Corteva Inc (CTVA) — Q2 2022 Earnings Call Transcript

Good morning, and welcome to Corteva’s Second Quarter and First Half 2022 Earnings Conference Call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President, Seed Business Unit; and Robert King, Executive Vice President, Crop Protection Business Unit, will join the Q&A session. We have prepared presentation slides to supplement our remarks during this call, which are posted on the Investor Relations section of the Corteva website and through the link to our webcast. During this call, we will make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties including, but not limited to, those discussed on this call and in the Risk Factors section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. 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.

Thanks, Kim. Good morning, everyone, and thank you for joining us. There are several key topics we’re excited to share with you today, including our strong results for the first half. Robust customer demand and sustained execution amidst dynamic market conditions resulted in double-digit growth in sales and operating EBITDA. Strong organic sales gains in every region are a testament to continued customer demand for our differentiated sustainably advantaged technologies. On the Seed side, our top-tier genetics continue to be in high demand as growers prioritize yields to help offset inflation. In Crop Protection, new product sales surpassed $1 billion for the first half, an increase of more than 60% compared to the prior year. This was led by products like Enlist herbicides, which have more than doubled in sales compared to the same period last year. The Enlist system continues to gain traction in the market given its superior performance and grower confidence. And we now estimate Enlist soybeans were planted on at least 45% of U.S. soybean acres in 2022. This is a remarkable feat considering this technology has only been in the market for three seasons. Market challenges persist, including tightness in supply chains and continued inflationary costs. Despite this, the organization is executing well, utilizing price and productivity actions as well as tight controllable cost management to offset inflation. Through the half, these actions, along with a mix of new technology products, helped to drive margin expansion of almost 130 basis points. Looking forward, we are also taking new strategic and operational actions to further accelerate our performance and create shareholder value. Let’s turn to Slide 5, where I’ll provide an update on the progress we’ve made on our strategic framework. Earlier in the year, we announced that we moved from a matrix organization to a global business unit model to drive overall simplicity and speed of business while increasing accountability. Today, we are announcing actions associated with a comprehensive strategic portfolio review we recently completed. At the center of our strategic review, we focused on several key priorities, including developing and commercializing differentiated technologies, shaping a performance-driven organization, and maximizing customer experience. As a result of these reviews, we plan to exit nonstrategic geographies and product lines while redirecting resources closer to the customer in core markets. Importantly, we are employing a strategy of differentiation to drive our competitive advantages, bringing unique, sustainable ag technology solutions to growers to drive advancements in global food security, climate change, and the energy transition to include biofuels. I’ve said from day one at Corteva, our technology engine is a powerful differentiator in terms of the value we create for growers, society, and shareholders. We plan to provide a deep dive of our pipeline as part of our upcoming Investor Day. But here are a few highlights to give you more confidence today. On the Seed side, we have nearly 20 times the experimental hybrids in our corn pipeline compared to 10 years ago, a testament to the strength of our data science capabilities. On the Crop Protection side, as I look forward to 2024, we will have launched 10 new active ingredients; 90% of these new products meet our sustainable innovation criteria. Utilizing this strategy, we will prioritize investments to support innovation while also balancing our commitment to return cash to shareholders. In fact, since 2019, we have returned more than $3 billion to shareholders in the form of share repurchases and dividends. Now let’s turn to the outlook on Slide 6. Recent ag commodity price volatility has increased due to several factors, including the war in Ukraine, increased energy costs, especially in Europe, the strengthening U.S. dollar, and continued cost inflation pressures. Although we expect to see expansion of planted acres in Latin America, global grain supplies remain tight, especially as dry weather casts uncertainty over important growing regions. Despite the short-term volatility, the outlook for agriculture remains positive. We expect record demand for grains and oilseeds in 2022, which we believe will support commodity prices for the next few years as demand continues to outpace supply, and we work to rebuild ending stocks. Farmer income levels remain at near record highs despite increased input costs for fuel and fertilizer. We are encouraged by resilient demand as growers prioritize the latest technology and top-tier products to increase productivity on the farm. Based on this market outlook and in conjunction with our refocused strategy and second half operating plans, we are raising our previously provided guidance for the full year. Net sales are now expected to grow 11% and operating EBITDA 17% at the midpoint over the prior year. This level of operating leverage demonstrates we are on the right track, and I look forward to sharing more of our plans with you soon. With that, let me turn it over to Dave to provide financial details on the half and the outlook.

