the second half. Anything to add? No, that covered it well, Robert.
Dave Anderson: and a large part of our business is Latin American second half.
Chuck Magro: Specific to volume, we're going to be in mid-teens up on a second half basis.
Chuck Magro: And again, that gives us optimism on how we see things shaping up for second half.
David Anderson: Let me just say that, you know, when we talk about normalization, it's interesting because, and we've mentioned this previously, but when you look at, for example, the Latin American numbers, you're really comparing to a weak second half of 2020, and particularly the fourth quarter. So some of the V percents that you're looking at, go back and look at cumulative if you look at cumulative. 22 and 23 compared to 2020 or 23 and 24 compared to 22. That's when you get into more of a, just a really normal, if you will, sort of expectation in terms of pattern. And there's nothing, Robert, to your point; I think that stands out between 3Q.
Speaker Change: David, something to add? No, they covered it well, Robert. Let me just say that, you know, when we talk about normalization, it's interesting because
Speaker Change: And we've mentioned this previously, but when you look at, for example, the Latin American numbers, you're really comparing to a week second half of 2023, and particularly the fourth quarter of 2023.
Speaker Change: So some of the V percents that you're looking at, go back and look at cumulative or if you look at cumulative volumes
Speaker Change: 22 and 23.
Chuck Magro: compared to 2020, or 23 and 24 compared to 22, that's when you get into more of a, just a really normal, if you will, sort of expectation in terms of pattern. And there's nothing, Robert, to your point, I think that stands out between 3Q and 4Q.
David Anderson: Anybody want to comment on seed? Yeah, on the seed side, you know, we get asked a lot about the trading down, and maybe I'll think about it in a couple ways. One is, in terms of the technology ladder, it is very difficult for a farmer once they've had certain seed technologies to be able to move down the ladder, if you want to think of that. So if they're used to planting, you know, above-ground insect control with certain herbicide-resistant traits, they kind of built their operation around that.
Speaker Change: Anybody want to comment on seed? Yeah, on the seed side, you know, we get the question a lot about the trading down, and maybe I'll think about it in a couple ways. One is, in terms of the technology ladder, it is very difficult for a farmer, once they've had
Chuck Magro: certain seed technologies to be able to move down the ladder, if you want to think of that. So, if they're used to planting, you know, above-ground insect control with certain herbicide-resistant traits, they kind of built their operation around that. If they're used to being triples above and below ground with multiple modes of herbicide resistance, they kind of are built that. You know, equipment, labor, the whole bit is around that, and we've not seen any meaningful trade-down over time. And certainly, you know, as recently as six or seven years ago, we were in a very difficult environment and didn't see the trade-down at that point in time. On the, if you think about from a genetic side or trading down on brand, you know, I think what you have to understand
Timothy Glenn: If they're used to being triples above and below ground with multiple modes of herbicide resistance, they kind of are built that, you know, equipment, labor, the whole bit is around that. And we've not seen any meaningful trade down over time. And certainly, you know, as recently as six or seven years ago, we were in a very difficult environment and didn't see any meaningful trade down at that point in time.
Timothy Glenn: On the genetic side or trading down on brand, you know, I think that what you have to understand is you can say seed is interchangeable; you can get different trade packages or comparable trade packages from different companies. But one thing about seed is, it is a very emotional decision. And for that farmer, it's not just confidence that the genetics are going to perform and deliver a certain level of yield that's consistent with their expectations, but it's also the ability to be able to handle adversity, consistency over time, and plus the support and service they get from their point of sale.
Chuck Magro: You can say seed is interchangeable. You can get different trade packages or comparable trade packages from different companies. But one thing about seed is it is a very emotional decision. And for that farmer, it's not just
Speaker Change: confidence that the genetics are going to perform and deliver a certain level of yield that's consistent with their expectations, but it's also the ability to be able to handle adversity, consistency over time, and plus the support and service they get from their point of sale.
Timothy Glenn: And so in a situation like this, our value proposition has to make sense. And we're quite confident, you know, that what we're delivering to those customers will make sense to them, will be additive to their operation. And then the other point is, at times like this, you know, especially when margins are compressed at the farm operation level, that last bushel is maybe all the profit that they make, if you want to think of it that way or put them in a positive cash flow situation.
Speaker Change: And so in a situation like this, our value proposition has to make sense, and we're quite confident, you know, that what we're delivering to those customers will make sense to them, will be additive to their operation. And then the other point is...
Speaker Change: at times like this.
