Corteva Inc (CTVA) — Q1 2024 Earnings Call Transcript

Good morning, and welcome to Corteva's First Quarter 2024 Earnings Conference. 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's now my pleasure to turn the call over to Chuck.

Thanks, Kim. Good morning, everyone, and thanks for joining us today. We continue to be very pleased with the progress we're making executing our strategic plan including items such as the Enlist technology, biologicals, increased investment in strategic innovation and our productivity and cost actions. Today's focus will be on our first quarter performance, and also some insights into how we see the rest of the first half and year unfold. Let me start with the bottom line. While the crop is not yet fully planted in North America, 2024 is playing out mostly as we expected. And so we are reaffirming our full year guidance, which we announced in early February and remain on track to meet our 2025 financial framework. Globally, from an industry perspective, we have relatively constructive fundamentals. We continue to see record-setting demand for grain, oilseeds, feed, and biofuels. In order to meet this growing demand, farmers are investing in premium seed and crop protection technologies to enhance and protect yield. Our Seed business is having a very good start to the year. Organic sales are up 5% and prices up 6%, reflecting the value technology consistently delivers to farmers. Our Seed order book reflects strong demand for our product lineup. We are planning to bring about 500 new products to the market this year with approximately 300 new seed hybrids and varieties. Factored into our guidance for the year is the fact that farmers in the U.S. are projected to shift planted area from corn to soybeans, resulting in a projected increase in soybean area of about 3.5%. If current trends hold, about 60% of all U.S. soybean acres will be planted with our Enlist technology in 2024, quite an impressive feat in less than 5 years where we continue to be the number one selling soybean technology in the U.S. On the Crop Protection side, ample supply and residual effects of destocking are creating a more competitive environment. This is coupled with farmers making their purchases much closer to the application window resulting in a delay in volumes. But all signs point to volume growth in the second half, particularly in Latin America, as the channel inventory imbalance in remaining regions is expected to stabilize. At a high level, our Crop Protection business has made significant performance improvement since 2021. By the end of 2024, we anticipate that we will have added $1 billion of new products in biological sales, exited $500 million of lower-margin products and improved EBITDA margin by about 200 basis points in that 3-year time frame. Our differentiated Crop Protection portfolio will continue to create new pathways to value creation, and this has been strengthened by our industry-leading biological business... ...As a result of targeted portfolio actions and strategic investments in fast growth market segments, our portfolio differentiation mix has grown from about 50% to an estimated 60% in 2024. We also continue to execute on the optimization of our global crop protection asset footprint, where we are estimating annual run rate savings of $100 million by 2025. As I said, we expect the crop protection industry to return to volume growth in the second half. Mix enrichment driven by our new products and biologicals, as well as the cost actions I mentioned, will drive margin improvement in our Crop Protection business in 2024. A final point on controlling the controllables. In 2024 and again in 2025, we're still expecting to see between $350 million and $450 million of benefits from our self-help levers. These actions continue to drive value creation for the company and are providing margin enhancement throughout the ag cycle. Finally, I'd like to note that in about a month, Corteva turns 5. We'll be celebrating not only our fifth anniversary but also the impact we've had on farms around the world over that time, and the value that impact has created for farmers, shareholders, and the world at large. It's been a remarkable journey, in which we've rolled out more than 1,500 new and next-generation products and technology to our 10 million global customers. I'm proud to say that together with our 23,000 employees, we've built one of the most competitively advantaged agricultural technology portfolios in the industry, and we remain optimistic about the future of agriculture and the future of Corteva. And with that, let me turn the call over to Dave.