Thanks, Chuck, and welcome, everyone, to the call. Let’s start on Slide 7, which provides the financial results for the quarter and the half. As Chuck said and as you can see from the numbers, we’ve started the year strong. Quickly touching on the quarter, organic sales increased 13% compared to 2021, with gains in both segments and all regions. This translated into earnings growth of 18% and margin improvement of more than 150 basis points, another solid quarter of continued growth and margin expansion, and I think differentiating Corteva in this environment. Now focusing on the half, organic sales grew 14% over the prior year, with broad-based price and volume gains. Global pricing was up 9% with notable increases in both Seed and Crop Protection. Volume growth in Crop Protection of 16% was driven by the strength of new products, which delivered approximately $400 million of sales growth year-over-year, an increase of more than 60%. We delivered $2.8 billion in operating EBITDA in the half, a 17% increase from the same period last year. This is noteworthy given the continued inflation of raw and energy costs, commodity price volatility, and the war in Ukraine. Pricing and productivity more than offset the higher costs incurred as well as an approximate $200 million currency headwind, driven predominantly by European currencies. This improvement translated into almost 130 basis points of margin expansion year-over-year. Let’s go to Slide 8, where you can see the broad-based growth with strong organic sales gains in every region. In North America, organic sales were up 9%, driven by Crop Protection on demand for new technology, including Enlist herbicide. Seed volumes were down versus the prior year, primarily due to a reduction in U.S. corn acres and supply constraints in canola. Soybean volumes were up 4% versus the prior year, driven by continued penetration of Enlist. Both segments delivered pricing gains with corn and soy up 6% and 7%, respectively, and double-digit pricing gains in Crop Protection, more than offsetting higher input costs. In Europe, Middle East, and Africa, organic sales increased 19% compared to the prior year, driven by both price and volume gains, again in both segments. It’s an impressive performance by the organization considering the impact from the war in Ukraine and the recent dry weather conditions in parts of Western Europe. Seed pricing increased 12% and helped to mitigate currency impacts. And for Crop Protection, demand remains high for new and differentiated products, driving volume growth of 15% year-over-year. In Latin America, we delivered 31% organic growth with double-digit volume and price gains. Pricing increased 13% compared to the prior year, driven by our price-for-value strategy, coupled with increases to offset rising input costs. Seed volumes were flat due to tight supply of corn, while Crop Protection volumes increased 34%. We also had a timing benefit on early customer demand in Brazil, shifting some forecasted volume into the second quarter. Asia Pacific organic sales were up 13% over the prior year on both volume and price gains. Seed organic sales increased 24% on strong price execution and the recovery of corn planted area from last year’s COVID-related impacts. Crop Protection volume growth of 5% was again led by demand for new and differentiated products. Let’s now turn to Slide 9 for a summary of our operating EBITDA performance. First half operating EBITDA increased nearly $400 million to $2.8 billion. And as I covered on the prior slide, strong customer demand drove broad-based organic growth with price and volume gains in all regions. On costs, we incurred more than $500 million of market-driven cost headwinds in the half, driven by higher Seed commodity costs, Crop Protection raw material costs, as well as freight and logistics. The company achieved approximately $130 million in productivity savings in the half, which helped to partially offset this impact. Currency was a $200 million headwind, primarily from European currencies. The organization’s focus on meeting increased customer demand, while effectively managing cost headwinds through pricing, product mix, and productivity resulted in nearly 130 basis points of margin improvement for the half. Let’s turn now to Slide 10. I’d like to expand just a little bit on our cost actions. In connection with the business realignment that Chuck referenced, we’ve completed a strategic assessment of our priorities and operational structure. As a result of this assessment, we anticipate incurring restructuring charges on a quarterly basis through the second quarter of 2023 of approximately $400 million. Roughly half of the $400 million