Corteva, Inc. — Q3 2021 Form 10-Q
Business context and period: Corteva is an agricultural company operating through Seed and Crop Protection segments. This combined, unaudited filing covers the quarter and nine months ended September 30, 2021, compared with the same 2020 periods. E. I. du Pont de Nemours and Company (EID), a Corteva subsidiary, also files in this report; Corteva’s consolidated figures are summarized below.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $2.371 billion | $1.863 billion | $12.176 billion | $11.010 billion |
| Income from continuing operations after tax | $36 million | $(390) million | $1.667 billion | $657 million |
| Net income attributable to Corteva | $30 million | $(392) million | $1.600 billion | $640 million |
| Diluted EPS from continuing operations | $0.05 | $(0.52) | $2.23 | $0.85 |
| Non-GAAP Operating EBITDA | $(51) million | $(179) million | $2.314 billion | $1.851 billion |
| Cash used for operating activities | Not presented separately for the quarter | Not presented separately for the quarter | $819 million | $1.237 billion |
Sales and margins: Q3 sales rose 27%, reflecting 17% volume growth, 7% higher price and a 3% favorable currency impact. Nine-month sales rose 11%, with 6% volume growth, 3% higher price and 2% favorable currency. Cost of goods sold was 66% of sales in Q3 versus 70% a year earlier, and 57% for the nine months versus 58%. The corresponding gross margins were approximately 34% and 43%, compared with 30% and 42% in 2020.
Segment performance: Nine-month Seed sales increased 8% to $7.010 billion and segment operating EBITDA increased 21% to $1.523 billion; Crop Protection sales rose 15% to $5.166 billion and segment operating EBITDA increased 32% to $897 million. Management cited new-product penetration, pricing, volume and productivity actions; both segments’ nine-month EBITDA margins improved by more than 200 basis points. Q3 segment operating EBITDA was $(217) million for Seed and $206 million for Crop Protection. The filing’s segment operating EBITDA measure differs from company-wide Operating EBITDA, a non-GAAP measure.
Earnings quality and unusual items: Other income was $378 million in Q3 and $1.013 billion for the nine months, largely reflecting non-operating pension and post-employment benefit credits ($326 million and $979 million, respectively), along with other items. The company recorded $47 million in equity-securities mark-to-market gains in the nine-month period. Nine-month restructuring and asset-related charges were $261 million, including $127 million for 2021 restructuring actions and $124 million of non-cash accelerated prepaid royalty amortization. Q3 and nine-month tax benefits included $32 million and $58 million, respectively, from changes in prior-year tax accruals. Discontinued operations included a $59 million loss for the nine months, primarily related to legacy PFAS matters.
Liquidity, debt and capital allocation
- At September 30, cash, cash equivalents and marketable securities totaled $2.882 billion, down from $3.795 billion at December 31, 2020. Total debt was $2.473 billion, up from $1.105 billion at year-end, mainly reflecting seasonal working-capital needs and capital expenditures. Short-term borrowings and finance lease obligations were $1.372 billion; long-term debt was $1.101 billion.
- Nine-month cash used for operations was $819 million, versus $1.237 billion in 2020. Working-capital movements included a $1.116 billion use from receivables and a $1.945 billion use from deferred revenue. Investing activities used $201 million, including $413 million of capital expenditures; financing activities provided $365 million.
- The company reported approximately $6.4 billion of committed and uncommitted unused credit lines and a $1 billion receivables repurchase facility. It said it was in compliance with its debt covenant, which limits total indebtedness to 60% of total capitalization. Management stated that operating cash flow, credit access and capital markets should be adequate to meet anticipated needs.
- Corteva returned approximately $1 billion to shareholders through buybacks and dividends during the nine months. The 2019 repurchase program was completed; a new $1.5 billion authorization was announced in August. Management expected at least $900 million of repurchases for full-year 2021. The quarterly dividend was raised from $0.13 to $0.14 per share.
Outlook, commentary and key risks
Corteva raised its 2021 outlook to net sales of $15.5–$15.7 billion and Operating Earnings EPS of $2.05–$2.15; it reaffirmed Operating EBITDA of $2.5–$2.6 billion. It also affirmed expected capital expenditures of $600–$650 million. These are management’s non-GAAP outlook measures; the filing says it could not reconcile forward-looking non-GAAP measures to GAAP without unreasonable effort.
Management highlighted inflation and constrained availability of raw materials, freight and logistics as continuing cost pressures, alongside uneven post-pandemic recovery and possible effects from COVID-19 variants and extreme weather. Other stated risks include agricultural regulation and competition, product approvals and development, seasonality and weather, currency exposure, customer credit, and supply-chain and input-cost volatility. The company noted that cash held by foreign subsidiaries could face taxes upon repatriation.
Contingencies: The filing describes potentially material PFAS/PFOA-related environmental and litigation exposures allocated among Corteva, DuPont and Chemours. Under a 2021 memorandum of understanding, Corteva and DuPont share specified qualified PFAS costs with Chemours, subject to allocation rules and caps; the arrangement includes planned escrow contributions. The company said possible losses above recorded accruals for certain litigation and environmental matters could be material but were not estimable. Other matters include chlorpyrifos personal-injury claims and a pending criminal case relating to the 2014 La Porte facility release, with trial scheduled for March 2022. The filing also disclosed a CEO transition effective November 1, 2021.
Important facts for investors to verify
- How much of reported earnings and the raised outlook depends on non-operating benefit credits, tax benefits, and other unusual items, versus recurring operating performance.
- Whether price increases and productivity gains can offset ongoing input, freight and logistics inflation, and whether 2021 sales growth reflects sustainable demand or seasonal sales timing.
- Working-capital and cash conversion trends, including receivables, deferred revenue, seasonal borrowing and the December 2021 expiry of the receivables repurchase facility.
- The eventual cost, timing and allocation of PFAS-related liabilities, escrow funding and other environmental or litigation contingencies; exposures above accruals were not reliably estimable.
- Progress toward the full-year outlook, planned capital spending and buybacks, and the operational and strategic effects of the CEO transition.