Corteva Inc (CTVA) — Q3 2024 Earnings Call Transcript

Good morning and welcome to Corteva’s third quarter 2024 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and David Johnson, 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 factor 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. Corteva’s results for the third quarter were largely in line with our expectations. Despite the fact that we had an operating loss in the quarter, we continued to execute well and are on track to deliver over $400 million of savings from our controllables this year. The crop protection business delivered earnings and margin growth, led by demand for our differentiated technology, along with deflation benefits that have just begun. Today we're also providing a first look at 2025. We are expecting to return to double-digit earnings growth, which is largely driven by factors in our control. What continues to set us apart is the strength and leverage of our portfolio, the continued focus on execution, and increased investment in innovation? In what has historically been our smallest quarter due to seed seasonality, we were still able to deliver over $160 million in controllable benefits. Our ability to pull multiple levers to improve overall performance makes us resilient when faced with variables not entirely in our control, including the ongoing crop protection market dynamics and acreage loss from Argentina corn stunts. Overall, the seed business is delivering a strong performance in 2024. From an operational excellence perspective, the business drove approximately $175 million in controllable benefits on a year-to-date basis, including royalty improvement and productivity. Our seed business is also set up for continued growth with our pipeline of technology and new hybrids. Pricing gains in most regions, as well as notable share gains in North America, are a testament to the value our technologies provide to farmers. And for 2025, we will roll out several hundred new hybrids and varieties around the world. This is helping farmers increase yield and productivity when they need it the most. On the crop protection side, we're happy to see a second consecutive quarter of volume gains, as well as notable operating EBITDA growth, margin improvement, and the first meaningful tranche of deflation benefits in the third quarter. We remain committed to our strategy of focusing on differentiated and new technologies, which warrant a premium in the market. On a year-to-date basis, we received over 150 crop protection registration approvals, spanning 25 active ingredients in almost 50 countries. And like seed, our CP business is generating substantial value through its focus on controllables, which drove approximately $170 million of benefits in the first nine months of the year. Overall, the ag markets remain mixed. We're still seeing record demand for food and fuel. Farmers continue to prioritize top-tier seed technologies while managing tighter margins. And the crop protection market has turned the corner in every major market, except Brazil, where we are early in the season. It's important to note that underlying farmer demand, in terms of applications, remains on track with historical levels. However, we continue to experience competitive market dynamics and expect that to continue into next year. So what does all this mean for the remainder of the year? We are updating our full-year operating EBITDA range to $3.4 billion at the midpoint to reflect the impact of the current Latin America market conditions that will carry through to our full-year results. However, we are still positioned to achieve approximately 20% for full-year EBITDA margin. This adjustment reflects the latest market realities in Latin America, including expectations for an approximate 20% year-over-year reduction in Argentina's corn-planted area due to corn stunt. It is fair to say that our full-year estimates are assuming a big fourth quarter in Brazil, but this is something we've done before. It's also important to note that we remain committed to free cash flow in the range of $1.5 to $2 billion for the year, as well as $1 billion in share repurchases. Today, we'd also like to provide a first look at how we're thinking about 2025. We'll provide official guidance in early February, but we wanted to give some insights prior to Investor Day. From a macro perspective, we're anticipating a continuation of record demand for grain, oilseeds, meat, and biofuels. On-farm demand is expected to remain steady, and farmers will continue to prioritize top-tier technologies in order to maximize their yields. A farmer's seed selection is particularly critical and is non-discretionary when compared to other crop inputs. In terms of U.S. planted area assumptions, total area planted by farmers in 2025 is expected to be nearly flat year-over-year. It is too early to say too much about Latin America for next year since farmers are in the fields right now planting the 2024-2025 crop in Brazil, which at this time is looking like a mid-single-digit increase for both corn and soybeans. Finally, it's too early to forecast a recovery for corn planted area in Argentina in the 2025 crop year until we see how the current season plays out. Our current view of the crop protection industry is a flattish 2025. It's a dynamic situation that we're monitoring daily, but all major markets are functioning normally except for Brazil, where as I've said, it's early in the season. Brazil remains an attractive market given it is the only geography in the world that is able to materially increase planted area for corn and soybeans. Farmer economic and agronomic benefits incentivize Brazilian soybean farmers to continue to plant corn in rotation. The strategic moves we've made, including investments in biologicals and tilting our portfolio towards differentiated technology, will allow our crop protection business to grow in 2025. When combined with sizable incremental benefits from our controllable levers, an increase in research and development investment and a significant currency headwind, we're anticipating double-digit operating EBITDA growth. So high level, although our top line and bottom line expectations have been impacted by the crop protection industry, our seed business has remained largely on plan and we are expecting to achieve our enterprise goal of 21% to 23% EBITDA margins by 2025. We still have a lot of work to do, but the setup is looking good for 2025. And with that, let me turn it over to David Johnson to review our financial performance. As you know, David joined Corteva just under two months ago and has really hit the ground running as our CFO. I'm happy to have him on our leadership team and I'm impressed with how well he has immersed himself into the organization, which has allowed him, in very short order, to add valuable insights on our business and operations. David, over to you.