Speaker Change: especially when margins are compressed at the farm operation level, that last bushel is maybe all the profit that they make, if you want to think of it that way or put them in a positive cash flow situation.
Timothy Glenn: And so they see seed differently than other decisions that they make over the course of their seed operation. So never take it for granted; always stay close to the customer and help them understand our value proposition. But history has shown that seed holds in well. Yeah, Josh, I'll echo what Tim said very quickly. So in all my years, whether it was being a retailer or now on the seed side, we just don't see it. And the reason we don't see it is because it's akin to gambling.
Josh Spector: And so they see seed differently than other decisions that they make over the course of their seed operation. So never take it for granted. Always stay close to the customer and help them understand our value proposition. But history has shown that seed holds in well. Yeah, Josh, I'll echo what Tim said very quickly. So in all my years, whether it was being a retailer or now on that.
Charles Magro: That germplasm, especially if you think about our germplasm, it's approaching 100 years now, and we've got more than decades of experience in breeding. And if you just think about the Z-series that we just rolled out, that three bushels per acre against our best stuff, because that's compared to Corteva versus Corteva, that could be the difference between profit and not. So we're not, like Tim said, we never take it for granted.
Josh Spector: the seed side.
Speaker Change: We just don't see it. And the reason we don't see it is because it's akin to gambling. That germplasm, especially if you think about our germplasm, you know, it's approaching 100 years now.
Josh Spector: and we've got more than decades of experience in breeding. And if you just think about the Z series that we just rolled out, that three bushels per acre against our best stuff, because that's a comparative Corteva versus Corteva, that could be the difference between a profit and not. So we're not, like Tim said, we never take it for granted. Our obligation to our farmer customers is to ensure that next year's hybrids are better than this year's.
Charles Magro: Our obligation to our farmer customers is to ensure that next year's hybrids are better than this year, and we invest a lot of money in R&D and plant breeding to ensure that happens. But with that comes some credibility in the marketplace. And your next question comes from the line of Frank Mitsch with Fermium Research.
Tim: And we invest a lot of money in R&D and plant breeding to ensure that happens. But with that comes some credibility in the marketplace, I think.
Frank Mitsch: Your line is open. Hey, good morning, and congrats, Dave, on your pending retirement. It has been a pleasure working with you. There's been a lot of discussion, obviously, on CPC volumes and price. The common theme is higher volumes, but lower prices. When do you think we might get back to an environment where pricing is flat or perhaps even positive on CPC?
Speaker Change: And your next question comes from the line of Frank Mitch with Firmium Research. Your line is open.
Frank Mitch: Hey, good morning and congrats, Dave, on your pending retirement. It has been a pleasure working with you. There's been a lot of discussion, obviously, on CPC volumes and price. The common theme is higher volumes but lower price.
Speaker Change: When do you think we might get back to an environment where pricing is flat or perhaps even positive on CPC?
Charles Magro: Yeah, Frank, so I think we're approaching, you know, I don't want to give you a quarter because look, this whole dynamic that we've all faced with the de-stocking is almost unprecedented, and if I provide a quarter, I'm definitely sure I'll be wrong, but we're looking at the trend lines, and we're very encouraged at where we're at. First and foremost, like we said a couple of times already today, we did need to see the volume grow, and we saw that, and we needed to see the volumes entering the channel and leaving the channel at about the same rate. And, thank goodness, on-farm demand has been healthy.
Dave Anderson: Yeah, Frank, so I think we're approaching, you know, I don't wanna give you a quarter because look, this.
Speaker Change: The whole dynamic that we've all faced with the de-stocking is almost unprecedented.
Josh Spector: And if I provide a quarter, I'm definitely sure I'll be wrong. But we're looking at the trend lines and we're very encouraged at where we're at.
Speaker Change: First and foremost, like we said a couple times already today, we did need to see the volume grow.
Speaker Change: and we saw that and we needed to see the volumes entering the channel and leaving the channel at about the same rate and thank goodness on-farm demand has been healthy.
Charles Magro: I think many of us are now moving the high-priced inventory through the P&L and into the marketplace, which is another important step. And our inventories, Dave, are still a little higher than we'd like, but they are a lot better than they have been over the last couple of years. So when you put all this together, I think we're on a path of recovery or what we call stabilization. And I probably need to leave the conversation there because it's probably not healthy for me to forecast what will happen, except to say that, again, two years of organic decline have happened in the industry, but it is unusual. Three years is even more unusual.
