Corteva Inc (CTVA) — Q2 2019 Earnings Call Transcript

Good morning, everyone. Thank you for joining the second quarter 2019 earnings conference call for Corteva Agriscience. We're making this call available to investors and media via webcast. We have prepared slides to supplement our comments during this call. These slides are posted on the Investor Relations section of our website and through the link to our webcast. Speaking on the call today are Jim Collins, Chief Executive Officer; and Greg Friedman, Executive Vice President and Chief Financial Officer. In addition, Tim Glenn, Executive Vice President and Chief Commercial Officer; and Rajan Gajaria, Executive Vice President of Business Platform, will join the Q&A session. During this call, we will make forward-looking statements regarding our expectations for the future. I direct you to Slides 2 and 3 of our earnings release for our forward-looking statement disclaimers. All statements that address expectations or projections about the future are forward-looking statements. These statements reflect our current expectations that are not guarantees of future performance and are subject to risks and uncertainty regarding assumptions. We urge you to review our SEC filings for a discussion of some of the factors that could cause actual results to differ materially. We are providing information on a pro forma basis, prepared in conformity with regulation FX in order to provide the most meaningful comparison. So please take note of the pro forma basis discussion and our earnings release and slides. Unless otherwise specified, all historical financial measures presented today exclude significant items, which can be found in the schedules that accompany our earnings release. We will also refer to non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and on our website. Turning to the agenda for the call today, Jim will share accomplishments on our priorities for shareholder value creation and provide perspective on the quarterly financial results, market backdrop, and revise full-year guidance. Greg will then review our second quarter and first half financial results by segment. Following this review, we will take your questions before wrapping up the call. With that introduction, it's now my pleasure to turn the call over to Jim.