Thanks, Chuck, and welcome, everyone, to the call. Let's start on Slide 5, which provides the financial results for the quarter. As Chuck said and you can see from the numbers, the results for the quarter were largely in line with expectations with both sales and operating EBITDA down from the prior year. Organic sales were down 6% compared to last year with Seed growth offset by Crop Protection. Seed volume gains in the first quarter in North America were offset by Seed volume declines in all other regions. And as expected, Crop Protection volumes were down double digits against a strong first quarter of 2023 comparison. We're obviously pleased to report another first quarter with more than $1 billion of operating EBITDA, in part due to benefits from improved net royalty expense and productivity savings. However, operating EBITDA was down 16% compared to the prior year, and EBITDA margin for the quarter was 23% or down approximately 200 basis points versus the prior year with margin expansion in Seed offset by Crop Protection headwinds. Let's go to Slide 6 and review sales by segment. Seed net sales were up 2% to nearly $2.8 billion. Organic sales were up 5% on broad-based pricing gains as we continue to price for value. And global Seed pricing was up 6% with gains in every region and across the portfolio. Seed volumes were down 1% versus prior year. Gains in North America driven by mild weather and strong execution were offset by declines in other regions. Notably, volumes in EMEA were down due to delays in demand associated with unfavorable weather. Crop Protection net sales were down 20% in the quarter versus a strong first quarter in 2023. The sales decline was driven by residual impacts of destocking in EMEA and Latin America and the shift to just-in-time purchasing in North America, pushing sales out closer to the application window, which is largely in the second quarter. Crop Protection volumes were down 18% in the quarter, including the impact of strategic product exits. Pricing was down 3% compared to the prior year, driven by competitive pressures and tight channel inventory management. Crop Protection pricing in EMEA was up 4%, largely in response to currency impacts. Slide 7 illustrates the significance of the last week of March for seed deliveries in the U.S. With mild weather in much of the United States during March, pioneer seed deliveries tracked ahead of prior year, putting 2024 closer in line to the first quarter of 2021 and 2022, which we would consider a normal delivery pattern versus last year's delays. The favorable product mix, coupled with seasonal price increases translated to a strong Seed operating EBITDA margin for the quarter, approximately 300 basis points above last year. With that, let's go to Slide 8 for a summary of first quarter operating performance. For the quarter, operating EBITDA was down approximately $200 million to just over $1 billion, again, largely in line with expectations. Pricing gains, coupled with improvement in net royalties and productivity actions were offset by volume declines and cost and currency headwinds. The $22 million of cost headwinds in the quarter was related to higher Seed commodity costs and modest Crop Protection inflation on input costs reflecting the sell-through of higher cost inventory. Importantly, based on raw material purchases, we still expect to deliver approximately $100 million of savings for the full year 2024 from Crop Protection input cost deflation. SG&A for the quarter was up approximately 1%, primarily from a full quarter of G&A from the biologicals acquisitions. Excluding acquisitions, SG&A was down more than 2% versus prior year as we maintain disciplined spending. With that, let's go to Slide 9 and transition to the setup for the remainder of the year. I want to share the key assumptions for the first half and second half of 2024. We expect sales for the first half to be down low single digits with EBITDA flat to slightly down versus last year. Seed is expected to continue the momentum from the first quarter and deliver solid growth in the first half of the year, led by North America on a strong product lineup. Crop Protection will continue to experience impacts from the shift to just-in-time demand and residual destocking and will likely be down in the first half of '24 compared to the prior year. Both Seed and Crop Protection are expected to experience cost headwinds through the first half of the year related to higher Seed commodity costs and Crop Protection input costs. These market-driven cost headwinds will be partially offset by benefits related to reduced net royalty expense and also productivity actions. SG&A and R&D investment are both expected to modestly increase in the first half of '24 compared to last year. Now turning to the right side of Slide 9 regarding the second half of the year. We expect double-digit sales and EBITDA growth, driven primarily by Crop Protection, partly as a result of the comparison to the 2023 second half where volume and price combined were down 16% from 2022. In Seed, we expect a rebound in Brazil safrinha corn area after a reduction in the 2023-24 season due mostly to weather. We expect Seed results in the second half to be in line with historical patterns, meaning likely a small EBITDA loss in the second half. Crop Protection volume gains will drive much of the growth in the second half with pricing expected to remain challenged. We expect Crop Protection volume growth in the second half to be enabled by some market stabilization in Latin America. Our base case assumption is for a volume uptick year-over-year in Brazil, led by new products, spinosyns, and biologicals. And available data suggests channel inventories are trending down in Brazil. While they're still higher than the historical average, inventory levels have come down versus 2023 year-end. So the channel is making progress towards a more normalized inventory level. And the demand at the farm gate in Brazil remains healthy, and the expected increase in planted area supports additional Crop Protection applications. So the second half outlook for biologicals growth is largely driven by Stoller, which has a strong market position in Brazil. We expect to see input cost deflation in Crop Protection during the second half of the year. Coupled with productivity and cost actions including benefits from the footprint optimization project, we anticipate a cost tailwind for Crop Protection. And as a reminder, we expect an increase in SG&A spend in 2024, driven by normalized bad debt and compensation accruals. We also continue to increase the investment in R&D. So the balance of improved market conditions and continued execution on controllables will drive second half growth. Together with the roughly flat first half and double-digit second half EBITDA growth, we remain on track for full year 2024 operating EBITDA guidance in the range of $3.5 billion to $3.7 billion, but the path will be a little different than our original assumptions. Specifically, in addition to more volume growth, we now expect total company pricing to be slightly down for the year with Crop Protection pricing more than offsetting the low single-digit price gains in Seed. And while we're expecting total cost to be marginally higher for the year, an increase from our original assumption, we remain on track to deliver savings on our controllables, $100 million reduction in net royalty expense, $100 million in Crop Protection input cost deflation, and $200 million from productivity and cost actions. So let's now go to Slide 10 and summarize the key takeaways. First, operating EBITDA performance for the first quarter was in line with expectations, led by the strength of the Seed business. And while first quarter 2024 results were down versus the prior year, we remain on track to deliver our full year 2024 guidance, including sales and earnings growth. And after our standout performance in 2023, the Seed business momentum continues in the first half of 2024, driven by pricing for technology and continued reduction of net royalty expense. Looking forward to the second half of the year, Crop Protection cost actions and some market improvement will drive much of the growth. And finally, the strong first quarter cash flow result supports our ability to deliver at the midpoint of our free cash flow guidance of $1.75 billion or approximately 50% conversion. And with that, let me turn it over to Kim with an announcement about a significant upcoming event. Kim?