Thanks, Chuck, and welcome everyone to the call. Let's start on Slide 6, which provides the financial results for the quarter and year-to-date. Briefly touching on the third quarter, organic sales are down 5% compared to prior year with crop protection up 1% and seed down 17%. Pricing for the quarter was down 8%, reflecting the continued competitive pressure in the crop protection industry and end of season settlements in North America seed. Third quarter volume was up 3% over prior year. Seed volumes were down 12%, primarily driven by reduced corn area in Argentina. Crop protection volumes were up 11%, led by Latin America and North America. Volume of new crop protection products and spinosads were both up more than 20% in the quarter compared to prior year. Turning to year-to-date, sales were down 4% versus prior year with flat pricing and lower volume. Seed organic sales were up 1% compared to prior year with pricing up 4% with gains across the portfolio. Seed volumes were down 3% year-to-date, driven by reduced planted area in Argentina, EMEA, and Asia. Crop protection organic sales were down 7% year-to-date with pricing down 5%, primarily driven by competitive market dynamics in Latin America. Crop protection volumes were down 2% with volume gains in Latin America and Asia offset by declines in EMEA, driven by residual destocking and unfavorable weather, and North America driven by just-in-time purchasing behavior. Operating EBITDA of approximately $2.9 billion year-to-date is down 5% compared to prior year. Operating EBITDA margin was 22%, essentially flat compared to prior year. Moving on to Slide 7 for a summary of year-to-date operating EBITDA performance. Seed pricing gains were offset by crop protection pricing pressure, while volume was lower from headwinds in both seed and crop protection. Improvement in net royalties, crop protection, raw material deflation, and productivity actions more than offset cost headwinds from higher seed commodity and other costs. SG&A costs were modestly higher as expected, given the full year ownership of the biological acquisitions and normalized bad debt accruals. R&D expense is in line with expectations on track to be approximately 8% of sales for the full year. With that, let's go to Slide 8 and transition to the updated outlook for the year. The updated full year guidance reflects the current Latin America market dynamics. We now expect net sales to be in a range of $17 billion and $17.2 billion, or down 1% at the midpoint versus prior year. The lower guidance is primarily due to lower than expected planted area in Argentina and dry weather in Brazil, impacting both seed and crop protection. Lower top line growth translates to an updated operating EBITDA range of $3.35 billion and $3.45 billion, up 1% at the midpoint compared to prior year. Driven by the strength of seed performance in the first half of the year and crop protection volume growth and cost improvement second half of the year, operating EBITDA margin expected to be about 20% at the midpoint or about 25 basis points higher than prior year. Operating EPS is now expected to be in a range of $2.50 and $2.60, or down 5% compared to prior year. And finally, we are reaffirming our free cash flow guidance of $1.5 billion to $2 billion, or approximately $1.75 billion at the midpoint, and cash flow to EBITDA conversion rate of 45% to 50% for the full year 2024. With that, let's transition the setup for 2025. As Chuck said, we'll provide formal guidance in early February, but Slide 9 represents a high-level view of our planning framework along with key assumptions that could drive us to the low and high end of our net sales range of $17.3 billion to $17.7 billion and operating EBITDA range of $3.6 billion to $4 billion. In 2025, we expect low single-digit seed pricing driven by demand for yield advantage technology. One of the biggest variables in seed is planted area, both in Latin America and the corn versus soybean split in North America. At the midpoint, we're assuming relatively flat planted area. Another key variable is how much growth we see in crop protection given the current market dynamics. Unharmed demand remains relatively stable. We're expecting the crop protection industry to be mostly flat in 2025. New and differentiated products, including biologicals, are expected to drive much of the volume growth, while prices are expected to remain under pressure. In 2024, we started to see some raw material deflation in crop protection. In 2025, we expect to see more benefit from deflation with improvements in both seed and crop protection coupled with productivity benefits. Our assumptions include SG&A and R&D as a percentage of sales to be relatively consistent with 2024 levels. Together, it's a balanced set of assumptions which gives us the confidence in our ability to grow earnings and margin in 2025 for both seed and crop protection. Turning to Slide 10, you can see the operating EBITDA Bridge for 2025 from approximately $3.4 billion in 2024 to $3.8 billion at the midpoint for 2025. Total company pricing expected to be flat to mostly up with low single-digit pricing in seed to be offset by declines in crop protection. We are expecting volume growth in both seed and crop protection. Crop protection volume is expected to be up low to mid-single-digit driven by demand for new products and biologicals. 2025 will be another important step in our journey to royalty neutrality. We expect approximately $50 million improvement in net royalty expense driven almost entirely by increased outlicensing income as we continue to ramp up the licensing of Conkesta E3 soybeans and PowerCore Enlist corn. We expect approximately $400 million of cost improvements in 2025 driven by lower seed commodity costs, crop protection raw material deflation, and productivity actions including benefits from crop protection footprint optimization. SG&A and R&D as a percentage of sales are expected to be relatively flat with 2024 levels implying a modest increase in spend. Currency headwind is primarily driven by the Turkish Lira and Brazilian Real. Together, this translates to 12% operating EBITDA growth at the midpoint and more than 180 basis points of margin expansion.

