Q1 2025 Corteva Inc Earnings Call
Yeah.
Audra: Good morning, my name is Audra, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Corteva Agress Science First Quarter 2025 earnings.
Today's conference is being recorded. [inaudible]
Speaker Change: Our protection business unit will join the Q&A session. We have prepared presentation slides to supplement our remarks. During this call which are posted on the Investor Relations section of the <unk> website and through the link to our webcast. During this call. We will make forward looking statements, which are our expectations about the future. These statements are.
Speaker Change: 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.
Speaker Change: 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. It is now my pleasure to turn the call over to Chuck.
Chuck: Thanks, Kim good morning, everyone and thanks for joining us today.
Speaker Change: Spring is always a busy and exciting time for agriculture.
Speaker Change: This year is no exception.
Chuck: 2025 is off to a good start.
Chuck: In the northern Hemisphere is proceeding well the weather has cooperated for the most part.
Chuck: C P destocking is firmly behind us.
Chuck: There are some back half risks, we are monitoring and we will discuss those today, but let's start with the quarter year over year for Teva saw 15% increase in Q1 EBITDA.
Chuck: And nearly 400 basis points of margin expansion driven by.
Chuck: Strong cost execution.
Chuck: And three growth platforms biological CPU products and seed out licensing.
Chuck: Both of our segments delivered healthy double digit EBITDA gains the.
Chuck: The biggest driver was operational excellence and on this front, we are tracking well against the $400 million net cost target we set for ourselves.
Chuck: More on this later.
Chuck: This performance allows us to reaffirm our full year guidance, which we announced in February and it also allows us to derisk. The second half of the year, David will explain more.
Chuck: Factored into our guidance is the fact that farmers in the U S are projected to shift planted area.
Chuck: From soybeans to corn, resulting in a projected increase in corn of about 5%.
Chuck: And if current trends hold and lift beans will be planted on just over 65% of all U S soybean acres in 2025.
Chuck: It approaches maturity enlist is the number one selling soybean technology in the U S.
Chuck: As you know our focus is now set on becoming the leading provider of soybean technology in Brazil and.
Chuck: And we're making great strides on that front, having sold more than 3 million units of <unk> soybeans over the last three years.
Chuck: Globally from an overall industry perspective, we're seeing somewhat mixed fundamentals.
Chuck: Record demand for grains and oilseeds continue in.
Chuck: And farmers are investing in premium seed and crop protection technology to enhance and protect their yield.
Chuck: Although corn is fairing relatively well so far this year and is less reliant on export trade overall crop prices and margins have moderated somewhat as planted area shifts and trade uncertainty begins to weigh on the markets.
Chuck: Getting back to core Teva, our seed business is off to a strong start.
Chuck: Organic sales were up 2% in the quarter driven by pricing, reflecting the value our sea technology consistently delivers to farmers.
Chuck: Our seed order book reflects strong demand for our product lineup and we are planning to bring about 500, new products to the market. This year with approximately 300, new seed hybrids and varieties.
Chuck: We are also seeing meaningful improvements on the cost side, allowing <unk> to deliver just under 400 basis points of margin enhancement for the quarter.
Chuck: On crop protection organic sales were up 3% in the quarter driven by double digit volume growth for both new products and biologicals two of our near term strategic growth platforms.
Chuck: We've now seen four consecutive quarters of volume gains.
Chuck: And that the channel is operating at healthy levels.
Chuck: Our latest view of the crop protection market.
Chuck: For the full year as a flattish environment with low single digit volume gains offset by low single digit pricing headwinds.
Chuck: <unk>, we continue to expect high single digit volume gains more than offsetting low single digit pricing headwinds.
Chuck: However, our revised thinking is that price pressure will persist into the second half, but to a lesser extent than what we've seen in the first half.
Chuck: Our plan for crop protection in Brazil for the second half contemplates.
Chuck: Contemplates an EBITDA contribution about the same as last year.
Chuck: Our strong performance, but if we did it once we can do it again.
Chuck: On seed in Brazil, we have spent a fair amount of time talking about the inroads, we're making on soybeans with contested but I'd be remiss not to mention the exciting developments, we're seeing in the market for corn.
Chuck: Brazil, corn ethanol industry has seen remarkable growth since the country's first plant in 2017 with production poised to nearly double by early next decade corn is expected to account for nearly a third of Brazil's total ethanol production by 2026, strengthening Brazil's position as the <unk>.
Chuck: World's second largest ethanol producer.
Chuck: The rise in production is also linked to Brazil, increasing Supreme your corn output, which has doubled over the past decade.
Chuck: Given our leading position in Brazil, corn. This is certainly going to be a structural value creator for us.
Chuck: Moving on to tariffs and important topic in the quarter.
Chuck: This is a fluid situation as you all know, but we will try to summarize how <unk> may or may not be impacted by the tariffs currently in place, which in 2025 is largely a crop protection story.
Chuck: Long story short based on what we know today, the direct cost impact of curtailment in 2025 should be about $50 million, which we believe is manageable.
Chuck: While we work through the process of identifying the level and nature of mitigation efforts, we have not at this time dialed the puts and takes into our financial numbers that David will discuss in a few minutes.
Chuck: The main takeaway is that tariffs are not impacting our full year guidance range, but please note we have work to do to mitigate the impact.
Chuck: It is important to reiterate the significance of our domestic manufacturing footprint two of our largest crop protection franchises and Lyft and <unk> are both produced here in the U S.
Chuck: We are also seeing the benefits of our global multi sourcing capabilities as we worked to minimize the impact on costs and customers.
Chuck: That said our bigger concern lies with American farmers.
Chuck: American farmers are the backbone of the world's food supply working sun up to sundown to produce the food we eat every day.
Chuck: As the American growing season moves closer to the harvest.
