EIDP, Inc. 2023 Q2 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023, compared with the corresponding 2022 periods. EIDP is wholly owned by Corteva, Inc. and filed a combined Form 10-Q with Corteva using reduced disclosure. EIDP’s results are substantially the same as Corteva’s, except primarily for preferred stock, related-party debt and associated interest expense.
Business Context and Key Financial Metrics
EIDP’s operations comprise two reportable segments: Seed and Crop Protection. The company operates globally and serves agricultural customers through seed, traits, crop protection and biological products.
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Net sales | $6,045 million | $6,252 million | $10,929 million | $10,853 million |
| Income from continuing operations after tax | $875 million | $995 million | $1,472 million | $1,565 million |
| Net income attributable to EIDP | $711 million | $965 million | $1,299 million | $1,524 million |
| Operating cash flow | Not separately provided | Not separately provided | $(2,516) million | $(1,633) million |
| Capital expenditures | Not separately provided | Not separately provided | $250 million | $318 million |
| Segment operating EBITDA | $1,778 million | $1,749 million | $3,033 million | $2,809 million |
Margins: COGS represented 52% of sales in Q2 2023 versus 53% in Q2 2022 and 54% for the first six months versus 56% in the prior-year period. EIDP’s net income attributable to EIDP margin was approximately 11.8% in Q2 2023 versus 15.4% in Q2 2022, and 11.9% for the first six months versus 14.0%. Segment operating EBITDA margin was approximately 29.4% in Q2 2023 and 27.8% in Q2 2022, and 27.8% for the first six months and 25.9% in the prior-year period.
Balance sheet and liquidity: At June 30, 2023, EIDP had cash and cash equivalents of $2,563 million, marketable securities of $53 million, total assets of $44,189 million and total equity of $26,191 million. Short-term borrowings were $3,023 million, long-term debt was $2,290 million and related-party long-term debt payable to Corteva was $268 million. The filing indicates approximately $6.5 billion of committed and uncommitted unused credit lines, including a $500 million receivable repurchase facility; no borrowings were outstanding under that facility at June 30, 2023.
Cash flow: Operating cash use increased to $2,516 million, principally because of seasonal working-capital requirements, lower accounts payable, use of customer prepayments and other working-capital movements. Investing cash use was $1,544 million, including $1,463 million for the Stoller and Symborg acquisitions. Financing cash inflow was $3,396 million, driven by debt issuance and borrowings.
Material Changes Versus the Prior Comparable Period
- Q2 sales declined 3% as a 13% volume decline and 1% unfavorable currency impact more than offset 9% price growth and 2% favorable portfolio and other effects. First-half sales increased 1%, with 11% price growth and 2% favorable portfolio effects offsetting a 9% volume decline and 3% unfavorable currency impact.
- Seed performed strongly: Q2 sales increased 8% to $4,264 million and segment operating EBITDA increased 18% to $1,458 million. First-half sales increased 8% and EBITDA increased 17%.
- Crop Protection weakened materially: Q2 sales decreased 23% to $1,781 million and segment operating EBITDA decreased 37% to $320 million. First-half sales decreased 9% and EBITDA decreased 8%. The company cited inventory destocking, delayed purchases, strategic product exits, weather-related timing and lower volumes.
- Net income attributable to EIDP declined 26% in Q2 and 15% for the first six months. Continuing-operations income declined 12% in Q2 and 6% year to date, while discontinued-operations losses increased to $163 million in Q2 and $171 million year to date, primarily from PFAS-related legal matters.
- Interest expense increased to $89 million in Q2 and $133 million for the first six months, compared with $26 million and $44 million, respectively, in 2022. The increase reflected higher rates, short-term borrowings, the May 2023 debt offering and EIDP’s related-party loan.
- Other income and expense changed from $49 million of income to $134 million of expense in Q2 and from $66 million of income to $205 million of expense for the first six months. Drivers included exchange losses, pension and post-employment costs and estimated settlement reserves.
- On March 1, 2023, Corteva completed the acquisitions of Stoller and Symborg for stated purchase prices of $1,224 million and $370 million, respectively. The acquisitions added biological products to Crop Protection and had no material reported operating impact through June 30.
- Restructuring and asset-related charges declined to $60 million in Q2 and $93 million for the first six months, versus $143 million and $148 million in the prior-year periods. Management does not expect additional material charges from the 2022 restructuring actions and expects $210 million to $220 million of run-rate savings by 2025.
Guidance, Outlook, Risks and Unusual Items
Management described the 2023 agricultural outlook as broadly positive, citing healthy commodity prices, farm balance sheets and grower demand for productivity-enhancing technology. However, Crop Protection order patterns were affected by product availability, higher interest rates, inventory destocking and delayed purchases.
The company lowered its full-year 2023 outlook to net sales of $17.9 billion to $18.2 billion, Operating EBITDA of $3.50 billion to $3.65 billion and operating earnings per share of $2.75 to $2.90. The outlook excludes extreme weather, operational disruptions, significant demand or customer-credit deterioration, and further acceleration in currency or inflation impacts. The filing does not provide a separate EIDP-only outlook.
- The company expects approximately $75 million of noncash accelerated prepaid royalty amortization expense in 2023 and higher non-operating pension and OPEB charges than in 2022.
- On June 1, 2023, Corteva, EIDP, DuPont and Chemours entered into a Water System MOU to resolve defined PFAS-related drinking-water claims. The parties agreed to contribute $1.185 billion collectively, with the final agreement subject to court approval. An accrual was established as of June 30, 2023; the filing does not clearly identify EIDP’s standalone share of the settlement.
- Discontinued-operations charges included approximately $155 million after tax in Q2 related to legacy PFAS matters, including the Water System MOU.
- Under the 2021 PFAS cost-sharing arrangement, Corteva’s estimated aggregate share of potential qualified spending is approximately $600 million, subject to the stated limits and allocation provisions.
- Material contingencies include PFAS and other environmental proceedings, Lorsban-related personal-injury claims, FTC and state antitrust litigation, Bayer patent and licensing disputes, and the AltEn facility remediation matter. Management states that liabilities in excess of accrued amounts could materially affect results or cash flows, although losses beyond accruals generally cannot be estimated.
- Foreign-exchange exposure remains significant. A further 10% deterioration in the Argentine peso exchange rate as of June 30, 2023 would have reduced the value of net monetary assets and pre-tax earnings by approximately $20 million.
- At June 30, 2023, supplier-finance obligations included in accounts payable were approximately $115 million, and directly guaranteed customer and third-party obligations totaled $73 million.
Important Facts for Investors to Verify
- Whether the revised 2023 guidance adequately reflects continued Crop Protection destocking, delayed purchases and regional volume weakness.
- The sustainability of Seed pricing, margin expansion and productivity savings as volumes and foreign exchange remain pressured.
- The amount and timing of EIDP’s economic responsibility for the $1.185 billion Water System MOU and other PFAS-related liabilities.
- Whether negative operating cash flow is seasonal and reverses in the second half, particularly as customer receivables, inventories, deferred revenue and payables normalize.
- The effect of higher debt, commercial paper usage and interest rates on liquidity and future interest expense, including the $268 million related-party loan payable to Corteva.
- The final purchase-price allocations, integration costs and expected contribution from the Stoller and Symborg acquisitions.
- Developments in FTC antitrust litigation, Bayer disputes, Lorsban claims and environmental proceedings that could create additional charges or cash requirements.
- The filing’s control conclusion: management concluded that EIDP’s disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter.