Corteva, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in U.S. dollars. Corteva’s filing also includes EIDP, its wholly owned subsidiary.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $6.045 billion | $6.252 billion | $10.929 billion | $10.853 billion |
| Income from continuing operations, after tax | $880 million | $1.002 billion | $1.487 billion | $1.579 billion |
| Net income attributable to Corteva | $714 million | $969 million | $1.309 billion | $1.533 billion |
| Diluted EPS | $1.00 | $1.33 | $1.83 | $2.11 |
| Operating EBITDA, non-GAAP | $1.746 billion | $1.719 billion | $2.977 billion | $2.758 billion |
| Operating earnings per share, non-GAAP | $1.60 | $1.64 | $2.76 | $2.61 |
Q2 sales fell 3% as a 13% volume decline and 1% unfavorable currency impact outweighed 9% price growth and a 2% favorable portfolio/other contribution. First-half sales increased 1%, reflecting 11% price growth and a 2% favorable portfolio/other contribution, partly offset by 9% lower volume and 3% unfavorable currency.
Results diverged by segment. Q2 Seed sales rose 8% to $4.264 billion and segment operating EBITDA rose 18% to $1.458 billion; its EBITDA margin improved about 280 basis points. Crop Protection sales fell 23% to $1.781 billion and segment operating EBITDA fell 37% to $320 million; its margin declined about 410 basis points. For the first half, Seed sales and segment operating EBITDA increased 8% and 17%, respectively, while Crop Protection sales declined 9% and segment operating EBITDA declined 8%.
Q2 cost of goods sold was 52% of sales, versus 53% a year earlier; first-half cost of goods sold was 54%, versus 56%. Lower volumes, reduced royalty expense, productivity actions and favorable currency helped, partly offset by higher market-driven input costs. R&D expense increased to $329 million in Q2 and $645 million in the first half, reflecting increased investment. GAAP operating income was also affected by other expense of $134 million in Q2, versus $49 million of other income a year earlier, and higher interest expense of $82 million, versus $16 million.
Cash flow, debt and liquidity
- First-half operating cash flow was negative $2.499 billion, compared with negative $1.621 billion in 2022. Working-capital movements, including use of deferred customer prepayments and lower accounts payable, were significant factors.
- First-half investing cash outflow was $1.544 billion, including $1.463 billion for the Stoller and Symborg acquisitions. Financing cash inflow was $3.379 billion, primarily reflecting borrowings and the May debt offering.
- At June 30, cash, cash equivalents and marketable securities totaled $2.616 billion. Total debt was $5.313 billion, up from $1.307 billion at December 31, 2022. Short-term borrowings and finance lease obligations were $3.023 billion, including $2.805 billion in commercial paper.
- Corteva issued $600 million of 4.50% notes due 2026 and $600 million of 4.80% notes due 2033. It reported $6.0 billion available under committed credit facilities and compliance with its debt-to-capitalization covenant. Management said liquidity, operating cash generation and capital-market access should be adequate for anticipated needs.
Outlook, material developments and risks
- Updated 2023 outlook: Net sales of $17.9–$18.2 billion, Operating EBITDA of $3.50–$3.65 billion and operating EPS of $2.75–$2.90. Management lowered its sales and earnings expectations, citing Crop Protection purchasing deferrals and order patterns influenced by product availability and higher interest rates. The outlook excludes extreme weather, operational disruptions, significant demand or customer-payment changes, and further acceleration of currency or inflation effects.
- Management described the agricultural outlook as positive, with grain and oilseed demand, commodity prices above historical averages, and healthy farm finances. It also noted Crop Protection destocking, delayed purchases and weather-related timing effects. Restructuring actions are expected to generate $210–$220 million of annualized savings by 2025.
- Stoller and Symborg were acquired on March 1 for purchase prices of $1.224 billion and $370 million, respectively. Preliminary purchase accounting included $513 million of goodwill; the allocation remains subject to completion. Their results had no material impact on reported interim financials.
- Legacy PFAS matters remain a major contingency. Corteva and the other settling companies agreed in principle to a $1.185 billion fund for defined U.S. public-water-system claims; the definitive settlement remained subject to court approval. Corteva recorded an accrual for the settlement. Q2 discontinued-operations losses were $163 million, primarily including about $155 million of after-tax charges for legacy PFAS legal settlements.
- The filing says reasonably possible environmental exposure could exceed recorded accruals. Its environmental table reports $508 million of accruals and $644 million of potential exposure above accruals across the listed categories. Other significant matters include Lorsban injury claims, the FTC antitrust case and other PFAS litigation. Management says losses beyond accruals could be material but cannot estimate them for certain matters.
- Other notable sensitivities include Argentine peso devaluation: a further 10% decline in the official exchange rate was estimated to reduce the value of net monetary assets and pre-tax earnings by about $20 million. Management also expects higher 2023 non-operating pension and OPEB costs than in 2022.
- The board approved a 6.7% dividend increase, from $0.15 to $0.16 per share, for the September 2023 payment. The company returned approximately $545 million to shareholders in the first half through dividends and repurchases.
Most important facts for investors to verify
- Whether Crop Protection volumes stabilize after destocking and deferred purchasing, and whether the updated full-year guidance is achieved.
- How much of reported earnings and cash generation is recurring versus affected by working capital, non-GAAP adjustments, currency and significant items.
- Debt, commercial-paper usage, interest costs and seasonal liquidity needs, alongside the availability and terms of credit facilities.
- Final court approval, funding terms and Corteva’s ultimate share of the PFAS water-system settlement, plus developments in other environmental and litigation exposures.
- Acquisition integration, final purchase-price allocations and progress toward the projected restructuring savings.