Corteva, Inc. (CTVA) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Corteva Agriscience Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Kim Booth, Head of Investor Relations. Kim, please go ahead.

Good morning, and welcome to Corteva's Second Quarter and First Half 2026 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, Judd O’'Connor, Executive Vice President, Seed Business Unit; Robert King, Executive Vice President and Strategic Adviser as well as Luke Kissam, future CEO for New Corteva 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 Factors 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. The headline for this quarter is straightforward, we are delivering strong results, we are raising our full year outlook and we are on track to complete our separation on October 1. The first half of 2026 demonstrated the resilience of our 2 businesses: the value of our technology portfolio and the execution discipline of our teams around the world. In the first half, net sales increased 4%. Operating EBITDA increased 10%. And operating EPS increased 14%. These results reflect strong execution in both Seed and Crop Protection despite a dynamic operating environment. In Seed, farmers continue to place a premium on technologies that improve productivity and returns. That is reflected in the continued demand we are seeing for our latest genetics and trade offerings and the growing contribution from our new licensing business. We saw organic growth across all regions in the first half, which speaks to the durability and the basic need of that technology demand. Crop Protection also performed well this half. Volume gains on new products, which are becoming a larger part of the business every year, remain robust and pricing of these products was essentially flat in the first half, which we consider a success in this environment. Even in markets where pricing remains competitive, our teams are delivering productivity improvements and demonstrating operating discipline that allows us to continue expanding margins and improving earnings quality. The strategy we have deployed in Crop Protection for several years, building a more differentiated portfolio supported by innovation and commercial excellence while proactively reducing our cost of production is working. And we continue to strengthen our pipeline, particularly in nature-based products. You can find details in the deck about a recent acquisition that expands our capabilities in that area as well as industry recognition for some of our crop health innovations. So Corteva's first half performance was a result of execution. It was driven by technology adoption and being nimble in the market through productivity improvements, licensing growth, operational discipline and, of course, strong execution. Across the company, our teams have done an excellent job balancing separation-related work while maintaining focus on customers. What we are seeing today is the outcome of deliberate actions we have been making for several years. We have invested in differentiated technology. We have strengthened our germplasm portfolio. We have expanded our trade capabilities. We have built one of the strongest innovation pipelines in agriculture, and we have stayed disciplined on productivity, cost management and asset optimization. Today, those investments are translating into measurable outcomes. What is particularly important is that these results are being achieved in a market that is increasingly rewarding innovation. Farmers around the world continue to make investment decisions based on productivity, yield potential and return on investment. That is exactly where Corteva is strongest. And while the external environment will always be dynamic, considering weather, currency, trade flows or geopolitical uncertainty, the fundamentals that matter most remain healthy. Global demand for food, feed and biofuels continues to grow. Crop prices are up. However, farmer margins remain tight, so they continue to prioritize value-driven investments while remaining cautious on discretionary spending. Our technology portfolio is aligned with the needs of our customers, who are looking for ways to produce more while using resources more efficiently. That is supporting confidence in our business. As we look ahead, we remain confident in our outlook while continuing to monitor several external factors, including ongoing pricing pressure in pockets of the Crop Protection market. What gives us confidence is that the factors within our control continue to perform well. So while we remain realistic about external risks, we