Thanks, David. As most of you know, we'll be holding our investor day event on November 19th in New York City. It will include a three and a half hour executive webcast with various members of our management team followed by an innovation showcase for those in person. Topics of discussion will include our leading position in the ag tech industry with technology and operational excellence that will drive our financial framework out to 2027 as well as the various growth platforms that will create additional value creation through next decade. If you haven't already registered, information can be found on our investor relations website or please feel free to contact me directly. Now, before we get into Q&A, Chuck, I believe you'd like to make a few closing remarks.

Yeah, thanks, Kim. We look forward to seeing many of you in New York in a couple of weeks. We have several exciting new announcements regarding the mid and long-term growth trajectory of Corteva. Finally, I'd like to say a few words about the announcement we made a few weeks ago that we will have a new Executive Vice President for our seed business beginning on December 1st. Judd O'Connor will succeed Tim Glenn, who will transition into a strategic advisor role until his retirement in the first quarter. Judd is a 25-year veteran of Corteva and its heritage companies. And is assuming this position after most recently serving as the President of our North American business. Earlier in his career, Judd also served as DuPont's Latin America regional president based out of Sao Paulo. Few people know our customers and business better than Judd, and I'm pleased to have him join our management team. This, of course, is certainly bittersweet. However, as Tim is such an institution at Corteva, there are few people anywhere in any company that know agriculture, farming, and our industry better. We will certainly miss him, but wish him all the best in his well-earned retirement. And now I'll hand it back over to Kim.

Thanks, Chuck. 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 to the following Q&A. Operator, please provide the Q&A instructions.

Thank you, and good morning, everyone. Could you provide more details on Slide 11 regarding the $150 million of inflation and other costs? I'd like to understand how much is allocated to each category you mentioned. I'm particularly interested in the seed trade transition costs, which I assume relate to bore seed. Reflecting on previous trade transitions, such as those involving Extend and Enlist, I don’t recall us discussing significantly high costs. Could you offer more insight into that total $150 million? Thank you.

