Corteva, Inc.

Thank you for standing by. My name is Ron and I will be conference operator today. At this time, I would like to welcome everyone to the Corteva AgriScience third quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Kim Booth, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Corteva's third quarter 2024 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer, and David Johnson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President, Seed Business Unit, and Robert King, Executive Vice President, Crop Protection Business Unit, 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 the link to our webcast. During this call, we will make forward-looking statements, which are our expectations 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 factor section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in our earnings press release and related schedules, along with our supplemental financial summary slide deck available on our investor relations website. It's now my pleasure to turn the call over to Chuck.

Thanks, Kim. Good morning, everyone, and thanks for joining us. Corteva's results for the third quarter were largely in line with our expectations. Despite the fact that we had an operating loss in the quarter, We continue to execute well and are on track to deliver over 400 million of savings from our controllables this year. The crop protection business delivered earnings and margin growth led by demand for our differentiated technology, along with deflation benefits that have just begun. Today, we're also providing a first look at 2025. We are expecting to return to double digit earnings growth, which is largely driven by factors in our control. What continues to set us apart is the strength and leverage of our portfolio, the continued focus on execution and increased investment in innovation. In what has historically been our smallest quarter due to seed seasonality, we were still able to deliver over 160 million in controllable benefits. Our ability to pull multiple levers to improve overall performance makes us resilient when faced with variables not entirely in our control. including the ongoing crop protection market dynamics and acreage loss from Argentina corn stunt. Overall, the seed business is delivering a strong performance in 2024. From operational excellence perspective, the business drove approximately $175 million in controllable benefits on a year-to-date basis, including royalty improvement and productivity. Our seed business is also set up for continued growth with our pipeline of technology and pricing gains in most regions, as well as notable share gains in North America are a testament to the value our technologies provide to farmers. And for 2025, we will roll out several hundred new hybrids and varieties around the world. This is helping farmers increase yield and productivity when they need it the most. On the crop protection side, we're happy to see a second consecutive quarter of volume gains, as well as notable operating EBITDA growth, margin improvement, and the first meaningful tranche of deflation benefits in the third quarter. We remain committed to our strategy of focusing on differentiated and new technologies, which warrant a premium in the market. On a year-to-date basis, we received over 150 crop protection registration approvals spanning 25 active ingredients in almost 50 countries. And like seed, our CP business is generating substantial value through its focus on controllables. which drove approximately 170 million of benefits in the first nine months of the year. Overall, the ag markets remain mixed. We're still seeing record demand for food and fuel. Farmers continue to prioritize top tier seed technologies while managing tighter margins. And the crop protection market has turned the corner in every major market except Brazil, where we are early in the season. It's important to note that underlying farmer demand in terms of applications remains on track with historical levels. However, we continue to experience competitive market dynamics and expect that to continue into next year. So what does all this mean for the remainder of the year? We are updating our full year operating EBITDA range to 3.4 billion at the midpoint to reflect the impact of the current Latin America market conditions that will carry through to our full year results. However, we are still positioned to achieve approximately 20% for full year EBITDA margin. This adjustment reflects the latest market realities in Latin America, including expectations for an approximate 20% year over year reduction in Argentina's corn planted area due to corn stunt. It is fair to say that our full year estimates are assuming a big fourth quarter in Brazil, but this is something we've done before. It's also important to note that we remain committed to free cash flow in the range of 1.5 to 2 billion for the year, as well as a billion in share repurchases. Today, we'd also like to provide a first look at how we're thinking about 2025. We'll provide official guidance in early February, but we wanted to give some insights prior to Investor Day. From a macro perspective, we're anticipating a continuation of record demand for grain, oilseeds, meat, and biofuels. On-farm demand is expected to remain steady, and farmers will continue to prioritize top-tier technologies in order to maximize their yields. A farmer's seed selection is particularly critical and is non-discretionary when compared to other crop inputs. In terms of U.S. planted area assumptions, Total area planted by farmers in 2025 is expected to be nearly flat year over year. It is too early to say too much about Latin America for next year since farmers are in the fields right now planting the 24-25 crop in Brazil, which at this time is looking like a mid single digit increase for both corn and soybeans. Finally, it's too early to forecast a recovery for corn planted area in Argentina in the 25 crop year, until we see how the current season plays out. Our current view of the crop protection industry is a flattish 2025. It's a dynamic situation that we're monitoring daily, but all major markets are functioning normally except for Brazil, where as I've said, it's early in the season. Brazil remains an attractive market given it is the only geography in the world that is able to materially increase planted area for corn and soybeans. Farmer economic and agronomic benefits incentivize Brazilian soybean farmers to continue to plant corn in rotation. The strategic moves we've made, including investments in biologicals and tilting our portfolio towards differentiated technology, will allow our crop protection business to grow in 2025. When combined with sizable incremental benefits from our controllable levers, an increase in research and development investment, and a significant currency headwind, we're anticipating double digit operating EBITDA growth. So high level, although our top line and bottom line expectations have been impacted by the crop protection industry, our seed business has remained largely on plan, and we are expecting to achieve our enterprise goal of 21 to 23% EBITDA margins by 2025. We still have a lot of work to do, but the setup is looking good for 2025. And with that, let me turn it over to David Johnson to review our financial performance. As you know, David joined Corteva just under two months ago and has really hit the ground running as our CFO. I'm happy to have him on our leadership team and I'm impressed with how well he has immersed himself into the organization, which has allowed him, in very short order, to add valuable insights on our business and operations. David, over to you.