Chuck: We hope to see export markets open up for North American grain and oilseeds.
Chuck: I don't think we're alone in this view and it goes without saying that the financial well being of our farmers affects the entire industry.
Chuck: And the world does need the food.
Chuck: So as we sit here today in the beginning of May I am pleased with our first quarter performance double digit EBITDA gains in almost 400 basis points of margin improvement is not easy to come by in this market environment.
Chuck: And it is driven by another quarter of operational excellence.
Chuck: As we all know the first quarter doesn't dictate the year in agriculture, but.
Chuck: But the first half is playing out a little better than we expected the tariff situation appears to be manageable based on what we know today and we're showing good progress on our growth platforms.
Chuck: I believe we have the appropriate level of attention on improving our cost position through our controllable leavers.
Chuck: Worth repeating that we expect to generate net cost improvements of $400 million driven by productivity and raw material tailwind.
Chuck: In addition, our path to royalty neutrality and transitioning to a net out license our technology. By later this decade is expected to generate another $65 million in benefits this year.
Speaker Change: These self help levers continue to drive value creation for the company and provide meaningful some might say transformational margin enhancement through the AG cycle with that let me turn the call over to David.
David: Thanks, Chuck and welcome everyone to the call.
David: Let's start on slide six which provides the financial results for the first quarter.
David: You can see from the numbers.
David: <unk> for the quarter were strong led by more corn acres in North America, along with favorable timing and execution of uncontrollable in both seed and crop protection.
David: Organic sales were up 3% compared to last year.
David: With seed up 2% and crop protection up 3%.
David: Currency was a significant headwind to top line for the quarter at 5% of sales in line with expectations.
David: The pricing was up 3% in the quarter with pricing gains in most regions as we continue to price for value.
David: Latin America was the one exception where prices down as expected given.
David: Given the competitive dynamics in Brazil, as we close out the <unk> season.
David: These volume was down 1% compared to prior year.
David: More corn acres in the U S and favorable spring weather drove gains in North America that were offset by declines in other regions.
David: These volume in EMEA, and Latin America was down mostly due to seasonal timing shifts.
David: Crop protection price was down 2% as expected driven by competitive market dynamics.
David: Crop protection volume was up 5% with gains in nearly every region.
David: Globally, new products delivered double digit volume gains in the quarter.
David: Operating EBITDA was up 15% over last year.
David: Operating EBITDA margin of nearly 27% was up 390 basis points.
David: Driven by organic sales growth, coupled with significant benefits from lower input costs and productivity.
David: Moving on to slide seven for a summary of the first quarter operating EBITDA performance.
David: Operating EBITDA was up more than $150 million to just under $1 2 billion price and mix.
David: I am gains across benefits more than offset currency headwinds.
David: He continues to make progress on its path to royalty neutrality with another $20 million decrease in net royalty expense.
David: This improvement was driven by both increase out licensing income and lower trade licensing expense.
David: He's in crop protection combined to deliver more than $200 million in productivity and cost benefits.
David: Including lower see commodity costs in all regions led by North America.
David: In the first quarter SG&A was up modestly compared to prior year, driven by higher compensation normalized bad debt accruals.
David: The increase investment in R&D aligns with our target is on track to reach 8% of sales for the full year.
David: The higher costs were partially offset by a benefit from currency.
David: As expected currency was roughly $90 million headwind on EBITDA, driven by the Turkish lira and Canadian dollar.
David: Both seed and crop protection head and an impressive first quarter and delivered double digit EBITDA growth and meaningful margin expansion.
David: Moving on to slide eight for the remainder of the key sensitivities that could impact our full year results within the guidance range.
David: At this point in the year. There are a few key factors that could drive results to the upper or lower end of our full year guidance.
David: While the industry is expecting more corn acres in the U S and <unk>.
David: Our order books would support that not all of crop is in the ground yet so we need to finish up the North America season, and see what ultimately gets planted.
David: In Latin America, we're expecting an increase in both summer is suffering a court areas in Brazil, and the partial recovery in corn area in Argentina. After much of it was lost due to corn starch in the past seasons.
David: There are many factors that could still influenced farmer decisions in the region it could impact our second half results.
David: We're now expecting crop protection prices to be down low single digits throughout the year.
David: All set by a high single digit volume growth.
David: Demand for Biologicals, and new products continues to be strong and gives us confidence in our ability to deliver growth.
David: We recognize that tariffs and global trade policy continues to be a source of uncertainty.
David: Although our exposure to tariffs is expected to be manageable given the level of crop protection and imports. The associated costs are they potential mitigation actions are not factored into our guidance.
David: Nevertheless, as Chuck mentioned earlier tariffs.
David: Tariffs should not impact our full year guidance range based on what we know today.
David: With that let's go to slide nine and transitioned to the key assumptions for the first half and second half of the year.
David: Driven by the strength of the first quarter. We now expect net sales for the first half to be about flat versus prior year.
David: With operating EBITDA up low to mid single digits, driven by favorable timing and cost benefits and.
David: An additional volume in the first half.
David: As a reminder, this is stronger than we originally thought.
David: In our original guidance that we provided back in February we were assuming first half EBITDA would be about flat.
David: <unk> is expected to continue the momentum from the first quarter deliver solid organic growth in the first half of the year led by North America, more corn acres and a strong product lineup.
David: Crop protection is expected to deliver solid volume growth over prior year, including double digit growth in biologicals and new products.
David: Pricing will continue to be pressured as expected.
David: The seed and crop protection and will deliver significant benefits from lower input costs in the first half.
David: While SG&A is expected to modestly increase compared to prior year.
David: R&D is expected to be about flat in the first half.
David: Turning to the second half of the year.
