EIDP, Inc. Q1 2023 Form 10-Q Summary
Business context and reporting period
EIDP, Inc. is a wholly owned subsidiary of Corteva, Inc. and filed a reduced-disclosure combined Form 10-Q for the three months ended March 31, 2023. EIDP’s consolidated operations comprise Corteva’s Seed and Crop Protection businesses. EIDP’s results substantially match Corteva’s consolidated results, except primarily for EIDP preferred stock and a related-party loan payable to Corteva.
Financial performance and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $4.884 billion | $4.601 billion | 6% increase |
| Income from continuing operations | $597 million | $570 million | 5% increase |
| Net income attributable to EIDP | $588 million | $559 million | 5% increase |
| Operating EBITDA, non-GAAP | $1.255 billion | $1.060 billion | 18% increase |
| Effective tax rate | 21.8% | 17.3% | Higher rate |
| Cash used in operating activities | $(3.306) billion | $(2.727) billion | Greater use of cash |
| Cash used in investing activities | $(1.511) billion | $(404) million | Primarily acquisitions |
| Cash provided by financing activities | $3.269 billion | $711 million | Primarily additional borrowings |
Sales growth reflected a 14% pricing benefit and a 1% favorable portfolio and other impact, partly offset by a 4% volume decline and a 5% unfavorable currency impact. Seed sales increased 7% to $2.695 billion, while Crop Protection sales increased 5% to $2.189 billion.
Operating EBITDA benefited from pricing, product mix, and productivity actions, partially offset by inflation and currency headwinds. Reported cost of goods sold was $2.771 billion, or 57% of sales, versus 59% in the prior-year quarter. Operating EBITDA is a non-GAAP measure and should be evaluated together with the company’s GAAP results.
Liquidity, debt, and capital allocation
- Cash, cash equivalents, and marketable securities were $1.731 billion at March 31, 2023, compared with $3.315 billion at December 31, 2022.
- Total debt was $5.028 billion, compared with $1.307 billion at December 31, 2022. The increase primarily funded seasonal working capital, acquisitions, capital spending, dividends, and share repurchases.
- Short-term borrowings and finance lease obligations were $3.787 billion, including $2.680 billion of commercial paper and a $1.000 billion draw under the 364-day revolving credit facility. Long-term debt was $1.241 billion.
- EIDP also reported $429 million of long-term related-party debt owed to Corteva, compared with $789 million at year-end 2022 and $1.825 billion at March 31, 2022. Related-party interest expense was $13 million in the quarter.
- Total committed credit facilities were $6.000 billion, of which $5.000 billion was available at March 31, 2023. EIDP was in compliance with the applicable covenant requiring total debt to total capitalization not to exceed 0.60.
- Accounts and notes receivable rose to $8.678 billion from $5.701 billion at year-end, reflecting seasonal working-capital needs. Inventories were $6.585 billion.
- EIDP’s cash flow deficit was primarily driven by a $2.708 billion increase in receivables and a $908 million decrease in accounts payable.
- Corteva returned approximately $360 million to shareholders through common dividends and share repurchases, including $250 million for the repurchase of approximately 4.1 million shares. EIDP paid approximately $3 million of preferred dividends.
Material changes versus the prior comparable period
- Sales and operating EBITDA increased despite lower volumes, unfavorable currency, and higher input costs.
- Other income and expense changed from $17 million of income to $71 million of expense, primarily due to higher non-operating pension and post-employment costs, increased estimated settlement reserves, and a loss on an equity investment.
- Interest expense increased to $44 million from $18 million because of higher short-term borrowings and related-party debt costs.
- Income tax expense increased to $166 million from $119 million, and the effective tax rate rose to 21.8% from 17.3%, primarily due to geographic earnings mix. The prior-year period benefited from larger tax adjustments.
- Cash used in operations increased by $579 million, while investing cash use increased by $1.107 billion due mainly to the Stoller and Symborg acquisitions.
- On March 1, 2023, Corteva completed the acquisitions of Stoller and Symborg for preliminary purchase prices of $1.224 billion and $370 million, respectively. The acquisitions added biological and microbiological crop-protection technologies. The purchase price allocation remained preliminary at March 31, 2023.
Guidance, outlook, risks, and unusual items
Management raised full-year 2023 guidance to net sales of $18.6 billion to $18.9 billion, Operating EBITDA of $3.55 billion to $3.75 billion, and operating earnings per share of $2.80 to $3.00. The outlook excludes extreme weather, operational disruptions, significant changes in customer demand or credit quality, and further acceleration of currency or inflation impacts.
- Restructuring and other charges through Q1 2023 totaled $341 million against a projected total of $350 million to $420 million. Cash payments are expected to total $180 million to $210 million, with approximately $115 million paid through March 31, 2023. Actions are expected to be substantially complete in 2023 and are expected to generate $210 million to $220 million of run-rate savings by 2025.
- Management expects approximately $75 million of non-cash accelerated prepaid royalty amortization charges during 2023 and higher non-operating pension and OPEB costs.
- The company exited Russia, which contributed approximately 2% of annual sales before the exit. Russia-related restructuring and other charges through Q1 2023 totaled $49 million.
- EIDP and affiliated entities remain subject to significant PFAS, PFOA, environmental, product-liability, antitrust, and other litigation. Under the PFAS memorandum of understanding, Corteva’s estimated aggregate share of potential qualified costs is approximately $600 million, subject to stated caps and allocation provisions.
- Environmental accruals totaled $519 million, with potential exposure above accrued amounts estimated at $622 million. These estimates exclude certain potential effects of evolving PFAS regulatory requirements.
- The FTC, states, and private plaintiffs are pursuing antitrust litigation concerning crop-protection products. The filing states that the company believes the claims are without merit.
- EIDP pleaded guilty in April 2023 to a misdemeanor related to the 2014 La Porte, Texas release and agreed to pay a $12 million fine and a $4 million community-service payment.
- Foreign exchange, commodity prices, inflation, weather, agricultural demand, regulatory approvals, geopolitical conflict, customer credit, supply-chain disruptions, and pension funding requirements remain material risks.
- In May 2023, the company entered into a committed receivable repurchase facility of up to $500 million, expiring in December 2023.
Most important facts for investors to verify
- Confirm EIDP’s standalone debt, including the $429 million related-party loan, and distinguish it from Corteva’s consolidated debt presentation.
- Assess whether increased borrowing and negative seasonal operating cash flow are consistent with expected working-capital seasonality and the company’s liquidity facilities.
- Evaluate the sustainability of pricing and productivity benefits relative to input-cost inflation, volume declines, and currency pressure.
- Review the preliminary purchase-price allocation and future earnings effects of the Stoller and Symborg acquisitions.
- Monitor PFAS, environmental, Lorsban, antitrust, and other litigation, including possible liabilities in excess of recorded accruals.
- Compare full-year guidance with actual seasonal sales, operating EBITDA, effective tax rate, interest expense, and restructuring costs.
- Verify the reconciliation and consistency of non-GAAP Operating EBITDA and operating earnings per share with GAAP results.