Thanks, Chuck, and welcome everyone to the call. Let's start on slide six, which provides the financial results for the quarter and year to date. Briefly touching on the third quarter, organic sales are down 5% compared to prior year, with crop protection up 1% and seed down 17%. Pricing for the quarter was down 8%, reflecting the continued competitive pressure in the crop protection industry and end of season settlements in North America seeds. Third quarter volume was up 3% over prior year. Seed volumes were down 12%, primarily driven by reduced corn area in Argentina. Crop protection volumes were up 11%, led by Latin America and North America. Volume of new crop protection products and spinosums were both up more than 20% in the quarter compared to prior year. Turning to year-to-date, sales were down 4% versus prior year with flat pricing and lower volume. Seed organic sales were up 1% compared to prior year, with pricing up 4% with gains across the portfolio. Seed volumes were down 3% year-to-date, driven by reduced planted area in Argentina, AMIA, and Asia. Crop protection organic sales were down 7% year-to-date, with pricing down 5%, primarily driven by competitive market dynamics in Latin America. Crop protection volumes were down 2%, with volume gains in Latin America and Asia offset by declines in AMIA, driven by residual destocking and unfavorable weather, and North America driven by just-in-time purchasing behavior. Operating EBITDA of approximately 2.9 billion year-to-date is down 5% compared to prior year. Operating EBITDA margin was 22%, essentially flat compared to prior year. Moving on to slide seven for a summary of year-to-date operating EBITDA performance. Seed pricing gains were offset by crop protection pricing pressure while volume was lower from headwinds in both seed and crop protection. Improvement in net royalties, crop protection, raw material deflation, and productivity actions more than offset cost headwinds from higher seed commodity and other costs. SC&A costs were modestly higher as expected given the full year ownership of the biological acquisitions and normalized bad debt accruals. R&D expense is in line with expectations on track to be approximately 8% of sales for the full year. With that, let's go to slide eight and transition to the updated outlook for the year. The updated full year guidance reflects the current Latin America market dynamics. We now expect net sales to be in a range of 17 and 17.2 billion, or down 1% at the midpoint versus prior year. The lower guidance is primarily due to lower than expected planted area in Argentina and dry weather in Brazil, impacting both seed and crop protection. Lower top line growth translates to an updated operating EBITDA range of 3.35 and 3.45 billion, up 1% at the midpoint compared to prior year. Driven by the strength of seed performance in the first half of the year and crop protection volume growth and cost improvement in the second half of the year, operating EBITDA margin expected to be about 20% at the midpoint or about 25 basis points higher than prior year. Operating EPS is now expected to be in a range of $2.50 and $2.60, or down 5% compared to prior year. And finally, we are reaffirming our free cash flow guidance of $1.5 to $2.0 billion, or approximately $1.75 billion at the midpoint. and cash flow to EBITDA conversion rate of 45 to 50% for the full year 2024. With that, let's transition the setup for 2025. As Chuck said, we'll provide formal guidance in early February, but slide nine represents a high-level view of our planning framework, along with key assumptions that could drive us to the low and high end of our net sales range of $17.3 to $17.7 billion, and operating EBITDA range of 3.6 to 4.0 billion. In 2025, we expect low single-digit seed pricing driven by demand for yield advantage technology. One of the biggest variables in seed is planted area, both in Latin America and the corn versus soybean split in North America. At the midpoint, we're assuming relatively flat planted area. Another key variable is how much growth we see in crop protection given the current market dynamics. On-farm demand remains relatively stable. We're expecting the crop-protecting industry to be mostly flat in 2025. New and differentiated products, including biologicals, are expected to drive much of the volume growth, while prices are expected to remain under pressure. In 2024, we started to see some raw material deflation in crop protection. In 2025, we expect to see more benefit from cost deflation with improvements in both seed and crop protection, coupled with productivity benefits. Our assumptions include SG&A and R&D as a percentage of sales to be relatively consistent with 2024 levels. Together, it's a balanced set of assumptions which gives us the confidence in our ability to grow earnings and margin in 2025 for both seed and crop protection. Turning to slide 10, you can see the operating EBITDA bridge for 2025 from approximately $3.4 billion in 2024 to $3.8 billion at the midpoint for 2025. Total company pricing expected to be flat to mostly up with low single-digit pricing in seed to be offset by declines in crop protection. We are expecting volume growth in both seed and crop protection. Crop protection volume is expected to be up low to mid single digit driven by demand for new products and biologicals. 2025 will be another important step in our journey to royalty neutrality. We expect approximately 50 million improvement in net royalty expense driven almost entirely by increased out licensing income as we continue to ramp up the licensing of Conquesta E3 soybeans and Power Corn Endless Corn. We expect approximately 400 million of cost improvements in 2025, driven by lower seed commodity costs, crop protection raw material deflation, and productivity actions, including benefits from crop protection footprint optimization. SC&A and R&D as a percentage of sales are expected to be relatively flat with 2024 levels, implying a modest increase in spend. Currency headwind is primarily driven by the Turkish Lira and Brazilian Real. Together, this translates to 12% operating EBITDA growth at the midpoint and more than 180 basis points of margin expansion. With that, go to slide 11 to review the key drivers of the cost improvements in 2025. For the past several years, we've experienced significant inflation in the seed business driven by higher commodity prices, lower weather-related productivity yields, and higher production costs, including inflation on labor, freight, and warehousing. While not all these costs are expected to reverse, we will start to see the benefit from lower commodity costs in 2025, driven largely by North America and Latin America. We expect to see a continuation of this benefit through 2027, given current commodity prices. We expect another year of low single-digit rate of deflation in crop protection raw materials. This is expected to be weighted towards the first half of 2025 based on the year-over-year comparison and our visibility given the roughly six months of crop protection inventory on hand. Both seed and crop protection are expected to deliver productivity savings, including a benefit from the crop protection footprint optimization. Together, these benefits translate to approximately $550 million, which will be partially offset by inflation and other production costs. These costs include higher freight and labor, as well as higher seed production costs related to the transition to seed trade technology in North America. Move on to slide 12 and summarize the key takeaways. Driven mostly by the current market dynamics in Latin America for both seed and crop protection, we're updating four-year guidance and now expect dividend to be in the $3.4 billion at the midpoint. We remain on track to deliver $1.5 to $2.0 billion of free cash flow and complete $1 billion of share repurchases for full year 2024. We provide a preliminary outlook for 2025, which includes sales, operating EBITDA, and margin growth, and we look forward to the upcoming Investor Day where we'll give you more detail on our growth outlook from 2025 to 2027. With that, let me turn it over to Kim with a reminder about the upcoming Investor Day.