David: We expect strong sales and operating EBITDA growth driven by low single digit price in double digit volume growth over last year.
David: Crop protection operating EBITDA is expected to be roughly in line with the strong second half 2024 results, while <unk> is expected to drive growth through price and volume gains.
David: Seed prices expected to remain strong in the back half of the year driven by the strength of the portfolio in Latin America.
David: While crop protection pricing is expected to continue at a rate of low single digit decline compared to prior year.
David: Seed and crop protection are expected to deliver double digit sales volume led by Latin America.
David: We will continue to deliver cost savings in the second half of the year.
David: Lower rate than the first half given the timing of crop protection deflation and productivity as well as timing of seed both due to the seasonality of the business.
David: Again, while we do not expect the net costs associated with tariffs to affect our full year guidance range as of now and the associated cost and impact for mitigation efforts will be weighted towards the second half of the year given the timing of their crop protection inventory turns.
David: And finally currency.
David: We expect about 50% of the full year headwind will be reflected in the second half of the year.
David: Driven by our exposures to the Brazilian real.
David: To summarize with our updated assumptions for the first and second half of the year. We remain on track for full year operating EBITDA of $3 7 billion with a few small changes to our original assumptions.
David: We expect to deliver low single digit pricing gains for the year.
David: At a modestly lower rate than originally assumed.
David: And volume is expected to be higher now driven by increased North America, corn acres and strong demand for crop protection as the market continues to stabilize.
David: With that let's go to slide 10, and summarize the key takeaways.
David: First while there is still much of the year left to go we delivered an impressive performance in the first quarter ahead of expectations.
David: Organic sales growth was driven by a continuation of our price for value strategy.
David: <unk> North American seed deliveries and mid single digit volume gains in crop protection.
David: We delivered more than $200 million in cost savings from lower seed and crop protection raw material costs and productivity.
David: Together with organic sales growth in both businesses and improved product mix. This translated to 390 basis points of margin expansion over prior year.
David: The strong first quarter cash flow supports our ability to deliver the midpoint of our free cash flow the EBITDA guidance range of 40% to 45% conversion rate.
David: And finally, we remain on track for $1 billion of share repurchases in 2025.
Kim: With that let me turn it back to Kim.
Speaker Change: David now, let's move on to 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 we will now begin the question and answer session.
Kim: Do you have dialed in and I would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star one again due.
Kim: Due to time constraints, we ask that you. Please limit yourself to one question to allow everyone an opportunity to ask a question.
Moderator: We'll take our first question from Chris Parkinson at Wolfe Research.
Speaker Change: And it looks like we lost Chris's line. So we'll move next to Joel Jackson.
Joel Jackson: BMO capital markets.
Joel Jackson: Good morning, Thanks, taking my question.
Speaker Change: Chuck I thought like in your some of your very first few words on this call today, you talked about some risks in the back half, but you will get into so.
Speaker Change: What youre guiding to is that the first half they will be something like 80 380, 485% of the full year that leaves about $5 million to $600 million EBITDA for the second half of the year. So there's not much play there.
Speaker Change: How much risk upside downside is around the second half there were talking $200 million of honeymoon. There can you maybe kind of quantify some of those comments and because it is a pretty large on earnings that have in the first half of the year.
Speaker Change: Yeah. Good morning, Joel Thanks for the question.
Speaker Change: No.
Speaker Change: Here's how we're thinking about it first of all the first quarter right. So close to $1 2 billion 400 bps of margin improvement.
Speaker Change: 15% increase I think in EBITDA something like that so.
Speaker Change: It was a little better than we thought to be candid with you.
Speaker Change: But as you know the first quarter doesn't make the year and we really don't like to move on guide in Q1, especially before the crops in the ground, but Q1 was better than we thought.
Speaker Change: If you now think about that for the first half we actually think that the first half's going to be better than our original plan as well. So the second half of the year. The way we're thinking about it right now with what we can see looking forward is that it's been derisked since the February guide, which I think is a good positive first step.
Speaker Change: Obviously, there's puts and takes and I'll have David kind of walk through them, but to get to your question.
Speaker Change: The way I'm thinking about the second half now is is we need crop protection for example in Brazil to do essentially what they did last year.
Speaker Change: So that was a strong quarter last year, if you recall, but nothing more than that so I actually think that our guide even though we've kept it the same has been de risked pretty significantly now what we're looking at in terms of the clouds of course over the future. The biggest one that I'll draw your attention to and then I'll, let David talk.
Speaker Change: Some of the financial levers.
Speaker Change: Israeli CP price down.
Speaker Change: Down.
Speaker Change: Low single digits, we now believe will be down low single digits for the full year that is reflected in the three seven or at least the three six to three eight.
Speaker Change: Could it go get worse than that yes, obviously, it could could it get better than that yes.
Speaker Change: We feel that again.
Speaker Change: The the risk and when you look at the guide from three six to three eight having the CP pricing down low single digits for the full year as reflected in that.
Speaker Change: So overall, we're feeling very good about this and then we'll like usual Joel will update the market with a full guide puts and takes after the first half, but maybe David you could talk about currency in some of the other financial moves yes, Joe.
Speaker Change: Thanks for the question if we step back I, just will remind our original guide was a 10% EBITDA growth over prior year and when we first thought about how the first half and second half would play out we did expect a first half to be about flat to prior year. So now given the strength of the first quarter I think we are.
Speaker Change: Back into the range, we said low to mid single digits, we're probably getting a little bit more refine there in the 4% to 5% range. So if you look at what that might mean for the back half of the year, it's still a 40% increase over prior year. So it's still a pretty significant increase it might not be so much in dollars because it's obviously a smaller <unk>.
Speaker Change: After our first half and so we found it prudent to kind of take some of the risks that we had in our original onshore backing down at that back half and as Chuck mentioned a lot of that is the assumption that CP will be pretty much in line with last year and the benefits year over year will be primarily in seed so when you.