entered the second half with a favorable outlook, a healthy respect for the market environment and confidence in our ability to deliver the commitments reflected in our updated guidance. As a result of our first half performance and confidence in the second half, we are increasing our full year outlook. We now expect operating EBITDA of $4.1 billion to $4.3 billion and operating EPS of $3.60 to $3.80 per share. At the midpoint, that represents approximately 9% EBITDA growth and 11% EPS growth versus last year. This is because multiple parts of our business are performing well, strong technology adoption, new product momentum, growth in licensing, productivity gains and cost discipline. And looking beyond 2026, the long-term opportunities for both businesses become even more attractive. You'll hear more from us on that in September. Turning to the separation. Our message remains simple. We are on track in executing according to plan on time and under budget. Over the first half of the year, we achieved several important milestones. We announced Luke as the CEO of New Corteva, and he is here with us today for the Q&A session. We introduced Vylor as the name of the future advanced seed and genetics company, completed key leadership appointments, publicly filed the Form 10, appointed both Boards of Directors and engaged with credit rating agencies regarding our planned capital structures. These milestones represent significant progress and provide confidence that both organizations will be fully prepared to operate independently. Regarding dyssynergies, I'm happy to report that on a run rate basis, we've largely offset the impact of separation. This is the result of a lot of hard work from our employees and ensuring we're setting up 2 org structures in the most efficient way possible, placing time, money and resources where they matter the most and giving both companies the flexibility they need to excel on their own. We'll see something in the range of a $25 million headwind this year due to the timing of the separation activities, but this is a great result overall. Looking ahead, several important steps remain. We expect amendments to the Form 10, finalization of the capital structures, completion of the remaining IT separation activities, effectiveness of the Form 10 and we will be holding our Investor Day events on September 15 in New York. Assuming completion of those final milestones, we are targeting October 1 as the separation date with Vylor beginning operations as a separate public company. While separation activities have remained a major focus for management, I want to emphasize something that I believe is important. We have maintained our performance while simultaneously preparing to launch 2 public companies. That speaks to the strength of our organization and the commitment of our people. Teams across the company have managed the complexity of separation work while continuing to innovate, serve customers, drive productivity and deliver strong financial results. As we enter the second half of the year, our priorities are clear: first, continue executing for our customers; second, deliver on the commitments reflected in our increased guidance; and third, complete the separation efficiently and successfully, which will help position both companies for successful futures. Thank you to our employees, customers, partners and shareholders for their support. Before I turn the call over to David, I want to make a personal observation. This is my final earnings call as CEO of the combined Corteva organization before our planned separation. When I look at where the company stands today, I'm incredibly proud of what our teams have accomplished. We have strengthened our portfolio, built industry-leading innovation, improved execution, expanded margins and position both future companies for success. Coming into 2026, since the year Corteva was formed in 2019, we had already improved operating EBITDA by $1.7 billion with over 750 basis points of margin enhancement, all while investing nearly $9 billion in R&D, which is just astonishing to think about what it is going to do to help transform the future of agriculture. And finally, we returned close to $8 billion of cash to shareholders in that same time frame. I'm confident in the leadership teams that will guide both organizations forward, I'm confident in the opportunities ahead for both new Corteva and Vylor, and I'm confident that the work we have done over the last several years has created a strong foundation for long-term value creation. With that, I'll turn the call over to David.