of restructuring will result in cash payments and the remaining $200 million is related to long-lived assets, the Russia withdrawal, and some inventory write-off. This quarter, we recognized $68 million in restructuring and other charges. These charges were primarily a result of contract terminations, a reduction in headcount, and a $45 million charge related to our previously announced withdrawal from Russia. We expect additional restructuring and other charges of approximately $325 million over the next 12 months, including charges from headcount reduction and rightsizing our operations and functional support structure. And finally, and a key point, we expect the restructuring actions will deliver more than $200 million in run rate savings by 2025. More to come on this, but we believe these actions will position us to deliver increased value in both the short and long term. Let’s go now to Slide 11 and talk about the remainder of the year and our updated expectations for 2022. With the backdrop of our strong first half performance, we’re raising our reported net sales guidance to be in the range of $17.2 billion to $17.5 billion for the year, representing 11% growth at the midpoint and includes an approximately 2% to 3% currency headwind. We are also raising our operating EBITDA guidance to a range of $2.95 billion to $3.1 billion or 17% growth over the prior year at the midpoint. This increase reflects continued strong price execution in both segments and all regions for our technology in response to rising input costs. We now anticipate $500 million of year-over-year improvement in sales from our new Crop Protection products, an increase of $200 million over our original annual assumption driven by strong demand in every region. And as we focus on the second half of the year, we expect pricing and productivity to more than offset cost headwinds, which are driven by Crop Protection raw material costs, Seed commodity costs, as well as freight and logistics. Volume growth will be led by Crop Protection, primarily in Latin America, as farmers look to the newest technology to drive productivity on the farm. Seed volumes are expected to be relatively flat in the back half of the year with tight seed supply in Latin America corn. And regarding the third and fourth quarter outlooks, we expect the distribution of both revenue and operating EBITDA between the quarters to be consistent with our historic patterns. The volatility of exchange rates continues to be a key variable that we’re monitoring, primarily the Brazilian real. While we are largely hedged for this currency exposure, we currently expect an approximately $50 million headwind in the second half. We continue to maintain disciplined spending; we anticipate that SG&A as a percent of sales will improve by more than 100 basis points for the full year. Increased customer demand, coupled with the ability to manage cost headwinds through pricing and productivity, is expected to result in approximately 100 basis points of margin improvement for the full year at the midpoint. We’re raising our operating EPS guidance to a range of $2.45 to $2.60 per share. A lower share count driven by the $600 million of share repurchases completed in the first half of this year, coupled with strong operating earnings, is driving an expected 17% increase in operating EPS year-over-year. Lastly, we expect free cash flow to be in the range of $1 billion to $1.3 billion, lower than our earlier assumption of $1.3 billion to $1.6 billion. The change is led largely by higher accounts receivable balances on higher revenue. Despite the increase in working capital balances, all working capital metrics including days sales outstanding receivables and our inventory day supply continue to be strong. Let’s now go to Slide 12, just to summarize a few key takeaways. It’s clear that our organization, as Chuck has said, is executing very well. We’re obviously very pleased with the strength of the first half results. This momentum gives us confidence to raise our full year revenue and earnings guidance. And we’ve taken very important steps in our strategic roadmap to accelerate operational performance, and drive continued operating EBITDA margin expansion. We’ve completed comprehensive portfolio reviews. We’re taking cost actions to support our strategic priorities and our performance outlook. And finally, we plan to maintain our track record on capital deployment with our recently announced 7% increase in the dividend, and we expect to complete approximately $1 billion in share repurchases for the year. So, we’re excited to share more about this at our upcoming investor event. And with that, Kim, I’ll turn it over to you.

