Corteva, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. The combined filing also includes E. I. du Pont de Nemours and Company (EID), a wholly owned subsidiary; figures below primarily reflect Corteva consolidated results. Dollar amounts are in millions except per-share data.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $4,178 | $3,956 | Up 6%; price and volume each increased 3% |
| Income from continuing operations | $613 | $281 | Up substantially year over year |
| Net income attributable to Corteva | $600 | $272 | Includes a $10 loss from discontinued operations in 2021 |
| Diluted EPS | $0.80 | $0.36 | Continuing-operations diluted EPS was $0.81 versus $0.36 |
| Operating EBITDA, non-GAAP | $904 | $794 | Up about 14%; management cited price execution and volume gains |
| Operating earnings per diluted share, non-GAAP | $0.79 | $0.59 | Up year over year |
| Cash used for operating activities | $1,950 | $1,930 | Seasonal working-capital use increased |
| Capital expenditures | $137 | $128 | Investing cash flow was positive $36 versus use of $130 |
| Cash, cash equivalents and marketable securities | $2,518 | $1,973 | At March 31; was $3,795 at December 31, 2020 |
| Total debt | $2,352 | $2,610 | At March 31; increase from $1,105 at December 31, 2020 primarily reflected seasonal funding |
Cost of goods sold was 58% of sales, compared with 57% a year earlier; the implied gross margin was therefore about 42% versus 43%. SG&A declined to 18% of sales from 19%. Operating EBITDA margin, calculated using management’s non-GAAP measure, was about 21.6% versus 20.1%.
Other income, net, rose to $337 from $1, primarily reflecting a $325 non-operating pension and other post-employment benefit credit, compared with $91 in Q1 2020. The filing also reports $100 of restructuring and asset-related charges, versus $70. These items materially affect comparisons of reported profit with underlying operating performance.
Segment operating EBITDA was $938, compared with $819. This is a separate segment measure from the $904 of company-level Operating EBITDA; the filing’s definitions and reconciliations differ, so the figures should not be treated as interchangeable.
Business and segment changes
- Seed: Sales increased 2% to $2,492; segment operating EBITDA rose 6% to $617. Price execution and growth in EMEA and Latin America were partly offset by seasonal delivery timing in North America and currency effects.
- Crop Protection: Sales increased 12% to $1,686; segment operating EBITDA rose 35% to $321. New-product demand and pricing contributed to growth; the company estimated that phasing out selected low-margin generic products reduced volume by about $70.
- Sales increased across EMEA, Latin America and Asia Pacific, while North American sales declined 1%. Herbicides were the largest crop-protection product-line contributor to growth.
Management attributed sales growth to new-product penetration and favorable market fundamentals. Higher raw-material, freight and logistics costs weighed on results, partly offset by productivity actions. Supply-chain capacity remained below pre-pandemic levels, although management said its strategies had largely maintained product availability and deliveries during the quarter.
Liquidity, capital allocation and outlook
- Cash and marketable securities declined from $3,795 at year-end to $2,518 at March 31. Cash used in operations was largely seasonal; receivables increased and operating cash flow remained negative.
- Current assets were $15,036 and current liabilities $8,999 at March 31. Short-term borrowings were $1,250, including $1,218 of commercial paper. Long-term debt was $1,102.
- The company reported approximately $6.4 billion of available committed and uncommitted unused credit lines and a new receivables repurchase facility of up to $1 billion, expiring in December 2021. It was in compliance with its debt covenant, which limits total indebtedness to 60% of total capitalization.
- Corteva returned about $450 to shareholders in Q1 through $350 of share repurchases and $97 of common dividends. It expected to complete the remaining $350 of its authorized $1 billion buyback program in 2021, subject to market conditions.
- 2021 outlook: Management increased its net-sales outlook to approximately 3%–4% growth and reaffirmed expectations for Operating EBITDA growth of approximately 15%–20% and Operating EPS growth of 23%–30%. These are non-GAAP outlook measures; the filing says it cannot reconcile them to GAAP without unreasonable effort. Management expected $130–$170 of 2021 restructuring charges and approximately $130 of noncash accelerated prepaid royalty amortization charges.
- New restructuring actions are expected to generate about $70 of annualized savings by 2023 and be substantially complete in 2021. Expected future cash payments for these actions were approximately $80–$100.
Risks, contingencies and unusual items
- PFAS and legacy environmental matters: The company accrued $333 for probable environmental remediation and restoration costs, including $56 for Superfund sites. Management stated reasonably possible exposure could be as much as $577 above the accrued amount; estimates are uncertain and excess costs could materially affect results, financial condition and cash flows.
- A January 2021 agreement with Chemours, DuPont, Corteva and EID sets a cost-sharing and escrow framework for certain legacy PFAS liabilities. Corteva and DuPont together have a stated 50% share of qualified costs, subject to a combined $2 billion limit under the MOU and specified allocation terms. Management said some PFOA-related losses beyond accruals are reasonably possible but not currently estimable.
- Other legal matters include numerous PFAS-related claims and environmental proceedings. Separately, EID and a former employee were indicted in January 2021 on charges related to the 2014 La Porte, Texas release that caused four employee fatalities; Corteva said it would vigorously defend the charges. Trial was scheduled for March 2022.
- COVID-19, raw-material availability and inflation, freight and logistics constraints, weather, currency movements, customer credit, regulation, product approvals, competition and agricultural markets may affect performance. Management said the effects of the pandemic and potential operational changes on 2021 and later results remained uncertain.
- Q1 reported earnings benefited from the pension/OPEB credit and were affected by restructuring charges, foreign-exchange losses and currency translation losses. Other comprehensive loss was $477, mainly from translation adjustments; this reduced comprehensive income attributable to Corteva to $123 despite positive net income.
Important facts for investors to verify
- Whether sales growth and the 2021 outlook are achieved after accounting for seasonal delivery patterns, currency, product mix and the phase-out of low-margin generics.
- How much of Q1 earnings growth reflects recurring operations versus pension/OPEB credits, restructuring, amortization and other adjustments; review the company’s non-GAAP reconciliations.
- Working-capital needs, cash conversion, customer receivable quality and seasonal reliance on commercial paper and receivables financing.
- Actual restructuring costs, cash payments and realized savings against management’s estimates.
- Developments in PFAS and other environmental litigation, including the MOU’s cost-sharing and escrow funding, potential exposure above recorded accruals, and indemnification recoveries.
- Progress on the share repurchase program and the impact of buybacks and dividends on liquidity and capital allocation.