Corteva, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The combined filing covers Corteva and its wholly owned subsidiary E. I. du Pont de Nemours and Company (EID); figures below are for Corteva unless noted.
Financial performance
- Revenue: Q3 net sales were $2.777 billion, up 17% year over year; nine-month sales were $13.630 billion, up 12%. Management attributed growth to pricing and volume, partly offset by unfavorable currency effects. Crop Protection drove much of the nine-month increase.
- Profit: Q3 continuing-operations loss was $322 million versus income of $36 million a year earlier; diluted continuing-operations EPS was $(0.45) versus $0.05. Nine-month continuing-operations income was $1.257 billion versus $1.667 billion, with diluted EPS of $1.72 versus $2.23.
- Adjusted measures: Non-GAAP Operating EBITDA was $96 million in Q3 versus $(51) million; nine-month Operating EBITDA was $2.854 billion versus $2.314 billion. Operating earnings per diluted share were $(0.12) and $2.50, respectively, versus $(0.14) and $2.06. These measures exclude specified items and are not GAAP results.
- Costs and margins: Cost of goods sold was 68% of sales in Q3 versus 66%, and 58% for the first nine months versus 57%. Management cited higher input, freight and logistics costs, partly offset by productivity actions. Q3 Crop Protection segment EBITDA rose to $352 million from $206 million; Seed segment EBITDA remained negative at $(224) million versus $(217) million.
- Cash flow: Operating cash use was $2.146 billion for nine months, versus $819 million used in 2021, primarily reflecting working-capital needs, including receivables, inventory and deferred revenue. Investing cash use was $439 million; financing provided $663 million.
- Liquidity and debt: September 30 cash and cash equivalents were $2.199 billion and marketable securities were $119 million. Total debt was $2.853 billion, up from $1.117 billion at year-end 2021, largely to fund working capital and capital spending. The company reported approximately $6.0 billion of available committed and uncommitted credit lines and was in compliance with its leverage covenants.
Changes and notable items
- Q3 and nine-month sales benefited from higher prices and volumes; foreign exchange reduced reported sales growth by 4 percentage points in both periods. Higher costs and currency headwinds tempered operating gains.
- GAAP results were affected by restructuring and asset-related charges of $152 million in Q3 and $300 million for nine months. Other income fell to $23 million in Q3 and $89 million year to date, compared with $378 million and $1.013 billion, respectively, in 2021; the prior year included substantially larger non-operating pension credits.
- Q3 included a $40 million estimated Lorsban-related settlement expense. The company also recorded a $25 million non-cash pension settlement charge after transferring about $1.1 billion of pension obligations and assets to an insurer; remeasurement included an approximately $110 million pre-tax actuarial gain recorded in other comprehensive income.
- Cash and cash equivalents declined from $4.459 billion at December 31, 2021. Share repurchases totaled $800 million and dividends paid were $311 million during the first nine months. Corteva authorized a new $2 billion share repurchase program in September.
Outlook, risks and contingencies
- 2022 outlook: Management affirmed net sales guidance of $17.2–$17.5 billion and raised Operating EBITDA guidance to $3.0–$3.1 billion. Operating earnings per share guidance was $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 actions, including the Russia exit, are expected to result in $350–$420 million of total pre-tax charges, with $150–$175 million of future cash payments. Management expects $210–$220 million of annualized savings by 2025 and substantial completion in 2023. Russia represents approximately 2% of annual sales; additional exit charges of up to $20 million were possible.
- Management cited continuing uncertainty from Russia’s invasion of Ukraine, inflation, supply-chain and logistics constraints, input availability and costs, currency movements, weather and seasonal factors. The company also faces agricultural product regulatory, competitive and commercialization risks.
- Legal exposure: The FTC and ten state attorneys general sued Corteva and a competitor in September 2022 alleging anticompetitive conduct; Corteva disputes the allegations. The filing also describes extensive legacy PFAS litigation and environmental matters. Management said losses above recorded amounts are reasonably possible in certain matters but generally could not be estimated. The environmental table reports $483 million of accruals and $596 million of potential exposure above accruals, alongside indemnification assets and contractual cost-sharing arrangements.
- A criminal case concerning the 2014 La Porte plant release remained pending, with trial scheduled for March 2023. Corteva also disclosed patent and licensing disputes with Bayer. A planned acquisition of Symborg was subject to customary closing conditions and was expected to close in 2022.
Investor facts to verify
- Whether full-year sales, Operating EBITDA and operating EPS guidance were achieved, and how reported GAAP results compare with the adjusted measures.
- Whether seasonal working capital reverses and operating cash flow improves, given the substantial nine-month cash use and higher short-term borrowing.
- How input-cost, freight, currency and supply-chain pressures affect margins, particularly in Seed.
- Actual restructuring charges, cash payments and realized savings, including costs tied to the Russia exit.
- Developments in FTC, PFAS, Lorsban, La Porte and other litigation, including changes to accruals, indemnifications or potential exposure.
- Progress and terms of share repurchases, dividends, credit-facility availability and the Symborg acquisition.