Thanks, Chuck, and welcome, everyone. Let's begin on Slide 6 and with our first half financial performance. Overall, we delivered a strong first half with continued execution across both Seed and Crop Protection, translating into higher sales, meaningful EBITDA growth and nearly 200 basis points of margin expansion. For the quarter, net sales were $6.4 billion, while operating EBITDA increased 4% to $2.3 billion. As I mentioned during our first quarter call, our business results are best reviewed and has. Looking at the first half, net sales increased 4% to $11.3 billion, while organic sales grew 2%. Margin expanded to 32.8%, driven by continued value capture in Seed, productivity improvements across both businesses and disciplined cost management. Within Seed, organic sales improved across every region, led by North America and EMEA, reflecting continued demand for our differentiated technology portfolio, our focus on capturing value and increase our licensing income. As expected, Crop Protection pricing remained under pressure due to competitive market dynamics, particularly in Latin America. However, strong adoption of new products continue to drive volume growth, helping partially offset pricing pressure. These commercial gains, combined with productivity improvements, favorable royalty performance and lower input costs drove operating EBITDA to $3.7 billion, an increase of 10% over prior year. Importantly, both businesses contributed to margin expansion, demonstrating that our strategy continues to balance growth with disciplined execution. Turning to Slide 7. This bridge highlights the key drivers behind the first half EBITDA improvement. Operating EBITDA increased approximately $350 million year-over-year to $3.7 billion. Price and mix contributed nearly $100 million as we continued executing our value-based pricing strategy in Seed, although those gains were partially offset by competitive Crop Protection pricing. Volume added roughly $40 million, reflecting strong North America Seed demand and high single-digit growth in Crop Protection new products. Cost performance remained the largest contributor, adding more than $160 million through lower input costs, manufacturing efficiencies and continued productivity initiatives. In addition, currency provided an approximately $85 million benefit during the first half, primarily driven by the euro. One additional contributor was approximately $90 million of improved Seed net royalties, reflecting lower royalty expense together with higher royalty income as we expect to be net royalty positive this year. Overall, we're continuing to demonstrate that disciplined execution and technology leadership can drive meaningful earnings growth even in a dynamic pricing environment. Let's move to Slide 8. The first half demonstrated strong execution across both businesses. Seed organic sales increased low single digits as North America Seed continue to benefit from market penetration and strong customer demand for our differentiated technology portfolio, coupled with increased royalty income. Crop Protection pricing declined low single digits, consistent with our expectations, while volumes increased low single digits, primarily on demand for our new products. Productivity initiatives lower input costs and favorable currency all contributed to first half margin expansion. Looking ahead to the second half, our assumptions remain largely unchanged. We expect Brazil corn area to remain approximately flat. Within Seed, we continue to expect low single-digit organic sales growth. Within Crop Protection, volumes are expected to grow at a high single-digit rate led by continued adoption of new products, while pricing is anticipated to decline in the low to mid-single digits. We also expect productivity savings to continue contributing during the second half while recognizing the potential impact from geopolitical uncertainty and ongoing foreign exchange movements. Overall, the first half performance provides a strong foundation as we move through the balance of the year. As a reminder, we anticipate a typical seasonal earnings pattern in the second half with the third quarter operating EBITDA loss in the range of what we saw in 2024 and all second half earnings delivered in the fourth quarter. Overall, we expect second half EBITDA to be about flat compared to last year as the net impact of tariffs, dissynergies and the Middle East conflict are all weighted to the back half of the year. Let's turn to Slide 9. Given the strength of our first half execution, we are raising our outlook for the full year. We now expect operating EBITDA between $4.1 billion and $4.3 billion, representing approximately 9% growth at the midpoint versus last year. This outlook reflects broad-based organic sales growth across the portfolio, together with additional benefits from the controllable actions we've consistently discussed throughout this year, including productivity, cost management and continued operational execution. We're also increasing our operating EBITDA margin outlook to a range of 22.5% to 23.5%, reflecting continued sales growth and disciplined cost management. Finally, we've raised our operating EPS guidance to a range of $3.60 to $3.80 per share, an increase of 11% at the midpoint versus last year. While higher net interest expense partially offset some of the EBITDA improvement, we continue to expect another year of strong earnings growth and margin expansion. Overall, the updated guidance reflects our strong first half performance and confidence in our expectations for the balance of the year. Turning to our key takeaways. First, we delivered a strong first half through continued commercial execution across both Seed and Crop Protection. As expected, first half cash flow was impacted by the Bayer agreement, onetime separation items and the pension contribution announced last quarter. Absent these items, we would expect full year free cash flow conversion to be in line with our midterm target discussed at the 2024 Investor Day. Second, our growth platforms of disciplined execution on controllable actions translate directly into meaningful EBITDA and margin expansion. Third, based on this performance and our confidence in the second half, we're raising our full year guidance for operating EBITDA, margins and EPS. Finally, we're progressing as planned toward the targeted October 1 separation, and we've largely offset the impact of dyssynergies on a run rate basis. We're confident both businesses will begin the next chapter from positions of financial strength and operational momentum. Now let's turn the call back over to Kim.