Speaker Change: I think many of us are now moving the high-priced inventory through the P&L and into the marketplace, which is another important step. And our inventories, Dave, they're still a little higher than we'd like, but they are a lot better than they have been over the last couple of years.
Dave Anderson: So when you put all this together I think we're on a path of recovery or what we call stabilization.
Dave Anderson: And I probably need to leave the conversation there because it's probably not healthy for me to forecast what will happen.
Dave Anderson: except to say that...
Steve Byrne: And our next question comes from the line of Steve Byrne with Bank of America. Your line is open. And Steve, your line is open. Sorry about that.
Speaker Change: And our next question comes from the line of Steve Byrne with Bank of America. Your line is open.
Speaker Change: And Steve, your line is open.
Steve Byrne: There's a fair amount of uncertainty out there about whether Dicamba will be available in 2025, or at least by early 2025. And I'd like to hear your view on, like, how would you rank the benefits to your business, profitability wise? from that risk, driving more independent seed companies to license your Enlist germplasm in corn and soy, which you mentioned is gaining some momentum, Chuck. Is that a bigger benefit to you from such an uncertain outlook for dicamba versus increased shift? to your own proprietary brand, your own pioneer brand in Enlist corn and soy. How would you rank those?
Steve Byrne: Sorry about that.
Steve Byrne: There's a fair amount of uncertainty out there about whether Dicamba will be available in 2025 or at least by early 2025.
Speaker Change: And I'd like to hear your view on, like, how would you rank the benefits to your business profitability-wise?
Speaker Change: from that risk.
Speaker Change: driving more independent seed companies to license.
Dave Anderson: You know, you're in list germplasm and corn and soy, which you mentioned is gaining some momentum, Chuck. Is that a bigger benefit to you from such a uncertain outlook for dicamba versus increased shift in
Speaker Change: to your own proprietary brand, your own pioneer brand in Enlist corn and soy. How would you rank those?
Timothy Glenn: Hey, Steve, this is Tim. Maybe I'll take a first shot and let Chuck wrap it up there. So obviously, you know, we're like everyone else, just kind of eyes open waiting to see how this is going to turn out. And you know, we did have, and we continue to have, very strong adoption on the Enlist E3 side and soybeans. And, and, you know, as we said earlier today, we believe it was greater than 65% of the market, which is a tremendous amount of growth when you think about it being already above 55 last year.
Dave Anderson: Hey Steve, this is Tim. Maybe I'll take a first shot and let Chuck wrap up there. So, obviously, you know, we're like everyone else, just kind of eyes open waiting to see how this is going to turn out. And, you know, we did have
Speaker Change: We continue to have very strong adoption on the Enlist E3 side in soybeans, and as we said earlier today, we believe it was greater than 65% of the market.
Chuck Magro: which is a tremendous amount of growth when you think about already being above 55 last year. So, do I believe that there's still room to grow? I really do believe there's room to grow. It's hard to size that up based off of the uncertainty around what that label is going to look like and particularly, you know, the ability to use the product in season. That's really, I think, the outstanding question there.
Timothy Glenn: So do I believe that there's still room to grow? I really do believe there's room to grow. It's hard to size that up based on the uncertainty around what that label is going to look like. And, and particularly, you know, the ability to use the product in season.
Speaker Change: So in terms of how it shapes up from 2025, I would expect market adoption to expand in 2025.
Timothy Glenn: That's really the outstanding question there. So in terms of, you know, how it shapes up from 2025, I would expect market adoption to expand in 2025. Are there new companies that are going to be in there? Probably not a lot, because there are well over 100 companies that are currently licensed and selling Enlist E3 soybeans today. So I'd say adoptions are pretty widespread across the market; it's just about how much more can the trade continue to penetrate, you know, depending upon the outcome. Certainly, our brands will benefit at some level, certainly licensees and others who are distributing products will benefit. And so, you know, to size it up today, just with that level of uncertainty, probably doesn't make a lot of sense.
Dave Anderson: Are there new companies that are going to be in there? Probably not a lot because there's well over a hundred companies that are currently licensed and selling Enlist E3 soybeans today. So I'd say adoption is pretty wide across the market. It's just about how much more can the trade continue to penetrate.
Speaker Change: You know, depending upon the outcome, certainly our brands will benefit at some level. Certainly licensees and others who are distributing products will benefit. And so, you know, to be able to size it up today just with that level of uncertainty probably doesn't make a lot of sense.