Thanks, Dave. We're excited to announce that our 2024 Investor Day will be held on November 19 in New York City. The management team will provide updates on the company's strategy and financial targets, along with highlights showcasing our innovation and pipeline. We look forward to seeing many of you at this event in November. 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 instructions.

Chuck and Dave, thanks for all the updates on the first quarter. Could you help us just understand your confidence and the line of sight you have in sort of bridging the first quarter to the second quarter to make that half? Clearly, the Seed order book, you've got a good line of sight on, but maybe talk a little bit more about your confidence on the Crop Protection side.

Let me begin by providing some context before handing it over to Dave for further details. We remain optimistic about the agricultural economy, as demand continues to reach record levels. On-farm demand appears stable and robust, with farmers still achieving profitability, albeit down from their peak levels. Overall, this environment is quite favorable for them. Additionally, we are pleased with our efforts to manage what we can control. Last year, we successfully implemented approximately $500 million in cost reductions and productivity enhancements. This year, we're aiming for cost savings between $350 million and $450 million, which is coming together well. The Seed business is performing strongly, particularly in North America, with organic growth that is vital as we introduce new technologies that farmers are eagerly adopting. Given these circumstances, we believe it is essential to assess the full year, and so far, things are progressing as anticipated. We continue to forecast revenues between $3.5 billion and $3.7 billion. Looking ahead to 2025, we remain confident in our value creation framework. Dave, would you like to discuss the first and second quarters in more detail?

