Corteva, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. This combined filing covers Corteva and its wholly owned subsidiary EIDP for the three months ended March 31, 2023. Corteva operates in Seed and Crop Protection. Unless noted, amounts are in U.S. dollars; financial results below refer to Corteva consolidated.
Financial performance and liquidity
- Revenue: Net sales were $4.884 billion, up 6% year over year. A 14% increase in price and 1% favorable portfolio and other effects more than offset 4% lower volume and 5% unfavorable currency effects.
- Profit and earnings: Income from continuing operations after tax was $607 million, up from $577 million. Net income attributable to Corteva was $595 million versus $564 million. Diluted GAAP EPS was $0.83, compared with $0.78.
- Margins and operating measures: Cost of goods sold was 57% of sales versus 59% a year earlier. Non-GAAP Operating EBITDA increased to $1.231 billion from $1.039 billion. Segment operating EBITDA was $1.255 billion, up from $1.060 billion; these are distinct measures. Seed and Crop Protection EBITDA margins improved approximately 165 basis points and more than 390 basis points, respectively.
- Cash flow: Operating cash used was $3.311 billion, compared with $2.730 billion used in Q1 2022, principally reflecting seasonal working-capital needs, higher receivables and payment timing. Investing cash use was $1.511 billion, including $1.463 billion for acquisitions. Financing provided $3.274 billion, largely from increased borrowing. Cash, cash equivalents and restricted cash ended the quarter at $2.068 billion.
- Debt and liquidity: Total debt was $5.028 billion at March 31, versus $1.307 billion at December 31, 2022; the filing attributes the increase mainly to working capital, spending, shareholder returns and acquisitions. Cash, cash equivalents and marketable securities totaled $1.731 billion. The company reported $5.0 billion available under committed credit facilities and approximately $5.5 billion in committed and uncommitted unused credit lines. It was in compliance with its credit-facility financial covenants.
- Other metrics: R&D expense rose to $316 million from $268 million; SG&A declined to $726 million from $735 million. The effective tax rate increased to 21.8% from 17.3%.
Material changes versus Q1 2022
- Both segments grew sales and EBITDA. Seed sales increased 7% and Crop Protection sales 5%, with price gains partly offset by currency and volume weakness.
- Higher pricing, product mix and productivity actions supported EBITDA growth, while input-cost inflation and currency remained headwinds.
- Other income and expense shifted to a $71 million expense from $17 million of income, reflecting higher non-operating pension and benefit costs, settlement reserves and an investment-sale loss. Interest expense increased to $31 million from $9 million, mainly due to higher short-term and foreign-currency borrowings.
- Receivables were $8.678 billion at quarter-end, up from $5.701 billion at year-end 2022; inventories were $6.585 billion, down from $6.811 billion. These balances contribute to significant seasonal funding requirements.
Outlook, commentary and risks
- 2023 outlook: The company raised its full-year guidance to net sales of $18.6–$18.9 billion, Operating EBITDA of $3.55–$3.75 billion and operating EPS of $2.80–$3.00. The updated outlook includes Stoller and Symborg. It excludes extreme weather, operational disruptions, significant customer-demand or payment changes, and further acceleration of currency and inflation effects. These are non-GAAP measures; Corteva said it could not reconcile them to GAAP without unreasonable effort.
- Acquisitions and restructuring: Corteva completed the Stoller and Symborg acquisitions on March 1 for purchase prices of $1.224 billion and $370 million, respectively. Purchase accounting remained preliminary. Cumulative restructuring and related charges through Q1 were $341 million against a projected total of $350–$420 million; actions are expected to be substantially complete in 2023. Management targets $210–$220 million of annual run-rate savings by 2025 and expects about $75 million of non-cash accelerated royalty amortization expense in 2023.
- Market and operating risks: Management cited inflation or availability of inputs and logistics, foreign-exchange volatility, Russia-Ukraine conflict and sanctions, weather, planted area, commodity markets, customer credit and supply-chain disruptions. Latin America and Asia Pacific sales were affected by weather-related delays; Seed volume also faced a shortened Safrinha season and supply constraints.
- Legal and environmental contingencies: The company says it is reasonably possible that liabilities above recorded accruals in certain litigation matters could be material, but it cannot estimate additional losses. Legacy PFAS matters are subject to a cost-sharing arrangement; Corteva’s estimated aggregate share under the arrangement is approximately $600 million, subject to stated caps and conditions. The FTC and states have brought antitrust claims, which Corteva says are without merit. Lorsban-related personal-injury claims also remain pending. After quarter-end, EIDP agreed to plead guilty to a misdemeanor related to the 2014 La Porte incident and pay a $12 million fine and $4 million community-service payment.
- Other developments: In May 2023, Corteva entered a receivable repurchase facility of up to $500 million, expiring in December 2023. Argentina remains a currency risk: the company estimated a further 10% deterioration in the official peso exchange rate would reduce net monetary asset value and pre-tax earnings by approximately $10 million.
Important facts for investors to verify
- Whether seasonal receivables and other working-capital movements reverse as expected, and the effect on operating cash flow and short-term borrowing.
- Actual acquisition integration, final purchase-price allocations and progress toward the targeted restructuring savings.
- Updates to PFAS and other environmental exposure, FTC and Lorsban litigation, and related accruals or indemnification recoveries.
- Performance against full-year guidance, particularly volume, pricing, input costs, currency and weather assumptions.
- Use and cost of short-term funding, including the May 2023 receivable facility, and continued compliance with debt covenants.