Earnings Call Transcript - CTVA Q4 2025

Operator, Operator

Thank you for being here. My name is Kate, and I will be your conference operator today. I would like to welcome everyone to Corteva Agriscience's fourth quarter 2025 earnings call. I will now turn the call over to Kim Booth, Vice President of Investor Relations. Please proceed.

Kimberly Booth, VP, Investor Relations

Good morning, and welcome to Corteva's Fourth Quarter 2025 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; 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 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 releases 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.

Charles Magro, CEO

Thanks, Kim. Good morning, everyone, and thanks for joining us. I hope your year is off to a great start. Before we get into our results, I'd like to provide a quick update on our separation and what you can expect this year. It is still early in our overall planning, but we remain on track for a second half separation, most likely sometime in the fourth quarter. Now for some details. Over the past several months, a subset of our Board has been very busy with a global CEO search for new Corteva. We are making good progress and expect to make an announcement on that in the first half. At or around the same time, we intend to launch the official name and brand identity of SpinCo, which is very exciting for me at least and will really bring this transition to life. As we progress into the latter part of the first half, we'll be announcing the core executive leadership teams for both companies, we'll be working with the credit agencies on our capital structure submissions, and we will likely have filed the initial and first amendment of our Form 10 with the SEC. The second half is where we'll essentially be getting the separation to the finish line. We expect to go effective on the Form 10, announce our Board appointments, and receive the final approval on the capital structures of the two companies. We'll also be completing the separation of our IT systems. And last but not least, we currently expect to hold our Investor Day events in mid-September. As for net dissynergies, we are still estimating roughly $100 million, $50 million of which is built into this year's guide. We'll keep you informed on our progress on a timely basis over the coming months. So now let's move to our financial performance. Let me start by saying that by all accounts, 2025 was a strong year for Corteva. Our results for the fourth quarter were in line with our expectations, with the exception of outperformance on our controllables and even stronger cash flow generation than we anticipated. We grew the top line low single digits while improving operating EBITDA, low double digits, leading to over 200 basis points of margin expansion, pushing us over the 22% mark for the first time as a public company. This is a testament to the growing demand for our technology, exceptional performance of our dedicated commercial teams, and combined with disciplined execution on operational efficiency in both businesses. Our Seed business performed well again this year with organic growth in every region as well as share gains in both corn and soybeans. Seed delivered about $340 million of net cost improvements as well as $90 million in royalty improvement, reflecting our growing position in North American corn and progress in soybean licensing in Brazil. As noted last quarter, we're expecting to cross double-digit trade penetration for Conkesta this year in Brazil, the largest soybean market on the planet with over 300 basis points of margin expansion this year alone. And our out-licensing business is just catching its stride; I have to say it's fun to imagine what things might look like in another few years with our growth platforms, including gene editing in hybrid wheat really starting to take off. Our Crop Protection business is also performing well, delivering top and bottom line growth as well as margin expansion this year in what I'd still describe as less than ideal market conditions. As we updated you last quarter, this business already has an incredible $9 billion pipeline of differentiated technologies. But in order to remain ahead of the curve, we are in the process of ongoing asset and sourcing optimization. For the full year, our Crop Protection business generated over $300 million of productivity and cost benefits, which improves our resilience as we make our way towards what we still expect to be improving market conditions in 2026. From an industry perspective, the overall ag fundamentals remain mixed. We're still seeing record demand for food and fuel, and major crop inventories are within normal ranges despite large crops in Brazil and North America. Farmers continue to prioritize top-tier technologies, while managing tighter margins. Given the high corn area in the U.S. last year, it's logical to assume we'll see a few million acres shift back to soybeans in 2026, all of which is factored into our guidance. In the Crop Protection market, most notably, we are expecting modest growth in 2026; something we haven't seen in a while. Although we continue to experience competitive pricing dynamics in some major markets, including Latin America and Asia Pacific, underlying farmer demand in terms of applications remains consistent with historical levels. So what does all this mean for 2026? We are reiterating our preliminary operating EBITDA midpoint of $4.1 billion, which is a 7% growth versus the prior year. Included in that estimate is momentum in our Seed Licensing business, growth in Crop Protection volumes driven by new products and biologicals, and productivity benefits in both businesses. It's still quite early in the year with winter still firmly in place, but we feel good about how 2026 is shaping up. Now before I turn the call over to David, I'd like to address some new developments since we last spoke in November. We recently reached a comprehensive resolution with Bayer related to our seed freedom to operate. Not only does this agreement allow SpinCo to remain focused on its forward trajectory and value creation opportunities, including continued investment in innovation, it also provides business certainty from ongoing litigation. We are pleased to have reached an agreement, which solidifies the use of existing technology rights in our own corn, canola, and cotton product portfolios, including our own germplasm. As a result of this resolution and the progress we've been making across the broader out-licensing spectrum, we now expect to achieve royalty neutrality in 2026, which is two years ahead of our most recent expectations. In North America, this agreement will accelerate the introduction of existing Corteva proprietary triple-stack corn technologies for licensing. We now expect to be licensing as early as 2027, an acceleration of 5 years. This resolution also facilitates the introduction of our third-gen above-ground trait platform in North American corn, which will be available for branded sales and licensing by the end of the decade. This is an acceleration of two years. Finally, this resolution includes a new licensing arrangement, which allows us to expand our addressable market by entering the cotton licensing market in the U.S., a space in which we do not currently participate. Leveraging our strong 2025 free cash flow, we committed to a payment of $610 million, which was largely completed last month. However, over the course of the next ten years, we believe this agreement will generate about $1 billion of aggregate earnings upside for Corteva across our corn, cotton, and canola portfolios through both out-licensing and branded sales. In summary, we consider this resolution to be a win for our long-term strategic objectives. But more importantly, this is a win for farmers and for agriculture at large as this resolution strengthens competition and offers farmers more choices when making purchasing decisions. Getting back to 2026, let me wrap up by saying what I say to our employees: We are one team until we're not. Based on our latest timeline, we'll spend more time together than apart in 2026, and we're going to stay focused on controlling the controllables. Our intended separation is about sharpening focus, accelerating innovation, and unlocking value that has been earned through performance, and we are committed to delivering results like this past year throughout this transition period. With that, I'll turn the call over to David.