Thanks, David. As most of you know, we'll be holding our Investor Day event on November 19th in New York City. It will include a three and a half hour executive webcast with various members of our management team, followed by an innovation showcase for those in person. Topics of discussion will include our leading position in the ag tech industry, the technology and operational excellence that will drive our financial framework out to 2027, as well as the various growth platforms that will create additional value creation through next decade. If you haven't already registered, information can be found on our investor relations website, or please feel free to contact me directly. Now, before we get into Q&A, Chuck, I believe you'd like to make a few closing remarks.

Yes, thanks, Kim. We look forward to seeing many of you in New York in a couple of weeks. We have several exciting new announcements regarding the mid- and long-term growth trajectory of Corteva. Finally, I'd like to say a few words about the announcement we made a few weeks ago that we will have a new executive vice president for our seed business beginning on December 1st. Judd O'Connor will succeed Tim Glenn, who will transition into a strategic advisor role until his retirement in the first quarter. Judd is a 25-year veteran of Corteva and its heritage companies and is assuming this position after most recently serving as the president of our North American business. Earlier in his career, Judd also served as DuPont's Latin America regional president based out of Sao Paulo. Few people know our customers and business better than Judd, and I'm pleased to have him join our management team. This, of course, is certainly bittersweet. However, as TIM is such an institution at Corteva, there are few people anywhere in any company that know agriculture, farming and our industry better. We will certainly miss him, but wish him all the best in his well-earned retirement. And now I'll hand it back over to Kim.

Thanks, Chuck. Now let's move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and to the following Q&A. Operator, please provide the Q&A instructions.

Question and answer session. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We ask that you please limit yourselves to one question. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you, and good morning, everyone. Could I ask, on slide 11, that $150 million of inflation and other costs, could you maybe break it down a little bit and give us a sense of how much each of those buckets you mentioned were? And I'm particularly interested in the seed trade transition costs, which I assume are associated with bore seed. But as I think back to other trade transitions you've done, whether it was to extend and then extend to enlist, which were obviously enormous transitions, I don't remember us talking about very substantial costs. So I'm just wondering if you could give us a little bit more insight into that total $150 million bucket.

Thank you.