Thank you, Megan, and thank you also to those joining our call today. Earlier today, we reported the second quarter results for Corteva, our first quarter reporting as an independent company. Two months ago, on June 1, we completed the separation of Corteva from DowDuPont, culminating a 3.5-year journey and marking a significant milestone for our employees, our customers, and now, our shareholders. With our spend, we created a new kind of ag company—a global pure play, built on a foundation of industry leadership and focused on bringing new and integrated solutions to farmers, enriching the lives of those who produce and consume and ensuring progress for generations to come. That is our purpose. In our early days as a public company, we have deepened our resolve on delivering on that purpose. The unprecedented market backdrop for the second quarter presented considerable challenges to our customers and, in turn, to us: flooding, planting delays, prevented planting, delayed deliveries, insect pressures, trade-related market disruptions—the list is long and exceptional when viewed from history's lens. In 150 years of tracking data in our industry, the events that transpired in the North America region this season are without precedent. Amid these historic events, both our spend and market disruptions, we've worked hard to deliver progress this quarter on our priorities for shareholder value creation noted on Slide 4. These priorities continue to guide our actions and underscore the quality of the results that we are targeting. First, two announcements this quarter reinforced our commitment to returning excess cash to shareholders. In June, we announced the authorization of a share buyback program to return $1 billion to shareholders, which we expect to complete over the next three years. Additionally, we declared a quarterly dividend of $0.13 per share, consistent with our earlier indications. These are proof points regarding our confidence in the strength of our long-term strategy. On our priority related to developing innovative solutions, I'm pleased to report that in the second quarter, we began recognizing licensing income related to our Enlist E3 trait, where we already have over 100 executed licenses to date. We also began seeing traction in the market in terms of units sold. Over 150,000 units were sold through our rep network in the quarter. Although this represents a small percentage of our overall units, it highlights our early groundwork toward reaching our target of having this technology on 10% of North America planted acres in 2020. Now beyond Enlist E3 soybeans, new product launches overall are driving both sales and operating EBITDA improvement in the quarter with growth from Qrome and PowerCore Ultra in Seed and Arylex herbicides, Zorvec fungicides, and Isoclast insecticides in Crop Protection. We continue to see solid momentum in our Crop Protection product portfolio with geographic label expansions for Arylex, Isoclast, Rinskor, and Zorvec. This includes the very recent registration we received in Brazil for Isoclast and Rinskor. On cost advantage and our priority around best-in-class cost structure, we delivered $115 million in cost synergies in the quarter and approximately $200 million in cost synergies through the first half of this year, exceeding the original target set for this timeframe by about $50 million. When you accumulate what we have delivered since the merger closed, we have realized cumulative cost savings of $700 million through the end of this quarter, which is approximately 60% of our commitment of $1.2 billion. Additionally, we announced earlier this year that we are targeting an additional $500 million in operating EBITDA improvement over the next five years. To further our progress in this regard, we launched a company-wide initiative this quarter that we are calling Execute To Win, or E To W. This effort is focused on establishing an owner mindset for all of our employees to drive the cultural reinforcement that will be needed to deliver and sustain our growth and productivity gains long-term. We look forward to providing additional detail on this effort and our productivity plans in the coming months. Finally, regarding our second quarter performance, outside of North America, we've realized net sales growth of 10% and organic sales growth of 17% in the quarter, demonstrating the balance inherent in our global operating footprint today. Though our results were negatively impacted by the North American market, we capitalized on strong performance outside of North America and achieved results that demonstrate our ability to set expectations and deliver what we promise. Moving to Chart 5 and a few highlights on our key performance indicators for the quarter. Net sales decreased by 3% versus the same quarter last year. Market disruptions due to the weather in North America significantly delayed planting, resulting in volume declines in both segments from reduced planted acres and missed Crop Protection applications during the quarter. Sales were also impacted by ongoing currency headwinds and pricing pressures in Seed. Outside of North America, organic net sales were up 17% versus the same period last year on both volume and price improvement, demonstrating the strength of our new product launches and reflecting significant benefits to the quarter from an early start to the season in Latin America. Operating EBITDA decreased by 6% for the quarter, largely driven by declines in the North American market. Demand for new Crop Protection products resulted in margin expansion in the quarter, which helped to partially offset the impact of currency, raw material cost increases, and declines in North America. Selling, administrative, and R&D costs declined by 9% in the quarter on a net basis. This result highlights the benefit of our cost synergies as well as the discretionary actions our teams are taking to curtail spending in light of the market-driven declines in our results. Slide 6 shows second quarter highlights by region. I'll start with our results in North America. North American sales declined by 8% for the quarter due to the weather-related planting delays that drove