Sure. This continues the themes we discussed for the first quarter, particularly the strong North America seed market despite the expectation of fewer corn acres. This will remain very positive, and we will see the impact reflected in the first half results. While we anticipate some improvement in the Crop Protection sector, we still expect both revenue and EBITDA to decline year-over-year. The second quarter will show an improvement in the Crop Protection trend compared to last year, but it won’t be enough to offset the first quarter, so the first half will still display a decline in that segment year-over-year. As you know, we've got only modest improvement included and expected for the biologicals business, that's really going to be much more significant in the second half. The other thing is in terms of the benefit of cost deflation and particularly on the Crop Protection side, as you know, that's really weighted to the second half as well. So the bridge, if you will, to the first half is really, for the most part, a continuation of the themes that we experienced in the first quarter. And then the second half, it really becomes much more of a volume story for both Seed and Crop in much more of the productivity and the live-through, if you will, of the deflation benefit that we anticipate of Crop Protection. So hopefully that's helpful. And by the way, just as a reminder, just in terms of our overall guide and kind of a restatement for context is that we're anticipating, again, we stated this at the beginning of the year, and we affirm that in our conversation or comments earlier, which is around an 80-20, if you will, split in terms of EBITDA for the first half. So think of that as flat to slightly down for the first half. Thank you.

Can you discuss the dynamics in U.S. soybeans this year, how competitive it is, and whether you are experiencing any pressure?

I'll turn that over to Tim.

Yes. I mean, my first answer is always the markets are always competitive. So no question about that. And we operate our branded business especially at the high end of the market. We're selling a premium product, top performance. And so I don't know if I'd say it's any more competitive than what it typically is. But soybeans are more so than corn in recent years, competitive, and there are always lower-cost options in the marketplace. So I think our teams have done a very good job of creating demand and filling that order. I think we're obviously continuing to be focused on getting paid for the value that we deliver to our customers. And we're fortunate we work with a group of customers who appreciate that value, and we're going to continue to focus on it. But my answer is, it's competitive; it's always competitive. There are always lower-cost alternatives, but farmers are very, very interested in planting high-performing products.

Could you provide some insight into your strategy regarding seeds? With the current situation surrounding dicamba in the U.S., how do you see its future for 2025 and the remainder of this year? How is this impacting your seed-growing strategy as you contract for seed production this year? Are you planning to expand your usual seed selection to offer various options, or how do you plan to navigate this uncertainty?

Let me give you the overall context from a Seed strategy and then Tim can answer the question on sort of the current dynamics and what we're finding from an order book perspective. So we said it already a couple of times today, I think we're very pleased with the Seed performance and we are expecting growth again in '24 in margin expansion. And it's really coming down, I think, for us. We have shifted our strategy, and it's been a long investment over some time. But when you're launching 300 new seed hybrid and varieties almost every year, and we're able to price for that value that farmers are seeing in terms of productivity and yield and disease resistance, insect resistance, I think that's the best of all worlds for all the players here. So our strategy, simply put, we've moved away from being sort of a net technology purchaser to a net technology seller. And the out-licensing is still small in terms of revenue, but it is ramping up. And Enlist would be our first sort of franchise that we're really getting momentum there, and we've got lots of partners that are buying that technology now. Canola and corn are ramping up nicely, and we like that overall Seed strategy. And we've communicated that even this year, we're expecting another $100 million of net benefits in terms of lower net royalties, and this is that journey to neutrality that we said we would be on towards the end of the decade. I'll turn it over to Tim now. But just one last comment: we really haven't seen lower costs flow through the Seed business yet. And we said that, that wouldn't happen until most likely in 2025. We're still on plan for that. So you've got this wonderful business that is selling technology, but eventually, you're going to see some lower COGS as well as that works through our hedges and how we kind of manage the cost of product we have to in '25 and in '26. So there are some new and exciting things that will come, and we'll talk more about that at our Investor Day in September. But Tim, maybe the current order book and the dynamics you're sensing in the marketplace.