David Johnson, CFO

Thanks, Chuck, and welcome, everyone, to the call. Let's start on Slide 7, which provides the financial results for the fourth quarter, second half, and full year. While it's more meaningful to look at our business in halves, I'll briefly touch on the quarter. Sales and operating EBITDA for the quarter were down versus prior year, largely due to lower volume in Seed and Crop Protection, coupled with higher compensation expense. While it's worth noting that the fourth quarter of 2024 was a record quarter for Corteva, this year was the second highest fourth quarter on record for us as a public company. Organic sales for the quarter were down 4% compared to prior year. Crop Protection saw volume and price declines of 2% and 1%, respectively. Price declines were largely due to competitive pricing dynamics in Latin America and in line with expectations. Volume declines in Crop Protection were primarily driven by a seasonal shift and timing for North America to the first half of 2026, along with the timing of fungicide demand in Latin America. Seed had pricing gains of 3% versus prior year, evidencing our price-for-value strategy, while volumes declined 8%, largely due to the timing shift of safrinha sales into the third quarter of 2025 and the shift of North America deliveries into the first half of 2026 as a result of freight optimization and weather across the Midwest. Looking back at the second half, sales were up 4%, and operating EBITDA was up 16% driven by better price and mix in Seed, continued execution on controlling the controllables, and volume gains in both segments. Organic sales were up 2% compared to prior year. Crop Protection saw volume growth of 1%, offset by price declines of 2%, largely driven by competitive pricing in Latin America. Seed had price, mix, and volume gains of 3% and 2%, respectively, versus prior year. Focusing on the full year, organic sales were up 4% over last year with growth in both Seed and Crop Protection. A continuation of our price-for-value strategy, along with increased corn acres in North America and Latin America, drove Seed price/mix and volume gains of 3% and 2%. Crop Protection price was down 2% for the year as expected, driven by competitive market dynamics, mostly in Brazil. Crop Protection volume was up 5%, but gains in nearly every region. Notably, new products have strong demand and biologicals delivered double-digit volume gains compared to prior year. Operating EBITDA was up 14% over prior year. Operating EBITDA margins of over 22% were up about 215 basis points, driven by organic sales growth coupled with significant benefits from lower input costs and productivity. Moving on to Slide 8 for a summary of the year. Operating EBITDA was up more than $470 million to $3.85 billion. Price and mix volume gains and cost benefits more than offset currency headwinds. Seed continues to make progress on its path to royalty neutrality with about $90 million in reduced net royalty expense. This improvement was driven by increased out-licensing income in North American corn and lower royalty expense in soybeans. We finished the year with a net royalty expense position of around $120 million. Seed and Crop Protection combined delivered over $650 million in net cost improvement, including lower seed commodity costs, raw material deflation, and continued productivity actions. SG&A for the year was up compared to the prior year, driven by higher commissions and compensation expenses. The increased investment in R&D aligns with our target, just over 8% of sales for the full year. As expected, currency was a $217 million headwind on EBITDA, driven by the Brazilian real, Canadian dollar, and Turkish lira. Both Seed and Crop Protection finished the year with impressive EBITDA growth and meaningful margin expansion over the prior year. Together, this translated to over a 22% operating EBITDA margin. In addition, free cash flow improved by about $1.2 billion from the prior year to $2.9 billion. This was driven by our increased EBITDA, lower cash taxes, and working capital discipline. With that, let's go to Slide 9 in transition to the updated outlook for 2026 and the key metrics we are tracking. Our updated 2026 guidance reflects the continued momentum from our 2025 performance and continued confidence in delivering on productivity and cost benefits. 2026 operating EBITDA is expected to be in the range of $4 billion and $4.2 billion, or approximately 7% improvement over the prior year at the midpoint. This would post at the low end of the 2027 EBITDA framework we outlined in our last Investor Day. Meaningful margin expansion is expected to be driven by organic sales growth, together with benefits from improved net royalty expense and productivity actions. Operating EPS is expected to be in the range of $3.45 to $3.70 per share, an increase of 7% at the midpoint, which reflects higher earnings growth and lower average share count, partially offset by higher net interest expense. Free cash flow in 2026 will be impacted by separation items and the Bayer agreement. Absent these, we would be in line with our long-term target communicated at our 2024 Investor Day. We remain committed to returning cash to shareholders as we progress through the separation. We announced the first quarter dividend last week, and we are targeting about $500 million of share repurchases in the first half of 2026. Turning to Slide 10, in the 2026 operating EBITDA bridge, growing from approximately $3.8 billion in 2025 to $4.1 billion at the midpoint. Total company