Timothy Glenn: What I can say is there's more than likely adequate seed to support substantial growth on a year over year basis between, you know, all the 100 plus companies that are producing and currently in the marketplace with Enlist E3 varieties. Yeah, I won't say much more than that. On the Dicambish, I think Tim covered it well.
Speaker Change: what I can say is there's more than likely adequate feed to support substantial growth on a year-over-year basis between you know all the hundred plus companies that are that are producing and currently in the marketplace with with Enlist E3 varieties.
Charles Magro: But if you just look at the strategy that we implemented just a few years ago to be a technology seller instead of a technology buyer, you know, we're very pleased with that. And you can start to see some of that path to royalty neutrality that hits our bottom line, right? Like over 400 basis points of margin expansion and seed. This doesn't happen overnight.
Speaker Change: Yeah, I won't say much more than that on the Dicambish. I think Tim covered it well, but if you just look at the strategy that we've implemented just a few years ago to be a technology seller instead of a technology buyer,
Dave Anderson: we're very pleased with that. And you can start to see some of that path to royalty neutrality that hit our bottom line, right? Like over 400 basis points of margin expansion and seed.
Charles Magro: This has been a long investment cycle, but if you think about how our soybeans and our corn are performing, and we do have the latest in next-gen technology in the pipeline, as Tim already called out, with 4-seed and PowerCore, and then Enlist E-Series now adding to the mix and becoming more important. And this year, we have over 200 new hybrids and varieties in the marketplace. Next year we'll be at a similar number.
Dave Anderson: This doesn't happen overnight. This has been...
Dave Anderson: a long investment cycle. But if you think about how our soybeans and our corn is performing, and we do have the latest in the next-gen technology in the pipeline, as Tim already called out, with Four Seed and PowerCore.
Tim: and then Enlist E-Series now adding to the mix and becoming more important. And this year we're over 200 new hybrids and varieties in the marketplace. Next year we'll be at a similar number. We think that the strength of our seed business
Charles Magro: We think that the strength of our seed business will continue to gain momentum. And then when you think about some of the lower costs and the deflation, as we call it, flowing through the P&L, we just like the path that seed is on. I think the first half of this year was a record, but I think that this business is just getting started, so we're extremely pleased with the performance of our seed business right now. And the next question comes from Jeff Zekauskas with J.P. Morgan. Your line is open. Thanks very much.
Dave Anderson: will continue to gain momentum. And then when you think about...
Dave Anderson: some of the lower costs and the deflation as we called it flowing through the P&L. We just like the path that seed is on. It is a I think the first half this year was a record but I think that this business is just getting started so we're extremely pleased with the performance of our seed business right now.
Speaker Change: And the next question comes from the line of Jeff Sakakis with JP Morgan. Your line is open.
Jeffrey Zekauskas: In your corn product line, in the U.S., did doubles grow faster than triples? And you said that your corn royalties were up 40%. Is that a $20 million benefit or $10 million or $30 million? Can you size that?
Jeff Sakakis: Thanks very much. In your corn product line in the U.S., did doubles grow faster than triples?
Speaker Change: and you said that your corn royalties were up 40%.
Speaker Change: Is that a $20 million benefit, or $10 million, or $30 million? Can you size that?
Timothy Glenn: So in terms of, maybe I'll start off and let Dave size us up from a financial standpoint. But in terms of, you know, our mix, our mix is pretty stable over years. And so we've been, we've had a really strong offer in the past. So yeah, we're transitioning to PowerCore, we're transitioning to Voreseed, but we've had a really strong competitive offer up till now. And this is just building off of that. So, you know, when you think about it from a, from a between-year standpoint, that mix doesn't really change a whole lot.
Speaker Change: So in terms of, maybe I'll start off and let Dave size up from a financial standpoint, but in terms of, you know, our mix, our mix is pretty stable between years. And so we've been, we've had a really strong offer in the past. So yeah, we're transitioning.
Dave Anderson: to PowerCore. We're transitioning to Voracid, but we've had a really strong competitive offer up till now, and this is just building off of that. So, you know, when you think about it from a between-years standpoint, that mix doesn't really change a whole lot. Sometimes
Timothy Glenn: Sometimes, you know, on the margin, but generally, I would say stable. And as we introduce the next level of technology, it's really more about replacing and upgrading rather than all of a sudden altering that mix. And on the corn licensing side, specifically, it's the PowerCore and Lyft are where we're growing. And we've been in the marketplace and licensing our genetics with that trade for the last couple of years. And we're starting to see that build.
