Corteva, Inc. (CTVA) Q3 2025 Earnings Call Transcript

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Overview

Corteva's earnings call reveals strong financial performance with raised guidance for EBITDA and EPS, indicating confidence in future growth. The commitment to a $1 billion share buyback and positive outlook for biologicals and crop protection further bolster sentiment. While management was vague on some specifics, the overall tone was optimistic, supported by strong market share gains and promising product developments. With increased free cash flow and strategic plans for growth, the stock is likely to see a positive reaction.

Key Financial Performance

Operating EBITDA Operating EBITDA for the third quarter was up double digits year-over-year, with a full-year expectation of $3.8 billion to $3.9 billion, representing 14% growth at the midpoint. This growth was driven by broad-based organic sales growth, incremental cost improvement benefits, and strong early safrinha seed demand in Brazil.

Seed Business Performance The Seed business achieved $200 million in productivity and deflation benefits and $90 million in royalty improvement. This reflects a leading position in North America corn and progress in soybean out-licensing in Brazil. The improvements were attributed to capturing price for value and meaningful share gains in North America.

Crop Protection Business Performance The Crop Protection business delivered high single-digit EBITDA growth year-to-date, driven by demand for differentiated technology and volume gains. The business achieved over $250 million in controllable benefits in the first 9 months of the year, despite competitive pricing dynamics in some major markets.

Organic Sales Growth Organic sales were up 11% in the third quarter and 6% year-to-date, driven by gains in both Seed and Crop Protection. This growth was supported by increased corn acres in North America and Latin America, as well as double-digit volume gains in new products and biologicals.

Operating EBITDA Margin Operating EBITDA margin improved by over 165 basis points year-over-year, driven by organic sales growth, cost benefits, and enhancements in product mix. This is part of a broader margin enhancement journey aiming for 24% by 2027.

Free Cash Flow Free cash flow improved by over $917 million year-to-date, driven by increased EBITDA, lower cash taxes, and lower capital expenditures. The company expects a free cash flow conversion rate of about 50% for the year.

Net Royalty Expense Net royalty expense improved by $90 million year-to-date, driven by increased out-licensing income in North American corn and lower royalty expense in soybeans. The company expects the net royalty expense position to be around $120 million by year-end.

Cost Savings The company achieved $500 million in cost savings year-to-date, including lower Seed and Crop Protection raw material costs and productivity gains. This contributed to significant margin expansion.

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Operating Highlights

New Insecticide Active - Varpelgo: Announced a new next-gen insecticide active named Varpelgo for chewing pests in fruits, vegetables, row crops, and rice. Expected to launch in the early 2030s with projected peak revenues of $750 million.

Seed Product Rollout: Plans to introduce several hundred new hybrids and varieties globally in 2026 to enhance yield and productivity for farmers.

Soybean Market Expansion in Brazil: Progress in soybean out-licensing in Brazil, with expectations to cross double-digit trade penetration for Conkesta next year.

China Soybean Trade Commitment: China committed to buying 12 million metric tons of soybeans this season and at least 25 million metric tons annually for the next three years, benefiting U.S. farmers.

Operational EBITDA Growth: Achieved double-digit operating EBITDA gains in both Seed and Crop Protection businesses, with a full-year operating EBITDA range raised to $3.8-$3.9 billion, reflecting 14% growth.

Cost Savings and Productivity: Delivered $500 million in cost savings from lower raw material costs and productivity gains across Seed and Crop Protection.

Separation into Two Public Companies: Announced intent to separate Seed and Crop Protection businesses into two public companies by the second half of 2026 to maximize long-term growth potential.

Focus on Innovation and Collaboration: Emphasized leveraging gene editing, AI, and biological solutions to drive innovation and collaboration in the agricultural sector.

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Risk or Challenges

Separation into two public companies: The decision to separate the Seed and Crop Protection businesses into two public companies introduces risks related to execution, potential disruption during the transition, and the ability of each entity to operate independently while maintaining market leadership.

Changing seed genetics landscape: The emergence of new technologies like gene editing and artificial intelligence creates opportunities but also poses challenges in adapting to these advancements and maintaining competitive advantage.

Rising pest and disease pressures: Increased pest and disease pressures, along with changing weather patterns, require the development of multiple modes of action in crop protection, which could increase R&D costs and operational complexity.

Competitive pricing dynamics in Crop Protection: The crop protection market is experiencing competitive pricing pressures, particularly in major markets like Brazil, which could impact profitability.