pricing is expected to be slightly up with pricing gains in Seed partially offset by declines in Crop Protection. While we expect the Crop Protection market to grow, we expect prices to be down low single digits for the year. We are expecting volumes to be relatively flat in Seed as North America share gains are expected to be offset by the corn-to-soy planted area shift, and have a full year under our Brazil soybean shift to licensing. Crop Protection volume is expected to be up mid-single digits, driven by demand for new products and biologicals, which are expected to outperform the rest of the portfolio. We expect approximately $120 million improvement in net royalty expense driven by the continued ramp-up of Conkesta E3 soybeans and PowerCore Enlist corn licensing. We expect to deliver around $200 million of productivity savings in 2026, partially offset by approximately $80 million in tariffs. SG&A and R&D as a percentage of sales are expected to be relatively flat with 2025 levels. Keep in mind, this includes approximately $50 million of net dissynergies. We are expecting a currency tailwind versus 2025. This is largely driven by the Brazilian real, euro, and Canadian dollar. The appreciating foreign currencies are expected to translate to a low single-digit tailwind on net sales and approximately $75 million tailwind on operating EBITDA. Together, this translates to approximately 7% operating EBITDA growth at the midpoint and about 50 basis points of margin expansion. Regarding the timing of sales and earnings in 2026, we are expecting about 60% of sales and roughly 85% of EBITDA to be delivered in the first half of the year. With that, let's go to Slide 11 and summarize the key takeaways for the year. 2025 was a record year for Corteva with strong organic growth across both Crop Protection and Seed. Performance was driven by volume, favorable mix, and continued adoption of our differentiated technologies. In Crop Protection, demand for our novel modes of action and biologicals remain strong, while Seed benefited from our price-for-value strategy and solid execution across key markets. Importantly, this growth reflects underlying demand and execution. We also delivered record free cash flow in 2025 driven primarily by higher earnings and working capital improvements. Tighter operational discipline and greater year-end cash collections improved cash conversion. As a result, we returned approximately $1.5 billion to shareholders in fiscal 2025 through a combination of dividends and share repurchases. Our capital allocation priorities remain unchanged: investing in the business, maintaining a strong balance sheet for Corteva and the future independent companies, and returning excess cash to shareholders in a disciplined manner. Looking ahead, our 2026 guidance reflects growth in sales, operating EBITDA and margins. We expect continued demand from our differentiated technology, supported by our innovation pipeline and ongoing productivity and cost actions. With that, let me turn it back to Kim.

Kimberly Booth, VP, Investor Relations

Thanks, David. 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, Operator

Your first question comes from Chris Parkinson with Wolfe Research.

Christopher Parkinson, Analyst

Chuck, could you just help us break down Slide 27 a little bit more with the Bayer litigation? It seems like there are two or three key buckets of what this accelerates, as it leads into the chart that you published across triples, insect resistance and cotton. I'd love to hear if it actually affects the acceleration of E3 or Conkesta in terms of the next-gen stuff. So I'd love to hear the breakdown of that. And then also in that chart, do you assume any gene editing assumptions? Or is that purely a corollary of what was announced yesterday evening?

Charles Magro, CEO

So let me start, and then I'm going to have Judd unpack some of the finer details. So first, we're very pleased with the agreement. I personally view this as being extremely strategic in terms of what our overall licensing ambitions can be. And so this is a comprehensive agreement. We've been working with Bayer for quite some time. These things are very scientifically based. There's a lot of legal precedent here for us to work through. But I'd say what the agreement does is it provides two broad things. The first is we now have freedom to operate and an increased access to the licensing market, which is extremely important to us. You know our ambition when it comes to our licensing business, and it's really centered around the expectation to accelerate our corn licensing business to as early as 2027, which is years ahead of our original plans. We're also going to enter the cotton licensing market, another big opportunity for Corteva. But I'd say more importantly, this is great for farmers and for agriculture in general because it's going to give our farmer customers simply just more choice. So now we're going to have a strong licensing portfolio for soybeans, for corn, and for cotton. And if you look at it financially, the big picture, it really does set us on a path, as we said today, to deliver about $1 billion in licensing income in the next decade. The second thing that this does, this agreement does is it resolves all the outstanding litigation with Bayer. And I think that's very helpful from a clarity and risk management perspective. So that's what this agreement is intended to do. Like I said, I'm very pleased with the agreement. Judd, do you want to just talk about some of the finer details?