reductions in planted area, a significant level of product switching, and a loss of Crop Protection applications. Uncertainty remains on the planted acres, and the USDA announced plans to perform a broad resurvey in July that is expected to be released on August 12. In the Crop Protection sector in North America, elevated channel inventories are impacting restocking. Additionally, competitive price actions, generic price pressure, and large distributor inventory-reduction initiatives are impacting pricing. On a positive note, indications are that demand for Corteva Crop Protection products with Pioneer customers is strong, driven by joint offers like TruChoice and Corteva Cash. Moving to Latin America, we are seeing strong early demand with net sales up 39% on an organic basis. The trend toward an early season began in December 2018 with the spring season and has continued with a very strong early start to the summer season. We estimate that approximately $80 million in sales, which would normally have occurred in the third quarter, has moved into the second quarter. Sales have also been bolstered by demand for new products, including year-over-year growth for picoxystrobin, Dermacor, and herbicides in Crop Protection, as well as PowerCore Ultra and Leptra corn products in Seed. In Asia Pacific, organic net sales were up 10%, highlighting volume growth in Crop Protection due to higher pest pressure and pricing on supply-constrained, high-demand products across the region. The region is seeing broad-based volume and price growth in Spinosyn insecticides across several markets and crops. Corteva is pleased to have a strong solution to offer customers to address pest pressures evident in the region. Our Spinosyn technology, while supply constrained, remains an important tool in the local market. In addition to the Spinosyn growth, the launch of Rinskor rice herbicide in China and pricing growth in both corn and rice seed contributed to results in the quarter in Asia Pacific. Finishing with Europe, Middle East, and Africa, sales were up 6% on an organic basis. EMEA has had a strong season, particularly in Seed. Share gains in our oilseed portfolio, particularly in sunflower in Eastern Europe, and implementation of a direct agency model in Eastern Europe have delivered volume gains. The region also delivered organic growth in Crop Protection due to strong penetration of Lumiposa seed treatments. Increased demand for new Crop Protection products, like Zorvec fungicide, recently launched in grapes and potatoes, and Arylex cereal herbicides are also contributing to growth in the region. Currency devaluation in the region has impacted overall sales growth by 9%. Now turning to Slide 7 and covering the drivers of our operating EBITDA results for the first half and updates to our guidance for the second half and full year operating EBITDA. Looking at the first half, pro forma operating EBITDA is down 13% compared to the same period last year. Our focus on controlling costs and realizing cost synergies delivered about $200 million in the first half, $50 million ahead of where we expected it to be. In terms of volume and price, there were several drivers that impacted our results. Starting with new products, we generated $50 million of EBITDA improvement in the first half, predominantly in the Crop Protection segment. Price and volume improvements across the rest of our portfolio contributed $120 million in incremental benefit to the first half versus last year before we factor in the impact of the North American market. We estimate that the North American market for the first half represents an approximate $350 million headwind, an estimate that reflects lower-than-expected planted area for corn, soybeans, and canola, missed Crop Protection applications, and shifts to lower-margin products, including shorter-maturity corn products. This estimate also includes the impact of delayed sales, a seed delivery shift into the third quarter, as well as early deliveries that occurred in the fourth quarter of 2018. Offsetting the seasonal shifts, the full-year impact from challenging market conditions in North America is estimated to be approximately $250 million. Looking ahead to the second half due to the late North American season, we see some seed revenue shifting into the third quarter, primarily in soybeans. This impact is almost directly offset by the volumes that shifted into the second quarter due to the early season in Latin America. Consistent with our statements earlier this year on the second half, we continue to expect strong price improvement year-over-year on supply-constrained, high-demand products, primarily in our insecticide portfolio. We expect to have year-over-year improvement in Latin America in the second half. We will keep up our momentum to deliver additional cost savings from synergies in the second half, bringing our annual incremental savings to $350 million. On top of this, we are beginning to stage other productivity initiatives related to the additional $500 million in incremental operating EBITDA improvements I mentioned earlier. We'll have more to share on specific actions as we work through them. Overall, we expect to deliver operating EBITDA that's about breakeven for the second half using the midpoint of the range provided. This represents an approximate $200 million improvement over the previous year, which aligns with the improvement we guided to back in May for the second half. When we add it all up, we are guiding to an operating EBITDA range of $1.9 billion to $2.05 billion for fiscal 2019, down about 5% versus 2018, using the midpoint. On net sales for the full year 2019, we expect declines of roughly 3%, predominantly on currency headwinds. On an organic basis, we expect sales to be about flat year-over-year. Before I turn the call over to Greg, I will summarize by saying it is difficult to overstate how challenging this year has been to date. However, our team has waited a long time for the chance to be a standalone company, and we intend to show the market what we can deliver. With that, I'll turn it over to Greg, who will get into the details behind our second quarter and first half results.