Thanks, David. I'd like to briefly highlight a few things about our upcoming Investor Days. On September 15, we'll host separate Investor Day events for both Vylor and Corteva at the New York Stock Exchange. Both events will be webcasted and registration is currently open. These events will provide investors with a deeper look at each company's strategy, innovation pipeline, long-term financial framework and capital allocation priorities as they prepare to operate as independent public companies. We believe these sessions will provide additional insight into the value-creation opportunities for both organizations, and we encourage everyone to join us by registering today through the links on the Events and Presentations page of our website. 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 the following Q&A. Operator, please provide the Q&A instructions.

[Operator Instructions] Your first question comes from the line of Vincent Andrews with Morgan Stanley.

Wondering if we could talk a little bit about in the Seed business for the second half of the year. I see in the slide, you're expecting flat corn acres. So I'm kind of wondering, is that what you're seeing in the order book? Is that sort of an El Niño kind of assumption? So what's driving that? And then also, from a pricing and mix perspective, what you're anticipating, particularly as it relates to Conkesta penetration?

Vincent, thanks for your question. Yes, for the second half of the year, obviously, North America -- the Northern Hemisphere is really wrapped up. It's all about what happens in Latin America and particularly in Brazil. From an acre perspective or a planted area perspective, we have typically seen low single-digit safrinha's expansion on a year-over-year basis for the last several years, 3, 4, 5 years in a row. We could still see that, but we also could see it flatten out a little bit in 2027. Obviously, we'll have sales orders come in at the end of this year, fourth quarter. Our order book is on pace with -- well, it's actually ahead of the market a little bit at this point in time. So we feel quite confident. Our product portfolio feels good. We're in a good position. We've had strong pricing in Latin America in particular. So all in, as we go into the second half of the year and order book in the fourth quarter for safrinha for execution in that planning window, January, February, March. We feel like we're in a very strong position and yes. We just -- we feel like we're in a real good spot.

Conkesta.

And Conkesta. Yes, we've had good momentum with Conkesta. We think we're going to be high single digits, low double digits in terms of penetration in the market with Conkesta E3 in 2027. And so yes, on plan and continue to be very optimistic about the performance of that product.

Your next question comes from the line of David Begleiter with Deutsche Bank. Your next question comes from the line of Chris Parkinson with Wolfe Research.

Great. I'm going to switch to my conversation to Luke, if I may. Given this is kind of your first interaction with investors regarding the kind of further longer-term outlook of Corteva, I'm just kind of curious on what you're the most excited about in terms of the market, in terms of what you think you can do with the company's narrative? Is this going to be a focus primarily on R&D pipeline value, new product intros, leadership? Is it going to be about balance between CPC biological, Seed treatments, margin opportunities? I would just want to hear how you're thinking about it on a preliminary basis and how we should triangulate those thoughts into the CMD.

Yes. Thanks, Chris. I appreciate it. No, I'm very excited. I think the first thing I would say is the #1 strength at Corteva is our people. There's a great team, many of those grew up on or around farm, so they understand the challenges that the customers face every day and they get excited about waking up every day solving those problems. You talked about a portfolio. And from a portfolio standpoint, 2/3 of our current portfolio is a differentiated technology. And we're not dependent on any one active, any one segment, any one crop or any one geography. So I love the diversity of the portfolio, and I love the fact that the bulk of it is differentiated product. That is a real competitive advantage. When you add biologicals to the portfolio position, that gives us the ability to blend natural and synthetic solutions to solve growers' problems. And in our pipeline, I can't emphasize how strong I think our pipeline is. It's the best crop protection pipeline in the business with 7 new actives coming into that market over the next decade. I feel like I've been drinking from a water hose for the first month or so. And if I ever need to pick me up, I want over our greenhouses. And I'll look at the results of the R&D. And there, you can see the incredible resorts. Those people are delivering against targeted tests, target weaves, targeted diseases, and it just gets you excited and want to come back to the office, roll up your sleeves and get after it. So we look forward to sharing more details about the R&D and our strategy with you at our Investor Day in September 15 and look forward to seeing all of you in person there.

