Q4 2024 Corteva Inc Earnings Call
Thank you for standing by my name is Janine and I won't be a lead operator for today's call. At this time I would like to welcome everyone to the courts have I'd be science for acute 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise.
Kim: After todays presentation, there will be an opportunity to ask question to ask a question you May press star, one and I'd Touchtone phone and to withdraw your question. Please press star one again I will now turn the call over to Kim <unk>.
Kim: Life's President of Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to the courts have us fourth quarter and full year 2024 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and David Johnson, Executive Vice President and Chief Financial Officer.
Speaker Change: Digitally Jud Oconnor 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 core type of website and through the link to our webcast.
Speaker Change: 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.
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, we do not undertake any duty to update any forward looking statements.
Speaker Change: 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.
Chuck Magro: It's now my pleasure to turn the call over to Chuck.
Chuck Magro: Thanks, Kim and good morning, everyone and thanks for joining us I hope your year is off to a great start.
Chuck Magro: There are several key points I'd like to share with you today, including a perspective on our Q4 results an overview of current market fundamentals with a closer look at what that might mean for us in 2025.
Chuck Magro: How to connect all of that to our 2027 financial framework.
Chuck Magro: That outlines our path to sustained value creation over the next three years, let me start by saying that we finished 2024 almost exactly as we thought we would.
Chuck Magro: The AG fundamentals have continued to improve more so than over the past two years. So our 2025 guidance reflects that.
Chuck Magro: Our portfolio of advanced seed and crop protection technologies is in high demand and we feel good about our path to delivering the 2027 financial framework, which we announced in November.
Chuck Magro: Coupled with productivity and cost improvement initiatives, a central pillar of our business strategy, we delivered 20% operating EBITDA margins for the first time in 2024, all while maintaining operating EBITDA, which ended up being about flat year over year and less than ideal market conditions.
Chuck Magro: To ensure we had good momentum coming into 2025. It was important that we finished the year strong, which we did particularly in crop protection, where we drove double digit organic sales growth and 800 basis points of margin improvement in the fourth quarter, which was largely attributable to demand for our tech.
Chuck Magro: <unk> in Brazil.
Chuck Magro: Our seed business consistently delivered in 2024 with pioneer maintaining its ranks as.
Chuck Magro: As the number one corn and soybean brand in the U S.
Chuck Magro: We gained corn market share in North America, coupled with solid pricing. This was quite an accomplishment given the reduction in corn planted area.
Chuck Magro: Enlist <unk> soybeans, the number one selling soybean technology in the U S.
Chuck Magro: <unk> reached 65% market penetration.
Chuck Magro: With so many other companies licensing enlist trades for their own products.
Chuck Magro: The enlist system, including our herbicide offerings reached $1 9 billion in sales in 2024 still growing despite a well supplied market.
Chuck Magro: On the crop protection side, new products and <unk> delivered double digit volume gains in 2024.
Chuck Magro: And on Biologicals mid single digit volume increases in 2024 are expected to continue to strengthen in 2025 due to ongoing demand recovery and continued penetration across all regions.
Chuck Magro: Between strong demand for our innovative <unk> technology cost and working capital discipline as well as healthier farmer income levels in North America, our operating free cash flow in 2024 improved by almost $500 million coming in at about $1 7 billion.
Chuck Magro: We also returned approximately $1 5 billion to shareholders via dividends and share repurchases for the full year.
Chuck Magro: We are committing to another $1 billion in share repurchases in 2025.
Chuck Magro: So in summary, 2024 was a year of progress in less than ideal conditions.
Chuck Magro: <unk> continues to deliver great growth as we transition to a net technology seller and although the crop protection industry had another down year.
Chuck Magro: <unk> of our portfolio and our fourth quarter performance in Brazil gives us confidence that things are moving in the right direction.
Chuck Magro: Now, let's take a step back to discuss the current macro environment before diving into the specifics were curtailed in 2025.
Chuck Magro: As I mentioned overall AG fundamentals remain constructive as evidenced by record global consumption of both corn and soybeans.
Large global crops enjoyed record demand for grains, oilseeds and Biofuels in 2024, and the demand outlook into 'twenty five indicates that growth will continue for livestock feed biofuel and food consumption.
Chuck Magro: Strong production has helped farm sector income, we had record corn yields in the U S and expect to see the same in Brazil, which allows farmer margins in both of those key markets to improve meaningfully.
Chuck Magro: While grain prices are on the rebound in U S farmers posted back to back record corn yields for the past two years more notable is the fact that the corn market is tight.
Chuck Magro: Measured by global stocks to use ratios, it's the tightest they've been globally in over a decade.
Chuck Magro: And if you exclude China, it's the tightest, we've seen in three decades.
Chuck Magro: And with on farm demand remaining strong overall, we're seeing signs of stabilization in the crop protection industry. For example pricing for products coming out of China has been stable over the past few months and channel inventory levels around the world are more in balance.
Chuck Magro: <unk> improvement has come in the shape of three consecutive quarters of volume gains.
Chuck Magro: This all gives us confidence in our 2025 assumption.
Chuck Magro: Of a flattish market with low single digit volume gains offset by a low single digit pricing headwinds.
Chuck Magro: With regard to 2025, although our operational plan remains intact.
Chuck Magro: We are refining our preliminary 25 view to reflect the additional currency headwind.
Chuck Magro: Namely the Brazilian real and to a lesser extent the Canadian dollar.
Chuck Magro: The strong U S dollar will impact the agricultural economy throughout 2025.
Chuck Magro: And due to the crops and geographies in which we participate will impact our U S dollar reported results.
Chuck Magro: However, we are still expecting another year of top and bottom line growth and meaningful margin expansion with continued laser focus on controllable, including the initial tranche of feed cost deflation.