Speaker Change: Think about the 300 million or so increase in EBITDA dollars year over year. We're now assuming about the same first half and second half so a little bit more borrowings.
Speaker Change: If we go into some of the actual drivers and I think we've tried to articulate this on slide eight a little bit.
Speaker Change: Where we are in FX, we had the 275 original guide I would say right now we're still in that region.
Speaker Change: I would say that the first half the first quarter was $90 million, that's what we expected.
Speaker Change: Expect about half of this impact would be in the first half we still expect that to happen the back half of the year as we've articulated before is mostly a BRL story.
Speaker Change: And as we look at our exposures I mean, one of the things I wanted to just remind everyone. That's not only the rate, but making sure that we can forecast and understand our exposures in the back half of the year and when you look at those those two elements and we feel like we're in the right range of $2 $75 million, we talked about corn acres probably.
Speaker Change: The one thing that chicken mentioned before was the one risk on crop protection pricing, we did say that probably a little bit softer than we expected going the original guide we're offsetting some of that with with volume and then I'm sure we'll be talking quite a bit about trade policy and those sort of things, but we are looking at the $50 million impact.
Speaker Change: Two.
Speaker Change: Trade policy and we're looking at how we mitigate that so that's pretty much where we are balanced right now and then I would assume after Q2 actuals will then revisit not only these assumptions drove but also.
Speaker Change: Interest and all those other things that go into the basis of our EPS guidance.
Speaker Change: We'll go next to Chris Parkinson at Wolfe Research.
Speaker Change: Yeah.
Speaker Change: I apologize I was so excited to ask my question I accidentally hung up on you.
Speaker Change: [laughter] well I was talking about agriculture.
Speaker Change: Apologize so.
Speaker Change: When you take a step back obviously, you've had a decent amount of success across.
Speaker Change: Your seed portfolio over the last few years and some would say oh, there's not much more to come but at the same time, you still have a lot of products left in terms of launches and the kind of the progression in both the United States and Latin America and in Latin America, Correct me, if I'm wrong. It seems like corn planting could actually be in a much better place than it's been in the last two years.
Speaker Change: So can you just briefly speak about just across the Americas, where you feel the most enthusiastic about what's left to come.
Speaker Change: And perhaps of.
Speaker Change: A little bit of a longer term comment of what youre still enthusiastic about and where the street should be essentially re shifting its attention to thank you so much.
Jud: Yeah. Good morning, Chris So I'll have jud.
Jud: Take the question, but let me just remind you from a strategic perspective.
Jud: Exciting things happening with our seed business.
Jud: Our history has been that we've been a net importer licensee of technology and what we're trying to do is strategically shift this to being an out license or a technology.
Jud: And we're seeing really good traction when it comes to that strategy enlist is sort of the poster child for that but it's now happening in enlist in Brazil, it's happening in corn is happening in canola and then don't get me started about hybrid wheat, because thats coming in the next three years.
Speaker Change: We think that could be a $1 billion of revenue opportunity at its peak and and so the pipeline is I would say far from getting peak yet in fact, I think the best is yet to come but the way you've asked the question in terms of what's happening in certain regions I'll have John answer that.
John: Yes, Chris Thanks for the question and just maybe partly in off of some chucks comments about some of the spaces that we see as future growth potential.
John: If you look at North America of course, the talk has been consistently around are we going to put 95 million acres of corn in the ground. That's obviously very favorable for us our product portfolio is very very strong right now.
John: And we see not only pricing opportunities with additional productivity and yield that we're bringing in the portfolio.
John: But also.
John: Again just.
John: A larger planted area.
John: Planting progress, we're kind of right on where we typically see from a five year window not ahead not behind we've got a few favorable weeks. So it looks like we have a very legitimate chance to put those 95 million acres of corn in the ground <unk> performance has been extremely good as well.
John: Our germ plasm on the soybean side, so from a North America perspective, 2025 looks like it's going to be another solid year of growth.
John: Shipped down to Latin America now.
Speaker Change: This will be the first time in the last four or five years, we've actually seen an expansion in summer corn planted area local economics for growers in Brazil, right now with ethanol expansion, which I think Chuck mentioned earlier in the call is really solid so.
John: It's.
John: Meriting more corn acres going into the ground.
John: Which is which is certainly a good thing <unk>.
John: Mid single digit low to mid single digit continued expansion as we get into the fourth quarter and we see the.
John: The order book fill up and we start to.
John: Recognize revenue for Supreme you that'll go into the ground. After the first of the year. So feel very good about that Chuck mentioned licensing we've had a big move was just down in Brazil, a couple of weeks ago were.
John: We're working closely with a number of multipliers, bringing new germplasm, and obviously can keys to <unk> and make it available to a significant large a significantly larger percentage of the market. So we see a real opportunity for some lift there in margin expansion. So couldnt be more excited about where we are in North America right now we've got to get the crop in the ground.
John: And the demand signals coming from Latin America, Good and maybe just one final mentioned our summer book and our Sapremia book are well ahead of prior year's pace in terms of what we see coming on the corn side. So I hope that answers your question. Thanks, Chris.
Vincent Andrews: Well move next to Vincent Andrews at Morgan Stanley.
Vincent Andrews: Thank you and good morning, Chuck I'm wondering if you could color in.
Speaker Change: Your comments on the price environment in crop protection a bit more.
Speaker Change: And in particular, what what's driving sort of the change in the sort of trajectory of cadence of a negative pricing. It seems like it's a little bit less negative but for a longer period of time and is that uniform across markets and products.
Speaker Change: And are you seeing anything different from a generic competitors today versus six to nine months ago and likewise versus your branded peers. Thank you.