Your next question comes from the line of Joel Jackson with BMO Capital Markets.

Chuck, Luke, rest of the team, look, I know you're doing your Capital Markets Day in 1.5 months, but Chuck, Luke, team, what I noticed is if I take your, Chuck, your prior guidance targets for 2027, about $4.4 billion EBITDA at the midpoint, you did $4.2 billion this year, you $4.3 billion this year. It's about a 5% growth rate. I would like to know if you can talk as much as you can right now, is that what you're thinking about now mid-single-digit growth into next year? Tell me why that's right or wrong? What we should think about a little bit of preview ahead of September, I guess.

Joel, so look, maybe I'll start and then David can fill in some of the numbers. So not a lot has changed with our original thinking from earlier in the year. $4.2 billion, so if you look at the updated guide, $4.2 billion fits us very comfortably into that 2024 original communication around 2027, which you rightly called out, was $4.4 billion. So our growth rates are in the range where we've communicated they would be. I'd say we're a little ahead of our original plan in 2026. And if you look at the growth, what pleases me the most is where it's coming from.

It's the core parts of our business, right? So in Seed, it is -- licensing is literally 3 years ahead of our original plan, which is pretty astonishing, considering that as a brand-new business for us. And then if you look at Crop Protection, that new product portfolio that we've been talking about for some time, it's going to touch $2 billion this year in revenue. And the margin profile and how we priced it is really, really strong. So these are the things that are leading the growth for Corteva combined. And then, of course, you know the company, we're really focused on cost and productivity. It's part of our DNA. It needs to be in this industry. So when I look at it, I'd say that our growth rates are exactly where we thought they were, but probably trending a little ahead of our original plan. David, anything to add?

Yes, Joel. And if you remember, the $4.4 billion was a $1 billion increase over period of time. And we always said it was going to be a little bit more front-end loaded mainly because of our cost and productivity that we expected in the first couple of years. As Chuck has mentioned, we do feel like we are certainly ahead of where we expected to be on net royalties. So we'll take that in consideration when looking into what our guide is for '27. But I think we feel comfortable with the $4.4 billion at this point in time. The other thing I will mention, too, is I know some people were concerned about the impact of net synergies and separation costs and all that against our long-term target of the $4.4 billion. As we articulated earlier today, we feel like we're tracking pretty close to flat or within plus or minus the millions of dollars that would be within our typical guide range. So we feel really strong about the $4.4 billion.

Right. And then one last comment, Joel. So in September, both companies will provide 2029 financial framework. So you're going to be able to kind of follow along with sort of where Corteva is leaving off where new Corteva and Vylor are kind of taking over. And I think when you look at that and you put it all together, there's going to be a lot to like there. So hopefully, you can join us.

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners.

This is Matt Hettwer on for Kevin McCarthy. In Crop Protection, organic sales were down about 6%, but on a product line basis, it looks like the trend was lower among herbicides, insecticides and fungicides with the difference made up by substantial growth in the other category. Can you unpack the underlying sales trends for those products? And maybe comment on what kind of trajectory we can expect for them in the back half?