Thank you, Jim. Turning now to Slide 8 for a summary of our second quarter results. Please note that all periods, except for the three months ended June 30, 2019, are on a pro forma basis for operating EBITDA and operating EPS. As Jim mentioned, the effects of our North America business from unprecedented weather-related events continue to impact our overall results for the second quarter via delayed planting and lower-than-expected planted area in corn, soybeans, and canola, as well as missed Crop Protection applications. Net sales of $5.6 billion were down 3% versus the prior year, impacted by currency headwinds of 2%, a 1% decline in local price, and volumes that were essentially flat. Excluding North America, Rest Of the World volumes were up 14%, highlighted by strong early demand in Latin America for Crop Protection products, including 73% year-over-year growth in sales from new products worldwide. This includes products such as our Isoclast insecticide and Zorvec fungicide. Competitive pricing pressure in North America soybeans coupled with higher replant in corn more than offset the price improvements we achieved in Asia-Pacific from broad-based demand from new products across several crops and markets. For Rest of the World, we recorded organic sales growth of 17% in the quarter versus the prior year. When it comes to operating EBITDA, we reported $1.45 billion, a 6% decline versus the second quarter of 2018 on a pro forma basis. Overall, declines were led by lower margins in Seed deriving from the impacts of replanting corn and pricing pressures in soybeans. We delivered $115 million of synergies in the quarter, while currency presented a headwind in the quarter. Our operating EBITDA margins were equally pressured by challenges within Seed, driven by the overall North American market. This more than offset the 150 basis point margin expansion we delivered in Crop Protection in the second quarter. On overall, we delivered an operating EBITDA margin of 26%, down 80 basis points from the prior year on a pro forma basis. This translated into operating earnings per share of $1.42, down 9% from the second quarter of 2018 on a pro forma basis. Turning now to Slide 9 for a year-over-year comparison on our operating EPS. Realized cost savings from synergies contributed $0.13 to operating EPS in the quarter, while volume and price improvements across the rest of our portfolio of $0.06 were offset by the impact of the North American market. Currency was a $0.05 headwind in the quarter. Additionally, the impact of changes in our base tax rate on pretax income was a hit of $0.07. Our base tax rate for the quarter, which excludes exchange gains and losses, was 17.4%, up from the second quarter of 2018 rate of 13.8%. Lastly, we generated $0.04 of benefit from foreign exchange gains related to our hedging program to offset exposures for the foreign-currency-denominated monetary assets and liabilities that we carry on our balance sheet. Turning to our segment results, Slide 10 highlights the performance for the quarter and the half in both our Crop Protection and Seed segments. In Crop Protection, net sales were $3.3 billion for the first six months of 2019, down 2% from the prior period. The decrease was primarily due to a 5% decline from currency, partially offset by a 2% increase in local price and a 1% increase in volume. For the quarter, our top line was similarly affected by currency, offsetting the strong growth that we experienced in Latin America. Crop Protection's operating EBITDA was $670 million for the first six months of 2019, down 10% from the first six months of 2018. Unfavorable currency, volume declines in North America, and higher input costs drove the decline in operating EBITDA, while the segment delivered on cost synergies. In the quarter, Crop Protection delivered 150 basis points of operating EBITDA margin expansion. In Seed, we reported net sales of $5.7 billion for the first six months of 2019, down 8% from the same period last year. The decline was primarily due to weather-related impacts in North America and the effect of early deliveries of corn seed in the fourth quarter of 2018, which were partially offset by favorable corn seed demand in the EMEA. Currency presented a 3% headwind. In the quarter, we faced similar impacts stemming from the North American market, partially offset by strong early demand in Latin America. Seed operating EBITDA for the first half of 2019 was equally challenged by the impact of the North American market, down 15%. Our results reflect pricing pressure and lower volumes from weather, coupled with unfavorable currency and the delivery of cost synergy benefits in the quarter. Our second quarter Seed operating EBITDA was similarly affected by the North American market. Turning now to Slide 11 for a closer look at our operating results on a seasonal or first-half basis. Starting with Crop Protection. Reported net sales were down 2%, primarily due to the impact of currency, partially offset by a 2% increase in local price and a 1% increase in volume. Organic sales growth was 3%, and outside North America, organic sales growth was 17%. In North America, organic sales were down 17% on lower volumes due to lost spring applications in nitrogen stabilizers and corn and soybean herbicides from the impacts of wet weather. Latin America sales showed substantial growth with 43% organic growth on 37% higher volumes, reflecting strong early demand for the upcoming season. Approximately $80 million of sales were realized in the half that typically occurs in the third quarter. Early demand was concentrated in our insect management product portfolio, including Spinosyn insecticide and Seed-applied technologies as we worked with growers to provide the best solutions for their current pest challenges in that market. We also delivered a 6% price improvement for the quarter, while currency was a headwind of 7% for the region. In Asia-Pacific, organic net sales were up 16% on higher volume and price; our results reflect strong demand for insecticides from broad-based growth in several markets, coupled with continued traction in new products like Rinskor herbicides and Isoclast insecticides. Currency presented a headwind of 5%. In EMEA, organic sales were up 5%, driven by strong and balanced seasons, coupled with continued demand for Zorvec fungicide. Currency presented a headwind of 9%. Turning to Slide 12, where I'll cover the first half performance for our Seed segment. In Seed, reported net sales were down 8% on 4% lower volume, a 3% decline in currency, and 1% lower price. Outside of North America, we delivered organic sales growth of 7%. In North America, Seed sales were down 10%. Volume was down 8% on weaker volumes from weather-related delays and reduced plantings, coupled with early shipments of Seed that were recognized in the fourth quarter of 2018. Price declined by 2% due to the competitive pricing environment around soybeans as well as higher corn replanting. In Latin America, organic sales were up 2% driven by 2% higher volumes. We delivered an increased early demand for corn seed in Brazil, Mexico, and Argentina. Currency presented a headwind of 5%. In Asia Pacific, organic sales were up 3%, driven by higher prices in the Southeast Asia market. Volumes were flat to slightly up, as we saw some demand impact on corn due to dry weather in the region. Currency presented a headwind of 7%. Lastly, in EMEA, we delivered organic sales growth of 9% from volume and price improvements for the half, reflecting balanced and increased demand in the local market. Our top line results reflect strong demand for corn in Southern Europe as well as volume and price improvements, combined with expected share gains in our sunflower lineup in Eastern Europe. Currency presented a headwind of 10%. Now turning to Slide 13, I'll provide an update on the modeling guidance that we shared earlier this year for 2019. Just to recap Jim's earlier comment on how we will see the second half of the year playing out, we are expecting about $200 million improvement in our operating EBITDA for the second half versus the prior year. Regarding the quarterly split for the second half, we have historically run at a loss in the third quarter and generated a profit in the fourth quarter. In the 8-K we filed this morning, we provided historical quarterly data for pro forma sales and operating EBITDA. For interest expense, given better visibility into our delevering of heritage debt, we have narrowed our range for interest expense to be $140 million to $160 million for 2019. The next few items remain unchanged from our prior guidance. Our operating tax rate is set at 19% to 21%, and depreciation and amortization is estimated at $1 billion. Please note that we exclude all amortization expenses from our operating EPS, which is estimated at $400 million for 2019. Additionally, in terms of our $1 billion stock repurchase program, I expect that we will capitalize on opportunities in 2019 depending on the current market environment, cash levers, and operating needs. We expect there will be more opportunities to expand on this in 2020. Regarding costs and the current market environment, I want to emphasize the organization's focus on delivering our commitments in light of the current market situation. This includes delivering on the synergy targets we have communicated, executing on the additional $500 million of operational EBITDA improvements over the next five years from ongoing productivity actions driven by Execute To Win, and reducing our standalone costs to achieve a best-in-class cost structure as a company. Finally, I'm pleased to announce that I will host a webcast on August 15 to cover certain topics related to our standalone financials. Here, I will take a deeper dive into the modeling considerations and address some questions that we’ve received. More details to come, and I hope you can join us. I’ll now turn the call back over to Megan to open the Q&A.

