Corteva, Inc.

Please stand by, we're about to begin. Good day and welcome to the Corteva second quarter earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Megan Britt. Please go ahead.

Good morning and welcome to the second quarter and first half 2020 earnings conference call for Corteva. I'm pleased to be joined today by Jim Collins, Chief Executive Officer Greg Friedman, Executive Vice President and Chief Financial Officer, Kim Glenn, Executive Vice President and Chief Commercial Officer, and Rajan Gajadia, Executive Vice President of Business Platforms. We have prepared presentation slides to supplement our comments during this call, which are posted on the Investor Relations section of the Corteva website and through the link to our webcast. During this call, we will make forward-looking statements regarding our expectations for the future. Slides 2 and 3 in our earnings release contain our forward-looking statement disclaimers, and our SEC filings provide discussion of some of the factors that could cause material differences in our actual results. We provide a perform-a-basis discussion in our earnings release and slides. Unless otherwise specified, all historical financial measures presented today exclude significant items, which can be found in the schedules that accompany our earnings release. We will also refer to non-GAAP measures. A reconciliation to the most directly comparable gap financial measure where available is provided in our earnings release and on our website. It's now my pleasure to turn the call over to Jim.

Thank you, Megan, and great to be with all of you on the call today. Ortova has been a public company for over a year, celebrating our one-year anniversary in the second quarter. Scanning the unprecedented events that have punctuated our first year, I am proud of the operational agility that we have demonstrated in the marketplace, and the determination and integrity of the team that is shaping our company. Slide four captures the principles that are guiding our actions during this challenging time. This quarter, our teams were called to respond to continued impacts from the global pandemic, a 500-year flooding event at our manufacturing facility in Midland, Michigan, and tragic events in the United States that brought racial inequity to the forefront globally. We've maintained a common set of principles and values in how we're responding to these events that place employee safety and security, business continuity of our customers, and care and compassion for our communities at the heart of our response. I'm very proud of how our global team has operated through these challenges, keeping our purpose of enriching lives in focus. Relative to COVID-19, employee safety and security continue as a top priority, and the global crisis management structure that we have activated at the outset of the pandemic remains in place. We've also maintained our work-from-home stance where possible and enhanced safety and security protocols at our work sites for essential personnel. In the second quarter, we completed detailed planning for our ultimate return to work sites. We're also evaluating institutionalizing efficiencies gained as a result of our current work stance. particularly our digital capabilities that enable more flexible and cost-effective work arrangements. Beyond employee safety, we are also actively engaged in keeping our supply chains open and supporting our customers and communities. In May, our teams safely managed an emergency site shutdown and ultimately a restart as a result of the flooding event in Midland, Michigan with minimal cost or disruption to the business. Here we again leverage our supply chain resiliency and global asset footprint to mitigate product supply disruptions. We were also active in the Midland community, contributing to the local United Way to support broader recovery efforts there. I'm proud to say that through all of this uncertainty, we never missed a shipment. Recently, tragic events that have taken place in the United States have put all of our inclusion and diversity practices in the spotlight. Corteva believes the basic principles of human dignity, equity, inclusion, and diversity are essential to every business in every industry. The recent events make it clear that we have work ahead of us to build a fairer and more equitable society. At Corteva, we acknowledge this opportunity and have taken swift and deliberate action to move these crucial conversations and the essential work needed to manifest change forward. We've increased focus on inclusion and diversity and equity efforts already in place in our organization and within our communities to amplify the voices and programming vital to sustaining this important forward momentum. Turning to our strategic update for the quarter, progress on our priorities for shareholder value creation is noted on slide five. Starting with culture, with an owner's mindset, our teams across the company are focused on reducing spending, to both preserve cash and to help offset the impacts from the global pandemic. This focus resulted in $15 million in savings in the first half. These additional actions include the implementation of a hiring freeze, delaying employee promotions and relocations, and holding our current work-from-home stance in place in several geographies for an extended period. These actions are added to our previous efforts to eliminate non-essential travel, curb marketing spend, eliminate large in-person meetings, and scale our digital activities. Regarding capital allocation, in May we fortified our balance sheet and liquidity position with the issuance of $1 billion in long-term notes. We anticipate using a portion of the proceeds from the issuance to term out our intra-year commercial paper borrowing needs to support seasonal working capital requirements. We're also evaluating additional capital deployment actions for the remainder of the year. On opportunistic M&A, acquiring the full ownership interest in the Phytogen Seed Company and work to fulfill our commitment to return cash to shareholders. We've returned approximately $250 million to shareholders in the form of quarterly dividends and share repurchases through the first half of 2020. Advancing our portfolio of innovative solutions, I'm pleased to report that in the second quarter, we exceeded our expectation for Enlist E3 soybeans across our brands, scaling the technology platform to 17% of our soybean product volume in 2020. Looking forward, the recently issued Ninth Circuit Court ruling on Enlist Duo gives farmers added confidence in our technology, and we are working aggressively to further expand the seed volume available in the marketplace and in our portfolio in 2021. Beyond Enlist E3 soybeans, new crop protection product launches continue to drive both sales and earnings improvement. We remain on track to deliver $100 million in earnings improvement from new crop protection products for the full year. On our priority around best-in-class cost structure, we delivered $130 million in cost synergies and productivity through the first half of the year, exceeding the original target set for this timeframe. We remain on track to deliver $230 million for the full year. Finally, on above market growth, in the first half, organic sales were up 5% overall, with growth in every region. Notably, we delivered low single digit price improvements in corn seed and soybean seeds in North America for the half, capitalizing on the yield advantage for chrome corn seed, the launch of Lumialza seed treatment, and