Chuck Magro: You might recall that in our third quarter earnings call, we pointed to $550 million in gross cost and sales improvements in 2025 and that assumption remains benefits from our self help actions, including an additional $50 million related to royalty improvement gives us the ability to continue to invest in R&D.
Chuck Magro: And future innovation.
Chuck Magro: Our plan reflects about 10% EBITDA growth.
Chuck Magro: And about 100 basis points of margin improvement.
Chuck Magro: We foresee another year of strong cash flow generation and plan to execute $1 billion in share repurchases over the course of 2025.
Now, let's spend a few minutes on key themes and market assumptions for this year.
Chuck Magro: To set the stage think about strong demand for crops, improving farmer margins. Good on farm demand for seed and crop protection and more corn area in the U S.
Chuck Magro: The farmer is responding to positive relative economics.
Chuck Magro: And 25% is setting up to be the year of corn in the AG markets.
Chuck Magro: We expect our <unk> business to have another strong year as farmers continue to look to effective technology to boost yields while offsetting the effects of volatile weather and increasing pest pressures.
Chuck Magro: Should also be a standout year for seed margin improvement driven by mix uplift royalty <unk>.
Chuck Magro: Income improvements in cost of sales benefits, including productivity and deflation.
Chuck Magro: We plan to launch another 300, new seed hybrids and varieties are seed pipeline is the best in the industry the incremental yields from the advanced technologies in our portfolio allow us to continue our long standing price for value strategy.
Chuck Magro: Our strategy of selling technology is visible and the opportunity set there is significant.
Chuck Magro: The Big question is what assumptions did we make for crop protection.
Chuck Magro: Well the short answer is that the midpoint of our range assumes a flattish CP market.
Chuck Magro: We have seen volume trending in the right direction.
Chuck Magro: It comes down to when the pricing environment will stabilize.
Chuck Magro: Given what we know today this seems to be the most reasonable assumption for the time being and we will continue to update the market as conditions evolve.
Chuck Magro: For our crop protection business, we're expecting mid single digit organic sales growth overall led by new products since the notes as well as biologicals double digit growth.
Chuck Magro: If you recall, we're targeting $1 billion in biologicals revenue by the end of the decade.
Chuck Magro: Geographically, Brazil will remain a key growth market for us in 2025 for both businesses.
Chuck Magro: On top of our existing strong corn market share it will be another important year for us to continue to make inroads with contest on the soybean side.
Chuck Magro: For crop protection, we have a robust plan for more biologicals expansion and strengthening in our commercial presence.
Chuck Magro: Before I turn the call over to David Let me remind you about the announcements we made at our November Investor Day, where we introduced a new straightforward framework to create value through 2027.
Chuck Magro: Recall.
Chuck Magro: We're targeting $1 billion in incremental net revenues over the 25 to 27 period.
From three growth platforms increased out licensing income continued ramp up of CPE products and biologicals growth.
Chuck Magro: We're making investments in other growth areas.
Chuck Magro: Are the three that will provide the most significant incremental value capture in the midterm.
Chuck Magro: We laid out phase two of our controlling the controllable program that entails a $1 billion in gross productivity cost and deflation benefits across seed and crop protection as well as managing SG&A.
Chuck Magro: Next as part of our ongoing commitment to commercial execution, we're targeting about 100 basis points of EBITDA margin growth per year.
Chuck Magro: That works out to be over 900 basis points of improvement versus where we began in 2019.
Chuck Magro: So a few play all this forward to 2027, we're expecting EBITDA growth of a $1 billion over three years, which is a 9% CAGR with EBITA margins of 23% to 24% at the midpoint.
David Johnson: We are energized by this plan and our first task is to execute a strong 2025 with that I'd like to turn the call over to David.
David Johnson: Thanks, Doug and welcome everyone to the call.
David Johnson: Let's start on slide seven which provides the financial results for the fourth quarter and full year.
David Johnson: Briefly touching on the fourth quarter organic sales were up 13% compared to prior year with seed up 16% and crop protection up 11%.
David Johnson: <unk> for the quarter was down 4% as expected largely driven by competitive pressure in Brazil in both seed and crop protection.
David Johnson: Pricing was positive in every region, excluding Latin America.
David Johnson: First quarter volume was up 17% over prior year.
David Johnson: These orders were up 19% driven by an expected increase in Brazil, suffering a core area.
Crop protection volumes were up 16% led by Latin America and EMEA.
David Johnson: Volume of crop protection, new products were up more than 20% in the quarter compared to prior year.
Full year 2000 play for organic sales were up 1% versus prior year with higher volume, partially offset by lower price.
David Johnson: These organic sales were up 4% for the year with pricing up 3% with gains across the portfolio.
Volume was up 1% with planted area increases in Brazil, corn in North America, soybean offsetting lower corn planted area in North America, EMEA and Asia Pacific.
David Johnson: Crop protection organic sales were down 2% versus prior year with volume gains offset by price declines.
David Johnson: Full year price was down 5%.
David Johnson: Largely driven by competitive market dynamics of Latin America.
David Johnson: Crop protection volume was up 3% with gains in Latin America, and Asia Pacific.
Partially offset by declines in EMEA.
David Johnson: Driven by residual Destocking and unfavorable weather in North America, driven by just in time purchasing behavior.
Operating EBITDA of approximately $3 4 billion for the full year 2024.
David Johnson: Is essentially flat versus prior year with an operating EBITDA margin of 20% or more.
David Johnson: More than 30 basis points higher.
David Johnson: Yeah.
David Johnson: Moving on to slide eight for a summary of the full year operating EBITDA performance.
David Johnson: Price gains were offset by lower prices and crop protection.
David Johnson: Volume was higher in both seed and crop protection led by Latin America on higher expected planted area and demand for new products.
David Johnson: Transitioning the costs.