Thank you, Dave. On Slide 13, I want to briefly share the agenda of our upcoming Investor Day. As a reminder, the event will be held on September 13th in Johnston, Iowa at our global business and R&D center. The management team will provide more detail on the strategic update that we touched on today as well as how these actions will translate into earnings and margin growth, will detail our financial framework and include a showcase of our innovation pipeline. Registration details are available on our website, and we look forward to seeing many of you in person at the event. Now, let’s move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instruction.

Thank you, and good morning, everyone. I have a question regarding the 5% of sales that you plan to exit, along with the $200 million program. How would you describe both of these in terms of finality? Have you completed a thorough review and determined that it's only 5% of sales and the $200 million is all you will address, or is there a possibility that additional sales may be reassessed in the future? Could you clarify how you see these programs?

Good morning, Vincent. So, why don’t we do this, this morning? We’ll have Dave talk a little bit about the process that we went through. I will say it was an expensive process. We had many employees involved in the effort. And then I’ll come back and I’ll give you a perspective on what we think where we are in the overall outcome and what we’ll share more for you in September. So, let’s start with the process this morning. Go ahead, Dave.

Certainly. I want to reiterate what Chuck mentioned about the comprehensive nature of our review, which engaged various parts of the organization to ensure we examined all aspects of our portfolio and our cost structure. I consider our cost structure to be appropriately aligned with our needs. In terms of the evaluation process, I see it as having two key dimensions. The first dimension focuses on our unique, technology-driven products that set us apart. We analyzed whether these products have a competitive advantage in specific markets. The second dimension involves assessing our financial performance in these markets to determine if we are achieving economic profit. This process of evaluation helped us identify which areas are strategically important for our future and how to allocate resources effectively, including the right go-to-market strategies. This led to the decisions you referred to, which are still ongoing, and Chuck will provide updates on the timing. Specifically, regarding our cost structure, we anticipate restructuring costs between $200 million and $400 million, with $200 million of that as cash costs, which will yield $200 million in annual savings by 2025. We are also undertaking further simplification and various initiatives that will provide additional benefits. We will elaborate on these developments in our meeting in September. Chuck, would you like to add anything?

Yes. So look, I think from a process perspective, we spent a lot of time and effort. We’ve made the decision to exit what we call some nonstrategic geographies and product lines. Where we’re still focused, Vincent, to be candid with you, is there are some markets that we’re still analyzing when it comes to what level of resourcing should we have, what’s the route to market. So, these are some of the other pieces of work that are still on the to-do list. But the way you’ve referenced it is accurate. We, I think, did a very good analysis on the ability for the markets to grow, the strategic fit that we’re trying to shape up for our focus, and then how much money we make in some of these markets and different product lines. And we’ve made the decision, as you’ve referenced. So, there’s about 5% of our revenue that’s impacted here. But we’re going to keep essentially all of our EBITDA. But there are some further work to be done. The reason we’re not talking about specifics today, just to be candid, we still have to go through the internal communication process. We haven’t notified some of our other stakeholders around the specifics. And so, those plans are going to take some time. But I think that when you think about the $200 million that’s related to the $400 million write-down, what I would say to you today is that is one element of a broader strategic and financial framework, which we will share in our September Investor Day. So, I think the way you asked the question is, is this it? Is it done? I think you need to wait till September to see the overall financial framework that we’re going to lay out at the Investor Day so that you’ll be able to measure to monitor our progress for value creation. We think that we’ve got a great plan now put together. Obviously, it’s going to be key to execute the plan. But we’ve, I think, looked at the company from, first of all, a strategic lens, and then an R&D and innovation lens, and now a financial lens. And when we put that together, I think what you’re going to see is a very comprehensive plan to drive shareholder value, but more than that, to really work on some of the world’s biggest challenges when it comes to food security and the energy transition.

It seems your soybean performance is particularly strong this year. First, are you gaining market share in soybean seeds, potentially at the expense of corn seed? Secondly, although it's early, there appear to be positive trends in seed pricing, with one of your competitors mentioning low double-digit price increases for corn and soybean seeds as we approach pricing season. Can you provide some insight on this and how costs might change for the next season compared to now? Thank you.

