Corteva, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. Corteva is an agricultural technology company with Seed and Crop Protection segments. The combined filing also includes E. I. du Pont de Nemours and Company (EID), a wholly owned subsidiary; figures below refer to Corteva consolidated unless noted.
Financial results and position
| Metric | Q1 2022 | Q1 2021 / comparator |
|---|---|---|
| Net sales | $4.601 billion | $4.178 billion; up 10% |
| Income from continuing operations after tax | $577 million | $613 million |
| Net income attributable to Corteva | $564 million | $600 million |
| Diluted GAAP EPS | $0.78 | $0.80 total; $0.81 from continuing operations |
| Operating EBITDA (non-GAAP) | $1.039 billion | $904 million |
| Operating earnings per share (non-GAAP) | $0.97 | $0.79 |
| Operating cash flow | $(2.730) billion | $(1.950) billion |
| Investing cash flow | $(404) million | $36 million |
| Financing cash flow | $714 million | $821 million |
| Cash and marketable securities | $2.321 billion | $4.545 billion at Dec. 31, 2021 |
| Total debt | $2.172 billion | $1.117 billion at Dec. 31, 2021 |
Cost of goods sold was $2.724 billion, or 59% of sales, versus $2.420 billion, or 58%, a year earlier. The filing reports no consolidated gross-margin percentage; these figures imply gross profit of approximately $1.877 billion for Q1 2022 and $1.758 billion for Q1 2021. Current assets were $15.878 billion and current liabilities $9.653 billion at March 31, 2022.
Segment operating EBITDA, a separately defined measure, was $1.060 billion, up from $938 million. It is not the same as company Operating EBITDA: the segment reconciliation includes a $21 million corporate expense adjustment. Seed sales were $2.524 billion and segment operating EBITDA $569 million; Crop Protection sales were $2.077 billion and EBITDA $491 million.
Material changes and operating drivers
- Sales growth reflected price up 9% and volume up 7%, partly offset by a 6% unfavorable currency impact. Price gains reflected the company’s price-for-value approach and recovery of higher input and logistics costs.
- Crop Protection sales increased 23% and segment EBITDA increased to $491 million from $321 million, supported by volume, pricing, and differentiated products. Seed sales rose 1%, but Seed EBITDA fell 8% to $569 million as seasonal timing, costs, and currency weighed on results.
- Higher input, freight, and logistics costs pressured results despite productivity actions. COGS rose faster than sales.
- Income from continuing operations declined despite higher Operating EBITDA. Other income fell to $17 million from $337 million, principally because the prior-year period included larger non-operating pension and post-employment benefit credits. Q1 2022 also included an estimated $17 million Lorsban-related settlement expense.
- Working capital drove operating cash outflow: receivables increased with revenue growth, while inventories were built for anticipated demand and deferred revenue declined. Seasonal working-capital needs also contributed to higher debt.
Guidance, liquidity, risks, and contingencies
- 2022 outlook affirmed: Net sales of $16.7–$17.0 billion and Operating EBITDA of $2.8–$3.0 billion. Operating EPS guidance was adjusted to $2.35–$2.55, reflecting a lower expected average share count. The company expects about $102 million of noncash accelerated prepaid royalty amortization charges in 2022.
- The company expects 2022 share repurchases to exceed $800 million under its $1.5 billion authorization. It repurchased $235 million of shares and paid $102 million in common dividends in Q1.
- In April 2022, Corteva announced it would withdraw from Russia, having paused new sales, and planned to cease production and business activities there. Russia represents about 2% of annual sales; expected associated charges are $25–$75 million. This is a subsequent event, not a Q1 operating result.
- Management said available cash generation and access to capital and commercial-paper markets should meet anticipated needs. Unused committed and uncommitted credit lines were approximately $6.6 billion at quarter-end, in addition to a $500 million receivables repurchase facility with no outstanding borrowings. Corteva was compliant with its debt covenant.
- Legacy PFAS/PFOA litigation and environmental matters remain significant uncertainties. Management said reasonably possible losses could exceed accruals but could not estimate the additional exposure. Under the PFAS memorandum of understanding, Corteva and DuPont together share certain qualified costs with Chemours, subject to stated allocation rules and limits; Corteva’s share is generally 29% after specified thresholds, while the MOU provides a $2 billion combined cap for Corteva and DuPont.
- Environmental remediation accruals totaled $459 million, with potential exposure above accruals estimated at $582 million. The filing cautions that estimates involve substantial uncertainty. New Jersey sought a remediation funding source exceeding $900 million for the former Chambers Works facility; the filing says this relates primarily to non-PFAS remediation and Chemours accepted indemnity and defense while reserving certain rights.
- Other risks include inflation and availability of raw materials, supply-chain and logistics disruption, currency movements, weather and seasonal demand, customer credit risk, regulatory and product-development risks, and the Russia-Ukraine conflict. A further 10% deterioration in the official Argentine peso exchange rate would reduce the value of net monetary assets and negatively affect pretax earnings by about $15 million.
Important facts for investors to verify
- Whether pricing and volume gains can offset inflation, freight costs, and unfavorable foreign exchange while preserving margins.
- Progress in collecting seasonal receivables and converting the Q1 working-capital cash outflow into cash later in the year.
- Delivery against full-year sales, EBITDA, and operating EPS guidance, including the assumptions behind the EPS range and expected share repurchases.
- Developments in PFAS/PFOA and other legacy litigation, remediation estimates, indemnification recoveries, and the MOU cost-sharing and escrow arrangements.
- The financial and operational effects of the Russia exit and the stated $25–$75 million expected charge range.
- Debt and liquidity trends, including use of commercial paper, revolving facilities, and the receivables repurchase facility; also note the credit facilities were refinanced in May 2022, after quarter-end.