Vincent Andrews: Good morning, Vincent so.
Speaker Change: Why don't I have Robert give perspective, and then I'll come back with some higher level comments go ahead Robert.
Robert: Yes. Thanks.
Vincent Andrews: [noise] price across.
Vincent Andrews: For the year.
Vincent Andrews: Will dampen out as we get to the back part of the year as we begin to lap.
Vincent Andrews: Last year and so your your question there about it it looks like it's still there, but it's not as bad as spot on.
Vincent Andrews: When you think about.
Vincent Andrews: What's driving it and how does it how does it look as we move forward.
Vincent Andrews: We're seeing some good signs of stabilizing coming out of China.
Vincent Andrews: The the generics pricing out of there had been stable for several months.
Vincent Andrews: So thats encouraging.
Vincent Andrews: And that's something that we watch a whole lot.
Vincent Andrews: This business has been a <unk>.
Vincent Andrews: Low single digit organic growth business for a long time, when you look at it over over the decades.
Vincent Andrews: And it will return there, but we need to see we do need to see China's economy stabilize a little bit more.
Vincent Andrews: So that so the supply availability, we'll tighten up a bit more.
Vincent Andrews: When we start to see those things then then we can start to.
Vincent Andrews: More about where's the bottom, what's that look like et cetera, but we're in a pretty good position as we move across the rest of this year with our pricing.
Vincent Andrews: Primarily because our growth is all going to come from our biologicals and new products and in those areas.
Vincent Andrews: As we've talked about before we.
Vincent Andrews: We have a higher margin higher premium on those because of higher technology and its continued to be pulled by the farmers across as well so.
Vincent Andrews: We think we're in a good place.
Vincent Andrews: As it pertains to pricing it is something that Chuck talked about earlier that we are we are paying a lot of attention to.
Vincent Andrews: But you're correct that it will soften as we continue to move through the year.
Vincent Andrews: Maybe Vince just a couple of my thoughts on this market. So look I think what we've seen over the last two to three years was almost unprecedented.
Vincent Andrews: And what it feels like to US now is that there is some stability underneath the market.
Vincent Andrews: It's not going up yet, but volumes are healthy in going into the channel, but the channels now are much healthier than they had been for the last two or three years. So they are in the healthy ranges, which is what we needed to see so we're seeing good volume theres. Good uptake in on farm demand is still quite healthy and strong so farmer behavior, which is.
Vincent Andrews: Underpinning all of this is really quite healthy.
Vincent Andrews: And now what we're watching is just the generics coming out of Asia.
Vincent Andrews: And that seems to have hit a floor as well so that's another positive indication.
Vincent Andrews: Look this is a competitive market.
Vincent Andrews: Well supplied.
Vincent Andrews: You've got higher interest rates. So the channel is being very selective all of these things are weighing on on the price volume dynamic, but when we sit here today, we're more encouraged today than we have been in some time, what we all need to see now though is we need to see sort of the generic pricing start to tick up a little bit in <unk>.
Vincent Andrews: <unk> and that should turn the corner on the industry. One last comment is on Brazil. So.
Vincent Andrews: Brazil is.
Speaker Change: It's going to have more acres as jud referenced.
Vincent Andrews: I think the channel is a lot healthier than it has been and so we're optimistic that we've seen.
Vincent Andrews: Sort of at least for now the.
Recovery for in Brazil is well underway and that is a critical market for cortana as you know.
Speaker Change: Well move to our next question from Kevin Mccarthy vertical research partners.
Speaker Change: Yes, Thank you and good morning, Chuck I realize it's been less than six months since your capital markets day in New York, but I thought you might provide a brief update on the two new growth platforms that you unveiled there it sounds like Youre still excited about we maybe talk a little bit about the ramp to the economic opportunity.
Speaker Change: On track for 2027 launch and hybrid Red winter wheat, and any update on the on the winter canola for Biofuels as you expand that pilot program.
Speaker Change: Yes, good morning, Kevin happy to do it and so.
Speaker Change: On wheat as I mentioned it is.
Speaker Change: Do you think about wheat, and we said this at the capital markets day.
Speaker Change: It's the largest row crop by area, So 500 million acres worldwide and if we can do what we did for corn.
Speaker Change: Almost 100 years ago and hybridize at.
Speaker Change: It will move the needle from a technology perspective for farmers.
Speaker Change: And it will actually put a dent in global food security on a positive scale. So this is a big deal for the World We believe.
Speaker Change: Core Teva has what we considered to be a proprietary sterility system, which will change the economics for farmers.
Speaker Change: And we will be able to bring genetic gain to two weeks. So that that is really what we're trying to do.
Speaker Change: Crop that we had through our test plot. This year, we will we'll be able to harvest. Some very soon in the next I'd say weeks.
Speaker Change: But we think that the initial unlock of yield will be somewhere between 10 and 20%.
Speaker Change: And our intention is to is to be a leader in this area and to do a combination of providing our own technology, but also to license the technology and we are still on track for 2027 launch and as I mentioned this could be $1 billion of revenue at its peak.
Speaker Change: So pretty exciting.
Speaker Change: <unk> that the team at <unk> is very excited with <unk>.
Speaker Change: Now winter canola so.
Speaker Change: This is the second year of our pilot program.
Speaker Change: This is happening in six or seven states in the south here in the U S.
Speaker Change: Crop did survive the winter quite well.
Speaker Change: It'll be later this month, when we run it through and check out the yields but all systems are go on on Biofuels using using canola and we're really excited about this and this coming season will actually expand it from 30000 acres approximately two maybe even.
Speaker Change: Hundreds of thousands of acres.