Judd O’Connor, Executive Vice President, Seed Business Unit

Yes. Thanks, Chuck, and thanks, Chris, for the question. And I think Chuck captured it all extremely well. And we're still needing to bring product through the R&D pipeline, but maybe let me touch on it. One, we've got freedom to operate in canola in specific markets around the world where that's very important to us. Number two, we're going to be able to bring, as you see here, triple-stack options into the market five years earlier than what our previous plan was with complete freedom to operate and the ability to line up and provide additional volumes with our licensees that we've got tremendous demand building with licensees today. Number three, we get to bring our next proprietary third-gen above-ground product two years forward into the marketplace. We also provided Bayer a license for Enlist cotton. They provided us an opportunity to license their HT4, and this provides us an opportunity to license in cotton, which we had no freedom to do previously. So comprehensively, it creates a tremendous amount of opportunity for us to continue to accelerate our ambitions in this space. We've got our germplasm funnel that has continued to widen, so that we've got the or the germplasm that we need to be able to provide these traits. And it just puts us in a really great spot. It's a great investment for all of our constituents, whether that be farmers or whether it be investors, whether that be our licensees if we work closely with them going forward. And we're excited to be able to put the certainty and freedom to operate in the hands of our R&D team so they can start streamlining the lines that they're bringing forward as well. So thanks.

Vincent Andrews, Analyst

Some more clarification on the Bayer agreement. Firstly, it sounds like there is some existing licensing expense that was going through the income statement that with the payment of the $610 million, you will no longer expend. So number one, is that true? And can you tell us how much it is? And whether you had contemplated that back in October when you gave the original guidance? And then secondarily, you referenced HT4 having a license on that from Bayer. Can you clarify whether in future years, if you do elect to use that, whether you'll have to pay any per-acre royalties today or in the future for that? Or is that all encompassed in the $610 million and you kind of have an all-you-can-eat on that?

David Johnson, CFO

Okay, Vincent, this is David. I'll handle the first part of that question. Perhaps Judd can follow up with the end. So in our current guide, we have $120 million of net royalty benefit in '26. A portion of that is the fact that there were some Bayer royalties that we will not be paying now in '26 and '27, so that's what accelerated us to a net neutral position in '26, which is two years ahead. The rest of the benefit of the entire overall agreement is really later past 2027 when it adds over $100 million a year. And that gets more into the freedom to operate and more on the offensive on the licensing income piece.

Judd O’Connor, Executive Vice President, Seed Business Unit

So maybe I'd jump in here. Joel, thanks for just a little bit of time to answer Vincent's the second piece of Vincent's questions on access to HT4. Does that come royalty-free? No, it doesn't come royalty-free. I mean, we would have a royalty that's associated with that as they would with the license that we would provide reciprocally with them. So, but it puts us in a really good position with certainty as terms of path forward and making sure that we can continue to bring our products in the marketplace. So, thanks.

Joel Jackson, Analyst

I'll ask my question now. So I just want to follow up on that a bit, too. I went back to your Investor Day deck from late 2024. And if I compare how you're showing you're going from a net outflow payer of royalties to becoming positive, and I look at that chart versus the chart you presented last night in your deck, it looks the same through 2030, and now you show a 2035 where it's $1 billion. I'm just trying to reconcile that with statements that you're pulling forward things to this decade, from after next decade, you're pointing two years forward, five years forward. But it looks the same through 2030 and more incremental 2031, 2032, 2033, 2034, 2035. Can you reconcile that, please?

Charles Magro, CEO

Joel, look, I'd have to look at the details that you're going back to the Investor Day, but it should not be the same. The acceleration that this agreement gives us is pretty powerful. When we were thinking about our original royalty journey, we were really talking about soybeans and then corn starting in late next decade. And now we're talking about corn starting now, basically in 2027, and then the introduction of cotton now. So when you put all that together, I think that what you're going to see is that we've really put our licensing business in a much higher gear than what we could have done in absence of clarity around this comprehensive agreement. So we'll have to go back and we'll look at the numbers. But the acceleration from a freedom to operate is real, and it's pulling our corn in many cases, many years ahead, and it's also opening up the door on cotton. I think the other thing is this does not contemplate wheat. So if you start thinking about that, and we've said that our hybrid wheat opportunity combined with our branded business and our licensing opportunity, it would be $1 billion of revenue. So when you start thinking about this strategically as Corteva and then soon to be SpinCo, this provides a huge amount of value creation for our shareholders. The licensing opportunities continue to grow. And as Judd mentioned, even today, we have more demand than we have supply. So this was a matter of clearing up the access to the freedom to operate. And now that we have that, we can set our R&D and our commercial teams to meet the growing demand that we have for soybeans, for cotton, for corn, and soon-to-be wheat.