David Johnson: We delivered nearly $500 million, and so health benefits with $155 million and lower royalty expense.
David Johnson: $220 million benefit from raw material deflation and productivity actions.
David Johnson: These gross cost benefits more than offset cost headwinds from higher commodity and other costs.
David Johnson: SG&A costs were modestly higher as expected given.
David Johnson: Given the full year of ownership of the biological acquisitions and normalized bad debt levels.
David Johnson: R&D expense was in line with expectations and just over 8% of sales for the full year.
David Johnson: Together this translates to 20% operating EBIT margin.
David Johnson: As impressive given the market dynamics.
David Johnson: With that let's go to slide nine and transitioned to the guidance for 2025.
David Johnson: And the key metrics, which we are tracking.
David Johnson: We provided an early view of 2025 back in November that based on 2024 results and the stronger U S. Dollar we're updating the guidance ranges.
2025, operating EBITDA is expected to be in the range of three six and $3 8 billion.
David Johnson: Or approximately 10% improvement over prior year at the midpoint.
David Johnson: Meaningful margin expansion is expected to be driven by price and product mix.
David Johnson: <unk> benefits from improved net royalty expense cost deflation and productivity actions.
David Johnson: Operating EPS is expected to be in the range of $2 in subsidies.
David Johnson: To $2 95 per share and.
David Johnson: An increase of 10% at the midpoint.
David Johnson: Which reflects further earnings growth and lower average share count.
David Johnson: Partially offset by higher net interest expense.
David Johnson: Free cash flow to EBITDA conversion rate is expected to be in the range of 40, and 45% which is in line with the 2023 and 'twenty four average.
David Johnson: The change from 2024 is driven by higher earnings offset by normalized use of working capital.
David Johnson: Turning to slide 10.
David Johnson: You can see operating EBITDA bridge for 2025 growing from approximately $3 4 billion in 2024 to $3 7 billion at the midpoint for 2025.
David Johnson: Total company pricing is expected to be flat to up low single digits with pricing gains in seed, partially offset by declines in crop protection.
David Johnson: While crop protection prices are beginning to stabilize we still expect prices to be down low single digits for the year in 2025.
David Johnson: We're expecting volume growth in both seed and crop protection seed.
David Johnson: Seed volume gains are expected to be driven by more corn acres in North America and share gains in key markets.
David Johnson: Crop protection volume is expected to be up mid single digits, driven by demand for new products, and biologicals, which are expected to outperform the rest of the portfolio.
David Johnson: We expect approximately $50 million improvement in net royalty expense driven by increased out licensing income as we continue to ramp up the licensing of <unk> soybeans and.
David Johnson: In prior court enlist corn.
We are on track to deliver approximately $400 billion of net cost improvements in 2025.
David Johnson: Driven by lower commodity costs.
David Johnson: Crop protection raw material deflation and productivity gains, including benefits from crop protection and footprint optimization.
David Johnson: SG&A and R&D as a percentage of sales are expected to be relatively flat with 2004 levels, implying a modest increase in spend.
David Johnson: Like many USD reporting companies were expecting a large currency headwind now than we previously forecasted.
David Johnson: The currency headwind is largely driven by the Brazilian real.
David Johnson: We're officially euro and Canadian dollar.
David Johnson: The stronger U S. Dollar is expected to translate to a low single digit headwind on net sales.
David Johnson: And approximately 275 million headwind on operating EBITDA.
David Johnson: Together this translates to approximately 10% of operating EBITDA growth at the midpoint and 100 to 150 basis points of margin expansion.
David Johnson: Regarding the timing of sales and earnings in 2025.
David Johnson: We're expecting about 60% of sales at roughly 80% of EBITDA to be delivered in the first half of the year.
David Johnson: We also expect to see a timing difference between the first two quarters versus prior year.
This is largely due to timing of seed deliveries in Latin America EMEA. After both regions delivered record volume in the fourth quarter of 2024.
David Johnson: For the first quarter of 2025, we are assuming a normal delivery pattern in northern hemisphere, which could shifts significantly between first and second quarter, depending on weather conditions.
David Johnson: Let's go to slide 11, which presents the factors, which could drive the guidance to the lower and upper end of the range.
David Johnson: As seen on the previous slide our current forecast includes a significant currency headwind to operating EBITDA.
David Johnson: We will continue to look for opportunities to mitigate additional volatility through pricing and other means.
David Johnson: If the dollar continues to strengthen we expect there would be some additional headwinds.
David Johnson: Assumed in the midpoint is relatively flat global planned area with increased corn area in North America.
David Johnson: Low single digit increase in Brazil, So freemium.
David Johnson: Totally flat area and other regions.
Speaker Change: A big question is how much growth, we'll see in crop protection given the current market dynamics.
David Johnson: <unk> demand remains relatively stable.
David Johnson: And we're expecting the traditional crop protection market to be essentially flat in 2025.
David Johnson: <unk>, new products and biologicals are expected to drive much of the volume growth.
David Johnson: Oil prices across the portfolio are expected to remain under pressure, although at a lower level than prior year.
David Johnson: We expect to deliver meaningful cost improvements in seed and crop protection from input cost inflation and productivity actions.
David Johnson: And at our midpoint assumption includes SG&A and R&D as a percentage of sales to be relatively consistent with 2024 levels.
David Johnson: We're not considering any impacts from trade policy and the mid point of guidance.
David Johnson: Without details on scope.
David Johnson: The ration or affected industries, it's too premature to provide details about the potential impacts.
David Johnson: This situation is very fluid and changes daily. So we will continue to evaluate the impact of specifics become known.
David Johnson: Together these are barrels set of assumptions, which gives us confidence in our ability to grow sales and operating EBITDA in 2025.
David Johnson: With that let's go to slide 12, and summarize the key takeaways.
David Johnson: First.
