Corteva, Inc.

Good day, everyone. Welcome to the Corteva second quarter 2021 earnings call. Today's conference is being recorded. During today's Q&A session, please limit yourself to one question. And now, I would like to turn the conference over to Jeff Rudolph with Investor Relations. Please go ahead.

Good morning, and welcome to Corteva's second quarter and first half 2021 earnings conference call. Our prepared remarks today will be led by Jim Collins, Chief Executive Officer, and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President and Chief Commercial Officer, and Rajan Gajaria, Executive Vice President of Business Platforms, will join the Q&A session. We have prepared presentation slides to supplement our remarks during this call, which are posted on the Investor Relations section of the Corteva website and through a link to our webcast. During this call, we will make forward-looking statements, which are our expectations for or statements about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including but not limited to those discussed on this call and in the risk factors section of our reports filed with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. On our Investor Relations website, you can find our earnings press release and related schedules, along with our supplemental financial summary slide deck, which is intended to supplement our prepared remarks for today's call. These items provide a reconciliation of differences between reported GAAP and non-GAAP financial measures and should not be considered a substitute for the measures of financial performance prepared in accordance with GAAP. It is now my pleasure to turn the call over to Jim.

Thanks, Jeff, and welcome to the participants joining the call today. Starting on slide four, we launched Corteva with a strategy grounded in building and delivering value for shareholders through new product innovation that drives organic growth and margin improvement, organizational efficiency and rigor, and disciplined capital allocation. As I speak to you today, I'm happy to say this strategy is working. Now, that's a testament to the extraordinary efforts by our more than 20,000 colleagues worldwide over the last five years, beginning with the announcement of the intent to create Corteva. At its core, this team is focused on one thing, delivering. Time after time, they have demonstrated tremendous resilience and adaptability by pushing forward to bring our purpose to life, advance our strategy, and deliver our near-term business results, no matter the circumstances. So to them, I say thank you. as I could not be prouder of their relentless focus. Our first half performance is yet another solid proof point of our progress, with 6% organic growth and 17% operating EBITDA improvement compared to the prior year. In crop protection, we continue to build on our new product momentum and now expect we will deliver $400 million in sales growth for this part of the portfolio for the year. up from our prior estimate of $300 million, a direct result of successfully advancing our pipeline. In fact, through June of this year, we've received nearly 90 additional new product registrations for our crop protection portfolio. Market fundamentals remain positive. as growers look to best-in-class solutions to drive productivity and capitalize on what likely will be a record year for income levels in key markets such as the U.S. and Brazil. This helped drive pricing in seed, specifically 3% increases in corn globally, as well as further penetration of the Enlist soybean system for 2021, now estimated to be on approximately 35% of U.S. soybean acres. and that's up from prior estimates of 30%. Execution is sound, and we are carrying substantial momentum. As a result, we are raising our guidance for full year. We now expect to deliver between $2.5 and $2.6 billion in operating EBITDA for the full year 2021, representing a 22% growth over the prior year at the midpoint. Importantly, We also expect to maintain the operating leverage we delivered through the first half with an impressive 200 basis point increase in margins for the full year on the organization's continued agility in the face of ongoing supply chain volatility and cost inflation. Which brings us back to value creation. In addition to strong earnings growth, we are also advancing our commitments on returning cash to shareholders. Specifically, Corteva returned approximately $750 million in cash to shareholders via dividends and share repurchases through the first half. And we recently announced a dividend increase of 7.7% and a new $1.5 billion share repurchase program. In total, we expect to return more than $1.2 billion to shareholders through dividends and share repurchases by the end of 2021. The bottom line, we are executing on what we said we would do. We are delivering operating leverage, and we are intently focused on advancing our strategy to deliver value for all of our shareholders. So looking at slide five, which has our financial results for the quarter and the first half. So quickly touching on the quarter, we delivered 6% organic growth on gains in both segments led by