Kevin McCarthy, Analyst

Maybe a two-part question on the subject of gene editing. As we follow the regulatory developments in Europe, it seems as though there is a developing regulatory framework whereby Europe could open its market to gene-edited seeds. So the first part would be, do you expect that to happen in 2026? And what might it mean for Corteva over the medium to long term? Then secondly, I think one of your gene-edited products is multi-disease resistant corn. I was wondering if you could just provide an update on that product for the U.S. market and when we might expect commercialization of MDR?

Charles Magro, CEO

Sure. If you take a step back and consider the global regulatory landscape, we're observing significant advancement in support for gene editing worldwide. Most major agricultural nations now have strong policies in place. Regarding the EU, there was an agreement reached in December, though it still requires formal adoption by parliament and the council. We anticipate that will happen soon, likely in the first half of this year. We're very optimistic about what we've seen so far; it is science-based, practical, and will enable us to deliver improved crop technologies to European farmers, ultimately benefiting the EU's food security and self-sufficiency. The proposed regulatory framework includes some simplified processes that should facilitate quicker market introduction for our products. However, we still need approval from China, which remains one of the few significant import markets we are waiting on, and we are hopeful for a timely resolution. Gene editing is currently one of the most crucial technologies for assisting farmers, especially considering their limited profit margins; this technology could greatly enhance their profitability. Regarding our products, we have a gene-edited corn hybrid that is resistant to fungal diseases, known as a disease super locus. I've seen our test plots, and they look outstanding. We expect to bring this product to market within a year or two following our regulatory approvals, starting with the U.S. market, and then we plan to expand this technology globally.

David Begleiter, Analyst

Chuck, can you discuss your U.S. order book for the upcoming year? And how the pressure on farmers is manifesting itself into this year's buying activities?

Charles Magro, CEO

Sure. Well, why don't we start with Seed, and then Robert can talk about Crop Protection. Go ahead, Judd.

Judd O’Connor, Executive Vice President, Seed Business Unit

Yes. Thanks for the question. Our order books are very strong at this point in time. Our prepay that we've collected is on par with the prior year. And our cash credit mix is very, very similar, plus or minus 1 point or 2. So we feel really good about the position we're in. I guess, the translation may be what's your guess on corn acres. I'd say it's February. There's still snow on the ground, and that corn-versus-soy mix, it's going to shift a little bit. There'd be a little bit of weight towards some more soy acres in space of corn. It's all very well manageable and within the guide that we've provided. But we feel really good about the start to the year, both with our direct Pioneer as well as our Brevant retail brands.

Robert King, Executive Vice President, Crop Protection

David, it's Robert for Crop Protection. Very similar story; very strong order books across the Northern Hemisphere. Europe is in full swing, and North America is moving. As we look into January, we're having a strong movement now. Keep in mind, both of these markets this last year grew a few temps, and that momentum continues as we're moving forward here. So thank you.

Joshua Spector, Analyst

I wanted to ask on free cash flow. Obviously, really strong performance last year. I mean how are you thinking about the conversion into 2026? Is there something one-off last year that gives back? Or is this something that you guys build on top of?

David Johnson, CFO

Thank you for the question, Josh. We ended the year on a strong note regarding free cash flow, partly due to a favorable cash credit mix as mentioned by Judd. This is not something we rely on every year, so it might provide some support for 2025 while acting as a headwind for 2026. The main reason for our positive performance is our effective working capital management. We concluded the year with our net working capital as a percentage of sales approximately 300 to 400 basis points lower than usual. The teams did an excellent job, particularly in Seed, where we experienced strong sales, resulting in lower inventories than typical. Leading into 2026, assuming no unusual one-time items—which I will detail shortly—we expect to be within the range discussed during our Investor Day, projecting free cash flow at around 45% to 50%. While this is a few points lower than 2025, much of this will be due to working capital normalizing, which we estimate could reduce our percentage of sales by another 200 to 300 basis points. However, this year, we will also have some unusual items affecting our numbers. The Bayer agreement will offset the free cash flow, and later in the year, we will need to consider separation-related costs. We aim to maintain flexibility as we prepare for two robust investment-grade balance sheets for the separated companies, ensuring both are positioned for future success.