Good morning, Joel. This is Tim. I'll address your questions. First, regarding market share, I appreciate your insights on soybeans. The USDA's June report on expected U.S. acres aligns with our planting beliefs, and we expect to gain market share in North America for both corn and soybeans. Both Pioneer and Brevant have contributed to our corn market share growth, while Pioneer has driven significant growth in soybeans. We've also performed well in Europe with corn and sunflower. Our strong field execution has allowed us to capture market share and add value, which inspires confidence as we see positive momentum in corn and soybeans moving forward. As for pricing for next year, we recognize that it’s a key concern. I want to emphasize the solid execution we demonstrated in the first half of 2022. We took a bold approach to pricing this past year, achieving a 7% increase globally across our major crop categories, including corn, soybeans, and oilseed products. This reflects the value we provide to farmers, along with our strong field execution. Looking ahead to 2023, we anticipate a competitive market, but overall economics remain favorable, and our customers are seeking products and technology to enhance yield and profitability. We're currently developing our offering for 2023 and will begin rolling it out in North America in August, continuing into September, while Europe will follow in September and October. We have a robust portfolio of hybrids and varieties, and farmers recognize our value. Our teams have a proven history of delivering results in the field, and we expect our pricing to positively impact margins in 2023. As seed remains a top priority, maintaining growth, value, and margin expansion in pricing is essential, given the limited area increase we typically see in any given year.

Yes. Joel, maybe just a good call out on Enlist. So, we mentioned in the prepared remarks that we’re now anticipating that we’re on 45% of the U.S. soybean acres. I’ve traveled through the South and the Midwest over the last two weeks talking to our customers. And I’ll tell you, there’s a lot of excitement around this technology. Just from multiple dimensions, I think it is a set of tools that farmers need. We’re just very pleased at how the farmers are adapting to the technology. I actually attended a couple of training sessions for some of our retail channel partners two weeks ago. And look, everything looks great when it comes to the Enlist system. And in the first half, we crossed the $1 billion range for the entire technology platform system. So, you start thinking about that. Now, it’s another $1 billion franchise that Corteva has, and I think that there are some good things to come down the road. As I mentioned, we’ve only been on the acres for three seasons now. So, there are still some more to come.

Chuck, just on Crop Protection, again, very good results here. Are you still seeing cost increases here? Are you still raising prices? And how durable are these price increases going forward?

Yes. Thanks, David. I’ll have Robert address those questions.

David, when you look at Crop Protection for the year, yes, we’ve seen some inflation in the first part of the year and been able to use our value for pricing strategy as we move forward there of more than offsetting with price and productivity. So, we’ve been able to hit those headwinds off. As you look into the second part of the year, we’ll continue to follow that same strategy, and we do expect to continue to have some headwinds, although we think that the inflation will begin to slow a little bit based on being able to lap the previous year increases, but we do anticipate there will continue to be headwinds. And so, we’re going to continue to follow the same strategy, watch inflation closely. But we think we’re in a very good position with the technology that’s being pulled onto the farm from our growers. If you look at our new products, right, we’re up 60%. And I think that’s a big, I guess, shot in the arm for us from a standpoint of the demand for our new technology that is being pulled into the market. So I think that’s sort of how you should look at the second half.

Yes, this is Dave Anderson. I would like to add to Robert’s comments. As we mentioned, we have incorporated some additional inflation into our guidance for the second half of the year. This adjustment brings our total inflation estimate for the entire year to around 10% to 11% for the company overall. Robert pointed out that active ingredients are a significant factor, along with the critical areas of freight and logistics. We are fully aware of these challenges. Robert also mentioned our early planning for anticipated improvements as we move forward. We will share more details about this forecast as the year progresses. One noteworthy aspect is that we have been proactive regarding these issues since early 2021, identifying trends and taking necessary actions. This continues to be a top priority for us.

Would you comment on your latest expectations for your net royalty payments in 2022 trending into 2023? And based on what you’re seeing with Enlist and other trends, how would you describe your latest level of confidence in achieving neutrality there in the ‘28 or ‘29 timeframe?

Maybe I could just comment very quickly, Tim, on a couple of numbers. And then why don’t you follow a little bit with that strategic view that Kevin asked about. But Kevin, you’ll recall that basically, we’re even with 2021 in terms of that net royalty assumption that’s in the P&L that had to do with some benefits that we achieved in 2021 that were basically constant in 2022. There is a nice pickup that begins in 2023, and then we’ll continue to ramp. Again, we’re going to share more insights on that and more of a multiyear look of that when we get together in September. Tim, do you want to talk a little bit just about overall from your perspective?