Global trade uncertainty: Uncertainty in global trade, including commitments from China to purchase soybeans, could affect market stability and planning assumptions.

Supply chain and raw material costs: While raw material costs have decreased, any future volatility in supply chain or raw material prices could adversely impact operations and financial performance.

Regulatory and environmental challenges: The development of new crop protection products, such as Varpelgo, must meet stringent regulatory and environmental standards, which could delay product launches or increase costs.

Dependence on Latin America and North America markets: The company's strong reliance on Latin America and North America for growth exposes it to regional risks, including economic and weather-related challenges.

Biologicals and new product development: The focus on biologicals and new product development requires significant investment and carries risks related to market adoption and achieving projected revenue targets.

Currency fluctuations: Currency headwinds, particularly from the Brazilian real, Turkish lira, and Canadian dollar, have impacted EBITDA and could continue to pose financial risks.

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Guidance & Outlook

Separation into Two Public Companies: Corteva plans to separate its Seed and Crop Protection businesses into two public companies by the second half of 2026. This decision is aimed at maximizing long-term growth potential for both entities.

2025 Full-Year Operating EBITDA: The company has raised its full-year operating EBITDA guidance to a range of $3.8 billion to $3.9 billion, representing 14% growth at the midpoint compared to the prior year.

2025 Operating EBITDA Margin: Corteva expects an improvement of over 160 basis points in operating EBITDA margin for 2025, progressing towards a goal of 24% by 2027.

2025 Free Cash Flow: The company reconfirmed its free cash flow guidance of approximately $1.9 billion, with a cash conversion rate of about 50%.

2026 Operating EBITDA Outlook: Corteva anticipates full-year operating EBITDA of $4.1 billion in 2026, translating to mid-single-digit growth year-over-year.

2026 Crop Protection Market Growth: The crop protection industry is expected to grow in the low single digits, with high single-digit growth in biologicals. Pricing is expected to stabilize in most regions, except Latin America, where competitive pressures may keep prices flat or slightly down.

2026 Seed Market Dynamics: A shift of a couple of million acres from corn to soybeans in the U.S. is anticipated in 2026, but this is not expected to disrupt planning assumptions due to Corteva's strong market position in both crops.

New Product Launches: Hundreds of new seed hybrids and varieties are planned for rollout in 2026, aimed at increasing farmer yields and productivity. Additionally, a new insecticide, Varpelgo, is expected to launch in the early 2030s, with peak revenues projected at $750 million.

Global Trade and Market Demand: Record demand for grains, oilseeds, meat, and biofuels is expected to continue, with steady on-farm demand as farmers prioritize top-tier technologies to maximize yields.

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Shareholder Return Plan

Dividend: The company plans to return approximately $1.5 billion to shareholders in 2025, which includes dividends.

Share Repurchase: Corteva is on track for $1 billion of share repurchases in 2025.

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Key Q&A

Q:What is the most missed aspect of Corteva's strategy for growth and margin differentiation?

A:Corteva's Crop Protection business has been a leader over the last 5 years, with a 200 basis point improvement. The company has a strong R&D pipeline valued at $9 billion and new products entering the market. The Spinosyn franchise is growing and expected to reach $900 million in revenue this year. The strategy focuses on differentiated technology for farmers, reducing commoditized portfolio parts, and exiting certain geographies. As an independent company, more opportunities are expected, such as increased business with seed companies and retailers. The company is committed to maintaining R&D at 6-7% of revenue and achieving 20% EBITDA margins by 2027.

Q:Is there any further pruning or addition planned for the AI portfolio in Crop Protection?

A:Corteva is satisfied with its current portfolio, which includes new actives like Rinskor, Arylex, and Reklemel. The company is open to partnerships, M&A, and R&D collaborations to address industry challenges like disease and insect resistance. Collaborations are seen as beneficial for the industry and farmers.

Q:How are credit market conditions evolving for growers in Latin America, and what does it mean for Corteva?

A:Credit market conditions in Latin America, particularly Brazil and Argentina, show higher borrowing costs, leveraged customers, and increased bankruptcies. Corteva has managed this risk well, with minimal losses and improved past dues as a percentage of AR. The company uses a robust barter system, accounting for 40% of sales in Brazil, to mitigate risks.

Q:What are Corteva's plans regarding dis-synergies and capital deployment ahead of the split?

A:Corteva estimates dis-synergies at $80-100 million and is working to minimize them. The company plans to provide more details in February. For capital deployment, Corteva expects strong cash flow and will update on 2026 plans during the February call. The company is committed to completing the $1 billion share buyback announced earlier this year.