Jeffrey Zekauskas, Analyst

A two-part question. First, your overall revenues in the fourth quarter were roughly flat year-over-year, down a tiny bit, but your SG&A and R&D really jumped. SG&A went from $735 million to $860 million, up about $125 million. R&D was up $50 million. What happened? Why are those numbers so unusually high? And then secondly, can you give us an idea of where you stand with Conkesta soybeans in Brazil? Where is your share? Or what are your revenues? What share do you expect for next year? What kind of revenues do you expect?

Charles Magro, CEO

Okay. Yes. So I'll handle the first part of the question, and I'm assuming Judd will handle the second part of your question. So on SG&A, R&D, as you can see throughout the year, we have increased our R&D. As a percentage of sales, in total, we're up about 8%. And certainly, that's not really much timing on sales or fourth quarter. So you've seen that build throughout the year. On SG&A, as we mentioned in the opening comments, we do have some additional compensation expense and variable compensation expenses that hit in Q4, also hit in other quarters, but it was probably a little bit more impactful in Q4, especially against the small revenue number. And Judd?

Judd O’Connor, Executive Vice President, Seed Business Unit

Yes. And as far as E3 Conkesta, in Latin America, and particularly in Brazil, we're going to finish the year after just getting started in this space and going through our multipliers and licensing model, somewhere in mid-single digits in 2025. We expect to double or more than double that going into 2026. We will be completely out of our vertically branded business and be 100% focused on licensing through multipliers, and we believe we're going to be in the mid-teens plus for 2026. So a lot of momentum. We've advanced a number of new genetic platforms and feel really good about how that transition is going.

Aleksey Yefremov, Analyst

Could you just call on your Crop Protection business, what share of your business will be off-patent versus patent and new products in '26, given that there is quite a bit of difference between growth in these two categories?

Robert King, Executive Vice President, Crop Protection

Aleksey, this is Robert. We will remain about flat to what we've been in the past. Keep in mind, we're about two-thirds differentiated on our overall portfolio now, getting good growth out of our new products and biologicals. But we don't have any major shifts coming off patent, like in the industry; there are some big molecules coming off, but we don't play in those markets. So we should be stable, much like you've seen this past year from a portfolio standpoint. I would keep in mind that there's a few things coming to play, though, that are going to help us out a little bit more. And we're waiting on registration, but we hope to have Visa launch the latter part of this year, which will augment that differentiated portfolio. And remember, this is a fungicide that attacks Asian soybean rust, and we're expecting big things out of that molecule as we move forward. Thank you for the question.

Duffy Fischer, Analyst

With '25 in the rearview mirror, can you just go by your major crops on Seed in major geographies where you saw either market share gains or if there were any market share losses? And then just I wanted to clarify, on the deal with Bayer, they don't get access to your Enlist in soybeans, is that correct?

Judd O’Connor, Executive Vice President, Seed Business Unit

Yes. Thank you, Duffy. So maybe just walk around the world a bit. From a North America perspective, we were able to continue to pick up share in corn and in soy. As we go into Latin America, we picked up mid-single-digit share in summer. We picked up mid-single-digit share plus in safrinha; tremendous amount of momentum and share in that Brazilian market as well. And as you look at other markets around the world, we had some nice recovery in India in the rainy corn season market, and we saw some nice share gains in sunflower and corn in EMEA. So we had positive impacts in almost all regions around the world. Now in terms of the Bayer agreement, E3 on soy was not part of those discussions at this point in time. Obviously, we have a number of places that we worked with Bayer across, but that was another part of it. So thanks for that question.

Kristen Owen, Analyst

I wanted to ask about the 2026 EBITDA guide. You're in line with the $4.1 billion that you gave us earlier last year. But it seems like maybe some moving pieces around with the pull forward of net royalties, maybe the push in volume from 4Q into 1Q. So can you help us sort of frame what the upside case and downside case look like in this bridge? And I do actually have a follow-up on Brazil Conkesta, if I could ask quickly. Just with the economics, how we should see that show up, that doubling in market share, how we see that show up in the EBITDA bridge as well.

Charles Magro, CEO

Okay, Kristen. So we'll have Judd answer that. David will take the guide question, but let me just give you my perspective, and I guess my philosophy. We're sitting here in February. It's appropriate, I think, given that outside and in the corn belt, we have a lot of snow. The ground is still frozen, and we are literally weeks, if not a bit more than that, away from putting a crop in the ground. So we are usually, at this point, looking at the market conditions and needing to see what happens from a crop perspective, but it is generally our philosophy not to do too much with a guide in February. Now we can talk about the ups and downs. So go ahead, David.