David Johnson: Q4, operating EBITDA, while in line with expectations with a record performance for the company.
David Johnson: Crop protection fourth quarter results.
Including double digit volume growth and significant operating EBITDA margin expansion is a positive side our portfolio strategy is working and the industry is starting to stabilize.
David Johnson: The strength of our seed portfolio drove full year sales and EBITDA growth for the business through price and mix improvement.
David Johnson: Market share gains and a meaningful improvement in net royalty expense.
David Johnson: And driven by working capital, we delivered $1 7 billion in free cash flow, a 50% conversion rate on EBITDA.
David Johnson: I will keep flexibility and ability to generate cash supports our track record of returning cash to shareholders, including $1 5 billion in 2024.
David Johnson: Finally, the 2025 guidance that we shared today reflect sales.
David Johnson: Earnings and margin growth much of which is in our control and supports a three year framework we presented in November.
Kim: With that let me turn it back to Kim.
Kim: Thanks, David now lets move onto your questions I would like to remind you that our caution on forward looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A operator, please provide the Q&A instructions.
Kim: Thank you ladies and gentlemen, we will now begin the question and answer session I would like to remind everyone to limit yourselves from one question Oni should you have a question. Please press star one on your Touchtone phone anywhere you have pop your head has been rate should you wish to withdraw please press star.
Speaker Change: One at that.
Speaker Change: If you are using a speaker phone. Please state your handset before pressing any keys.
Speaker Change: Our first question comes from the line of Christopher Parkinson from Wolfe Research. Please go ahead.
Christopher Parkinson: Great. Thank you so much.
Christopher Parkinson: A lot's changed since November outside of that that specifically new seed business.
Christopher Parkinson: We're looking at in corn acres likely being up versus probably flattish back then.
Christopher Parkinson: It seems like you have an opportunity of further opportunity quite frankly.
Christopher Parkinson: But versus 240, <unk> debacle powered horsing to be doing while pricing I mean, we could keep going but just how should we think about these potential positives.
Christopher Parkinson: As they are evolving into the season versus what you've been highlighting as a risk on the FX side as we just try to triangulate the midpoint of your guidance and how you see things evolving. Thank you so much.
Chris: Good morning, Chris.
Speaker Change: How would we do this we will talk about our assumptions for guide I'll give you some.
David Johnson: Views on the market and then David can walk you through the upsides and downsides at.
David Johnson: At least how we're thinking about them today.
Speaker Change: So youre right.
Speaker Change: From a fundamentals perspective.
The market has turned more positive certainly in the last three months.
Speaker Change: We've always done last couple of years, we've seen very good demand for crops 24 was another record were expecting very good demand in 2025.
Speaker Change: Crop prices are following that trend you can see it, especially in corn and soybeans, where they're off their bottoms and showing I'd say some modest strength.
Speaker Change: And the stocks to use ratios, especially for corn is the tightest we've seen in some time, that's why we're calling I think this year the year of corn, because we just think that the market is calling for more planted area. When it comes to corn farmer.
Speaker Change: Farmer margins are improving they are not great by any stretch, but they are much better than they were last year.
Speaker Change: And that comment is for U S farmers and for Brazilian farmers.
Speaker Change: And then just one other comment you think through the CP industry.
Speaker Change: It's a different it's a different state what we're in right now the last couple of years have been very challenging and I would say disproportionately imbalanced when it comes to inventories in the channel and things are feeling a lot better in that regard, where we have more balanced inventories around the world. There are still pockets, we're still expecting downward.
David Johnson: Pressure in prices, especially in the first half of the year, but the CPG industry is continuing its recovery. So all of that was factored into sort of our midpoint and how we're thinking about guide and David maybe you can now talk a little bit about the upsides and downsides yeah. Chris. So thank you very much for the question I think we outlined them pretty decently.
Speaker Change: Slide 11.
David Johnson: We feel we have a balanced outlook for currency at this point in time. However, if there is a situation where the weaker U S. Dollar and then we would see some upside I think for us probably one of the.
David Johnson: Big Pluses and minuses as just the CP industry in general, which we talked about we expect some low single digit negative pricing in the CP business. This year in 2025, which is a pretty significant improvement over what we saw in 2024, so that to me is.
David Johnson: One of the key look out for this year. We also have a net $400 million of improvement due to self help actions.
David Johnson: That takes execution and so on so forth with the teams we feel again that balance. So I think when you look at the total 10% mid.
David Johnson: Midpoint EBITDA growth, we feel like at this point, it's a balanced set of assumptions.
Speaker Change: Thank you. Our next question comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead.
Vincent Andrews: Hey, everyone.
Vincent Andrews: I look at <unk>, what stands out to me is it looks like the production costs and crop Chem a crop protection came in.
Vincent Andrews: A lot lower than certainly we were expecting and I'm wondering if there was a lot lower than what than what you guided because you don't really guide by segment, but at the same time.
Vincent Andrews: Like the seed production costs.
Vincent Andrews: Our reported a lot higher than what we were expecting and so I'm. Just wondering if you can speak to sort of where you are in CP from lower raw material cost perspective, if you R&D run rating better than you've thought three five months ago and is there any implications.
Vincent Andrews: 2025 from that and likewise I assume in seed.
Vincent Andrews: We know you were working through some higher cost inventory and so that is just temporary and ultimately run its course, but.
Vincent Andrews: Just would like to get some commentary around where you are exiting 'twenty for on the cost side of the equation.
Okay. Good morning, Vincent So let me give you some opening comments and then I will turn it over to both Robert and Judd to talk specifics so.
Speaker Change: Youre right when it comes to CP as you probably remember we've got a multi year plan, where we're really looking at structural improvements asset footprint really doing things differently. When it comes to CP driving significant productivity gains recall that.
Speaker Change: As a publicly traded company back in 19, we inherited our footprint and we've been on.