Dave Anderson: you know, on the margin. But generally, I would say stable. And as we introduce the next level of technology, you know, it's really more about replacing and upgrading rather than all of a sudden altering that mix.
Dave Anderson: And on the corn licensing side, you know, specifically it's the power corn lift is is is where we're growing and we've been in the marketplace
Speaker Change: and licensing, you know, our genetics with that trade for the for the last couple of years and we're starting to see that build and so Dave I'll let you talk about it, you know, from a financial standpoint. Yeah, so the total just...
Timothy Glenn: And so, Dave, I'll let you talk about it, you know, from a financial standpoint. Yeah. So the total. Good morning. So the total royalty income referencing the up 40%. So that's not just corn.
David Anderson: That's our total. And what that equates to for us is that about a $35 million increase. Hope that helps. And our next question comes from the line of Kristen Owen with Oppenheimer. Your line is open. Great, thank you so much.
Dave Anderson: Good morning. So the total royalty income, referencing the up 40%, so that's not just corn. That's our total, as Tim said. And what that equates to for us is that about $35 million increase.
Dave Anderson: Hope that helps.
Dave Anderson: And our next question comes from the line of Kristen Owen with Oppenheimer. Your line is open.
Kristen Owen: I wanted to ask about the moving pieces on the free cash flow guidance since that was held stable, but you did lower the net income outlook. So, could you just update us on your thoughts on working capital? And while I understand it's probably too early to say on 2025, just given that the operations puts and takes that you've defined already, just help us understand how much of the working capital benefit is being captured in 2024 versus 2025. Thank you.
Kristen Owen: Great, thank you so much. I wanted to ask about the moving pieces on the free cash flow guidance since that was held stable.
Kristen Owen: but you did lower the net income outlook. So if you could just update us with your thoughts on working capital. And while I understand it's probably too early to say on 2025, just given that the operations puts and takes that you've defined already, just help us understand how much of the working capital benefit is being captured 2024 versus 2025. Thank you.
David Anderson: So, just quickly, thanks for the question. You know, as you probably saw, we had benefits from both. Inventory and accounts payable, with some offset in receivables, are cash provided by working capital.
Speaker Change: Sure, so just quickly, thanks for the question. You know, as you probably saw, we had benefits from both inventory and accounts payable with some offset in receivables in terms of our cash provided by working capital.
David Anderson: Relative to the prior year, so if you will, the change on the change. So inventory was just under $500 billion of benefit, $165 billion in accounts payable, about $650 million. And then again, we've got some offset in accounts receivable and deferred. I think those trends are going to continue. We're going to see a continued benefit in terms of inventory as we sell through. Unknown Attendee, Joel Jackson, Kevin McCarthy, Edlain Rodriguez, Charles Magro, Timothy Glenn, Samuel Eatington, Kevin McCarthy, Edlain Rodriguez, Charles Magro, Timothy Glenn, Samuel Eatington, Unknown Attendee, Joel Jackson, Christopher Parkinson, David Begleiter, Frank Mitsch, Jeffrey Zekauskas, It's a little early to talk about 2025 with any degree of precision.
Speaker Change: relative to the prior year, so if you will, the change on the change.
Dave Anderson: So inventory was just under $500 billion of benefit, $165 billion, and accounts payable about $650 million, and then again we have some offset in accounts receivable and deferred revenue.
Dave Anderson: I think those trends are going to continue. We're going to see a continued benefit in terms of inventory, as we sell through
Dave Anderson: in terms of cost of goods sold and the volume that we forecast for the second half of the year. The same way with payables is procurement tends to now start to normalize.
Dave Anderson: So we'll get that benefit. Receivables, we're gonna continue to be a bit of a headwind, particularly with the increase that we've got now in volume and revenues in the second half, and particularly in the fourth quarter of the year. And when you look at the geographic mix of those revenues.
David Anderson: We, you know, are obviously encouraged by what looks like a 50% pre-cash flow to EBITDA conversion for this year. We want to sustain that and improve it, if possible, going forward. Unknown Attendee, Joel Jackson, Christopher Parkinson, David Begleiter, Frank Mitsch, Jeffrey Zekauskas, Joshua Spector, Arun Viswanathan, Kevin McCarthy, Edlain Rodriguez, Cash is Shipping. And the next question comes from the line of Edlain Rodriguez of Mizuho. Your line is open. Thank you. Good morning, everyone.
Dave Anderson: It's a little early to talk about 2025 with any degree of precision.
Dave Anderson: We, you know, we're obviously encouraged by what looks like a
Dave Anderson: 50% pre-cash flow to EBITDA conversion.