Yeah, so this is David Vincent. Nice to meet you. When you look at the total, I would say about two-thirds to 75% of that is in the seed business and then of that most of it is the the trade and there's about 25 of that number that would be in the inflation bucket as you can imagine you know when you look at our our cogs for the seed business and there is a commodity element but there's a pretty significant element that's non uh seed cogs are commodity related and that's where we're seeing some of the inflation

And Vincent, I'll touch a little bit on the trade transition costs as we define them. So, you know, we've got two major corn trade transitions going on in North America right now. One is from crumb divorcee, as you identified, and the other is from some of our heritage above ground trades into power core and LISC. And so with the trade transition costs, they're going to be something we deal with over the next couple of years. Part of it is just the ramping up those new technologies and bringing in those lines. The other part is as we produce them, you know, we were calling mature in terms of use of sterility and other technologies that we have that are driving a lot of productivity in the field. And because of the pace of the transition here, we're not going to have the level of sterility primarily in the field. And so we're going to have to go back to detasseling and doing some things, incurring some costs associated with that. It's just about the size of those transitions and the costs we have to incur during this period until we're kind of operating at a steady state like we have been for the last several years with Acromax and Chrome technologies. So it's really something that we'll deal with over the next couple of years and we'll fade away as we move towards, I'd say, a steady state with those technologies.

Our next question comes from the line of Joel Jackson with BMO Capital Markets. Please go ahead.

Good morning, everyone. Chuck and team, when I look at your guidance, your first look here at the guidance next year for seed cost deflation and CPC cost deflation. It does seem maybe what a couple hundred million dollars benefit next year. It does seem a little bit low versus what a lot, you know, have thought is possible. Can you talk about how you were initially modeling that number for 25? Is this what you have, you know, you can point to and say, this is for sure what we can get, or is this your base case? Is there more upside? Can you talk about that? Thanks.

Yeah, good morning, Joel. So maybe I'll start and then David can give you a bit more specifics. So you're right. We wanted to give a first look at 2025 simply because we're having our investor day in a couple of years where we're going to talk about the framework through 27 and some of the technology opportunities that we believe strongly in beyond 2027, even into the end of the decade and early next. So this is a little early for Corteva to give a view of 2025, but there are reasons for it. Obviously, we'll give official guide like normal in the beginning of February as we release our fourth quarter. And a large part of this, so the takeaways for me on the 25 number is a large part of it is under our control and we're feeling very good about that. And on a gross basis, it's 600 million. really driven by cost management, productivity, and there's deflation. And I'd say, David, deflation is about half of that.

Correct.

And then don't forget when we talk about seed deflation, because of the way we hedge and we manage that cost, it's going to be a three-year journey for us. And I think we've been as clear as we can be that there's going to be deflationary benefits in seed in 2025, in 2026, and in 2027. So we're just getting started. In fact, we're seeing higher costs still in the seed COGS right now, but we're seeing deflation finally in CP, which we're pretty excited about. So when you start thinking about that 600 million growth, there is some offsets, which actually David just covered. You put it all together, double digit EBITDA growth, margin expansion, a strong portfolio lineup. And as Tim just described, you know, Corteva is really strategically shifting now from being what we used to be a technology buyer to now a technology seller. That's the long-term journey that's really exciting for the company. Now, we have to bear some costs in order to achieve that. But the framework is well, I think, articulated. And it's too early for us to really say if it's overly conservative or not. Our view today is this is our best perspective. And don't forget, we are calling for basically the CP market to be essentially flat year over year.

Anything to add, David? No, I think that's basically it. As Tuck said, about half of that number would be the productivity. The other half would be the cost of . Good.

Your next question comes from the line of Kevin McCarthy with Vertical Research. Please go ahead.

Hi, this is Matt. We're on for Kevin McCarthy. How much seed sales were deferred to 4Q from 3Q? And what's the associated impact on earnings from that deferral?

So in terms of third quarter seed sales, I assume you're talking primarily on Latin America. So, you know, normally we'll have a I'd say the bulk of Argentinian sales would take place in the third quarter and then would spread into the fourth quarter. And then think about Brazil. We'd have summer. That would generally be third quarter. And then Safrania would be exclusively – and a little bit of the summer might go into the fourth quarter. Safrania is generally going to be fourth quarter, and then first quarter of the following year is going to catch it. And so as we think about the market this year, that reduction in Argentina is real. When we talk about a 20% area reduction, that's business that isn't deferred. That's business that's gone away. And when we think about what our impact is, probably we don't talk about Argentina on every call. I do want to highlight from a seed standpoint, it's a very significant market. It's our third largest seed market in the world, actually, and it's actually quite profitable when you look at the margins. And the area that the reduction is taking place We have an above-average market share approaching 40% of that market. So that business doesn't really come back. That's part of the reduction that we've talked about in terms of the overall year. So I don't think of that as a deferral. And from a summer standpoint in Brazil, we're looking at another area reduction there. Again, in the big picture, summer represents about 20% or even a little bit less of the total Brazil corn area. And we're looking at probably a 10% or maybe even a little bit greater area reduction this year, coming off of a substantial reduction last year. And again, that's not business that's that's timing related. So from a Safrania standpoint, no timing issue, that's fourth quarter. From an Argentina standpoint and from a Brazil summer, that's essentially volume that won't take place and is part of what we've talked about in terms of the overall reduction of seed area in Latin America.