Speaker Change: A very long journey here to optimize and take structural cost out and Robert King and his team have done a really good job and I would say we are trending a little ahead of plan there and he can give you some specifics.
Speaker Change: The other side of this is seed and we had telegraphed. This before a couple of times that we had some very high cost inventory.
Speaker Change: In Latin America really because of <unk>.
Speaker Change: Lower yields and quality issues back in 2023, and we made a deal.
Speaker Change: Deliberate what I'd say set of decisions to clear the decks for 2025, and we've done that and that obviously shows up in our 24 result, but to give you just a bit more color. Robert why don't you start with that where you're at and the cost reduction program and then pitch it over to Jud.
Speaker Change: Good Thanks Chuck.
Speaker Change: We finished out finished out the year to answer your question about where we expected to be on our journey to our 2027 commitments.
Speaker Change: Looking at the.
Speaker Change: The cost takeout and the footprint.
Speaker Change: Reductions we've talked about everything is on track for.
Speaker Change: For the full year.
Speaker Change: For 2025, we're going to take out another $200 million and if you recall at Investor Day in November.
Speaker Change: Committed to a $300 million run rate by 2027 at least.
Speaker Change: And so we are marching towards that.
Speaker Change: When you think about.
Speaker Change: Raw material deflation.
Speaker Change: And it came in for the year right about $100 million, which is what we had expected and we said last time, we talked.
Speaker Change: And that will continue into the next year, we have good line of sight that.
Speaker Change: It's all baked into what we've we have guided towards and.
Speaker Change: So we think it continues to move forward getting continuing to get better.
Speaker Change: Things will slow at a lower rate than what we've seen in the past.
Speaker Change: But everything is moving in the direction of goodness from a from a cost management standpoint there.
Speaker Change: Jed.
Speaker Change: Okay.
Speaker Change: Yeah, Vincent Thank you and I think Chuck.
Chuck Magro: Wrapped it up pretty well if you look across the world We had price gains in every region with the exception of Latin America in the fourth quarter.
Chuck Magro: Latin America, we had extremely competitive market.
Chuck Magro: That continued into the fourth quarter. We also had some remaining high cost inventory that we had to work through I think we've talked about that in a number of cases.
Chuck Magro: In the past for 2025, the good news is both get better.
Chuck Magro: We've got a cogs position in Brazil in particular, that's going to materially improve.
Chuck Magro: And we see a pricing opportunity as we go into 2025, so feels.
Chuck Magro: Feels like we've worked through what was a challenging 24, and we've got a good path and 25 in the plan.
Speaker Change: Our next question comes from the line of Joel Jackson from BMO Capital markets. Please go ahead.
Joel Jackson: Good morning, everyone.
Joel Jackson: Could you talk about the cadence of it.
Joel Jackson: Earnings and earnings growth across the year is about 10% across the year can you help us figure out how that's going to look Q1 or.
Joel Jackson: Quarterly or first half second half opex.
Joel Jackson: Yes, Joe This is Dave I'll take that one I think we will look at more first half second half because as you know.
Joel Jackson: Given weather and what have you could have a pretty significant change between March and April so when we look at it right now.
Speaker Change: Would expect to be up slightly in the first half versus the first half of 2024, and a little bit better I would say year over year comparison in the back half of the year and some of that's driven by exactly what Doug just said regarding the Brazil seed cost position and so on so forth. So we would expect to see.
Joel Jackson: <unk>.
Joel Jackson: I would say a better improvement there in the fourth quarter for seed.
Joel Jackson: <unk> as you know we talked about low single digit pricing, we would say that that would be a little bit low.
Joel Jackson: Oh single digit negative pricing I should say, that's a little bit more towards the first half of the year flattening out in the back half of the year. So you add that altogether first half would be up slightly and then we would see the second half being.
Joel Jackson: Higher as a percentage of improvement year over year.
Joel Jackson: Yeah.
Speaker Change: Our next question comes from the line Kevin Mccarthy from vertical research. Please go ahead.
Kevin Mccarthy: Thank you and good morning, your crop protection EBITDA margins.
Kevin Mccarthy: Increased 800 basis points year over year, which was quite a bit more than we would have anticipated.
Kevin Mccarthy: Anticipated. So can you maybe rank order some of the key drivers of that I think you made a comment that you were pleased with technology uptake in Brazil, So just maybe a little more context around.
Kevin Mccarthy: What drove margins and also I'm curious as to whether there were any positive or negative timing related considerations in either of your segments. Thank you.
Robert King: Yeah. Thanks, Kevin This is Robert I'll jump into that one.
Kevin Mccarthy: So Q4 was a was a really strong quarter for us.
Kevin Mccarthy: And for the overall crop protection business. It was a record quarter as you called out in Brazil. They had a really good quarter, especially when you compare to the previous year and year over year comp.
Kevin Mccarthy: That is part of the part of the the large numbers youre seeing but not.
Kevin Mccarthy: Not to minimize the effort that the team has put in there.
The drivers came from the usual suspects that we've talked about biologicals new products.
Kevin Mccarthy: In those areas.
Kevin Mccarthy: And some spinoffs in sales as well so it fell just in line with our key drivers to growth.
Kevin Mccarthy: And that's really what drove a lot of the margin.
Kevin Mccarthy: <unk> increased on a year over year basis as compared to the prior year.
Kevin Mccarthy: The additional I would say is is fungicides insecticides experienced some solid growth in Q4 and Thats an area that.
Kevin Mccarthy: It typically has higher margins as compared to herbicides as well so our mix helped out there also.
Kevin Mccarthy: And then finally I'll land on cost.
Kevin Mccarthy: Earlier in the earlier in the call we mentioned on that but.
Kevin Mccarthy: Q4, we took a $170 million of cost out on a year over year basis. So that is moving in the right direction as well. So all of these things came together.