Speaker Change: So it's starting to gain a lot of momentum and again the reason that there is so much interest in this as farmers have choice. So farmers can plant winter wheat or they can go into a canola option now and it's quite profitable for them and then this is in conjunction with our relationship with Bungie and Chevron, where <unk> will take the <unk>.
Speaker Change: And crush it into the oil and Chevron will move it into their biofuels. So this is a kind of a win win win across the board and I think farmers in the south are very excited about having options here.
Speaker Change: We'll move to our next question from Josh Spector at UBS.
Josh Spector: Yes, hi, good morning, I wanted to ask two quick ones with the guidance around the.
Speaker Change: Tariff impacts so.
Josh Spector: A little bit confusing, where you call out the $50 million impact you say actions are ongoing but then your guidance says that you don't include the tariff impacts.
Josh Spector: Within there so can you clarify I guess that assumption.
Josh Spector: What you are baking in there and just to follow up quickly on the FX side of things I just wanted to be clear if that Brazilian real exposure is locked in or if there's just we're not sure where rates are going to be in a few months from now when we're leaving that assumption unchanged. Thanks.
Josh Spector: Good morning, Josh Let me take the tariff question and then David can handle that the Brazil real.
Josh Spector: So the way we're thinking about this is.
Josh Spector: After.
Josh Spector: A lot of work in this area. We've enabled would I would say is to reduce the overall macro tariff impact on core Teva.
Josh Spector: Around this $50 million that we communicated today.
Josh Spector: And we have we feel very strong pathways to mitigate a lot more of this.
Josh Spector: But we need a little bit more time to finalize the action. So because of that we chose not to included in the guidance range for now.
Josh Spector: As well as $50 million with a $200 million guidance range, it's very manageable.
Josh Spector: But when we get to the first half we will hopefully have a lower number and we can give the net impact in our guide.
Josh Spector: And the reason we chose to keep it separated just for one more quarter is because we felt it was important for investors to be able to see the core business unobstructed.
Josh Spector: By tariffs and we have I think a lot of mitigation steps that are going to bear fruit here. So that's the thinking today.
Josh Spector: And we will update the market as we know more we're being very transparent the number today would be $50 million.
Josh Spector: But we feel that through network optimization further cost productivity actions, we can move a long way down the scale of reducing that further David the Brazil Riel.
Speaker Change: Yes. So if you look at the Brazil real I think most people. We mentioned this before our exposure is definitely back half related so about 85% of our total.
Speaker Change: <unk> exposure is in the back half of the year as we sit here today.
Speaker Change: Our hedged at over 80% for Q3, and just under 20% for Q4, and we always layer that in as they exposures become more clear as we progress through the year. So I think if you look at where we're able to forward hedged that right now we're just under the 6.0 that we had put in our original guidance.
Speaker Change: So I would say that that is slightly favorable to where we are right. Now. We're also looking at our exposures have gone up a little bit as we expect a little bit more volume and a little less price in Brazil. So all in all I'd say pretty balanced right. Now again, we will have a little bit more clarity at the end of Q2 and Im sure. We will update this is.
Speaker Change: Sumption.
David Begleiter: Next well move to David Begleiter at Deutsche Bank.
Emily Cisco: Hi, This is Emily Cisco unfair it Dave Begleiter.
Emily Cisco: So with a likely further share shifts in Chinese soybean imports from Brazil.
Emily Cisco: Brazil, how it quick cabo positioned for that and how much more profitable or soybeans.
Emily Cisco: No.
Speaker Change: Thank you.
Emily Cisco: Yes.
Emily Cisco: Good morning Emily.
Speaker Change: Let's step back and then I'll have John talk about profitability between corn and soybeans for at least for <unk>, but the way we're thinking about this right now is.
Emily Cisco: Farmers today.
Emily Cisco: <unk> really focused on getting the crop into the ground you can see the area shift right. So they have sort of prioritize corn or soybeans at least this year for it because the economics make sense to do that now youre right to call out. So if you think about soybeans, 50% of the U S. Soybeans are exported.
Emily Cisco: And the three top destinations for this our China, Mexico and the EU.
Emily Cisco: And that in those three account for 65% of that 50%.
Emily Cisco: So what we think is happening is a lot of this is already reflected in the trading the trading markets and farmers can then make the proper decisions what were hopeful to see and what we need to see is that come harvests that some of these export markets reopen.
Emily Cisco: So that U S farmers will be able to.
Emily Cisco: Export soybeans around the world and when you think about where else.
Emily Cisco: Certain countries can get their soybeans from.
Emily Cisco: What usually comes to mind is Brazil, and Argentina, because they're also major exporters of soybeans, but what we would say is that Brazil and.
Emily Cisco: In Argentina, they cannot fill the total global demand for soybeans. So U S production is absolutely needed.
Emily Cisco: And it's very early it's only may.
Emily Cisco: But that's what we're hoping to see and as this kind of works itself through what we would expect to see us even further.
Emily Cisco: Area shifts if this persists.
Emily Cisco: And you may even see premium pricing for soybeans coming out of Latin America, because it will it will warranted so lots to be determined on this question, but from a <unk> specific from an economic perspective, maybe Joe you can answer that.
Emily Cisco: Yes so.
Emily Cisco: And I think what Youre seeing currently from a market perspective is both in North America, and Latin America, just for more commodity prices are versus inputs and farmer economics as sand 95 million acres of corn in the U S. Assuming that we have a new another few weeks of solid planning.
Emily Cisco: And you see an expansion for the first time in summer corn in Brazil, and continued expansion kind of low to mid single digits expected in sapremia. So.
Emily Cisco: Good economics on the corn side in both markets. However from a soybean perspective still good solid economics lower input crop from our fertility perspective with soy.
Emily Cisco: From a core Teva perspective.
Emily Cisco: And I think we've shared this in the past typically when we see a million acres shift go from soy to corn, it's about $10 million to $15 million of EBITDA shift.