Yeah, so this is David, Vincent. Nice to meet you. When you look at the total, I would say about two-thirds to 75% of that is in the seed business. And then of that, most of it is the trade. And there's about 25% of that number that would be in the inflation bucket. As you can imagine, when you look at our COGS for the seed business, there is a commodity element, but there's a pretty significant element that's non-seed COGS or commodity related, and that's where we're seeing some of the inflation.

And Vincent, I'll touch a little bit on the trade transition costs as we define them. So, we've got two major corn trade transitions going on in North America right now. One is from Qrome bore seed as you identified, and the other is from some of our heritage above-ground trades into PowerCore Enlist. And so with the trade transition costs, they're going to be something we deal with over the next couple of years. Part of it is just ramping up those new technologies and bringing in those lines. The other part is, as we produce them, we were calling mature in terms of use of sterility and other technologies that we have that are driving a lot of productivity in the field, and because of the pace of the transition here, we're not going to have the level of sterility primarily in the field, and so we're going to have to go back to detasseling and doing some things, incurring some costs associated with that. It's just about the size of those transitions and the costs we have to incur during this period until we're operating at a steady state like we have been for the last several years with AcreMax and Qrome technologies. So it's really something that we'll deal with over the next couple of years and will fade away as we move towards, I'd say, a steady state with those technologies.

Good morning, everyone. Chuck and team, when I review your guidance for next year regarding seed cost deflation and CPC cost deflation, the projected benefit of a couple hundred million dollars seems a bit low compared to what many believe is achievable. Can you discuss how you are initially estimating that number for '25? Is this the maximum you foresee, or is this your base case with potential for more upside? Please elaborate on that. Thanks.

Good morning, Joel. I'll start and then David can provide more details. We wanted to give you an early look at 2025 because our Investor Day will be in a couple of years, where we'll discuss our framework through 2027 and the technology opportunities we strongly believe in for beyond 2027, even into the end of the decade. It's a bit early for us to share a view on 2025, but there are reasons to do so. We'll provide official guidance as usual in early February with our fourth-quarter release. For me, the key takeaway regarding the 2025 figure is that a significant portion is within our control, and we're optimistic about it. Overall, it's projected at $600 million, primarily driven by cost management and productivity, along with some deflation. David, would you say deflation accounts for about half of that?

Correct.

We need to keep in mind the seed deflation as we manage and hedge our costs. This will be a three-year process for us. We have indicated that deflationary benefits in seed will occur in 2025, 2026, and 2027. We're just starting to see some movement. Currently, our seed costs remain high, but we are finally experiencing deflation in crop protection, which is encouraging. When considering the $600 million in gross figures, there are offsets to be aware of, which David just explained. When we bring everything together, we expect double-digit EBITDA growth, margin expansion, and a strong portfolio. As Tim mentioned, Corteva is strategically evolving from being a technology buyer to becoming a technology seller, which is an exciting long-term development for the company. While there will be costs associated with this transition, we believe the framework we've laid out reflects our best perspective at this time. It's still early to determine if our outlook is overly conservative. Also, we anticipate the crop protection market will remain flat year-over-year. David, do you have anything to add?

No, I think that's basically good. As Chuck said, about half of that number would be the productivity. The other half would be the cost of goods sold.

This is Matt Hettwer on for Kevin McCarthy. How much seed sales were deferred to 4Q from 3Q? And what's the associated impact on earnings from that deferral?

In terms of third quarter seed sales, I'm assuming you're referring mainly to Latin America. Typically, most of our sales in Argentina occur in the third quarter, with some extending into the fourth quarter. For Brazil, summer sales generally take place in the third quarter, while the Safrinha crop is mostly in the fourth quarter, with a little bit of summer potentially spilling into that fourth quarter. The first quarter of the following year will also capture some of that. This year, the reduction in Argentina is significant, with a 20% decrease in area, which means that business has been lost rather than deferred. Argentina is an important market for seeds, being our third largest globally, and it has good profitability with margins. The area where we see a reduction has an above-average market share of nearly 40%. Therefore, that lost business is part of our overall year reduction and isn't simply delayed. In Brazil's summer crop, we're also seeing another area decrease, with summer representing about 20% or slightly less of the total corn area. We anticipate a reduction of 10% or even more this year, following a substantial decrease from last year, and that isn't related to timing. Conversely, there are no timing issues with the Safrinha crop in the fourth quarter. However, for Argentina and Brazil's summer, the volume will not occur and contributes to the overall reduction in seed area across Latin America.