Thank you, Greg. With that, let’s move on to your questions. I’d like to remind you that our forward-looking statements apply to both in our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

Thank you. Good morning. Jim, just in 2020, I know it’s early, but on a very high level, could you just help us think about how the EBITDA might look in 2020 versus 2019, given the benefits from some cost savings, productivity, and perhaps higher planted acres? And maybe some headwinds from some higher costs? Thank you.

Great. Thanks, David. Yes, directionally, as we think about entering 2020, we need to factor in what impact the North American market in 2019 will have and what return we can expect as that market comes back to us. We'll continue to have the synergy programs that we talked about, flowing through the momentum we’re carrying into 2020, and we've given guidance on what to expect year-over-year in that area. Additionally, it comes down to the market backdrop, and we need to consider commodity prices on corn and soy, and planting intentions. As we sit here today, we have a couple of big markets still to clear through. We need to finalize the North American market that we have in the ground right now. There will certainly be questions about the actual harvested quantities of grain compared to the acres planted, so quality and yield remain significant questions. Meanwhile, we have a robust Latin American market to work through, covering both the summer and spring seasons down there. Overall, it could be shaping up to be a strong season if we see some snapback and if key factors I mentioned start contributing positively to our results. However, we haven't provided any guidance for 2020 at this point, and we'll return as we approach the end of the year to set that up. I don’t know if Greg or anyone else wants to add anything.

