Corteva, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results are for Corteva and consolidated subsidiaries; the combined filing also includes EID, its wholly owned subsidiary and separate reporting company.
Business context and results
Corteva operates in Seed and Crop Protection. Second-quarter growth reflected higher prices and volumes, including strong Crop Protection demand, partly offset by currency headwinds. Management cited inflation, higher input costs, and constrained logistics as continuing pressures.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $6.252B | $5.627B | $10.853B | $9.805B |
| Income from continuing operations | $1.002B | $1.018B | $1.579B | $1.631B |
| Net income attributable to Corteva | $969M | $970M | $1.533B | $1.570B |
| Diluted GAAP EPS | $1.33 | $1.31 | $2.11 | $2.11 |
| Operating EBITDA (non-GAAP) | $1.719B | $1.461B | $2.758B | $2.365B |
Q2 sales rose 11% year over year, driven by price (+9%) and volume (+4%), partly offset by currency (-2%). For the first half, sales rose 11%, with price up 9%, volume up 5%, and currency a 3% headwind. Crop Protection led growth: Q2 sales increased 25% and segment operating EBITDA increased 38%; Seed sales rose 4% and segment operating EBITDA rose 10%.
Q2 cost of goods sold was 53% of sales, unchanged from the prior-year quarter; first-half COGS was 56% of sales versus 55%. Q2 Seed segment EBITDA margin improved about 170 basis points and Crop Protection margin improved more than 200 basis points. The filing reports segment EBITDA separately from company Operating EBITDA; the segment total was $1.749B for Q2 and $2.809B for the first half, before corporate expenses.
Cash flow, balance sheet and capital allocation
- First-half operating cash flow was negative $1.621B, versus negative $643M a year earlier, primarily because of seasonal working-capital needs: higher receivables and inventories and lower deferred revenue.
- First-half investing cash flow was negative $435M, including $318M of capital expenditures. Financing cash flow was positive $106M.
- At June 30, cash and cash equivalents were $2.401B and marketable securities were $254M; total debt was $1.995B, compared with $1.117B at December 31, 2021. Cash, cash equivalents and marketable securities totaled $2.655B. The company reported $5.5B of available committed facilities and about $5.9B in committed and uncommitted unused credit lines, including foreign-currency lines.
- Current assets were $14.764B and current liabilities $7.856B. Commercial paper borrowings were $684M. Corteva said it was in compliance with its credit-facility financial covenants.
- Corteva returned about $800M to shareholders in the first half through repurchases and dividends. It repurchased $600M of shares in the first half and expected approximately $1B of repurchases for full-year 2022. In July, the board approved a 7.1% dividend increase, to $0.15 per share.
Outlook, unusual items and risks
- Raised 2022 outlook: Net sales of $17.2B–$17.5B, Operating EBITDA of $2.95B–$3.10B, and operating EPS of $2.45–$2.60. These are non-GAAP measures; the company said it could not reconcile them to GAAP without unreasonable effort.
- The 2022 restructuring program, excluding Russia Exit charges, is expected to add $295M–$350M of pretax charges through June 2023, with $180M–$210M of future cash payments. Actions are expected to be substantially complete in 2023 and to generate $210M–$220M of annual run-rate savings by 2025. Up to a further $30M of Russia Exit charges was possible.
- Corteva decided to withdraw from Russia; Russia represented about 2% of annual net sales. The company cited potential disruption from the Russia-Ukraine conflict, inflation, input availability, freight and logistics constraints, currency volatility, and changing commodity demand.
- Legacy PFAS matters remain a significant contingency. The filing says losses beyond accruals are reasonably possible but not estimable for certain matters. A disclosed environmental table reported $482M of accrued obligations and $600M of potential exposure above accrued amounts; these figures cover specified environmental matters and indemnification categories, not a single litigation estimate. The Chemours MOU provides for cost sharing and escrow contributions, subject to stated caps and allocation terms.
- Other notable exposures include Lorsban-related litigation and reserves, an FTC investigation for which staff recommended an enforcement action, and environmental proceedings. Management stated that potential losses in certain proceedings could exceed accruals and be material, but could not be estimated. The filing also notes June 2022 EPA drinking-water health advisories for PFOA, PFOS and GenX.
- Argentina contributes approximately 5% of annual sales and EBITDA; management estimated that a further 10% decline in the official peso exchange rate would reduce the value of net monetary assets and pre-tax earnings by approximately $15M.
- Q2 and first-half results included restructuring charges, accelerated non-cash prepaid royalty amortization, Russia Exit costs, currency losses, and lower non-operating pension credits versus the prior year. Discontinued operations recorded losses of $30M in Q2 and $40M in the first half, primarily related to legacy PFAS remediation.
Most important facts for investors to verify
- Whether the raised sales, EBITDA and operating EPS outlook is achieved, and how much reported performance depends on pricing versus volume and currency.
- Working-capital conversion and operating cash flow, including seasonal customer receivables, deferred revenue and inventory.
- Execution and cash costs of restructuring, expected savings, and any additional Russia Exit charges.
- Developments in PFAS and other legacy litigation, environmental remediation, indemnification recoveries, and potential exposure beyond recorded accruals.
- Debt, commercial paper usage, liquidity availability, and continued covenant compliance as seasonal funding needs evolve.
- Capital returns versus investment and liquidity needs, including the stated full-year repurchase plan and increased dividend.