David Johnson, CFO

Yes, it might be useful to reiterate what we have in the guidance. The $4.1 billion figure represents a 7% increase from the midpoint. Notably, this amount also marks the beginning of our 2027 range, indicating that we are a year early. All signs appear positive. Another key point is that we expect growth in both Seed and Crop Protection, similar to what we experienced in 2025. Two-thirds of the EBITDA increase year-over-year will come from the Seed business, with about one-third from Crop Protection, consistent with our past trends. Currently, the price impact aligns closely with 2025, with low single-digit seed increases and increased royalty income, which will be partially offset by low single-digit declines in Crop Protection. This situation does not differ significantly from 2025. Although we mentioned net royalties earlier, they are projected to be positive, estimated at around $120 million compared to $90 million in 2025. For 2026, we anticipate flat volume for Seed primarily due to changes in corn and soy acreage in the U.S. Crop Protection is also expected to show similar benefits in 2026 as we continue to expand new products and biologicals. A major difference between our projections for '26 and '25 will be cost improvements, with $200 million built in for 2026, whereas in '25, we saw significant benefits primarily influenced by commodity impacts that we do not expect to repeat in 2026. We project that cost conditions will remain flat. Additionally, we face an $80 million headwind from tariffs, which are significant factors. In comparing the two periods, prices are fairly balanced, and royalties present a positive outlook. Volume is somewhat uncertain, and it's early to make definitive assessments on that. We'll monitor efforts to offset tariffs and include further cost improvements. One more point to note is that we have accounted for $50 million in dissynergies for our 2026 estimates, which were not present in 2025.

Charles Magro, CEO

Conkesta?

Judd O’Connor, Executive Vice President, Seed Business Unit

Yes. And maybe just a follow-up on the Conkesta question. So for 2026, overall earnings for Seed in Brazil are up significantly. The Conkesta transition and the additional share is certainly a big part of it. That also is part of that $120 million that's in the plan that David just mentioned as well.

Chengxi Jiang, Analyst

This is Carol Jiang on for Laurence Alexander. Actually, my question has been asked already. But just a follow-up on the tariff estimation. You estimate an $80 million impact from incremental global tariff in 2026. Does this figure also account for the potential secondary effects such as increased dumping of generic products in non-tariff markets like Brazil?

Judd O’Connor, Executive Vice President, Seed Business Unit

Yes. I believe the question is whether this includes secondary impacts like impacts from Brazil. Is that the question?

Robert King, Executive Vice President, Crop Protection

Yes. The estimate we have on the Crop Protection primarily covers all tariffs and encompasses everything for the entire business. It includes all companies and all countries, including Brazil.

Charles Magro, CEO

If it's helpful, almost all of it is Crop Protection, and almost all of it is China, actives coming into the United States.

David Johnson, CFO

That's the biggest part.

Arun Viswanathan, Analyst

Most of my questions have already been addressed, but I would like to ask about the $200 million in productivity benefits. Your team has clearly done well over the past few years in improving margins and enhancing productivity. Could you possibly provide a breakdown of that between Seed and Crop Protection, if applicable? Additionally, how should we view the ongoing productivity opportunities? Where do you currently stand in that journey? I know this has been discussed extensively before, but could you share some updated insights?

Judd O’Connor, Executive Vice President, Seed Business Unit

Yes, sure. No problem. So yes, the $200 million is split somewhat equally between the two different businesses. And the way I look at that is it is a running rate. There's opportunities every year in Seed, in production, and how we go and grow the seed with our farmers, how efficient we can be there. In Crop Protection, typically, your normal productivity year-over-year improvement. I would say beyond that, though, there are further elements in crop when they look at footprint and different optimization opportunities in the future.

Charles Magro, CEO

I want to highlight that when we presented our financial framework for 2027, we projected around $700 million in net productivity and cost improvement, and we nearly achieved that last year. With David's remarks today about an additional couple of hundred million on a gross basis, if we account for about $100 million net, which is only for 2026, and then extend the framework into 2027, we are likely to significantly surpass the initial $700 million target in our financial framework. We may have slightly overachieved in 2025, but I believe that 2026 and the pipeline for cost and productivity remain very strong across the company, with contributions coming roughly equally from Seed and Crop Protection.

Patrick Cunningham, Analyst

As we look at the Latin American Crop Protection market for 2026, does the current channel inventory position support a return to more normalized purchasing patterns? Or should we anticipate continued volatility in some of the order timing? And have you seen any further impact or improvement of credit and liquidity concerns for farmers in the region?

Robert King, Executive Vice President, Crop Protection

Patrick, this is Robert. I'll take that one. As far as LatAm goes, we're expecting the year as we move into this year, crops are in the ground now. And looking at 2026, we're going to continue to see pricing pressures in LatAm. We expect volume growth to take place there, much like this year, more lands going in and the pest and resistance pressures continue to build. So we expect growth to continue to happen there. Pricing pressures, like I said, will continue, and that just has to do with there is more than enough supply in the market nowadays. And so that will eventually tighten back up and from a channel standpoint, the channels are about normal right now for this time of year; we need to let the year play out for the rest of the season to see where we land there. From a farmer standpoint, to touch on that just a little bit, farmers in Latin America are stressed; very high interest rates, commodity prices a little bit suppressed, but they're still making money by and large. Cash flow is tight for them. And we've been working through a lot of those things with them. Keep in mind, you will have seen that our barter program this year between crop and seed will be near $1 billion in total for revenue there. And so we're doing things to help mitigate risk and to manage that with farmers. We think we're in a pretty good position as we head into '26 to have another good year there in a market that is challenged.