Kevin Mccarthy: To deliver really solid quarter. It gives us some momentum moving into 2025 I hope that helps.
Yeah.
Josh Spector: Our next question comes from the line of Josh Spector from UBS. Please go ahead.
Josh Spector: Yeah, Hi, good morning, I want to come back to the question around 2025 guidance. So when you go through all the puts and takes you left out or at least your bridge FX is really the only major change in there, but you didn't lower the high end low end by $100 million and lowered the top end by $200 million you didn't touch the bottom and so kind of two pieces here.
Josh Spector: One why is the top end cut $200 million not $100 million and then at the lower end are you baking in some of the positives that we talked about around corn, specifically that helps offset some of that thanks.
Josh Spector: Okay.
David Johnson: Hi, This is David again, I'll take that question.
Speaker Change: It typically one of the reasons.
Speaker Change: We took the 200 off the top because we do narrow our guide because this will be our official guide where.
Speaker Change: Our information we gave out last year was more of our initial perspective of the year, which was a wider guidance. We typically give and then at the midpoint. Then we did take out $100 million as you mentioned it is all FX.
Speaker Change: FX was a $125 million, we made up $25 million, there and a little bit of the base change between the $302 76, and the $3 4 billion and other areas, so slightly improvement in price and slight improvement in volume.
Speaker Change: So that's where we ended up on the mid point on the lower end, we kept the lower end I mean, I think as we put in our upsides and downsides really the downsides would be a further strengthening of the U S. Dollar.
Speaker Change: Difference in planted acres and then our perspective on the CP market as to what that money.
Speaker Change: Rollout over time in 2025, particularly around pricing and volume and Josh maybe just a couple of other thoughts for you. So when we rolled out that wider range. It was a first look it was a while ago.
Speaker Change: But you'll recall I think we had message that we would need to see the CP market.
Speaker Change: <unk> returned to growth.
And what we're calling for right now three months later is a flattish CP market.
Speaker Change: So that was certainly a consideration if we start to see the market rebound in CP. Then we would obviously reflect that going forward and then the other interesting thing for me when I just look at the currency the big number $275 million, if you add that to the $3 seven the way we guided it.
Speaker Change: Youre into a healthy range there that is not too dissimilar to numbers, we were providing just a while back. So I think that it's it's really almost binary where we lowered the midpoint simply because of currency and we are feeling that.
Speaker Change: But the top end of that range, we would need to see the global crop protection market returned to growth.
Speaker Change: Our next question comes from the line of David.
Speaker Change: From Deutsche Bank. Please go ahead. Thank.
David Johnson: Thank you good morning.
Chuck Magro: Chuck if you look at equity values, there's a widening gap between seed and crop protection assets.
David Johnson: Given that you're now almost 70% seeds.
David Johnson: If it makes sense for you guys to separate out crop protection from seats to enhance the equity value. Thank you.
David Johnson: Good morning, David.
David Johnson: Okay.
David Johnson: We look at almost everything under the Sun when it comes to how do we create long term value creation.
David Johnson: Nothing is off the table, we're constantly looking at our portfolio. We're constantly looking externally at how to use the balance sheet and the cash flow we're generating.
David Johnson: And so I.
David Johnson: I wouldn't take anything off the table. However, if you think about how the company is built right were built around a farmer, a global farmer and they need an integrated set of tools, especially when you look at how our R&D is completely integrated and working together and then how we go to market around the world.
David Johnson: All of those <unk>.
David Johnson: Significant I'd say synergies and leverage we get we're one of the only companies. If you think about how <unk> has built that can bring a full acre solutions, starting with seed and then our crop protection and biological package now around that and I think youre starting to see the value of that integrated <unk>.
David Johnson: Offering in markets, where we are we're working with farmers directly now so.
David Johnson: Yes.
David Johnson: As a CEO I would never take anything off the table, but when I look at at the journey that we're on have a lot of confidence that the long term value creation that we've laid through all the way from R&D to how we built our channels to market and the technology, we're bringing farmers and integrated offering is going to be a powerful.
David Johnson: Full set of choices I think for farmers.
Speaker Change: Our next question comes from the line of Steve Byrne from Bank of America. Please go ahead.
Speaker Change: Yes. Good morning, we settled our cannot filling in for Steve.
Speaker Change: And I want to go back to the guidance.
Speaker Change: We think the set of assumptions, we don't really see anything about the outlook for dicamba and what upside you would have better from <unk>.
Speaker Change: And we are already in February field work in the South should start in a month or so so what is your latest view given there hasnt been any.
Speaker Change: Registration so far to the supply chain should have.
Speaker Change: Stocks at least sort of their early Arab besides.
Speaker Change: And easily something thats, using your guidance or could be something that could be upside.
Judd: Hi, Steve Yeah. This is judd and relative to die camber.
Judd: One from a label perspective than trying to speculate any at all I think it's too early to call.
Speaker Change: If you look at where we're at today, we don't have any new information.
Speaker Change: But our order book for <unk> three is very very healthy we have seen orders come in from the south which is kind of.
Our long term dicamba hold out with the soy cotton rotation there growers have held onto the technical knowledge longer there than they have in other parts of the market.
Speaker Change: Our <unk> III products should perform extremely well both from a weed control perspective, our E series soybeans.
Speaker Change: And the germplasm that we're sending through licensees as well as through our own brands.
Speaker Change: Is leading in the market so that feels good but we don't have any upside built into the plan for any assumptions around I camber.
Speaker Change: We've got.
Speaker Change: 65% as Chuck mentioned earlier market penetration at this point with no upsides for <unk> built into the 25 plan.
Speaker Change: Yeah.
Patrick Cunningham: Our next question comes from the line of Patrick Cunningham from Citi. Please go ahead.