Yeah, and maybe just a couple other thoughts on the overall seed business, if I can. So when I look at the year-to-date performance, we're extremely pleased. I think the seed business is having another extremely strong year. We're seeing market gains in corn and soybeans in North America. I think our EBITDA is up something like 8%. And we have the leading technologies around the world. And I believe our margins are approaching up about 220 basis points. So this is a business that I think the strategic pivot we've made a few years ago is really starting to pay off. As Tim rightly called out, the third quarter is a very slow quarter when it comes to seed sales. And I do think that from an overall perspective, the Argentina corn stunt issue is one of the major drivers. We did lower our full year guide. We believe that is a temporary item. In fact, there's some good news when it comes to Argentina and corn stunts. We're hearing some external reports now that the insect that carries that issue, the population is down something like 90%. So we're hoping that the worst will be behind us, but time will tell. But we will do have this impact that will carry through the full year.

This question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning. Chuck, on royalties, see royalties next year, they are down. Why is that? And where do you stand on your journey to royalty neutrality? Thank you.

Yeah, maybe I'll give a perspective and then Tim can give you the details, David. But we're feeling really good about our journey to royalty neutrality. If you recall, this is one of the fundamental sort of leading indicators on the shift of our technology focus. We're still on track. I would say we're probably a little ahead, maybe a year, maybe two years ahead to deliver royalty neutral by the end of the decade. And if you think about what we've been able to deliver in the last couple of years, you know, we've been run right about 100 million a year. And this year in 2024, we're tracking quite a bit ahead of that. So that's one of the reasons why the next year, I think we're right now, the preliminary view, and I'll just state that again, it is a preliminary view. is slightly less than that. So if you look at 24 combined with 25, we're quite comfortable that we're on that average of about 100 million. But the real important thing isn't necessarily the numbers, it's what we're doing with the technology in terms of Enlist, PowerCore, and there's even some good news now in soybeans in Brazil. And maybe, Tim, you want to take a minute to talk about that?

Yeah, definitely. We talked about the fact that we're largely transitioned. The last few years, a lot of our improvement in royalties Our royalty position has been because of North America soybeans and the rapid adoption we made over to Enlist E3. We had talked about 25 being more of a transition year. So it's the year when royalty income is actually greater than royalty reduction. And so the dynamics are a little bit different. And as Chuck said, we're over delivering a little bit this year. And that's a good thing. You only get to count it once and we're going to take it this year instead of next year. As we think about where we go from here, you know, there'll still be, I'd say, opportunities for us to reduce royalties as we transition to different technology platforms. And those will be more subtle than what we've seen on the soybean transition in North America. But the big news is going to be about royalty collections. And, you know, we're now in the market in North America from a corn standpoint with PowerCore and Lyft. products being tested by many seed companies and being commercialized, independent seed companies, and performance has been outstanding, and interest and demand is good. Our challenge is we don't have a full portfolio offering. We sell the above-ground technology. Our next generation below ground will have the opportunity to license that, and that'll really improve our position there, but it's a meaningful step forward and another milestone. Obviously, Enlist E3, we've got over 100 licensees out there, and that's some benefit as well. And then on Concasta in Brazil, and that's the other one, Brazil and Argentina, with Concast E3, we continue to make great progress there. And even though we're still in that, call it single-digit penetration standpoint, We're making progress. And, you know, right now there's over 25 contest E3 varieties in the marketplace with more expected for next year. You know, adoption is going to continue to accelerate as more varieties come in the market and very competitive varieties at that. Plus our own internal breeding program kind of hits its point where we're going to be able to contribute into the licensing market. as well, beginning in 2025 especially. You know, and I'd say a milestone we have, again, you know, we're still in the early stages there with relatively low penetration, but we do have the first blockbuster Conquest E3 variety in Brazil, and we kind of measure that as varieties that cross that million unit of sales, a variety called Torrenta CE, which was developed by one of our key breeding partners. produced and sold by many multipliers. It's widely planted by growers and it crossed over a million units this past year. And I think it's one of eight varieties in the marketplace. So small step, we've got a long way to go. And certainly as we get to the latter part of the decade, it's going to continue to accelerate. But what it shows is we've got to fit in the marketplace. We're in the game. And this is a big market that opens up for us as we go forward. So the exciting part going forward, less about royalty reduction, really more about royalty collection as the future.

The next question comes from the line of Christopher Parkinson with Wolf Research. Please go ahead. Great.

Thank you so much. Just circling back to slide 10 in terms of your EBIT outlook, obviously, there are a lot of moving parts. And I think it's safe to say, at least in my opinion, there's some upside to a lot of the positives. But in terms of the deductions, referring specifically to currency, the SG&A and R&D as percent of sales, just kind of trying to isolate those factors along with the prospect of lower acreage in the U.S. and CPC price As we sit here today in terms of the, let's say the offset to the plethora of positives there are, are we confident that that FX is going to be stagnant at the 150? Are we confident that CPC pricing is more of a one half, just kind of marking to market what we've seen in the second half and extending that into 2025? Are there any other risks that the buy side community should really be factoring in? Or do we feel good about that and just kind of are sitting back to see how much of the upside scenario could actually play itself out? Thank you.