Yes, Dave. I think the big thing there as we look into 2023, there’s one major driver. And as Dave said, we take a big step forward in terms of that move towards royalty neutrality as you say, Kevin. And that’s driven by our significant ramp-up in the sale of Corteva genetics with the E3 trade in Corteva seed brands. And so, that’s been something we’ve talked about for, it seems like a long time now, about three years here and 2023 is when you’re going to see the big move forward there. So, we’re going to continue to increase the amount of Corteva branded sales that are Enlist E3, and we’ll take a major step forward with that in the year and also a major ramp-up in terms of the proprietary germplasm that we’ll have available for our brand. And down the road, what that does as we introduce our proprietary germplasm is opens the door for more licensing, not necessarily a ‘23 item, but further down the road, that’s going to continue to offset those royalty payments that are ongoing and keep us on that path towards neutrality.

You hit on this a little bit earlier on the potential for CPC margins just given the degree of inflation and obviously, you’ve been pricing quite well. There are also a lot of moving parts in terms of the new product momentum. I mean, it seems like Isoclast, Rinskor, all the things over the last few years are still carrying a decent degree momentum as well. Could you hit on that as it pertains to ‘23 and ‘24? And also just give us a quick update on the Spinosyns expansion.

Go ahead, Robert.

Yes, Chris, thank you. As we look at the second half and our margins, Dave previously discussed our management strategy. We've experienced strong demand for our new products, which has allowed us to maintain our margins effectively during the first half. Historically, our margins tend to be higher in the first half, and the growth from new products has significantly contributed to that. Additionally, we witnessed early buying in Latin America during Q2 due to robust demand. Nevertheless, we anticipate a solid second half for margins, and we expect continued value from our new products. The technology we are implementing on farms is highly requested by growers and provides them with new tools. Regarding Spinosyns, our capital projects in Midland, Michigan, are progressing as planned. We've successfully launched our first commercial product from the line, and we are focused on advancing further. This will lead to substantial expansion over the next few years for a product that is in high demand in our markets. As we increase capacity leading up to 2050, we aim to add an additional 50% capacity in the market, which will benefit both us and the growers.

Yes. Chris, the way I think about CP and the journey we’re on for the next couple of years, it’s sort of more of the same. I think just if you look at the first half results, it’s clear we have the right strategy and the CP team is executing very well. And I would consider it to be quite challenging market backdrop when it comes to supply chain challenges and cost inflation. So I think we do have the right formula. And where we’re trying to take the CP business is to be a seller of differentiated and unique CP products. And so, the new products plus the Spinosyns capacity as it comes online over the next couple of years, what you’re going to see from us is that we’re going to continue to sell the higher margin differentiated type solutions to farmers, and that should continually improve our business. Now, when I look at the first half, it’s a strong year by almost every measure when you look at our CP business. And some of that is the fundamentals and the timing from a customer demand perspective. Some of it is structural change that we’re making in the product portfolio. And as you look out to ‘23 and ‘24 and I’d even say ‘25, what I would expect you to see is just continued steady business improvement, margin expansion as we manage our controllable costs and we put new technology into the market.

Your price cards for seeds typically come out in August or September, which is way in advance of the actual planting. And a lot can change between when the price cuts come out in the planting, especially in a year like this when there is so much volatility. So, how do you manage that volatility? How much of your seed production is hedged right now? And then, you also mentioned Brevant brand gaining share. Can you just give us an update on that in the retail channel? Thank you.

