Friedman is chief financial officer for Corteva Agriscience, which provides commercial farmers with chemicals and other products designed to improve plant performance and protect them from pests and other vulnerabilities. It’s a collection of well-established businesses under a new corporate banner and stock symbol. Formerly the agricultural businesses of Dow and DuPont, Corteva was formed through the companies’ 2018 merger and spun out in early June 2019 as an independent company with $14.3 billion in 2018 sales.
Corteva is considered a “pure-play” company, which means it does business in only one line of business — agriculture — and doesn’t have to fight for resources (money, staffing or corporate attention) against sister operations in unrelated industries.
More than 500 employees are housed at the company’s headquarters in Chestnut Run, with a significantly larger presence in Indianapolis and Iowa and 21,000 across the world. Corteva operates in more than 140 countries, with more than 150 production and manufacturing facilities and more than 160 research and development facilities. About half its revenues come from crop protection and half from seeds. Analysts are generally positive about Corteva’s long-term outlook, saying its products and services are critical to generating higher yields in a world that, as Barron’s pointed out in a June 21 article, isn’t “making any more land.”
It’s been a tough 12 months for Corteva, which saw decreased revenue in 2018 to the point where DowDuPont took a $4.6 billion impairment charge due to changes in asset value following a drop in ethanol prices and weak demand for its biomaterial products. Risk factors continue to range from climate change and unpredictable weather to industry consolidation, the volatility of raw materials and production costs, and concerns in some countries about Corteva’s sale of genetically modified (GMO) products to help farmers control weeds and pests.
DBT Editor Peter Osborne sat down with Friedman on June 26, the same day that Corteva announced a $1 billion stock buyback and declared its first dividend of 13 cents per share. Friedman spent about five years leading investor relations with DuPont — part of a nearly 20-year career with the company — before moving into the CFO role. He’s lived in Wilmington several times, but most recently spent three years in Johnston, Iowa, with DuPont’s Pioneer seed business but says he’s “thrilled” to be back in Delaware for the Corteva launch.
Tell me about the challenges of operating a $15 billion company with a start-up mentality.
I see that as an opportunity. We now have the scale and breadth of portfolio to compete in the marketplace and the focused, dedicated resources that you typically [need] in a conglomerate structure. At the same time, we had the opportunity to build an organization from the ground up in a way that best positions us to deliver above-market growth and shareholder value. We have a very different mentality than either legacy company and we are focused on:
• Driving disciplined capital allocation with an intense focus on improving return on investor capital. • Developing innovative solutions to drive operating EBITDA margin expansion. • Attaining a best-in-class cost structure and continuously driving productivity initiatives. • Delivering organic sales of 1%-2% above-market growth, which we are already delivering in crop protection, driven by launches of new products.
Have the expectations from a financial standpoint changed at all since the roadshows?
We provided guidance for the full year right after earnings, and then we announced on May 29 that we were unable to provide an update to that guidance at that time because of the dynamic weather that has occurred throughout the United States and specifically the corn belt. We’ve experienced a once-in-a-lifetime situation with flooding and rain and moisture that has delayed planting beyond what’s been recorded in the last hundred years. So, with the dynamics of farmers potentially changing what they’re going to plant, potentially taking a no-plant option, or just switching to plant a cover crop instead of a normal crop, we did not update our guidance, and we’re withholding that until we see the quarter through.
There seems to be general agreement that it’s been a tough 12 months for Corteva. What’s your counter-narrative to indicate that you’re on solid ground going forward?
These issues impact not just Corteva, but every company that participates in agriculture. What makes us different than other companies in the agriculture space is that we have an unmatched product pipeline. In addition to that, we have synergies (cost reductions) that we get as a result of combining Dow and DuPont. Those two elements, in and of themselves, are going to enable us to come out of this industry-wide condition better off than others that participate in the industry. We’ve got an innovation pipeline of new products that is unlike any other product pipeline that other companies have.
By putting these two companies together at the time that we did, we entered the market with more than 20 new products coming to market. Fourteen of those new products have already launched, and when you launch a new product in agriculture, it usually takes four to seven years to get to maximum potential. Usually it takes between four and seven years, so we have 14 products that are beginning to ramp, and we’ve got six or seven others that are launching this year or in the next couple of years. It’s that trajectory of new products that are going to help us weather this storm, no pun intended, a little bit better than others in the industry.
You have a large presence in the Midwest with a lot of that product development and research taking place in Indianapolis and Iowa. How much innovation is taking place here in Delaware, or is this primarily a corporate function?
There are some key activities that go on in Delaware. We do have a toxicology lab, and we do have some regulatory work that continue to go on. Those activities are very important to the company, and our investment in maintaining them in Delaware are important to us. But you are right that we do have a lot of corporate functions that exist in Delaware.
[Before we spun out from DuPont], we had a finance function with a controllership team, a treasury team, and a tax team. We took those teams and split them in two. You still need to file just as many tax returns, so we had to hire people to staff those functions, and a lot of that hiring happened in Delaware, specifically for Corteva’s finance, legal, and communications function, to support the launch.
What keeps you awake at night?
Throughout this merger process, it was just being able to get the systems to stand up and support the separation. The closer that we got to the spinoff, the validation of the systems and processes was the one thing that I felt could make or break the spin. Well, guess what? We spun. We got through that. So, now, I’m sleeping a little better. The one thing that I could say has kept me awake at night recently, as silly as it sounds, has been the weather, and the impact that that has on this industry.
You have a large presence in the Midwest. Why maintain your corporate functions here vs. Indianapolis and Iowa?
Through our heritage companies, Corteva has a long history and relationship with Delaware, which we greatly value, and we look forward to maintaining a presence in the state with our corporate headquarters on the Wilmington campus. The Delaware headquarters and the two Global Business Centers complement each other, and the structure allows us to take full advantage of existing expertise in each location while also ensuring the cost discipline and efficiency for the company to drive sustainable long-term growth.
Net-net, a year from now, do you think you’ll be employing more people in Delaware or fewer?
We greatly value the extraordinary breadth and depth of talent and expertise in Delaware. As we have said before, we expect to have a major, vibrant presence and equal or higher level of employment in the state over time as we build a global agriculture leader. We believe that being an independent company, better positioned to compete in the marketplace, will enable us to create long-term opportunities for our employee base and our Delaware community.
You’ve had a good initial reaction to your stock repurchase and dividend. Why do that now?
As we worked to determine the financial policies for the new company, we were focused on ensuring we were establishing a disciplined approach to capital allocation and shareholder friendly priorities. This included a projected dividend of 25% to 35% of net income, as well as a commitment to return capital to shareholder through share repurchases. Prior to the spin-off, the company had expressed that the board would consider a share repurchase program shortly after the separation on June 1. On June 26, we announced the authorization of a $1 billion share repurchase program and our first common stock dividend as an independent company – collectively reinforcing the company’s ongoing commitment to return value to shareholders.
Corteva got off to a bit of a rocky start. Given your role, what steps do you take to mitigate investor and media concerns?
As with any newly public company, we need to continue to educate all our stakeholders, including the investment community, about how and why we are a new kind of agriculture company. Many of them already see the distinction and appreciate our potential. They understand that our fundamentals remain strong, and we are well positioned to drive performance once our industry’s short-term macro challenges subside. Internally, our organization is laser-focused on meeting the needs of our customers and executing against our business objectives, so that we are positioned to deliver strong performance over the long term.
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