Yes. Matt, it's Chuck. So let me start with the overall Crop Protection market, if I can. I'd say, look, again, there's not a lot here that's changed in our view of the overall market fundamentals. The Crop Protection market, we still think is improving, especially if you look at 2025 was essentially flat versus the prior 2 years. And this year, we said that the market would grow low single digits. And that's still our view. Now the growth is slow. It's a little bumpy. But we're seeing, I think, what we wanted to see. And we always said that most likely in '26, it was going to be a year of volume growth with low single digit down in pricing. And so not to get too much into the indications, but that's essentially what we're seeing. We probably have a bit more competitive pressure in Brazil for lots of different reasons, but that market is, of course, well supplied. It's one of the markets that's growing. So there's a focus area there. And maybe 1 or 2 other pockets around the world. But there's nothing here that we would say is outside of our planning horizon in terms of a structural change. In fact, when you look at Chinese exports into Brazil, they're essentially stable. They're not going down, but they're certainly not going up. And I'd say the same is true for Chinese exports going into the United States. So all in all, I think that the market is recovering. We'll save 2027 comments for the Investor Day. And then when I look at the indications, the only thing I'll draw you to is that we probably have, in our portfolio and others, certain AIs that are coming off patent. And then what we've done, so in anticipation of some of these molecules, which have been well communicated, we've really redone the cost structure. And so when that happens, what we do is we have -- we're going to see competitive tension, we lower our price. But if you look at the margin profile of Crop Protection, it's actually up this quarter in this first half. So that's sort of the product life strategy that we've had, we've deployed. And then when you look forward to the new products, Luke already mentioned it, we've got 7 new actives coming into the market in the next decade. The first one will be in Brazil, where we are seeing some pricing tension. It will be Haviza, which we consider to be a blockbuster fungicide, and we're just really excited to put that into the market in the next couple of years. So hopefully, that helps you.

Your next question comes from the line of David Begleiter with Deutsche Bank.

Chuck, just on the North American growing season, any share gains you can point to either corn or soybeans that you benefited from this year?

Chuck should take that question, David?

Yes, David, from a share perspective, we feel pretty confident that we've picked up a little bit of share in [indiscernible]. Obviously, our price value capture strategy and being premium in the market, but we still feel like we've picked up some share a little bit in Pioneer, but particularly with our retail brand and a bigger share of shelf in Brevant. On the soy side, we feel like we picked up share both in the Western corn belt. So I think Mississippi West and the Eastern Corn Belt, Mississippi East with the Pioneer brand on hot pocket in the south in the delta where Dicamba and the return of the Dicamba label has certainly been a challenge, particularly with cotton in that geography. And so we feel like we gave up a little bit of share there. All in all, in soy, I think we're going to end up pretty flat. In corn, I believe we've picked up a ticket share.

Your next question comes from the line of Frank Mitsch with Fermium Research.

Luke, I wanted to come back to the CPC side of things where you mentioned that 2/3 of the products are differentiated. I am looking at -- obviously, pricing was down low single digits in the first half. The expectation is that pricing is going to be down low to mid-single digits in the second half. So I was wondering if you could kind of parse out as you look at your CPC portfolio, what's going on with the differentiated side in terms of pricing? Where -- can you kind of square why we're seeing the price degradation as much as we are given that 2/3 is differentiated?

Yes. Frank, it's Chuck. I'll take that question. So if you think about what happened in the first half, you're right, we're down low single digits, something like 3%. It was within our expectations. I think it's important to call out Europe and the U.S. were essentially flat. And then if you look at our new products, so what we would define as a new products, the portfolio that I mentioned will approach about $2 billion of revenue this year. Their prices are essentially flat and volume up high single digit. So what we're seeing is exactly what we would expect in the overall pipeline, right? We're seeing the growth coming from the newer products. But the rest of the market is under some competitive pressure because you've got a well-supplied market overall. And so when we look at that, just to answer your question directly, we did move pricing for the second half to -- from low single digits down to mid-single digits down. Really, that is driven by what we're seeing in Brazil and perhaps 1 or 2 other pockets around. And it's not uniform that we're seeing it in pre-emergent herbicide would be one of the larger areas. And then I think there's some other items going on when it looks -- when we look at weather, when you think about fungicide application in markets that are very, very dry, for example, in Europe and parts of the United States, we're probably not going to have the same demand that we have for fungicide because of El Niño weather phenomenon that we're seeing. But overall, I'd say we're still expecting that for our business, we will be able to grow our EBITDA led by volume with the mid-single-digit pricing down in the second half. And David, something like low single-digit EBITDA growth, I think, in the...