Yeah. And maybe just a couple of other thoughts on the overall seed business, if I can. So when I look at the year-to-date performance, we're extremely pleased. I think the seed business is having another extremely strong year. We're seeing market gains in corn and soybeans in North America. I think our EBITDA is up something like 8%. And we have the leading technologies around the world. And I believe our margins are approaching up about 220 basis points. So this is a business that I think the strategic pivot we've made a few years ago is really starting to pay off. As Tim rightly called out, the third quarter is a very slow quarter when it comes to seed sales. And I do think that from an overall perspective, the Argentina Cornstone issue is one of the major drivers we did lower our full year guide. We believe that is a temporary item. In fact, there's some good news when it comes to Argentina and Cornstone. We're hearing some external reports now that the insect that carries that issue, the population is down something like 90%. So we're hoping that the worst will be behind us, but time will tell. But we will do have this impact that will carry through the full year.

Thank you, good morning. Chuck, regarding seed royalties for next year, they are down. Can you explain why that is and where you currently stand on your journey to royalty neutrality? Thank you.

Yeah. Maybe I'll give a perspective and then Tim can give you the details, David. But we're feeling really good about our journey to royalty neutrality. If you recall, this is one of the fundamental sort of leading indicators on the shift of our technology focus. We're still on track. I would say we're probably a little ahead maybe a year, maybe two years ahead to deliver royalty neutrality by the end of the decade. And if you think about what we've been able to deliver in the last couple of years, we've been run rate about $100 million a year. And this year, in 2024, we're tracking quite a bit ahead of that. So that's one of the reasons why that next year, I think we're right now the preliminary view, and I'll just state that again, it is a preliminary view is slightly less than that. So if you look at '24 combined with '25, we're quite comfortable that we're on that average of about $100 million. But the real important thing isn't necessarily the numbers, it's what we're doing with the technology in terms of Enlist PowerCore, and there's even some good news now in soybeans in Brazil. And maybe, Tim, you want to take a minute to talk about that?

We discussed our significant transition over the last few years, particularly with our royalty improvements stemming from the adoption of Enlist E3 in North American soybeans. We've mentioned that 2025 will be more of a transition year, where royalty income will exceed any reductions. This year, we've slightly overperformed, which is beneficial; we need to capitalize on this now rather than later. Looking ahead, there will be more subtle opportunities to adjust royalties as we change technology platforms. The bigger news will focus on royalty collections, particularly with our PowerCore Enlist products being tested and commercialized in North America. While we face challenges due to not having a complete technology offering in place, our next-generation below-ground technology will enhance our position once we can license it. We have made progress with Enlist E3, having over 100 licensees, and Conkesta in Brazil is also advancing, even though we are still at single-digit penetration. By 2025, we expect to see more Conkesta E3 varieties in the market, which should boost adoption as we introduce competitive new varieties. Notably, we have our first blockbuster Conkesta E3 variety, Torrento CE, in Brazil, which has surpassed 1 million units sold. This is one of eight varieties currently available, so while we've taken a small step, we have a long journey ahead. As we move toward the latter part of the decade, we anticipate significant growth in this market, shifting our focus more toward royalty collection rather than reduction.

Great, thank you so much. Just circling back to Slide 10 in terms of your EBIT outlook. Obviously, there are a lot of moving parts, and I think it's safe to say, at least in my opinion, there's some upside to a lot of the positives. But just in terms of the deductions, referring specifically to currency, the SG&A and R&D as a percent of sales, just kind of trying to isolate those factors along with the prospect of lower acreage in the U.S. and CPC price. As you sit here today in terms of the, let's say, the offsets to the plethora of positives, there are we confident that, that FX is going to be stagnant at the $150 million? Are we confident that CPC pricing is more of a one half just kind of marking to market what we've seen in the second half and extending that into 2025? Are there any other risks that the buy-side community should really be factoring in? Or do we feel good about that and just kind of are sitting back to see how much of the upside scenario should actually play itself out? Thank you.