Chris, this is David. Maybe I'll take the currency question and maybe we'll pass it on to Chuck regarding the other elements. If you look at the currency right now, most of that is in Brazil. And as you know, we're kind of in the upper fives as far as where the real is trading at currently. This year, our base was somewhere just south of 5.2. So it's hard to really predict whether or not that will deflate further or not. An average year, I think it's somewhere around 8% if you look over the long period of time. So I think we have a reasonable estimate of what we think the impact will be. I never say never if it goes to further devaluation, but I think we feel really comfortable with this number.

Yeah. Maybe, Chris, just a couple of thoughts. Why don't we just take the bookends? So You'll probably notice that the 3.6 to 4 is wider than we normally provide. We did that because we're providing it earlier. And if you take the low end, the 3.6, you know, perhaps that is on the conservative side. Only time will tell. But we would certainly agree that a lot would have to be different than our current assumptions. Now, we're providing the 25 first look, as we said, because of our investor day. And what would need to happen, we believe, for that 3.6 to become a reality is we would have to face some pretty significant additional headwinds, right? Most likely continued CP market weakness. And we would probably have to miss on some of our cost and productivity deliverables, which, as you know, we have a very good track record against. Let's take the other end, $4 billion. As I said, it is a wider range. what would have to happen for us to hit $4 billion. We certainly think that $4 billion is on the table, or we wouldn't have put it out there, and very achievable. It would probably take us to overachieve on our deliverables, on our controllables, which we have a history of doing. But I think we'd also need to see a little bit of strength in the CP market. Is that possible? Absolutely. But it's a little early to get overly bullish when we're sitting just in the fourth quarter right now trying to finish up 2024. I think the important thing for folks to draw their attention to is as a first look for 2025, you know, my call out is double digit earning growth and margin expansion, a continuation of a journey that we've been on for five years.

Your next question comes from the line of Joshua Spector with UBS. Please go ahead.

Ah, good morning. This is Lucas Baldwin on for Josh. Just wanted to clarify your expectations here on the crop chem side. So for 2025, you noted the volumes are sort of stabilising and then ongoing risks on the pricing side. Your guide seems to imply sort of mid-single digit volume growth offset by pricing down low single digits. Is that correct? And sales would sort of grow low single digits overall? Or can you walk us through kind of what's baked in there? Thanks.

Yeah, so let me try to hit the highlights here for you. I think when I think about the CP market, the third quarter, I think, took another positive step towards full stabilization of this industry. We're not out of the woods yet, but we like what we saw in the third quarter. And when you step back and you think about that, North America is actually seeing some strength. I'd say Europe and APAC are operating normally. Brazil is still, I think, one of the most unstable markets that we're operating in right now when it comes to CP. And there's a combination of reasons, right? It was really dry, so there was a weather impact. It is a well-supplied market, and there's cautious farming behavior still in this market. So when you put that all together, I think we're cautiously optimistic that the CP industry is starting to reach some stability. Now let's talk about our business. So the last couple of years have been tough for the industry. Nobody will say anything different than that. We feel that our business has performed quite well. And the third quarter, I'd say, for our CP business had a pretty good quarter. We saw the second consecutive quarter of volume growth, which is really to your question. And then we saw EBITDA growth for the first time in a year, over 30% EBITDA growth in our CP business. And some of that is deflation. A lot of that is what's in our control and our new technology. So the look for 2025 then, just to get specific now, is if our assumption is a flattish industry, we'll do better than that. And it'll be really driven by, I think, volume growth in, I'd say, mid-single digits. And it's driven by our new technology. We have several new AIs that are still ramping up. The biological investments we've made. But the overall market is healthy. It's certainly healthier than it has been. And I think you'll see that our CP business grow probably better than that in 2025.

Your next question comes from the line of Frank Mitch with Vermium Research. Please go ahead.

Hey, good morning and nice to meet you telephonically, David. Just a question on slide 17. North American seed price was down 25% year-over-year. That reflects end-of-season settlements. Seems like an outlier. I was wondering if you could provide any more color on that.

Hey, Frank. Good morning, Tim. I'll take a shot at that. And obviously, you know, our business in North America is largely in the first half of the year. There's a very limited amount of that first half business that sometimes can trickle into the third quarter. And, you know, we just don't have a huge amount of business to kind of buffer some of these things. So when we talk about settlement issues, you know, what we're talking about here is in the case of replants. And so replants are a normal part of the business. We factor it into our equation. It's part of the terms of trade we have, service policy we have for farmers. And every year, you know, we accrue for replants. And sometimes they hit early. Sometimes they hit less. Sometimes they have a little bit more. This year, actually, we're from a, you know, the amount of replants we've had, it's very much in the normal range. So we had planned for it. just hit a little bit later. And so it showed up in the third quarter rather than the second quarter. So it's quite visible this year. And why that is, is if you think about the planning progress and some of the early season floods that we had, particularly in the northern Corn Belt, in the northwest Iowa, southern Minnesota, we ended up with a little bit of elevated replants versus a year ago. And they were a little bit later just in terms of the settlement standpoint. So it's not It shows up as a price concession, and obviously there's not a lot of volume that takes place there that kind of buffers it. And so it's quite visible there, and it looks unusual. It's actually a normal part of the business. It just doesn't oftentimes hit by itself in a quarter as it did here. So that's kind of a little background on what the issue is.