Q:Why are biologicals not growing faster for Corteva?

A:Corteva's biologicals business has grown from $400 million to $600 million in revenue, with strong progress globally. The company has launched biologicals in North America and is expanding into Brazil and Europe. Growth rates are influenced by the time it takes to move products globally. Corteva expects continued high single to low double-digit growth rates in biologicals.

Q:What is Corteva's outlook on crop chemical pricing and growth in 2026?

A:Corteva expects crop chemical pricing to stabilize globally, with Brazil showing improving trends. For 2026, the company anticipates low single-digit growth in the global crop protection market, driven by volume growth and stable pricing. Confidence is based on strong on-farm applications, healthy channel inventories, and stable generic product prices from China.

Q:How does price pressure in chemicals like Rynaxypyr affect Spinosyns, and did Spinosyns grow in volume this year?

A:Spinosyns and diamides are complementary, often used in rotation to manage insect resistance. Spinosyns are growing, with expected revenue near $900 million this year, a 5% organic growth. Pricing is influenced by commoditized insecticides, but Spinosyns command a premium due to their microbial nature and difficulty to replicate.

Q:What is Corteva's approach to working capital and free cash flow?

A:Corteva's working capital as a percentage of sales is consistent with the last few years. The company expects to build inventory in Q4 and achieve free cash flow of $1.9 billion or more this year. Working capital improvements have contributed to year-over-year performance.

Q:How did Corteva perform in market share for major crops in the northern hemisphere, and what is the outlook for Conkesta in Latin America?

A:Corteva gained market share in corn and soybeans in the northern hemisphere, driven by strong product performance. Conkesta is expected to capture 8-10% of the market in 2025, double digits in 2026, and up to one-third of the market in Brazil by 2030.

Q:What is Corteva's margin outlook for 2026 and beyond?

A:Corteva expects continued margin growth, targeting 24% EBITDA margins by 2027. Drivers include new products, seed out-licensing, royalty income post-2028, and cost productivity. The company aims to achieve $700 million in cost savings by 2027, with strong progress already made.

Q:What is the composition of Corteva's Crop Protection portfolio, and how is the non-differentiated segment positioned?

A:65% of Corteva's Crop Protection portfolio is differentiated, offering premium products with high technology. The remaining 35% is not commodity generic but includes formulated products that provide value to farmers at lower price points. Corteva focuses on the upper end of the market, avoiding commodity generics.

Q:How are Corteva's digital assets integrated, and what investments are needed ahead of the split?

A:Corteva's digital assets, including CARL and Granular, are integrated and support both Seed and Crop Protection businesses. Ahead of the split, the company will separate these assets to ensure both businesses have the necessary digital infrastructure. This is included in the $80-100 million dis-synergies estimate.

Q:What is the progress and outlook for Corteva's hybrid wheat technology?

A:Corteva's hybrid wheat technology is on track for a 2027 launch, with consistent 10-15% yield improvements. The company expects small availability in 2027, ramping up to a $1 billion revenue opportunity by 2030. Hybrid wheat is seen as a significant growth area, complementing corn and soybeans.

Q:What is the impact of acreage shifts from corn to soybeans on Corteva?

A:Corteva estimates a $10 million EBITDA impact for every 1 million acres shifting from corn to soybeans. The company expects some acreage shift in 2026 but has factored this into its $4.1 billion EBITDA guidance.

Q:What are the opportunities for M&A in Corteva's Crop Protection business, particularly in biologicals?

A:Corteva sees opportunities for M&A and partnerships in the fragmented biologicals industry. The company has been active in this area and expects increased focus on growing the biologicals portfolio post-split, leveraging both acquisitions and collaborations.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the exact dis-synergies breakdown, the precise impact of acreage shifts on EBITDA, and the exact timeline for digital asset separation. Additionally, while they expressed confidence in biologicals and hybrid wheat growth, they did not provide granular data on market penetration or competitive positioning in these areas.

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The earnings call highlights strong financial performance, with organic sales and operating EBITDA growth, significant cost savings, and improved free cash flow guidance. The Q&A section reveals confidence in pricing strategies, share gains in key markets, and minimal tariff impacts. Despite some competitive pressures in Brazil, overall guidance remains optimistic with new product launches and partnerships. The lack of specific details in some management responses does not outweigh the positive financial and strategic developments, suggesting a positive stock price movement in the short term.

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