solid grower demand for Enlist E3 soybeans. We also delivered strong organic results in Europe and Asia Pacific in both seed and crop protection. In Latin America, we faced headwinds from sharp currency devaluation, timing shifts, and a formulation challenge in basaria fungicide that we expect to resolve in the near term. Finally, our results in North America were supported by the acreage rebound but tempered by a less favorable corn acreage increase and crop protection market competitiveness. The next slide frames several of the market-related drivers for the quarter. Looking at slide six, while we expected to capitalize on more favorable weather conditions this year, the COVID-19 pandemic has created unexpected impacts across the agriculture sector. Though the ag industry has demonstrated resilience relative to other sectors, the global pandemic and economic downturn have impacted demand for the highest-value goods, namely meat and ethanol. Lower demand for bulk products and anticipated build in U.S. corn stocks weakened corn's commodity prices relative to other crops at the outset of the North American planting season. From the 1st of March to the end of the quarter, U.S. corn prices have fallen sharply, declining 11% over the course of the planting season, and pulled down the 2020 corn planted acres. Based upon the USDA acreage report released at the end of June, we believe 92 million acres of corn were planted, which represents a 5 million acre reversal in expectations between the March and June reports. This is one of the largest swings in USDA estimates in the last 20 years. The lower corn acreage rebound reduced some of our volume and margin opportunity in the second quarter. In addition to the deterioration in U.S. corn area expectations, the pandemic-related slowdown has also driven significant currency exchange rate volatility. The strengthening of the U.S. dollar relative to several foreign currencies through the first half has impacted our ability to deliver planned growth, particularly in Latin America, where the Brazilian Rai has weakened more than 30% to the U.S. dollar since the beginning of the year. Regarding trade expectations, currency volatility has impacted the relative prices between the major exporters too. Though China has recently increased purchases of corn and soybeans and wheat from the U.S., wheat South America currencies have made South America grain offers to importing countries more competitive. Moving to slide seven, we show our key performance indicators for the first half. These indicators carry signposts of our success in overcoming some of the market adversity and highlight several execution imperatives for delivering a strong second half. Net sales on a reported basis for the first half increased 2% versus the prior year. Currency, particularly in Brazil and Europe, was a 3% headwind. 5% organic growth was propelled by a 4% improvement in volume and a 1% improvement in price. driven by organic gains in the seed segment in every region, and continued new crop protection product growth in Europe and Asia Pacific. In seed, organic sales were up 8% due to the acreage rebound and improved price in North America. Market share gains in Brazil and Europe corn, and strong volume and price gains on new products, particularly Chrome and PowerCore Ultra. In crop protection, organic sales increased 1%, supported by continued growth in new products, notably aralax herbicide and isoclast insecticide, particularly offset by declines in Latin America and North America. Unfavorable timing, product formulation challenges, and market competitiveness suppressed our second quarter crop protection results. We have an opportunity to change this course in the second half. Operating EBITDA increased 3% and operating EBITDA margin improved by more than 20 basis points for the first half. In seed, price and volume gains in all regions and productivity improvement drove 160 basis point gain in margin for the segment. The crop protection earnings expansion from new product sales, synergies, and productivity improvements were overcome by unfavorable geographic and product mix. Currency reduced earnings by approximately $110 million for the first half. During the quarter, we have taken steps to limit the further downside risk on currency by deploying new financial hedging instruments. SG&A as a percent of net sales increased by approximately 15 basis points in the first half. We made early progress to deliver on our spending actions. However, this was more than offset by spending in the form of higher commissions in seed, ERP costs, and product launch costs. These indicators affirm a solid regional execution in seed that leveraged our differentiated technology position, advantage route to market, and flexible supply chain to overcome the challenges related to COVID-19. In crop protection, our results through the first half demonstrate the continued adoption of our new and differentiated products, while also highlighting areas where we can and will do better. Slide 8 provides an overview of the key areas of momentum as well as the challenge related to the operating EBITDA for the first half. Starting with seed pricing, which has been an area of focus, we successfully extracted price improvement in corn globally consistent with the value of our portfolio, which was largely supported by the increased penetration of chrome in our broader U.S. product portfolio. We estimate that corn delivered approximately $80 million in pricing through the first half. As we've now completed the bulk of our deliveries in soybeans, I can also confirm that we exceeded our initial expectations on U.S. soybean price, with price gains of 1%. This outcome is a result of our strong execution in the marketplace, despite intense competitiveness. As I noted earlier, new product sales are tracking according to plan. We are executing on synergies and productivity as we had expected and offsetting the seed cost of goods sold and increased royalty cost headwinds we anticipated for the year. Though we made early progress on spending action that helped to partially offset the increases in SGA through the half, this is an area where we will gain more traction in the second half. As I noted earlier, currency was a headwind on the first half. During the quarter, we took pricing actions to partially offset currency, largely in Latin America, and we launched new hedging programs to mitigate currency risk, notably in Brazil, for the second half. Finally, there were several headwinds that emerged in the second quarter that dampened our first-half performance. The first is in corn acres in the United States, which were lower than we expected by 3 million acres, and 5 million acres lower than the USDA's earlier estimates, as I mentioned earlier. Remember, a one million acre change in corn in the US represents approximately $20 million in operating EBITDA. Second, we had a formulation challenge with our Basaria fungicide product in Brazil that resulted in product returns that we will rework and reposition in the channel in the third quarter. On herbicide volumes, we saw increased market competitiveness in soybean herbicides in the United States which impacted our volumes there. In Latin America last year, we recognized $80 million in net sales in the second quarter on an early start to the season, largely in herbicides. We are seeing a more normal start to the season in Brazil this year and expect to see those volumes realized in the third quarter. With that, I'll now hand the call to Greg. Thank you, Jim.