Yes, we have been closely monitoring the future of the dicamba label over the past months. I want to emphasize that this year's decision had a minimal impact on planting. When the dicamba label decision was made, farmers had already purchased and likely paid for their seeds. The market seemed to have enough dicamba available for those who wish to use it. Looking ahead to next year, there are significant questions that remain. It’s still early to predict how the market will evolve due to uncertainty surrounding the dicamba label — if it will continue and what restrictions might be in place for over-the-top applications on soybeans. We have been in close contact with our customers to understand their perspectives. For those still planting Xtend soybeans, we see three main groups. Some customers are ready to switch to Enlist. Others are willing to stay with Xtend, hoping dicamba will still be usable in the future, while the majority are taking a cautious approach and opting to wait and see before making any seed purchase decisions, as they have time to observe how the situation develops. In terms of what it meant for our decisions on seed planting, as we plant our seed crop right now, we always plant with the opportunity for some upside on demand, never quite certain how the weather is going to play out and impact your supply. So I would say we've taken an approach where we will have upside on our B-Series and A-Series products if the demand is there going forward. So we're positioned well for that. And you got to remember that there's over 100 licensees who have access to the technology, very supportive. And no doubt, collectively, I would say that as seed producers, we've all taken a position where I would expect that there will be some upside supply should demand switch. But it's one of those things that we all have to kind of sit back, wait and see. We are obviously staying close to our customers. We will continue to go out there and help them understand the value of our technology. And I think as we get into the seed selling season as we go into, say, September, October, November of next year, farmers are going to be faced with that critical decision based on what the opportunity for using dicamba in the season looks like.

We've been reading in recent weeks about the proliferation of corn stunt disease in Argentina. So I was wondering if you could talk about whether that might have any impact on Corteva either directly through insecticides or indirectly through corn market dynamics. And part of the reason I ask is, when we look at your Crop Protection volume trends by product line, there's quite a wide divergence, or was in the quarter. Looking at insecticides, down 5% versus 25% for herbicide. So maybe you could just kind of speak to the breadth of those numbers.

Kevin, this is Tim. Let me start by discussing the seed situation. This is a developing issue that has escalated as we've moved further into the growing season, and it has clearly affected farmers' yields, which is what is being reported today. Since we are still in the middle of the harvest, I cannot comment on the full impact on the grain harvest at this time. We do have experience with corn stunt, as we have been addressing this issue in Brazil for several years. There has always been a presence of leafhoppers in Argentina, but it has not turned into a significant commercial issue. From our perspective this year, our seed production has not been affected by corn stunt, although some farmers have faced challenges. We are actively supporting our customers in the field during the harvest and will continue to assist them as they make decisions for the next planting season. In Argentina, the planting window is quite broad, with early corn planted in September extending to the end of the year. Farmers will need to assess the implications for their operations and determine if they will plant the same amount of corn as last year. Roughly speaking, Argentina has 8 million hectares of corn, which is very important. About seventy percent of that is for export, and the risk from a seed perspective is related to how many hectares of corn will be planted as we approach late third quarter and into the fourth quarter. I anticipate that farmers will likely wait to assess the populations of leafhoppers and evaluate the situation before making their planting decisions. Now, I will hand it over to Robert to discuss the impact on the insecticide portfolio.

Thanks, Tim. Our herbicide portfolio has changed over time with the exit of several products, including glyphosate. In Q1 2023, we achieved a record quarter for herbicides. In North America, demand for Enlist remains very strong and is expected to grow throughout the year, especially with additional soybean acres. This technology is highly trusted by growers. Overall, the volume for the season aligns with our expectations, following a solid load in Q4 of last year. In Europe, however, weather conditions, particularly in Northern Europe, have caused delays in applying cereal herbicides, and there are fewer acres of wheat planted this year. When we consider these factors together, it indicates that we are in a solid position for herbicides as we approach the crop year, and we anticipate everything will align for the full year. And then keep in mind, as you asked about our insecticides in comparison to that, this is really a testament to the Spinosyns franchise. The strength that technology brings continues to perform better than the market. It's something that the growers are pulling as it gives them advantages on the farm. So hopefully, that helps.