North America and Latin America. This translated into earnings growth of 18% and margin improvement of more than 200 basis points, another solid quarter of continued growth and margin improvement. Now, focusing on the half, sales gains were led by execution of our new product pipeline, where new crop protection products delivered $260 million in sales growth over the prior year. Additionally, seed sales improved on increased planted area in U.S. soybeans and strong demand for corn in Latin America. We continue to deliver on our price for value strategy as global corn prices improved 3% for the half. Now, Dave is going to provide you much more detail on the earnings growth drivers for the half, but it's important to note the impressive level of margin improvement that we have delivered so far this year. Through the half, we drove nearly 200 basis points of margin improvement compared to the prior year on price and volume gains across the portfolio, despite continued challenges on cost inflation that we and many others across various industries continue to face. Again, this first half performance is yet another important proof point that our value creation strategy is working further reinforcing our updated guidance for the full year. So, shifting to the market backdrop on slide six, fundamentals remain strong despite volatility in the commodity markets. We believe global demand will ultimately drive growth into 2022 and beyond as local economies recover from the pandemic-related shutdowns. We're monitoring the impacts of the pandemic globally and will remain agile to ensure we continue to support our employees, our customers, and our local communities. Now, while the U.S. market remains attractive as we look to the near-term outlook, we see strong demand for best-in-class technologies in markets outside of the U.S. Take Brazil, for example, where demand for grain is leading to increased planted area and rising commodity prices. With our market-leading position for corn and one of the best new crop protection lineups, we are in a strong position to capitalize on above-market growth. While commodity prices will continue to react to short-term events in the industry, it's important to remember that the global diversity of our business is what provides an attractive outlook for growth. Together with sustained growth in global ag markets led by robust global demand, we are pleased with the acceleration in opportunities to deliver value to our customers in these local markets to our best-in-class products and advantaged routes to market. Turning to slide seven, I'll provide more detail on the balance and the diversity of our sales growth across the globe and provide further proof points for the half. In North America, organic sales were up 4% for the half. Seed sales benefited from increased planted area for both corn and soybeans, coupled with continued penetration of the Enlist E3 soybeans. As I mentioned, We now expect and list to represent about 35% of the U.S. soybean market in 2021, and that's up from our previous expectation of 30%. On seed pricing for the first half, competitive pressures in the soybean market was aligned with our prior expectations, with pricing down 2%. Corn price in the Pioneer brand was up about a point compared to the prior year. North America Crop Protection had a strong first half with 10% organic growth on continued demand for new technologies, including enlist herbicide, and solid pricing execution in response to rising raw material, freight, and logistics costs. Fungicide growth was also a highlight, up double digits, as growers looked to take preventative measures to maximize yields. In Europe, Middle East, and Africa, organic sales grew 5% on strong pricing execution and record sunflower seed volumes. This growth was muted by an approximate $80 to $100 million sales impact from corn supply shortages. In crop protection, our portfolio of new and differentiated products remain in high demand, including technologies such as Aralex herbicide and Zorbeck fungicide. which enabled us to drive price and volume gains and gain market share in Europe, despite the impact of product phase-outs. In Latin America, we delivered 23% organic sales growth on strong volumes and execution on our price-for-value strategy. In seed, volumes grew to 20% on share gains in the Brazil Safrania and earlier shipments for the Brazil summer seasons. In crop protection, volumes grew 9% on significant demand for new and differentiated technologies such as isoclast and gemvelva insecticides. Pricing actions reflected strong product demand and helped to more than offset unfavorable currency impacts from the Brazilian Rai. In Asia Pacific, we realized 3% organic sales growth compared to the prior year on both volume and price improvements. Seed volumes were down largely due to COVID-related demand impacts, primarily in Southeast Asia and India. Crop protection organic growth of 11% was led by further penetration of our new products, including RinsCorp herbicide and Paraxalt insecticide. So, Dave will now provide more detail on our first half performance and our upgraded expectations for the rest of the year.