Thanks very much. So two questions. What are the key regulatory approvals that you’re awaiting? And when do you expect them, in rough terms, to occur? And secondly, you talked about achieving $1.9 billion to $2 billion in EBITDA. What kind of operating cash flow does that generate? Or on a normal basis, what’s your target for operating cash flow divided by EBITDA?

Great. Thanks, Jeff. We had numerous new registrations that occurred for us here in the first half of 2019, and we've been enjoying some positive momentum. Some of those were key active ingredients in our Crop Protection business. We got a full and unrestricted registration in North America for the Isoclast insecticide, which will allow us to start ramping up that product as we go into 2020. Regarding the big ones we’re waiting on, I'd say the priority would be Conkesta, which is the protein for aboveground insect control in Brazil. We are really waiting on China as well as European grain import tolerance for that. From conversations with those involved in trade negotiations with China, we know that these traits are on the list and have been discussed as opportunities; once a trade deal gets finalized, it may open the door for the import of those and give us the green light. Beyond that priority, we have a number of other minor registrations that we are still tracking but feel very positive about our regulatory portfolio, with our teams globally executing really well. Maybe I can turn it over to Greg to address the cash flow question.

Yes, sure. Thanks, Jeff. The cash flow conversion ratio that we’re targeting is above 50%, and that should be achievable as our cash flow normalizes in 2020. As you would expect, in 2019, we had some one-time cash needs that are reflected in our expenditures and integration. Those are one-time cash uses that will be wrapped up in 2019. Moving to 2020, we should see a more normalized cash flow. We will have some seasonality in our cash flow, just driven by our industry. But we are targeting that 50% cash conversion ratio.

This is Jeremy Rosenberg on for Vincent. Thanks for taking my question. I want to start on Seed. If we expect yields to be lower, let’s say in the U.S., perhaps there’s going to be more demand in LATAM. I mean, could this potentially pull forward the demand in North America in the fourth quarter? Looking at your existing Seed inventories, whatever is produced this year, are you at all worried about a potential shortfall in Seed production in the U.S. that could potentially force you to do some winter production in South America? Just more generally, how are you thinking about your Seed production costs going into next year, considering these moving parts? Thanks.

Great. Thanks for your question. You're correct. The early part of this season involved us working to shore up our planting plans and collaborate with key growers across the North American market. The good news is we have extensive experience, and we maintain a broad footprint of production facilities across North America. When we experienced those early rains, I want to commend our production team for how quickly they were able to relocate acres out of some of the hardest-hit states like Indiana, Illinois, and parts of Western Ohio. This allowed us to shift production plans to areas less impacted by these conditions. At this point, we feel confident that we have the right amount of Seed in the ground for production, considering where we think the market will turn out to be in 2020. Our early monitoring suggests that the quality of this production is on track as expected. Therefore, we are not factoring in any significant changes to our cost of goods for seeds going into 2020, except potentially some commodity price influence. Regarding winter production, there is currently no need or plans for that. Part of the reason we don't expect to need it for corn is we expect to have some carryover. We received returns early enough to put into storage to help maintain germination rates. Thus, we should have sufficient quantities of Seed available, in addition to what our production lines can offer. In terms of soybeans, we were right on top of the season as well. So overall, we feel positive about our current positioning.

Thank you. Yes. I wanted to drill down into seed pricing a bit. How much was soybean seed pricing down year-over-year? And what's driving this? Is this just a mix shift down the price card? Or is this competitive dynamics between the various tolerance traits that are out there that could potentially worsen with the entrance of Enlist E3?

Yes, Steve. Thanks for the question. The North American market has indeed faced some significant challenges this season. As the environment has developed, we encountered several dynamics. We faced weather-related impacts, including replant rates and seed swaps to accommodate varying maturity ranges affecting corn pricing. On soybeans, the key factor has been a highly competitive environment. There were large amounts of seed out in the market chasing fewer acres as the season unfolded. We performed admirably but felt compelled to respond competitively to hold our position in the market. Our A-Series soybeans continue to lead in performance comparisons, and we are confident in our competitive approach. Additionally, we recorded a bit more of our soybean business during the early part of the third quarter due to our revenue recognition approach, which could have contributed to these dynamics. I have Tim Glenn here, head of our commercial teams, who can provide further insights.