I do love the graphic for the Investor Day. Dave, you indicated that your royalties are expected to be a $100 million benefit for 2024. We're over $30 million as we are in 1Q. Should we think about that $100 million being a floor with potential for greater benefits impacting 2024? And then also, I don't recall any comments regarding FX, which was fairly negative in 1Q. If you could offer some thoughts on FX profitability impact for 2Q and beyond, that would be helpful.

Sure. Regarding the first part of your question about royalties, they are primarily concentrated in the first half because of North America. We are on track for the $100 million target, which reflects a benefit from royalties along with both an expense reduction and an increase in year-over-year royalty income. Regarding your second question about foreign exchange, the first quarter's impact was mainly due to the Turkish lira, but we had pricing strategies that largely mitigated that effect. The pricing for PVC was aimed at offsetting that currency impact. We expect a small positive benefit from currency in the second half, which is included in our forward guidance. I hope that clarifies things.

Yes, this is someone stepping in for Steve. I wanted to ask about seed pricing outside of the U.S. You had a good price mix, so could you explain how much of this was due to direct price increases versus adjustments like those in Turkey to counteract currency fluctuations or due to farmers moving to new hybrids? What factors are influencing this, particularly considering that farmer economics outside the U.S. seem less favorable? Additionally, can you share how European seed prices currently compare to U.S. prices and what potential for price increases you see once you market genetic products?

Okay. So look, I'll have Tim talk first maybe about our strategy on how we price for value. And then we can talk a little bit about what we're seeing in each of the regions, Tim. Go ahead.

We anticipate that over time we will be pricing in the low single-digit range based on the value of the new products we introduce each year. Our plan is for 20% to 25% of our lineup to include new genetics that enhance value for our customers and provide us with pricing power. Regarding the relative pricing between Europe and North America, in Europe, as Dave pointed out, the Turkish lira was an inflationary currency that required price adjustments to counteract currency fluctuations. However, we still expect a low single-digit price increase in Europe, excluding countries where we've adjusted for currency devaluation. There remains positive momentum in this region. As for absolute pricing differences, the products and technology packages in both regions are completely different, making direct comparisons unfeasible. Most of our North American products incorporate biotechnology, while virtually none in Europe do. Therefore, it's not an apples-to-apples comparison, but both regions have fairly priced products considering their respective value and marketplace. Our approach globally is consistent across regions, focused on delivering more value to customers, which in turn allows us to capture some of that value through pricing.

Great. Can you just speak on the latest update on how you're thinking about COGS for both CPC as well as Seed? Obviously, on the latter, you have a few hedges this year. So could we just think about on a preliminary basis, how should we think about that as we progress throughout 2024 and into 2025? And then on the CPC side just given the number of turns of inventory you have on a per annum basis, how we should be thinking about that second half onwards?

Sure, Chris, I’ll provide some insight on that. First, comparing our prior guidance to the current one, we are seeing some year-over-year increases in costs. This is linked to the Seed business and our expectations for the second half, particularly concerning safrinha volumes. We anticipate a market recovery in that area. Additionally, we have higher-cost inventory that will impact our cost of goods sold. This is due to carrying some historically high production costs and transitioning from older technology to newer technology, which should position us for improved costs in the Seed business by the 2025 season. When you take a broader view, we are on track to achieve approximately $200 million in productivity for the full year. On the Crop Protection side, regarding cost deflation—which refers to a decrease in the cost of ingredients or raw materials—we expect to see a benefit of $150 million in the second half of the year. This aligns with our forecast of $100 million in deflation benefits for the year overall. Under the theme of managing controllable factors, where cost is a crucial aspect, we are on track with the exception of some challenges in the Seed business for the second half, which will still have a notable increase in volume tied to the anticipated recovery in that market, particularly for safrinha. This positively positions us for 2025, as we will witness further deflation benefits in Crop Protection alongside improvements in commodity costs and other cost-saving measures for both businesses, including the Seed sector. I hope this provides clarity.