Hey, Chris, this is David. Maybe I'll take the currency question, then maybe we'll pass it on to Chuck regarding the other elements. If you look at the currency right now, most of that is in Brazil. And as you know, we're kind of in the upper-5s as far as where the Real is trading at currently. This year, our base was somewhere just south of 5.2%. So it's hard to really predict whether or not that will fight further or not. An average year, I think it's somewhere around 8% if you look over the long period of time. So I think we've have a reasonable estimate of what we think the impact will be. I never say never if it goes further give valuation, but I think we feel really comfortable with this number.

I have a few thoughts to share. You might notice that the 3.6% to 4% range is broader than usual. We decided on this because we are presenting it earlier. The low end of 3.6% is possibly conservative, and only time will tell. However, we acknowledge that achieving this would require a significant shift from our current expectations. We're giving a preliminary look at 2025 due to our Investor Day, and for the 3.6% to materialize, we would likely need to encounter substantial additional challenges, particularly ongoing weakness in the CP market, along with potential misses on some of our cost and productivity goals, which we typically achieve. Now, regarding the upper end of $4 billion, we believe that figure is realistic and attainable. To reach $4 billion, we would need to surpass our targets on areas we can control, which we have a track record of doing. Additionally, some improvement in the CP market would be necessary. Is that possible? Yes, but it would be premature to be overly optimistic at this stage, especially as we are in the fourth quarter and focused on completing 2024. The key takeaway for 2025 is that we anticipate double-digit earnings growth and margin expansion, continuing our progress from the past five years.

Good morning. This is indiscernible on for Josh. I wanted to clarify your expectations regarding crop chemicals. For 2025, you mentioned that volumes are stabilizing, with ongoing risks related to pricing. Your guidance suggests mid-single-digit volume growth, countered by pricing declines in the low single digits. Is that accurate, and would that mean overall sales would grow in the low single digits? Could you explain what's included in that? Thanks.

Let me highlight a few key points for you. In the third quarter, the crop protection market made progress toward stabilization. While we’re not fully out of challenges, we were encouraged by what we observed. North America is showing some strength, while Europe and the Asia-Pacific regions are functioning normally. However, Brazil remains one of the most unstable markets in our sector due to a combination of factors, including dry weather and cautious farming behavior in an already well-supplied market. Overall, we’re cautiously optimistic that the crop protection industry is trending toward stability. Now, regarding our business, the past couple of years have been challenging for the industry, but we believe our performance has been solid. In the third quarter, our crop protection business experienced volume growth for the second consecutive quarter and achieved over 30% EBITDA growth, the first increase in a year. This growth stems partly from deflation but mainly from initiatives within our control and advancements in our technology. Looking ahead to 2025, we estimate that if the industry remains flat, we expect to perform better, driven by volume growth in the mid-single digits, supported by our new technologies and biological investments. The overall market is healthier than it has been, and we anticipate our crop protection business to grow at a rate that exceeds this expectation in 2025.

Good morning, David. I have a question regarding Slide 17. The North American seed price decreased by 25% year-over-year, which reflects end-of-season settlements. This seems like an outlier, and I was hoping you could provide more insight on that.

Good morning, Frank. This is Tim. I appreciate your question. Our business in North America primarily operates in the first half of the year, and there's only a small portion of that business that can sometimes extend into the third quarter. We don't have a significant amount of business to cushion some of these situations. When we mention settlement issues, we're referring to replants, which are a standard aspect of our operations. We've accounted for them in our plans and they are a part of our agreements and service policy with farmers. Each year, we set aside funds for replants, which can occur early or later than expected. This year, our replants are within the typical range; we planned for them, but they appeared later than usual, thus showing up in the third quarter instead of the second. The reason for this can be attributed to early season flooding, especially in the northern corn belt regions of Northwest Iowa and Southern Minnesota, which led to a slight increase in replants compared to last year. These were also settled later. While it may look like a price concession, the volume isn't large enough to provide a buffer, making it more apparent. This situation is actually quite common in our business; it just happened to affect a specific quarter this time. That’s a brief overview of the issue.