Matthew DeYoe, Analyst

You discussed the initial stages of the announced spin-off, indicating that Seed aims to broaden its focus beyond corn and soy. The upcoming launch of hybrid wheat next year is promising, and you're also mentioning developments in cotton following the Bayer agreement. How do you prioritize these new markets? Are there additional areas you're exploring, such as fruits and vegetables? Do you believe acquisitions are necessary to achieve your goals for the Seed business portfolio over the next 5 to 10 years?

Charles Magro, CEO

Yes, Matt, let me give you a teaser, but I want you to join us in September when we do our Investor Day for both companies just prior to our separation. So I won't tell you the whole story. But look, I think from a Seed perspective, we have a lot of opportunity in our core businesses. And Judd just articulated a little bit here on this call. So we think there's room to grow in corn and soybeans. And with the agreement now that we have in place, the seed licensing business, I think, is going to be just a great growth platform for us going forward. I think then we've talked about cotton. So that's another new market for us. And we've already covered gene editing. I think gene editing, the capability, if we can provide differentiated technology from our innovation in gene editing, we will consider what I would consider to be tangential or adjacent crops, but we won't go there unless we believe we can provide something that is unique and special to the market. And right now, as we said, our short-term focus is Seed licensing in cotton and corn and in soybeans and then entering the hybrid wheat market. We're going to do that conventionally, but also with gene-edited hybrid wheat. And that market is the largest row crop market on the planet; 20% of our calories are still consumed there as humanity. And we've got lots of new technology coming in with our proprietary traits as well. So I think we've got a lot to keep our plates full right now. But with the advent of gene editing and as we get more comfortable with the acceptance of the science around the world, which certainly looks to me like that's what's happening, it should open up other markets for us in the future.

Michael Sison, Analyst

Just a quick follow-up on Crop Protection. It looks like you expect the markets to rebound in '26 versus '25. Anything in particular that gives you confidence there? The double-digit volume growth you have for the year seems to be more biologics and strong demand for new products. And then just a quick follow-up on Brazil pricing pressure in Crop Protection. Is it stabilized, getting worse, or getting better? Just curious on that.

Robert King, Executive Vice President, Crop Protection

Michael, this is Robert again. Let's talk about CP markets for 2026. We expect to see modest growth in the overall CP market around the world this year. It will be volume will continue to grow. There's going to be some pricing pressures against that. But by and large, we're seeing positive signs around the world. And earlier question this morning about how things are looking in Northern Hemisphere on the order books, and like I said, they're strong. So the year started really well from that standpoint. Specific to Brazil, when you think about pricing there and when do they stabilize, et cetera, a couple of things are happening in Brazil. When you look at the overall market, there is ample supply of product coming in. And so that is a lot of more generics, in formulated generics. But nevertheless, a lot of supply. But when you think about the differentiated products, we're still seeing a need for that technology, and farmers are demanding that. And keep in mind, for us, again, 2/3 differentiated around the world. For us, those products command about a 10% to 15% higher margin than the rest of the portfolio. So yes, we think there continues to be some pricing pressures there from some of the big molecules. But we have a good portfolio to combat that, and we think we're in a pretty good place from a business standpoint as we head into 2026.

Edlain Rodriguez, Analyst

A quick one. This is a follow-up to the Crop Protection question. Like the competitive pricing pressure we're seeing in Brazil and in some parts of Asia, can we ever see that happening in North America or Europe again, like how well protected are all these markets from the generics?

Charles Magro, CEO

Yes, Edlain, let me address that. The businesses and markets are fundamentally different and are structured uniquely, including how farmers engage with their channel partners and the infrastructure in various countries or regions. No market is shielded from generics, which have always been a part of the global Crop Protection market. What’s happening in Brazil is noteworthy; the country is set to grow with more area being put into production. The channel appears to be acting more responsibly, still functioning relatively normally, and there is currently a good amount of product going to ground. The market is well-supplied due to import regulations. Additionally, a lot of this product is sourced from China, where it seems they are starting to control some exports by eliminating their export VAT. This will likely increase export costs from China to Brazil, which we believe will benefit the market overall. We're also beginning to see mergers and acquisitions among some generics in China, which should be positive. Looking ahead to 2026, we expect modest growth, which is an improvement over the past three years. The market in 2025 was better than 2024, albeit flat, primarily due to volume. As Robert mentioned, we anticipate some pricing headwinds in Brazil, but the outlook for the rest of the markets looks quite strong.

Kimberly Booth, VP, Investor Relations

I will turn the call back over to Kim Booth, VP, Investor Relations, for closing remarks. Great. Well, thanks for joining and for your interest in Corteva. We hope you have a safe and wonderful day.

Operator, Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.