I wanted to delve deeper into the Crop Protection aspect and the pricing dynamics you are experiencing. How much of this reflects deflation in certain active ingredients on the generic side compared to an actual shift in the competitive landscape for your key product lines? Specifically regarding herbicides, can you provide details on the attach rate of branded Enlist herbicide related to the Enlist acreage you currently have? Additionally, is the value realization in Crop Protection aligning with your expectations from a few years ago, considering Enlist has captured a larger share of the soybean market?

Adam, let me provide you with the overall context, and then Robert can address the specifics of your questions. We are currently experiencing considerable competitive pressure, which is multifaceted. The industry is still navigating through the global destocking we've observed. On a positive note, there are some encouraging signs, particularly in the U.S., although we have noted that the market is returning to a just-in-time approach relative to the application window, indicating some timing and seasonality factors. In Europe, the destocking phase is ongoing, particularly in the first quarter, and there have been challenges related to weather and missed applications. However, they appear to be moving in a more favorable direction. In the APAC region, the impact has been relatively minor, with some effects but not significantly affecting the products we offer. Now, regarding Brazil, the situation remains unbalanced, but it is showing improvement. We are observing a reduction in channel inventories compared to December, and early indicators for the first quarter are positive and improving. Still, Brazil needs to continue its destocking process, which we believe will occur. It's worth mentioning that on-farm demand for Crop Protection globally remains steady and robust, which is a key point. With that, I'll pass it over to Robert to discuss your question about Enlist and its attach rates.

Thanks, Chuck. Price competition, as Chuck talked about, is pretty stiff. But our price for value continues to be pulled through by the industry and creates value on the farm. When you think about our new products and Spinosyns combined and the performance rate there, they continue to perform better than the market. And this first quarter was no different. These things aren't immune to impacts of the market environment, et cetera. But then on the specific to Enlist, it continues to have a strong pull, very strong demand. We expect spray rates to be still in that 80% range as we've seen in the past. And we do expect that we'll see continued volume growth this year over last year with this technology. Thank you.

You've got Ryan on for Aleksey here. Just wanted to dig in a little bit on the generics in Brazil. I know in 3Q, you kind of saw an influx of imports, which you then called out a little bit of a slowdown in 4Q. Just trying to understand how that progressed throughout 1Q and what you're kind of seeing today?

Yes. So look, I think we even called it out in our fourth quarter in February that the generic imports into Brazil have what I'd call stabilized to sort of more normal import rates. And so they've always been part of the market, and they've been a larger part in APAC and Brazil. There's nothing new there. There is some new capacity coming online for some AIs that are coming off patent. And certainly, our strategy as a company overall is to sell differentiation, value agronomic service. And so there's a lot of parts of the generic market where Corteva is simply just not focused on. So I'd say that the market fundamentals today, when we look at the global CP market, and I think this comment applies to Brazil as well. There is nothing here that is a structural change that we can see. I think that this has been played out now and what we're seeing are sort of the return to normalization. The big question is when will we see that in some of these key markets, specifically Brazil? But the direction is clear after a couple of these data points have now come out that the inventories are receding, and we do expect, as we called out that in the second half of 2024, we should see Brazil volumes start to improve. And then as we get to 2025, we would expect that the global CP industry would return to some level of growth. It's a little early to talk specifically about that because we've got to get through the second half of 2024. But I think that's what we are kind of assuming as we look forward from the second half of '24 and into '25.