The next question comes from the line of Steve Byrne with Bank of America. Please go ahead.

Yes, thank you very much. This is Salvatore Tiano filling in for Steve. So I want to check a little bit on the pricing environment for crop chemicals and especially in Brazil where the price was down 18%. And if you can talk a little bit about that and why is it deteriorating so rapidly? Is it that you're trying to regain Is it the threat of imports and generics? And at the same time, I think one of your competitors was talking about they were actually later in the game trying to regain share by lowering their price. And everybody had already done so. It doesn't seem like that's the case, actually. And what do you think your competitors are doing now? Will they have to respond to your price declines? Or are you the last one to, I guess, cut price?

Hi, this is Robert. I'll, uh, I'll touch a little bit on this specific to Brazil and price. Let me start with the crop protection. And we finished up the quarter, uh, down 10% on price. But if you look at year to date, we're, we're in the mid single digits. And so, you know, third quarter was, was, uh, it's a different period for us. Lots of things going on to get ready for the season and, uh, working with the channel on some different things. Brazil was down, uh, about 18% for the, for the, uh, quarter, but, uh, We're going to finish up the year back to that mid-single digits for the company. We don't expect a sequential quarter over quarter or quarter to quarter. The pricing will be relatively flat. And when you think about why, there's a lot of competition going on in Brazil. And in a flat market or a flat to down market, really, we're looking at this year, a lot of competition for volume coming from all markets. all areas, um, trying to find growth. And so, you know, we, we play, we trying to hold share. We do the things we need to do that makes sense for our products. Um, I'm not going to comment on what our competition does or doesn't do or their philosophy, but for us, we're going to continue to work on selling the things that are going to drive value for our business. And that really comes back around our new products and our differentiated products. That's the majority of our growth happening in Q4. And on into the future, you'll have seen that these products typically have a premium because of the value that they add on farm. And they're going to continue to grow as well as our biologicals. In Brazil, you'll recall that well over 50% of our overall biological business is in Brazil. And so that season is still to happen. And we expect a good quarter out of biologicals down there as well. So short answer is, you know, we'll finish up in the mid single digits for price down for the year, which is about where we're trending overall for the business right now.

Maybe, Robert, one other thing to add. When you look at our order book for the fourth quarter, we like our position. We're certainly, we're north of 50% for our CP book, over 60, 65% for our biologicals book. So we're setting up exactly where we want to be for the fourth quarter. And I think, you know, that's all factored into our current thinking.

The next question comes from the line of Patrick Cunningham with CT. Please go ahead.

Hi, good morning. Just based on the last comments, could you help quantify how new products and biologicals have performed year to date? And what do you expect for contribution in 2025? And should the sensitivity around that number be similar to what you're expecting for broader crop protection?

Yeah, Patrick. This is Robert. I'll start with biologicals. You know, we're 15 months into the acquisition, and this business continues to perform very well. it's it's serving the portfolio serving as a very good compliment to our synthetics business and it's it's driving solutions on the farm that uh we're able to offer to the to the farmer that's unique to us so we we like how it's playing out um from a you know from overall for the 2024 we're expecting biologicals to be up uh double digits EBITDA growth for the year and um so that's going to continue to give us give us strength and when you lay that into new products. Q3, we saw about a 20% volume or organic growth in new products. And so these products continue to perform above market. We expect about a mid-single digits growth for the year. And we're continuing to get value out of that. So we're going to finish up the year strong with both of these as we finish out Q4.

And then when you think about 2025 and beyond, and we'll have more to share, of course, at the investor day, but these are the, I think the growth engines of our CP business, right? Because if you think through the strategy, we're trying to de-emphasize the commodity part of the portfolio, really sell differentiated technology. We believe we've got strong channels to market. And so these will lead, I think the growth in terms of volume, They will have a premium, as Robert called out. They're not immune to the market. They'll trade with the market, but they'll always have a premium over less differentiated technology. And we have, even this year so far, we've had very good demand from a volume perspective on our Spinozans franchise, on our new products, and on the biologicals. That will carry into 2025 and beyond.

Next question comes from the line of Edlin Rodriguez with Mizuho. Please go ahead.