Yes, Jim. You covered many significant points. I want to highlight that last fall, we achieved exceptional product performance with our A-Series soybeans. This heightened demand coincided with a challenging farmer sentiment toward soybeans due to trade uncertainties. Throughout this environment, we faced aggressive competitive actions, which we believe stemmed from our product performance. Additionally, it was a difficult production season for us, forcing us to sell lower quality soybean seeds, necessitating price concessions. We experienced competitive pressure and faced a tough environment regarding farmer attitudes but did not see a significant behavior change regarding technology adoption—farmers remained loyal to our top-tier products. We ultimately maintained a technology mix very close to our predictions, despite challenges in soybeans.

Jim, a couple of questions on corn. Was this the first year of your new, multichannel strategy in North America in corn? What was the impact of this change in channel strategy? Did you see an increase in share? Given your strong presence with the Pioneer brand, you must have a good sense of actual acres planted. Some fertilizer companies are talking about acreage planted as low as 85 million to 87 million, with maybe a snapback to 95 million next year. Would you agree with that assessment?

Yes. I’ll begin with the second part of your question regarding acreage. You’re right; with the Pioneer brand, we obtain a solid grasp of actual planting activity. It’s tough for us to project specific numbers, as we are awaiting USDA survey data. They've indicated plans to conduct a comprehensive resurvey because prior data wasn't aligning. That creates uncertainty around actual planted versus intended areas. In corn, we might see a decline of a couple of million acres year-over-year. When everything is sorted out, we believe there were strong planting intentions early, but given recent developments, we could be down a few million. In soybeans, we might face a significant reduction of as much as 10%, which could help regarding carryover and related factors. But it remains early to make precise predictions, and we are keen to see what the USDA data reveals shortly. Tim, would you like to speak about the multichannel approach?

Yes, I'd be happy to. Regarding the multichannel approach, we underwent a major reorganization of our regional brands, which created market disruptions concerning existing dealer and customer relationships. We anticipated some volume losses through this process but have found retention to be better than expected regarding our dealer network and customer base. 2019 was primarily a preparation period for the future, including positioning the Mycogen brand for growth and launching 42 new hybrids. Timely interactions with key channel partners have been essential as we share our future plans and increase our engagement. We've had healthy insights into our relationships with farmers through 2019, and as we determined our order activity for both corn and soybeans, we remain confident. Despite challenging weather conditions leading to hybrid switches and crop changes, we believe our strong relationship with farmers and proactive management has worked out in our favor.

Hi, good morning. One of your Seed competitors was discussing price compression for some of the Xtend premiums. Could you give us an update on what you're seeing regarding pricing for Xtend? And how do you expect this to carry over for E3 pricing?

Thanks, Joel, it’s great to hear from you. We just discussed pricing pressures in the market. This is indeed tied to the Xtend portfolio. We feel confident in our product conversions and overall product performance; our A-Series lineup is around 65% or so converted. Overall, soybean pricing was probably down 0.1% year-over-year, and this is a direct response to the prevailing competitive landscape. It’s challenging to comment on other companies' pricing strategies. However, we do offer some of the best-performing products in the sector, which enables us to resist losing market share significantly during tight market periods. On pricing for Enlist, it's early, and we’re evaluating how we price that product. We are observing significant pent-up demand from farmers about their interest in the system. We’ll reassess pricing toward the end of the year while considering product performance attributes and developing Seed packages.

Thank you. Given the optimism for 2020 that everyone is expressing, how should we think about the potential effects on your 4Q order book versus what will realistically boost 2020? On one hand, a very tight fall application may limit preliminary decision-making, but on the other, farmers will likely want to secure the best hybrids as early as possible. I know it’s difficult to anticipate, but any initial thoughts on this evolution would be appreciated. Thank you.