Dave Anderson: for this year. We want to sustain that and improve that, if possible, going into 2025. So again, that's something that's a little early, but we'll update you on. We're quite encouraged right now with the way in which cash is shaping up.
Dave Anderson: And the next question comes from the line of Edline Rodriguez of Mizuho. Your line is open.
Edlain Rodriguez: I mean, Chuck, just wanted to get your insight into crop protection, the relationship, or if there's any relationship between the volume we're covering and the pricing pressure that we're seeing. Like, is there a relationship, or will farmers apply the products regardless of pricing, so pricing doesn't dictate what's going on with volume at all? Yeah, good morning, Edlain.
Edline Rodriguez: Thank you, good morning everyone. I mean Chuck, just wanted to get your insight into...
Edline Rodriguez: crop protection, the relationship or if there's any relationship between volume recovering and the pricing pressure that we're seeing.
Speaker Change: Like, is there a relationship, or will farmers apply the products regardless of pricing, so pricing doesn't dictate what's going on with volume at all?
Charles Magro: So look, I think that the dynamic that we're seeing right now on the farm, you can see the macro, Unknown Attendee, Joel Jackson, Kevin McCarthy, Edlain Rodriguez, Charles Magro, Timothy Glenn, Samuel Eathinton, Kevin McCarthy, Edlain Rodriguez, Charles Magro, Timothy Glenn, Samuel Eathinton, We've already talked about the dynamic with seed. I think with CP, we're not seeing So if a crop needs to be protected in some fashion, they are protecting the crop.
Chuck Magro: Good morning, Edlin. So, look, I think that the dynamic that we're seeing right now on the farm. You can see the macro.
Speaker Change: agricultural economy, margins are tighter than they have been the last couple of years.
Dave Anderson: But farmers are still at least the ones that I've spent some time this summer traveling through the Midwest and talking to lots of farmers. Tim and I were talking to a host of pioneer reps as well this week. What we're finding is
Speaker Change: We've already talked about the dynamic with seed. I think with CP, we're not seeing on any broad basis farmers making decisions based purely on economics. So if a crop needs to be protected in some fashion, they are protecting the crop.
Charles Magro: But, look, given the margins that we have now on the farm, they're going to make sure that every dollar they spend has the right return on investment. And let's be clear, when they're investing in seed or CP, that is a return on investment. What we're finding, though, is that there is a... If sometimes a farmer will use more of a commodity-type product, they have to use that product more often because it doesn't have the same efficacy as some of the newer technologies. So they might buy it for a lower price, but they're going to use more volume.
Speaker Change: But look, given the margins that we have now on the farm, they're going to make sure that every dollar they spend has the right return on investment. And let's be clear, right, when they're investing in seed or CP, that is a return on investment.
Speaker Change: What we're finding though is that there is a, if sometimes a farmer will use more of a commodity type product, they have to use that product oftentimes more often because it doesn't have the same efficacy as some of the newer technologies.
Charles Magro: And I think that that is certainly what we've seen in some parts of the marketplace. But, generally speaking, I think farmers are doing what we would expect them to do in this market. They are prioritizing their investments. They're ensuring that they're going to maximize yield because the yield is going to be what they take and sell into the marketplace and make their returns. So I think that we're in a market where technology is still going to be important, but we definitely need to ensure that we're providing farmers with a proper return on investment. And when we look at our CP portfolio, we think that certainly there is a lot that we can do to support farmers in those decisions.
Speaker Change: So, they might buy it for a lower price, but they're going to use more volume.
Speaker Change: And I think that that is certainly what we've seen in some parts of the marketplace.
Speaker Change: But, generally speaking, I think farmers are doing what we would expect them to do in this market. They are prioritizing their investments. They're ensuring that they're going to maximize yield.
Speaker Change: because the yield is going to be what they're going to take and sell into the marketplace and make their returns.
Speaker Change: So, I think that we're in a market where technology is still going to be important.
Kimberly Booth: And I will now turn the call back over to Kim Booth. Okay, so that concludes today's call. We thank you for joining and for your interest in Corteva. We hope you have a safe and wonderful day. And this concludes today's conference call. You may now disconnect.
Speaker Change: And I will now turn the call back over to Kim Booth.
Kim Booth: Okay, so that concludes today's call. We thank you for joining and for your interest in Corteva. We hope you have a safe and wonderful day.
Speaker Change: And this concludes today's conference call. You may now disconnect.