Patrick Cunningham: Hey, good morning, inspirational Leon Kirkpatrick.
Patrick Cunningham: Noted just in time purchasing behavior in the past several quarters.
Patrick Cunningham: The new one.
Patrick Cunningham: We expect this challenging based on this new customer.
Patrick Cunningham: Yes.
Robert King: Yes, Robert Thanks for the question.
Patrick Cunningham: Yes. This is.
Patrick Cunningham: Really an aspect of what's going on in the global economy with.
Patrick Cunningham: Capital markets with high interest rates.
Patrick Cunningham: Holden working capital et cetera through the channel and on the farm as something that.
Patrick Cunningham: It was just not favorable for for folks to do so as long as interest rates are where they are and the product availability is high across the board. We don't anticipate that the just in time.
Patrick Cunningham: Behavior changes, it's a behavioral shift due to the economy and where things are so we're prepared for it as we move forward.
Patrick Cunningham: Okay.
Speaker Change: Our next question comes from the line of Edlin Rodriguez from Mizuho. Please go ahead.
Edlin Rodriguez: Good morning, Thank you everyone.
Edlin Rodriguez: So in the fourth quarter, you talk about the competitive pressure in seed that you're seeing in Latin America do you expect this to continue going forward and what's really driving that so why does exceed being so competitive and.
Edlin Rodriguez: <unk> seen price decline as a result of that.
Edlin Rodriguez: Okay.
Edlin Rodriguez: So thank you for the question, maybe a couple of things.
Edlin Rodriguez: One is we went into the fourth quarter in seed, we we had a healthy supply position from competitors in the marketplace, we see that settling out to some degree, particularly with Supreme acres increasing.
Edlin Rodriguez: And then as we go into the second half, which is the most important time of the year for us with our seed business in Latin America.
Edlin Rodriguez: America.
Edlin Rodriguez:
Edlin Rodriguez: Excuse me second part of that question was.
Edlin Rodriguez: Will it continue will continue so as we go into 2025 as I mentioned earlier, one good news, our Cogs position gets materially stronger and we're excited about that number two we have pricing built into our plan, we've taken that pricing forward and feel good about where we are with.
Edlin Rodriguez: The opportunity to price in Brazil in 2025, new products better technology, bringing more value for growers and we expect to be able to price for that and then maybe just a few other thoughts here. So Brazil has always been competitive theres no change here right.
Edlin Rodriguez: It's a big diverse market as we've already talked about.
Edlin Rodriguez: But Brazilian farmers through many many years have also.
Edlin Rodriguez: Showed that they will pay for differentiation and yield and.
Edlin Rodriguez: And we have some of the best technology when it comes to seed and Latin America.
Edlin Rodriguez: In many markets, we are the leader and farmers will pay if theyre going to get a few extra bushels per acre.
Speaker Change: The issue that you are seeing reflected in price in our financials was the poor yields and the quality back in 2023, and our deliberate decision to make sure that we cleared the decks. So that we've got a much healthier business going into the 25 year and now you look at is what Jud is referred to as we expect.
Speaker Change: <unk>, a pretty significant increase in <unk> acres. So that the market is fundamentally hasn't changed when it comes to seed and how it value seed.
Speaker Change: And it's growing and now that we've got a better inventory cost position.
Speaker Change: We like where we're sitting.
Speaker Change: Here early in 2025.
Our next question comes from the line of Frank Mitsch.
Speaker Change: Fermium research. Please go ahead.
Frank Mitsch: Hi, good morning, and thank you David.
Frank Mitsch: On working capital, obviously, a very strong part in 2024.
Speaker Change: Curious on.
Speaker Change: On the inventory side typically you see a build for Teva for Q versus <unk> that didn't happen. This year actually went the other way. So could you talk about that and can you talk about the expectations. In 2025, I know that you say that you expect it to normalize any sort of metrics around that thank you.
Speaker Change: Yes sure no problem when you look at our total free cash flow. This year, the $1 7 billion and if you look at what I would consider core working capital so receivables inventory and payables. So that was a tailwind of about $300 million a lot of that was inventory and a lot of that inventory was because.
Speaker Change: The fact that the.
Speaker Change: The year before we kind of entered the year with more inventory than we wanted to primarily in CP I think the Q4 dynamics would probably be the fact that we had this seed inventory that we wanted to clear the decks like Chuck had mentioned and the fact that our volumes were up quite a bit in Q4, so there's a little bit of a dynamic there when.
Speaker Change: You look into 2025, we do expect those.
Speaker Change: Core working capital elements would be a slight headwind I would say somewhere in the $100 million range, but I would say that would be back to more normal levels.
Speaker Change: Our next question comes from the line of.
Speaker Change: See you demo from Keybanc. Please go ahead.
Speaker Change: Thanks, and good morning. This is Ryan on for Alexia.
Speaker Change: I understand you guys didn't bake in anything to the guidance just based on kind of what's been going on with tariffs.
Speaker Change: I wanted to get a better understanding of raw material sourcing.
Speaker Change: What percentage of raw materials would be at risk to that potential tariffs.
Speaker Change: In Canada, Mexico, and then obviously.
Speaker Change: The recent addition of China. Thank you.
Speaker Change: Yes, good morning, Ryan.
Speaker Change: So this is a complicated question and I will tell you that right upfront.
Speaker Change: The situation is changing almost daily.
Speaker Change: And so we have.
Speaker Change: I'd say a task team that's working.
Speaker Change: And running models and simulations on what could happen with the different scenarios. Let me start by just saying a couple of things upfront. So are two this is really a CP issue for us right because it's a global supply chain corn is a little different it's essentially grown and sold in the same region. So this.
Speaker Change: For us as a CP issue and our two biggest franchise.
Speaker Change: Businesses enlist and <unk>. They are manufactured exclusively in the United States. So that sets up core tablet to be basically a net exporter as a company now to give you a view on.