Emily Cisco: Internal to core Teva.
Emily Cisco: So we will see where we land.
Emily Cisco: Those are the forecast as we are to date and our order book, our order books would support that.
Steve Byrne: Next we'll go to Steve Byrne with Bank of America.
Steve Byrne: Yes. Thank you.
Speaker Change: Out licensing model that you've launched.
Speaker Change: Is that targeting roughly 20% of the U S corn seed market with this.
Speaker Change: <unk> seed company is where do you see the potential for you to penetrate that.
Speaker Change: Youre using this power core trade is is that because there is no proteins in there that that you've had to license.
Speaker Change: And then just one more on corn seed specifically in Asia.
Speaker Change: Sure.
Speaker Change: That region represents 5% of your of your seed sales, but its a quarter of the global corn production is that a region that you think you can gain share and if not what.
Speaker Change: The challenge is it less desirable for any particular reason.
Speaker Change: Yes, Hi, Steve Let me take the first one on out licensing and then Jud can answer the Asia opportunity question.
Speaker Change: So look for for us.
Speaker Change: Step back right.
Speaker Change: We were an insignificant player when it comes to corn, but even soybean.
Speaker Change: Out licensing we've already pegged.
Speaker Change: Global opportunity for corn, and soybean licensing to be about $4 billion, and it's really driven from the U S and Brazil, so that that is.
Speaker Change: That is absolutely the opportunity set we have over 100 licensees of both corn and soybean.
Speaker Change: Right now.
Speaker Change: That list is getting added to.
Speaker Change: And from my perspective, I don't see why we can't have.
Speaker Change: A meaningful share of that $4 billion over time.
Speaker Change: Power core is.
Speaker Change: What I'd say is our first foray into corn out licensing.
Speaker Change: Fantastic technology, especially when you put that trick that trait technology with our leading germplasm and you look at it as a full package and system and its competing very well and the demand for it is increasing quite readily. So I don't want to give you a specific number because I think the opportunity is to be determined but there is no reason why we can't.
Speaker Change: Have our fair share of that overall licensing market and I'd say globally.
Speaker Change: APAC and our opportunity Jeff.
Speaker Change: Yes, so from an APAC perspective, maybe if you think about the region you think about the various countries a lot of small holder farmers in APAC. There are some markets that we don't participate in as heavily as others, but you are right Steve I think.
Speaker Change: There is certainly an opportunity for us to continue to expand our germplasm penetration in APAC.
Speaker Change: As we get it.
Speaker Change: Additional countries that are looking at Nextgen technologies I E G&A.
Speaker Change: Gene editing GMO I think it will even allow us to have a broader presence there, but big market a lot of acres a lot of small holder farmers very different in North America.
Speaker Change: Latin America.
Speaker Change: We've got a great presence there today.
Speaker Change: But I think it's fair to say that the team and in APAC and we believe from an R&D and a commercial perspective is that we can participate bigger in those markets so opportunity.
Speaker Change: Our next question comes from Duffy Fischer at Goldman Sachs.
Duffy Fischer: Yes, good morning, guys kind.
Speaker Change: Kind of a specific question on your.
Speaker Change: Approach in Brazil between European cast to <unk>, and then the competing intact. So if youre pitching this to the seed multipliers down there.
Speaker Change: You can look at is the efficacy against bugs better with your product or is it relatively the same.
Speaker Change: In Brazil, having 24 D versus di Camber is that an advantage and then are they getting a different price between the two so theres more profit maybe with one versus the other what's the pitch I guess in the seed multiplier of your product versus the competitor.
Yes, great question and thank you and maybe start from the top first of all from a technology standpoint keister versus intact.
Speaker Change: 240 versus the camber, we have we have very competitive technologies on both sides.
Speaker Change: That equation.
Speaker Change: We had been we had been going down the path for a number of years of very much a branded business and shifting to multipliers and licensees.
Speaker Change: <unk> expands our ability to penetrate the market significantly faster than.
Speaker Change: And then if we then if we try to do so within just a branded business.
Speaker Change: Growers are looking for this technology in the efficacy and the utility of the technology. So we're excited about that multipliers are looking for another option and they want to be able to do.
Speaker Change: <unk> choices to their customer base.
Speaker Change: And so those are the those are the two big pieces of opportunity that creates and maybe more so than anything else. It allows us to put our technology in the hands of more people faster and penetrate that space and make the technology available for them. So we're excited about the move were in the in the kind of infant first to second year here.
Speaker Change: So we'll see that just quickly and we'll certainly keep you informed as to how it's going.
Patrick Cunningham: Next well move to Patrick Cunningham at Citi.
Patrick Cunningham: Hi, good morning seed production costs.
Speaker Change: Solid lead lower in the quarter and just wanted to understand the extent of commodity cost inflation, hitting the P&L versus execution on productivity and how much of an offset the trait launches have been or will be for the balance of the year.
Speaker Change: Yeah, So maybe I'll start and then throw it to David for the PS and Qs I think I think we were.
Speaker Change: From a cost standpoint down about 100 in the first quarter.
Speaker Change: A big piece of it is commodity a big piece of it is productivity and so it's both.
Speaker Change: We have seen continued improvement in terms of our licensing fees on the soy side.
Speaker Change: And we saw some of that come in to the first quarter, we will see more of that as we get into the first half of the year.
Speaker Change: So we've just got commodity going in the right way, we've got a huge effort and a huge push around productivity. This has been a multi year effort, it's coming to fruition at this point in time.
Speaker Change: And so it feels good second half I think we should see something similar came through come through.
Speaker Change: But again, we have to deliver that and we've got to get to get the get the product on the ground. So David anything I missed there.