This is Rahi filling in for Ben. So I just wanted to look more into trade down within the space. So when farmers have tighter wallets like today, do you see data on farmers shying away from biologicals and mainly just buying CP that they fundamentally need? I believe this plays into seeds when farmers choose GMCs but those that have fewer GM traits. Maybe there's also a geographic difference, if there are any regions that trade down quicker than others? Just any color on that.

Let me give you my perspective, and then I think it would be helpful to hear from Robert and Tim on this one. So generally, what we've seen in this crop environment, but also sort of stronger conditions and even weaker conditions than we have today, farmers are always prioritizing production per acre because, in many cases, the last few bushels per acre will be their profit. And so from an overall crop inputs perspective, we have not seen a significant trend down in sort of a selection of different types of seed technology, for example. And we don't see them skipping applications, especially when they have real disease or pest or weed pressures. And when it comes to biologicals, actually, the second half of 2023 is sort of the proof point, very difficult conditions for farmers in South America. But our biologicals business was very solid. And that's because, I think, certainly, the products that we sell are not considered to be fringe or nice to have. I think they're core to plant health, to their physiology, to how they will grow and yield. And so the farmers will most likely make other decisions if things get a little tighter in terms of capital purchases and land acquisitions. But their core fertility packages and their core crop input packages, we don't really see them trading down. Tim, your thoughts.

No, Chuck, I agree. It's important to remember that the technologies in seed are focused not just on yield but on the entire production system, especially regarding the use of biotechnology traits. These traits offer benefits in the field and change how farmers manage their crops throughout the season, and they find significant value in that. We have no evidence that they are downgrading their choices. Additionally, when margins get tight for farmers, it's not the first bushel they produce that matters most, but rather the last bushel, which impacts their bottom line. Customers recognize what generates profit, and they keep investing in solutions that will be profitable over time. In the case of seed, that means relying on high-yielding genetics and the technology that helps safeguard those yields.

And Robert, how about biologicals?

Yes. Biologicals are a core part of the crop plan for the customers we serve. And so we've seen those while not immune to everything that's going on, they've held up very, very well. And when you think about the acquisitions we made and the benefit in '23, we were just under $500 million in sales this last year, and we expect this to grow in the mid-20s this year and we'll double the contribution to the business. And this is all a testament to the strength of the portfolio and the people that are showing the value to the farmers as we get into this season.

I noticed that the '25 slide was not included, so I wanted to hear your thoughts on whether anything has changed. You mentioned approximately $100 million from royalty improvements and $200 million from your productivity initiatives. This suggests around $300 million at the midpoint due to low single-digit seed pricing and other factors in Crop Protection. Could you share your insights on whether these drivers are still in place?

Thanks, Arun. Very good question. So we're still expecting the bottom line performance consistent with the financial framework we've provided for you for 2025. And just as a reminder, it's that $3.9 billion to $4.4 billion EBITDA range. And as you said, the key components, maybe just spend a quick minute here going through some of those elements. First of all, as you pointed out, net pricing gains for the total company. That's going to be important. That's going to be led by our Seed business, but very important. Crop Protection is going to have gains, and Robert spoke to that in terms of the 2024 performance outlook and particularly our second half, that's going to carry through into 2025 for new products, Biologicals and Spinosyns; the contribution margin there is quite attractive. On the controllables, the royalty benefit I mentioned earlier when we were talking about the deflation and cost of raw materials, ingredients and commodities, we're going to see a deflation benefit higher net in 2025 compared to 2024. We'll have other cost of sales improvements that will translate, including the progress that we're making on the Crop Protection footprint optimization. And then finally, we'll have some higher investment in R&D and some modest increase in SG&A that will offset that. But the formula is very, very much intact, building off that midpoint of the guide that we've provided you for 2024. So thanks a lot for the question.

Well, first, let me tell you, thanks again for your participation today and the quality of the questions. We very much appreciate the interest, obviously, in Corteva. We look forward to speaking to a number of you in follow-up to today's call. And also, we look forward to seeing you in New York City on November 19 for an Investor Day. So thanks again. Have a great day. Appreciate it.