Thanks, Chris. We have factored in an appropriate level of optimism into the second half of 2019, incorporating product pipeline strength and synergy progression. However, we recognize that due to late planting this year, some planting windows may close, impacting the allowance for fall-applied Crop Protection and nitrogen applications. We believe we’ve accurately positioned ourselves to handle sales projections, suggesting we anticipate reported sales could be down about 3% versus the previous year. This places us on track for around flat sales regarding price and volume throughout the full year. We expect 2020 to be characterized by favorable conditions returning for planting resources and yields improving, which can positively influence our overall results.

Hi, good morning guys. Two-part question on Enlist, if you don’t mind. The first one is just a technical inquiry. What is considered a unit? And how many of those do you sell in total? But then the main question is, what kind of pricing have you observed with Enlist thus far, in terms of a premium over other varieties? Do you expect to maintain or increase that next year?

Great. Yes, Jonas, a unit sold refers to a bag of seed. In corn, a unit contains roughly 80,000 kernels; in soybeans, it contains about 140,000 kernels, which is capable of planting one acre of field. The seed industry often uses these units as a standard reference. When it comes to product performance, I might also ask Rajan or Tim to elaborate further. We are currently integrating the Enlist trait into our elite Pioneer and Corteva germplasm following the timing of our merger. Due to timing and trust windows, our exploration and best practices in this technology only started after completing the deal in late 2017. We had one good growing season to evaluate it, and in light of that, we're ramping up for 2020 with our combined germplasm from both Dow and our internal capabilities. Rajan, do you have anything to add?

Jim, I think you've covered it. I want to emphasize the importance of Enlist as a system. When discussing our product positioning, we must also include the chemical compatibility, which adds significant value to our offerings. Regarding capacity, the product has been performing very well in the field with cotton. Concerning germplasm, we've harnessed the top-quality genetics we possess and we are advancing Enlist, working with our partner MS Tech, ensuring excellent germplasm quality and impressive portfolio growth to introduce into the market. We are genuinely excited about our future offerings.

Thank you. Can you hear me?

Yes. Good morning, John.

Good morning. Last night, CF Industries reported that the damage to the U.S. corn market is so unprecedented that it might take more than one year for recovery. Do you agree with that statement? Are we potentially facing a couple of years of above-average planting and potentially above-average trends in pricing for the foreign input market?

It’s a great question, John. We've seen years before where conditions were tough, and subsequent years turned out to be extremely productive, if not better. Given the extensive work growers have done to enhance drainage and investment in equipment, it feels like, barring downstream market demand challenges, we possess significant capacity and capabilities to rebound from this situation. While some increment of land might need to be carefully monitored—from flooding or soil condition issues—when reflecting on the totality of agricultural space available, I believe we can expect a normalized return to previous market levels. And ultimately, it is just a matter of how many acres are planted and how effectively we can harvest from the ground.

Just a reminder that we can take another question if there are any.

Okay. We probably have time for one more question.

Good morning, P.J.

Thank you. Thank you for taking my question. Good morning, Jim, Greg, and Megan. I have a quick question about CPCs, you mentioned high inventories and pricing pressure. Have you already felt that pricing pressure? Or do you believe that is yet to come for the next season? Secondly for Rajan, how big is your seed treatment business today? And how big do you believe it can get? Thank you.

Great, P.J. Yes. In terms of Crop Protection Chemistries, we expect inventories in North America to be slightly elevated, given we were unable to obtain sufficient pull-through for early spring-applied chemistries, as well as maintaining a solid business in nitrogen fixation. Therefore, we are expecting elevated inventories as we approach the fourth quarter. However, we believe we’ve adjusted well for pricing dynamics. On pricing, we believe we are on the right track with our outlook moving forward. In the Rest of the World, we’re kicking off the season in Latin America positively, with channel inventories appropriately managed. Our overall results indicate strong performance, leading to expectations for flat pricing overall in Crop Protection globally, with mid-single-digit growth across the rest of the world. As for the seed treatment business, Rajan, can you touch on that?

Sure, I’ll briefly address your question, P.J. Our seed treatment business is actually showing very promising signs. We anticipate it will display growth exceeding the double-digit range this year, particularly in Latin America, where we've seen a significant uptick in demand. We're excited about the growth trajectory and believe strong prospects lie ahead.

That concludes our conference call today. Thank you all for your participation. You may now disconnect.