David Begleiter: Pretty much received right on about $200 million for the full year, we did see.
David Begleiter: 100 in Q1 kind of in Q2 Q3, we do see some of those offsets like the new trade introduction costs and those sort of things. So that's why it's a little bit front end loaded in.
David Begleiter: The first half than in the back half we are expecting about the same level. So when you add it altogether is about $200 million received $200 million also for CP youll see a little bit that in the first part of the year also mainly in Q1, because we saw the deflation kind of starting to level out and remember.
David Begleiter: We saw some of that in the back half of the year. So that's why it looks a little bit more front end loaded than when you look at Q1 versus our overall 400 for the year, but again, we feel pretty good with where we're at at this point in time on the $400 million.
David Begleiter: Our next question comes from Edlin Rodriguez that message home.
Speaker Change: Thank you good morning, everyone.
Speaker Change: One quick one for you I mean, I think at the beginning of the call.
Speaker Change: As you've.
Speaker Change: You've described the axe under Windows.
Speaker Change: Mix.
Speaker Change: But what concerns you. The most is at the level of pricing that you don't think of fully supportive upcoming what do you think the mix instead of being good.
Speaker Change: Yeah, Good morning Island so.
Speaker Change: Here's how I'm seeing the global AG markets.
Speaker Change: We said some of this already right, but planting has went quite well so far this year and weather has cooperated.
Speaker Change: Think we're still expecting record demand for grains, and oilseeds, which is a key barometer for me.
Speaker Change: Global inventories, especially with corn, they're relatively tight and that you can see what farmers have done right, they're going to plant more corn.
Speaker Change: Which makes all the sense.
Speaker Change: And I think in the first quarter, we said it was going to be the year of corn and it's too early to call that but it certainly looks that way to me.
Speaker Change: And then on <unk>.
Speaker Change: Farm demand not only for the top hybrids and varieties, but also for the top branded CP technologies. They are robust so.
Speaker Change: If you put all of that into the positive comments.
Speaker Change: That there's a lot there to like when it comes to the AG fundamentals. The one area that we're watching of course is just if you look at crop pricing they have come down a little bit and that has tightened margins. It's not consistent around the world. For example, Brazil are seeing actually there is there is some higher pricing for crop prices and higher.
Speaker Change: <unk> for Brazilian farmers, which is driving the behavior that we've just described in Brazil, and there is really solid fundamentals in Brazil, but margins have come off a little bit for for farmers here in the United States. So that's the one thing that we're watching and.
Speaker Change: We haven't seen any behavior change nor would we expect it in fact, when things get a little tight usually what happens is farmers actually invest in technology.
Speaker Change: That's exactly what we're seeing today.
Speaker Change: When I think about the fundamentals are more or less I would say.
Speaker Change: There is some strength there, but then you have to kind of overlay and I don't want to bring it back or entirely to trade and tariffs, but the second half of the year, we do need to see some export windows open up.
Speaker Change: For the green that will be harvested and so that's another thing that are we concerned about I'd say no not yet, but it is something we're watching so and.
Speaker Change: I think that this is all related the macroeconomic plus the geopolitical landscape I think that that is all kind of built into the crop commodity trading prices right now and we need to kind of see how that goes through the second half of the year. The last comment, which we've already talked about our CP pricing.
Speaker Change: So we've already made the change today that we think that it's the <unk>.
Speaker Change: <unk> for the industry will be down low single digits for the full year that is reflected in the guide it's our best thinking today and right now that that would be our view and it is also I think the second thing we are carefully monitoring as we get through the first half of the year hopefully that helps.
Speaker Change: We'll go next to Jeff Zekauskas at Jpmorgan.
Jeff Zekauskas: Thanks very much.
Speaker Change: What percentage of.
Speaker Change: Corn hybrids that you sell in the U S are imported from other countries and as status source of tariff penalty and for Dave.
Speaker Change: The EBITDA guide difference is 200 million, but the cash flow expectation is $400 million difference, but what about your business, where the cash flows are harder to predict in the EBITDA.
Speaker Change: Yeah.
Jeff Zekauskas: So Jeff Thanks.
Speaker Change: For the <unk>.
Speaker Change: Question in terms of what percentage of corn hybrids that we sell commercially in the U S.
Speaker Change: Come from outside of the U S essentially the answers see Roe.
Speaker Change: We have some parent seed in some of our facilities that come in from different parts of the world, where we've got 24.
Speaker Change: There are 12 months, a year growing seasons from parent but.
Speaker Change: Almost exclusively around the world I mean, and I'm going to say 90 plus percent of our production is local.
Speaker Change: Is why you see such a.
Speaker Change: Really insignificant tariff impacts so.
Speaker Change: Maybe pass the second question and the second piece of your question to David Yes. So on the cash that the reasonably have that situations. When you look at our cash flows for the year a significant part of our positive cash flow is in Q4.
Speaker Change: And when you look at the different reasons for what drives that number one the biggest ones is the cash credit mix, which we don't know to very much into the year almost into December into different parts of December. So that is a large driver of our overall number.
Speaker Change: When we look at Q1 and were $500 million better than where we were last year. So we obviously feel really good about that higher EBITDA better working capital we can control the working capital obviously, so I think we're in good shape there.
Speaker Change: And that concludes our Q&A session I will now turn the conference back over to Kim for closing remarks.
Kim: Great that concludes our call. We thank you for joining and for your interest in <unk>. We hope you have a safe and wonderful day.
Kim: And this concludes today's conference call. Thank you for your participation you may now disconnect.
Kim: Yeah.
Kim: Okay.
Kim: Yeah.
Kim: Okay.
Kim: Yeah.
Kim: Yeah.
Kim: Yeah.
Kim: Yeah.
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Kim: Yeah.
Kim: [noise].