Thank you very much. This is filling in for Steve. I want to inquire about the pricing environment for crop chemicals, particularly in Brazil, where prices have decreased by 18%. Can you explain why this decline is happening so quickly? Are you attempting to regain market share, or is there pressure from imports and generics? Additionally, I heard one of your competitors mention they were trying to recover lost market share by lowering their prices, while it seems others have already done that. What do you believe your competitors are currently doing? Will they need to respond to your price reductions, or are you the last to cut prices?

Hi, this is Robert. I'll provide some insights regarding Brazil and pricing. In Crop Protection, we ended the quarter with a 10% decline in pricing. However, for the year to date, we're seeing a mid-single-digit performance. The third quarter is a unique period for us as we prepare for the season and collaborate with our distribution channels on various initiatives. Brazil experienced an 18% drop this quarter, but we anticipate finishing the year at mid-single digits for the company. We don't foresee significant changes in pricing from quarter to quarter; we expect it to remain relatively stable. The competitive landscape in Brazil is intense, with numerous players vying for volume growth in a mostly flat or declining market. We aim to maintain our market share while focusing on our product offerings. I won’t speculate on our competitors' strategies, but we will concentrate on the products that create value for our business, particularly our new and differentiated products. Most of our growth is projected for the fourth quarter and beyond, as these products usually command a premium due to their added value on farms. Additionally, our biological products, for which over 50% of our overall business is located in Brazil, are expected to perform well as the season progresses. To summarize, we expect to end the year with a mid-single-digit price decline, aligning with the current trends for our business overall.

Maybe, Robert, I’d like to add one more thing. When we look at our order book for the fourth quarter, we are pleased with our position. We are above 50% for our CP book and over 60% to 65% for our biologicals book. We are prepared exactly as we want to be for the fourth quarter, and I believe that is all taken into account in our current plans.

Hi, good morning. Just based on the last comments, could you help quantify how new products and biologicals have performed year-to-date? And what do you expect for contribution in 2025? And should the sensitivity around that number be similar to what you're expecting for broader crop protection?

Patrick, this is Robert. I'll begin with biologicals. We are 15 months post-acquisition, and this segment continues to perform very well. The portfolio is a strong complement to our synthetics business, providing unique solutions for farmers. We are pleased with its progress. Looking ahead to 2024, we anticipate double-digit EBITDA growth for biologicals, which will bolster our strength. In Q3, we witnessed approximately a 20% organic growth in new products, which are performing well above the market. We expect mid-single digits growth for the year, and we are excited about the value we are deriving from this. We are set to finish the year strongly with both areas as we conclude Q4.

As we look towards 2025 and the future, we will share more details at the Investor Day, but I believe these are the key growth drivers for our CP business. Our strategy focuses on reducing the emphasis on the commodity aspects of our portfolio and promoting differentiated technology. We are confident in our strong market channels, which will drive volume growth. While these products will follow market trends, they will generally maintain a premium compared to less differentiated offerings. This year, we have seen strong demand for our spinosad products, new innovations, and biologicals, which we anticipate will continue into 2025 and beyond.

Thank you, good morning everyone. I have a quick question regarding the initial guidance outcome for 2025. You've mentioned the gap between the low and high end. When can we expect to have a clearer understanding of which direction that is trending? Additionally, with all due respect, this marks the third time you've adjusted your guidance for the year 2024. Given that agriculture can be quite difficult to predict, do you think it's reasonable for people to inquire about what gives you confidence, and how much trust should we place in the guidance you've provided for 2025?

