Corteva, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. This combined filing also reports E. I. du Pont de Nemours and Company (EID), which Corteva owns. Corteva became an independent public company on June 1, 2019; historical results include businesses later separated or divested, so comparisons require care.
Business context and results
Corteva is an agriculture-focused company operating through Seed and Crop Protection segments. Q3 2019 results reflect seasonal sales timing, weather-related shifts, currency movements, pricing pressure, and ongoing integration and separation activity.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $1.911bn | $1.947bn | $10.863bn | $11.472bn |
| Loss from continuing operations after tax | $(527)m | $(5.642)bn | $(228)m | $(5.705)bn |
| Net loss attributable to Corteva | $(494)m | $(5.121)bn | $(938)m | $(4.534)bn |
| Basic loss per share | $(0.66) | $(6.83) | $(1.25) | $(6.05) |
| Cost of goods sold as % of sales | 71% | 76% | 61% | 69% |
Prior-period losses included a $4.503bn goodwill impairment. The 2019 nine-month net loss also includes a $1.102bn goodwill impairment in discontinued operations; discontinued operations contributed income of $22m in Q3 and a loss of $695m for the nine months.
Segments and material changes
- Seed: Q3 sales were $681m, up 24%, as North American weather-delayed seed sales shifted into the quarter; segment operating EBITDA was a loss of $295m, versus a $372m loss. Nine-month sales fell 5% to $6.347bn and EBITDA declined 13% to $1.066bn.
- Crop Protection: Q3 sales fell 12% to $1.230bn and EBITDA fell 25% to $119m, reflecting lower Latin American volumes, sales timing shifts, North American discounts, and currency. Nine-month sales declined 5% to $4.516bn and EBITDA declined 13% to $789m.
- Consolidated Q3 sales declined 2%: 3% volume growth was offset by 3% lower local price and 2% unfavorable currency. Nine-month sales declined 5%, mainly from 2% lower volume and 3% unfavorable currency.
- Q3 cost of goods sold fell to $1.349bn from $1.485bn, largely because merger-related inventory step-up amortization declined; that step-up was fully amortized by September 30. Nine-month R&D expense decreased to $857m from $1.010bn, while SG&A was $2.318bn versus $2.347bn.
Cash flow, debt, and liquidity
- Nine-month operating cash outflow was $2.303bn, compared with $2.780bn. Investing cash outflow was $964m, including $1.015bn of capital expenditures. Financing provided $761m.
- At September 30, cash and cash equivalents were $1.980bn and marketable securities were $117m. Total debt was $3.720bn, down from $7.938bn at December 31, 2018 and $14.586bn at September 30, 2018, following substantial debt repayments and redemptions.
- Available committed and uncommitted credit lines were approximately $6.5bn. The company reported compliance with its revolving-credit covenant limiting total indebtedness to 60% of total capitalization. Management said operating cash generation and market access should cover anticipated operating, seasonal working-capital, capital-spending, and pension needs.
- Seasonal customer financing is significant: $1.129bn was outstanding under the receivables repurchase facility, secured by $1.186bn of customer notes receivable. Receivables and working-capital needs vary with the agricultural selling season.
Outlook, risks, contingencies, and unusual items
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management reported approximately $100m of cost synergies in Q3 and $300m year to date; the broader merger-related synergy commitment is $1.2bn. Synergy-program actions were expected to be substantially complete by year-end 2019, with approximately $110m of future cash payments anticipated.
- The company authorized a $1bn share-repurchase program and repurchased 824,000 shares for $25m in Q3. A $0.13-per-share dividend was authorized for payment in December 2019. A $145m investment to expand Spinosyns fermentation capacity by 30% was authorized, with capacity expected to come online over several years.
- Q3 included a $54m noncash impairment of Seed-related intangible assets. Nine-month restructuring and asset-related charges were $167m; integration and separation costs were $694m.
- Environmental remediation accruals were $349m; reasonably possible exposure could be up to $720m above the accrued amount. The company cited uncertainty in remediation estimates and possible material effects on results, financial condition, or cash flows.
- Legacy environmental and litigation matters include PFAS/PFOA-related proceedings and indemnification arrangements with Chemours, DuPont, and Dow. Chemours challenged its separation-agreement obligations in litigation; Corteva said it believed liability from Chemours’ suit was remote. Other disclosed risks include product and regulatory litigation, environmental compliance, weather and climate variability, foreign exchange, customer credit, competition, product approvals, and realization of integration synergies.
Key facts for investors to verify
- Underlying sales, pricing, and segment profitability trends after adjusting for weather-driven sales timing, currency, and discontinued operations.
- Whether expected synergies are realized and integration/separation costs and restructuring cash payments decline as planned.
- Seasonal working-capital requirements, customer-credit quality, and the availability and cost of short-term funding as the receivables facility approaches its December 2019 maturity.
- Environmental and legacy-litigation exposure, including the $720m possible exposure above environmental accruals and the enforceability and collectability of indemnification rights.
- The effect of debt repayments, pension obligations, share repurchases, dividends, and planned capacity investment on cash balances and liquidity.