Thank you. Good morning, everyone. Just a quick question on, again, on the guidance initial outcome in view for 2025. You've talked about the skew between the low end and high end, but when will you get a better sense of which way the pendulum is swinging? And related to that also is, You know, again, with all due respect, you know, this is the third time I think you've lowered your guidance for the year, for 2024. I mean, of course, ag, you know, could be very challenging to forecast. The question is like, do you think it's fair for people to be asking what gives you confidence and how much confidence should we have in that guidance that you give for 2025? Yeah.

Good morning, Edlund. Fair question. Absolutely. And if you think about this, right, so we had a 25 framework that we did update earlier this year, and I believe the range was something like 3.9 to 4.4 with a 4.15 mid, with margins in that 21 to 23%. And at that point, the reason we had updated that is because our fundamental view on the CP industry had changed, right? We had thought at that point now, that the CP industry for 2024 would be in decline. And we've always said that for us to hit certainly the numbers for 2025, we would need to see a return for the industry to grow in the year 2025. And today, we came out with our view that it's going to be flattish. So that's the fundamental change. So if you look at the seed business, it's actually almost entirely on plan. In fact, it's probably trending a little bit ahead. And we are also ahead when it comes to cost productivity. So when I think about how we've done as a company, we've got a lot of things right. The seed business is on plan. I think our cost and productivity and our controllables are. But the CP industry has clearly moved against us and everybody else in the industry. And that's had a profound impact on our outlook. So to your question, how about 3.6 now to 4.0, 3.8? Our view is still founded on a flat 2025 when it comes to CP. And when will we know? Let's get through this year. We've got a crop to harvest and a crop to put in the ground in Latin America. But we're feeling very good that the seed business is going to continue its journey. The $600 million of gross cost, productivity, and deflation I think we're feeling very, very comfortable with. And as I mentioned, we're getting more comfortable that the CP industry is finding some stability finally. So it is, I think, a very fair question to ask. All we can do as an organization, though, is give you what we're thinking and to update you as we learn more. And this is our current view. is that uh the cp industry if it's flat will be somewhere between the three six and the four um and we're feeling very good about the levers that we have to pull uh to create value the next the next question comes from the line of alexi we have removed with key bank please go ahead

Thank you. Good morning, everyone. What did you assume for Argentina planting area in 2025? Did you assume any meaningful return of that wealth acreage?

Hey, Alexi, this is Tim. I'll take a shot at that. So, you know, we're taking out 20%, so call it from roughly 8 million hectares down to 6.5 million hectares. And for 25 at this point, we're taking a very, I'd say, prudent approach and not assuming a significant increase or return. And why that is, is because of the pressure from the leafhoppers last year. It's a really difficult environment for farmers to plant into, and it's hard to predict whether that was a one-year deal or if it's something that we're going to have to deal with going forward. And so, you know, Chuck shared that right now the populations are moving in the right direction. So that's obviously a positive thing, but we got to track that over the course of the season. Last year, we saw populations really build as you got into the January, February timeframe. And so it's going to be really important that we understand before we assume some kind of a big rebound. Hard to do it. It'd be very speculative at this point in time. Bottom line is Argentina is going to remain an important production area for both corn and soybeans. Argentina is one of the three major exporters of corn and will continue to do that. And from an agronomic standpoint, farmers need to be planting corn in that northern area because that rotation between corn and beans is really important. You can plant beans this year as a defensive crop. on a one-year basis, but you can't do that for three or four years. They're going to end up with some problems. So we're optimistic over the next few years. And for 25, we're assuming, you know, essentially a flat market again with 24. And certainly we're going to be staying close and understand what that opportunity is.

The next question comes from the line, Arun Biswanathan with RBC. Please go ahead.

Ray, thanks for taking my question. I'll just ask real quickly on the balance sheet if you guys would consider maybe taking on a little bit of debt. I know that, you know, obviously interest rates would play into that, but maybe you can just give us some updated thoughts on your views there. Thanks.

I think, you know, as we sit here today, our views have been consistent. I think when you look at the amount of cash that we generate, the amount that we put back in the business versus, you know, giving back in dividends and buybacks, We don't see a meaningful change going forward, certainly not in the 25 outlook and not in the 25 to 27 outlook.

Yeah. And maybe just a couple other thoughts. So feeling good about the guide in terms of free cash flow, one and a half to two billion. So the company is generating, I think, very good cash and the conversion is improving from EBITDA. We do recognize we have a strategic asset in our balance sheet investment grade rating. I think David just shared our philosophy really hasn't changed. If you think through even this year, we're going to be approximately one and a half billion of returning capital to shareholders through buybacks and dividends. So that's a big number. We want to be able to invest for growth inside the business. And we've got, I think, a lot of great things happening both in the seed and CP portfolio. And we've got a few other things that we'd like to share with you at the investor day, so we'll hold the rest of the conversation. But it is a good position to have, and I think it is one of the things that sets Corteva apart.

That concludes our Q&A session. I will now turn the conference back over to Kim Booth for closing remarks.

Great. That concludes today's call. We thank you for joining and for your interest in Corteva, and we hope you have a safe and wonderful day.