Certainly. In terms of volatility, there's always a significant degree of uncertainty at this time of year regarding our seed production. It's been an interesting environment lately. In the U.S., we observed commodity prices peak in the spring before declining and now fluctuating around a bit. We're definitely off the highs there. One key factor we face is related to our production volumes, which is an issue in both North America and Europe. We have a widely distributed production footprint, giving us some diversification. Most of our operations are irrigated in both regions. Currently, we feel we're close to our budget in the U.S., despite various weather challenges, and things are looking good in Europe where harvest is already underway. Although we might be experiencing some stress from our production in Hungary, other facilities have managed well, and we're optimistic about that situation. Regarding timing, it's essential for us to maintain a balance. We wish we could price at the perfect moment when all variables are known, but from a competitive perspective, it's crucial that we engage with our customers. As they harvest their crops during the fall, they assess which hybrids performed well, which didn't, and what brands they'll choose for next season. Therefore, being well-positioned with a strong offer when they make those decisions is vital. The timing of seed purchases has consistently followed a similar pattern over the years, with farmers typically finalizing their brand choices by year-end and adjusting volumes closer to planting based on the ultimate crop mix. I don't see this changing anytime soon. We're not facing significantly more variables than in the past. We are well-hedged at this point, but still have some hedging to do on both corn and beans, so we haven't locked down our costs yet. However, we believe we have a solid understanding of what they will be and will utilize controllable factors such as productivity and pricing to mitigate risks. Regarding Brevant, we are entering our third year in the U.S. and continue to grow the business, which is exciting, especially in a year when overall acres were down. Brevant has indeed contributed to our corn market share growth in the U.S. This year, our focus is on building confidence with our channel partners and farmers. Product performance has been excellent, and I spend considerable time connecting with key partners to strengthen those relationships and interests. As we move into 2023, I’m pleased with our progress so far and am optimistic about the continued growth of that segment in our seed business.

Can you talk about your pension liability and what it might look like at the end of the year? And how that might affect future pension fundings in the future? Second, could you talk about what your crop chemical growth in volume would have been if you didn’t have new products? And then thirdly, is the restructuring that you plan really more in seeds than in crop chemicals? And if so, why, or is it an even split?

Okay, Jeff, let me start with the first question about the pension. The current status of the pension is quite positive. Despite some challenges in the equity markets, we have managed our assets wisely. We’ve significantly decreased our allocation to return-seeking assets in our overall portfolio and have benefited from rising interest rates. By the end of 2021, our pension was over 90% funded, which is very healthy. As you may recall from our filings and previous discussions, we have maintained this over 90% funded status through June 30th. Just a couple of weeks ago, I checked the figures and we are still in positive territory. We have recalculated the projections, which is a complex statistical analysis involving external experts and actuaries. There is minimal impact on the Company’s free cash flow regarding pension liabilities in the foreseeable future. This has been managed very well and is a positive aspect for Corteva. It provides us significant flexibility in our capital deployment strategies, allowing us to return cash to shareholders and invest in organic growth. It also gives us opportunities to advance our technologies and strengthen our market position in key areas. Regarding the restructuring, I cannot provide a specific division between the seed and crop business units. The restructuring activities cover the organization as a whole and are part of our portfolio reviews and strategic analysis aimed at optimizing our overall cost structure. This approach is intended to position the Company effectively not only for 2023, as Chuck noted, but also to take a long-term, multiyear outlook for our future.

Yes. And maybe before going to Robert, so Jeff, just on the restructuring. So, Dave covered that well. What I would say is this was a company-wide exercise. It wasn’t simply a product line or a BU exercise. So, we started with the top of the house, the strategic direction. So yes, there are going to be AIs that we’re exiting. There’s going to be more focus on certain crops, but there’s also a really good look at our infrastructure and what cost structure do we need to go forward. We’ve even looked at our digital offering. So, this was very comprehensive. It wasn’t contained to one or two of the BUs, and we’ll put all of that together for a financial and operational framework for you to understand at our Investor Day. So maybe, Robert, can you address the CP growth volume question?

Yes, sure, Chuck. Jeff, regarding this, the new products contributed $400 million in revenue for the half. However, it's important to consider what the impact would have been without them. Several factors come into play. Older products would still find a market, among other considerations, but the situation isn’t simply a matter of basic calculations. There are numerous variables involved. The key takeaway is that grower demand remains very strong, which creates an ongoing need for products on the farm. The new products serve this need by providing advanced technology and tools.

And I think just maybe, Robert, just to add quickly to this and something you mentioned earlier is obviously, we’re benefiting in terms of what you’re able to bring to the bottom line and what you’re demonstrating in terms of margin expansion that those new products are also contributing, too. So very important not only meeting demand in the marketplace but also adding value, which is great.