Speaker Change: And we will just use China as an example, it's about 2% of our Cogs come from China, and about 80% of that 2% we have multi sourced.
Speaker Change: The simulation models that we've run and who knows exactly what will eventually happen, but the scenarios that we've run we think that most of these situations are very manageable.
Speaker Change: But you are right to call out we have put none of this and our guide because we just we just don't have enough confidence on what it may or may not be so.
Speaker Change: The scenarios that are being discussed right now we think are completely manageable and.
Speaker Change: The data point I would draw you to for China is it's about 2% of our Cogs and 80% of that.
Speaker Change: As multi sourced.
Speaker Change: Our next question comes from the line of Richard Gucci Giordano from last cycle.
Speaker Change: Alright, thank you.
Speaker Change: Chuck you talked about a very encouraging start to the year for AG fundamentals.
Speaker Change: Just looking at crop protection in North America, it looks like volumes and prices were flat in the fourth quarter. So I was wondering can you just give us some color in terms of how you think North America is shaping up for crop protection.
Speaker Change: We've heard from some of your peers that there might be some cautious buyer pattern patterns from our retailers and growers. So just wanted your thoughts on that thank you.
Speaker Change: Yeah, it's probably best that Robert comment on that since he's in the market everyday but.
Speaker Change: The back the backdrop I think right now is you've got.
Speaker Change: As we said, we think theres going to be a lot of corn acres planted the year of corn.
Speaker Change: Which helps core Teva on many fronts.
Speaker Change: We do think that farmer margins are improving crop prices are up inventories are tight. So all of this usually drives to sort of an overall positive sentiment now it's early and we have to get through a couple more weeks of winter. We also need a wide open planting season, hopefully, but so far so good.
Speaker Change: Good.
Robert King: And then when it comes to specifics in terms of CP inventory and what the retailers are thinking about for the season. Robert why don't you comment on that yes, I'll just add a little bit of color to it specifically in North America, It's our largest crop protection market obviously.
Robert King: And things continue to improve there around the farmers and everything's going on commodity prices. So channel inventories are in balance we had a good fourth quarter not unusually high or low products continue to move in preparation for the North America season, and we're continuing to see that as we move into first quarter here, we're expecting that.
Robert King: Uh huh.
Robert King: Our products continue to move.
Robert King: And looking at all of our channel partners et cetera, We said in a really good really good place on a year over year basis.
Robert King: And we were expecting that our new products continue to see growth there.
Robert King: Biologicals is something that is moving into the market and our new partnerships that we've got set up there. We're really excited about so everything is in the direction of goodness, especially when it comes to inventories in the channel and demand for the technology that we bring to market.
Speaker Change: Next question will be from Christine Allen from Oppenheimer. Please go ahead.
Christine Allen: Hi, Good morning, Thank you for taking the question.
Christine Allen: Just given the FX swing factor on the year and can you just remind us hedging practices, how far out you hedge on certain currencies.
Christine Allen: That might move through the year. Thank you.
Christine Allen: As Christian this is David I'll take that question typically.
Christine Allen: Typically what we do is we hedge currencies in the year for the year. So we might have a little bit of hedges in place going into the year, but our primary objective is to have some consistency between the quarters within a year.
Christine Allen: So really when you look at it year over year basis, sometimes that's a benefit and sometimes it's not so in this particular case BR.
Christine Allen: <unk> for us is probably our largest exposure somewhere around 40% of our total impact in 2025 is BRL.
Christine Allen: Currently we have that in EDA.
Christine Allen: Or so rate I will remind everyone that our exposures are more back half loaded into the year. So we'll see where that rate ends up at that point in time right now the futures are a little bit above that rate. So we'll see how it goes but again I just want to remind everyone that it is really within the year for the year.
Speaker Change: Our next question comes from the line of.
Christine Allen: Hi, Brian This is Robert.
Speaker Change: From RBC capital markets.
Christine Allen: Yeah.
Christine Allen: Great. Thanks for taking my question I guess I guess.
Verification on that last point, so the exchange gains and losses line the <unk> line.
Christine Allen: The legacy Dupont lined but just curious.
Christine Allen: If that would be kind of similar to what you saw on 24 may be more so in the three to $3 50 range and then along those lines is there.
Christine Allen: I guess.
Christine Allen: That impacts our cash I mean is there any is there any room to maybe increase the buyback or just kind of planning for that $1 billion ratably through the year. Thanks.
Christine Allen: Okay Fantastic there is two questions there I would say that.
Christine Allen: On the <unk> I would say it would be.
Christine Allen: Proportionate to probably our EBITDA number if you look at that over time. So you would expect it to be a little bit higher in 2025 versus 24 regarding our capital deployment as we sit today, we do plan on the $100 billion or the $1 billion of buybacks somewhat even through the year, which would be similar to what we did in the prior year.
So if you add that along with our dividend it will be another year of $1 5 billion back to shareholders on the roughly one $6 billion of free cash flow. The difference being we will plan on continuing to invest in our catalyst program and then the opportunities in M&A and then we also ended the year a little bit.
Christine Allen: <unk> cash and we typically do at $3 1 million. So we have a little bit more room, there for any kind of tuck in acquisitions.
Speaker Change: Our last question comes from the line of Ben from Barclays. Please go ahead.
Ben: Hey, good morning, all questions have been asked thank you.
Ben: Okay great.
Ben: That will conclude our call today, we thank you for joining and for your interest in for Kevin. We Hope you have a safe and wonderful day.
Ben: That concludes our conference call. Thank you for joining today you may now disconnect.
Ben: Okay.
Ben: Yeah.
Ben: Okay.
Ben:
Ben: Okay.
Ben:
Ben: Yeah.
Ben: Okay.
Ben: Okay.