Yeah. Good morning, Edlain. Fair question. Absolutely. And if you think about this, right, so we had a '25 framework that we did update earlier this year, and I believe the range was something like 3.90 to 4.15 mid with margins in that 21% to 23%. And at that point, the reason we had updated that is because our fundamental view on the CP industry had changed, right? We had thought at that point now that the CP industry for 2024 would be in decline. And we've always said that for us to hit certainly the numbers for 2025, we would need to see a return for the industry to grow in the year 2025. And today, we came out with our view that it's going to be flattish. So that's the fundamental change. So if you look at the seed business, it's actually almost entirely on plan. And in fact, it's probably trending a little bit ahead. And we are also ahead when it comes to cost productivity. So when I think about how we've done as a company, we've got a lot of things right. The seed business is on plan. I think our cost and productivity and our controllables are, but the CP industry has clearly moved against us and everybody else in the industry, and that's had a profound impact on our outlook. So to your question, how about 3.6 now to 4, 3.8? Our view is still founded on a flat 2025 when it comes to CP. And when will we know? Let's get through this year. We've got a crop to harvest and a crop to put in the ground in Latin America. But we're feeling very good that the seed business is going to continue its journey. The $600 million of gross cost productivity and deflation, I think we're feeling very, very comfortable with. And as I mentioned, we're getting more comfortable that the CP industry is finding some stability finally. So it is, I think, a very fair question to ask. All we can do as an organization though is give you what we're thinking and to update you as we learn more. And this is our current view is that the CP industry, if it's flat, will be somewhere between the 3.6% and the 4%. And we're feeling very good about the levers that we have to pull to create value.

Good morning everyone. What do you expect for Argentina planting '25, do you anticipate any significant return?

Alex, this is Tim. I'll take a shot at that. So we're taking out 20%, so call it from roughly 8 million hectares down to 6.5 million hectares. And for '25 at this point, we're taking a very, let's say, a prudent approach and not assuming a significant increase or return. And why that is, is because of the pressure from the leaf hoppers last year. It's a really difficult environment for farmers to plant into. And it's hard to predict whether that was a one-year deal or if it's something that we're going to have to deal with going forward. . And so Chuck share that right now, the populations are moving in the right direction. So that's obviously a positive thing, but we got to track that over the course of the season. Last year, we saw populations really build as you got into the January, February time frame. And so it's going to be really important that we understand before we assume some kind of a big rebound. Hard to do it. It'd be very speculative at this point in time. Bottom line is Argentina is going to remain an important production area for both corn and soybeans. Argentina is one of the three major exporters of corn, and we'll continue to do that. And from an agronomic standpoint, farmers need to be planning corn in that northern area because that rotation between corn and beans is really important. They plant bean this year as a defensive crop on a one-year basis, but you can't do that for three or four years. They're going to end up with some problems. So we're optimistic over the next few years. And for '25, we're assuming essentially a flat market again with '24 and certainly, we're going to be staying close to understand what that opportunity is.

Great, thanks for taking my question. I'll just ask real quickly on the balance sheet. If you guys would consider maybe taking on a little bit of debt. I know that obviously, interest rates would play into that, but maybe you can just give us some updated thoughts on your views there? Thanks.

I think as we sit here today, our views have been consistent. I think when you look at the amount of cash that we generate, the amount that we put back in the business versus giving back in dividends and buybacks. We don't see any meaningful change going forward, certainly not in the '25 outlook, and not in the '25 to '27 outlook.

Yeah. And Arun, maybe just a couple of other thoughts. So feeling good about the guide in terms of free cash flow, $1.5 billion to $2 billion. So the company is generating, I think, very good cash and the conversion is improving from EBITDA. We do recognize we have a strategic asset in our balance sheet, investment-grade rating. I think David just shared our philosophy really hasn't changed. If you think through even this year, we're going to be approximately $1.5 billion of returning capital to shareholders through buybacks and dividends. So that's a big number. We want to be able to invest for growth inside the business. And we've got, I think, a lot of great things happening both in the seed and CP portfolio. And we've got a few other things that we'd like to share with you at the Investor Day. So we'll hold the rest of the conversation. But it is a good position to have, and I think it is one of the things that sets Corteva apart.

Great. That concludes today's call. We thank you for joining and for your interest in Corteva. And we hope you have a safe and wonderful day.