Yes. Thank you. Curious as to what you heard on your travels in recent weeks, Chuck on the level of dicamba drift that has occurred this year. What are your data sources indicating to you in terms of is it worse or perhaps maybe less so than prior years just because of the shift towards Enlist? But more importantly, if you have a view on whether the EPA might take some action on the dicamba registration like they’ve suggested where that could make over-the-top use of dicamba more challenging in ‘23. If that were to happen, how would your lineup of seed production in 2022 give you the opportunity to really shift more towards Enlist in 2023? And just one more on there. You mentioned renewable fuels. I’m curious if any of that soybean pipeline you have includes any high oil percent soybeans in the lineup to be feedstock for R&D down the road?

Yes, that's a great question, Steve. I'll share insights from my travels, and then Tim can provide additional context since he spends a lot of time out in the field. Regarding renewable fuels, the brief answer is that we will showcase some of our technology pipeline at our upcoming Investor Day. We're very enthusiastic about this area, including advancements in oil production and other components of the genetic code that Sam and his team are actively exploring, particularly in alternative proteins. These developments are essential for addressing global needs, and we are collaborating with various partners across different industries, which has generated significant excitement about our potential. The challenge for us will be to not only refine our technology but also navigate regulatory requirements and operational freedoms. We need to integrate all those aspects effectively. From what I’ve observed, the science and technology are progressing to a point where we can tackle some of these complex issues, especially as renewable fuels play a crucial role in the energy transition. We plan to share some of our findings in September. Regarding dicamba drift, I have indeed seen the impact it has had on soybean fields, leading to unintended damage. I won't comment on whether the EPA should take further action, as that is for them to determine. Our focus is on providing growers and the retail sector with viable options and solutions. Enlist technology, for example, does not have the same drift issues; when the Enlist herbicide is applied, it stays precisely where it's meant to. This characteristic is a key driver for strong demand from our customers. There is a heightened market focus on ensuring that products are applied correctly, and the Enlist platform has proven its effectiveness in that regard. Tim, do you have any additional observations?

Yes. Chuck, I think your comments about the South are very consistent. There have been a few areas where the visibility or noise around certain issues has been stronger this year, especially in the mid-South Delta area. I’ll be there next week to spend time with customers, our sales team, and channel partners to gain a better understanding. It’s impossible to speculate on what could happen from a regulatory standpoint, as the EPA will need to make that decision. Some states have been more aggressive in terms of regulation. Generally speaking, last time I spent a part of the evening with about 30 of our field sellers in a meeting and received feedback on this. Across the Midwest, we've reached a critical mass with Enlist, and while some state regulations are in place, the issues may not be as visible to our customers as they have been in previous years. We must continue to support our customers through proper advocacy and our technologies. Customers need to express their concerns to their channels within their states. We will keep advocating for best practices around the safe use of all technologies in the marketplace. We don’t want to position this as Enlist versus Xtend; we want to ensure that all technologies are available so customers have a choice, and that those products are used appropriately with best management practices in place. Regarding the 2022 seed crop, it's in the ground, which will lead to a significant ramp-up in our branded business for 2023 sales. That's already reflected in our production decisions, Steve.

Just wanted to get your sense in terms of the early buying from Latin America, how much revenue do you think might have been pulled forward? And if you could just give us a look at where you see the inventory situation in Latin America, North America, and anywhere else interesting in terms of the Crop Protection inventories?

I can start by providing a brief comment on the numbers. Then, Robert, you can discuss the inventory levels in the overall market, particularly in Latin America and Brazil. I estimate that we had a benefit of around $100 million in the second quarter. This is factored into our guidance for the second half and contributes to my earlier remarks about the distribution of both revenue and EBITDA between the third and fourth quarters. This trend aligns with our historical patterns. One of the factors contributing to this estimate is the strong demand we experienced, along with having sufficient product available to meet that demand. Robert, would you like to elaborate on the overall conditions?

Latin America is experiencing very strong demand, with growers seeing unprecedented organic growth in the first half of the year. While it may not be realistic to expect this level of growth to continue, there is early season buying as farmers are financially healthy and ready to purchase available products. We anticipate strong growth in the second half of the year as well, aiming for organic growth in the range of 25% to 30%, which is significant. Overall, we expect a robust second half driven by grower demand.

Thank you. And that concludes today’s call. We thank you for joining and for your interest in Corteva. We hope you have a safe and wonderful day. Thank you.