Corteva, Inc. Q2 FY2025 earnings call

• Growth and Margin: Corteva delivered top and bottom line growth in the second quarter and first half, with over 200 basis points of operating EBITDA margin expansion. Net improvement in price, volume, and cost was seen. Seed had strong performance with margin expansion and North American volume gains. Crop Protection had margin expansion driven by productivity, volume gains, and new products.
• Market Outlook: Ag fundamentals were mixed. Demand for grains and oilseeds grew, but crop prices and margins moderated. Positive signals on biofuels and gene editing were noted, and the company was constructive on 2026 growth.
• Financial Results: Organic sales grew, operating EBITDA grew, and margin expanded. Net cost improvement exceeded targets in the first half. Seed made progress on royalty neutrality, and there was investment in SG&A and R&D.

Seed: In the first half, Seed achieved 280 basis points of operating EBITDA margin expansion with pricing gains in most regions. Volume improvement in North America contributed to results, and there were healthy branded share gains in corn and soybeans. Seed also saw about $70 million in reduced net royalty expense due to increased out-licensing income in North American corn and lower royalty expense in soybeans. Crop Protection: The business had over 350 basis points of operating EBITDA margin expansion in the half. Productivity and deflation benefits, along with volume gains, drove performance. Volume was up 8% in the half, with double-digit gains in new products and biologicals. Price was down 2% in the half due to competitive market dynamics, mostly in Brazil.

• Raised full year 2025 operating EBITDA guidance to $3.8 billion midpoint, a $100 million improvement from prior guidance.
• Anticipate corn acreage increase in Brazil and Argentina, strong Crop Protection volume growth, low single-digit Seed pricing gains, and low to mid-single-digit Crop Protection pricing declines in the second half.
• Free cash flow expectations improved to about 50% conversion rate for the year.

• Market competition and pricing headwinds in Crop Protection, particularly in Brazil.
• Currency fluctuations, including from the Turkish Lira, Canadian Dollar, and Brazilian Real.
• Trade uncertainties and geopolitical impacts on crop trade.

Q: Just sort of distilling the prepared comments down, it seems like there are four sort of items for the back half that really factoring into your forecast. And that you have sort of a focal point on -- one would just be the tough CP comp and the negative pricing in Brazil. And obviously, Brazil is a big part of the back half. It seems like -- and I'd like to hear more about the Seed acreage expectations for the back half and how much do you think they're going to be up year-over-year. And then on a cash flow perspective, the prepays and whether they come in, and then obviously, what happens with FX. So if you put all that together, is that sort of how you're thinking about the range of outcomes in the back half and whether you're at the low end or the high end and potentially above the high end?

A: Yes. This is David. Yes, pretty much, I think you summed it up pretty well. I mean when we look at the year-over-year in the back half -- and I'd just remind everyone that I know you know this, but our back half typically is only 12% or 13% of our entire EBITDA for the year. So this year, we have it kind of lined up very much in line with what we've done in prior years. When you look at the plus/minus on Crop Protection, they did have a very strong second half last year. So we're lapping that. We're also lapping some of the cost deflation we already saw in the second half of last year. And then we -- as you mentioned, the price declines. And then we also have the FX impact, which is a little bit -- 2/3 or 70% allocated to CP just given their product flows. And then regarding acreage, I don't know, Judd, if you want to pick up the acreage received?

Q: I want to talk about the free cash flow conversion or the free cash flow guidance. I mean, obviously, on a $100 million EBITDA raise, you're upping free cash flow by $300 million, the conversion is better. Talk about what's going on specifically there? And then the second question is, $100 million EBITDA increase here, Chuck, you sort of alluded [to a little bit about] '26. Some of that, can we assume you may have gotten in '26, $100 million boost here? Like maybe just think about how you think about if you borrow on a board, but got a little early advance on some earnings in '26?

A: Okay. Yes. So we'll have David talk about... David P. Johnson: I'll do the cash flow. Charles Victor Magro: Then I can come back and give you perspectives on '26. David P. Johnson: Right. So if we look at where we are right now with cash generation through the first half, we are $900 million ahead of last year. And we expect, as you mentioned, the free cash flow somewhere around the $1.9 billion. So the adjustment to the overall guide is really twofold. One is our earnings increase that we increased the midpoint of our guide. But also with the new tax legislation, we are expecting less cash taxes in 2025, and that represents about a 4% uplift in our overall conversion rate. So when you end up adding those two factors together, we're now expecting about a 50% conversion rate for the year of $1.9 billion. I will remind everyone that -- and the way that looks on our balance sheet is not that we're accumulating cash on the balance sheet. It really represents itself in our -- lowering our needs for borrowing more CP. And so in the first half, you'll see that we borrowed a lot less commercial paper, resulting in lower interest expense. And that's one of the major drivers of overall first half EPS increase. Also reminded everyone that our $1.9 billion is very much dependent on our cash credit mix at the end of the year. We have dialed in a number that is very similar to past years. So as you know, we'll keep a eye on that as we progress through the fourth quarter. Charles Victor Magro: Yes. And Joel, it's Chuck. So look, talking about 2026, it's a little early. I would say, right to your question, though, there's been no pull forward from '26 into '25. I'll just take everybody back to the financial framework we set last November on an EBITDA basis. We're trying to deliver a $1 billion increase over 3 years. This guide range now at -- when we moved it from [ 3.7 to 3.8 ] from a midpoint perspective, we're right within that framework. And if you look at the levers that we're pulling to create that $1 billion, they're the same things we've always talked about. They're the 3 primary growth platforms. So you're seeing really good growth in Seed out-licensing, our biologicals business and our CP new products, they're delivering. They delivered a little bit more across the board in the first half. We feel good about the next 2 to 3 years. And then cost and productivity, which is really, I think, one of the main headlines for this first half, both the CP business and the Seed business, almost equally are pulling every productivity lever they can. We've got a multiyear program. As you know, we're looking at kind of restructuring assets in CP. And we're really looking at the production and automation of our Seed production. And you can see for the first half, $400 million. We've raised that now to $450 million for the full year. And if you look at what we need to deliver through the 2027, it's about $700 million of the $1 billion is going to come out of this bucket. And if we're at $450 million, we're feeling very, very good about that. So you put it all together and I'd say I'm pretty happy with the first half performance. I think when you think about the second half, it's less relevant for us, but we need to get through LatAm, specifically Brazil. The order books are looking very, very good. I think our cost setup in Seed particularly is great for second half LatAm, and it's going to come down to CP pricing, but we're well within the framework for the next 2 years.