JPMorgan Chase – Under pressure, Corteva delivers surprise Q4 profit
WILMINGTON – Just a few weeks after the activist investor Jeffrey Smith launched a campaign against company leaders, the agriscience giant Corteva reported surprisingly good earnings for the fourth quarter of 2020 and forecasted a jump in profit this year, potentially blunting the emerging threat.
Smith’s investment firm Starboard Value LP announced publicly in January that it was calling for Corteva’s CEO James “Jim” Collins Jr. to be replaced and for the majority of its board to be voted out by shareholders after arguing that the company should be seeing higher profits nearly two years after becoming an independent company. Corteva spun out on its own in the breakup of the short-lived Dow-DuPont merger.
The $32 billion company has more than 20,000 employees worldwide, although its workforce in Delaware is small and primarily limited to corporate officers with most production sites located in the Midwest.
On Wednesday, Corteva reported $41 million in net income for the fourth quarter, compared to a $21 million loss in the same quarter in 2019. With the winter months traditionally a slower quarter for agricultural products that form the core of Corteva’s portfolio, analysts had predicted that the fourth quarter of 2020 would also result in a loss.
A reversal of fortunes pushed by the pandemic played a part in the unexpected report in the black for Corteva. American agriculture struggled through the early part of 2020 as corn and soybean markets, especially those overseas, were disrupted. As China ramped up imports in the late summer, crop prices surged following yield losses in South America, and American farmers received a boost from federal stimulus funds though, Corteva saw net sales increase 8% year over year in the fourth quarter.
The company also set out an ambitious forecast for 2021 of a 15% to 20% increase in operating earnings, totaling between $2.4 billion and $2.5 billion, ahead of analysts’ predictions. It earned $2.1 billion last year and $2 billion in 2019 but expects to see strong sales of its genetically engineered soybeans as well as insecticides and herbicides. Collins told analysts Thursday that the company has obtained more than 140 registrations globally for new active ingredients and formulations in their crop protection pipeline that will hit the market this year.
Collins, a DuPont veteran who has led the company since it spun off, reported that Corteva expected to finish its $1 billion stock repurchase program by mid-year, about six months ahead of its original schedule. The company is also reportedly looking at opportunities to acquire other products or companies, including in fruit and vegetable seeds, digital technology, and biologicals.
Collins briefly addressed the elephant in the room during the company’s Thursday earning call.
“While I am pleased with our progress, I am not satisfied with our relatively flat earnings over the past three years. We have learned, we’ve adapted, and are now very well-positioned to accelerate our growth and deliver on the tremendous opportunities we have created through our targeted investments and disciplined emphasis on cost and productivity,” he said.
The fact that none of the 10 analysts who track Corteva inquired about Starboard’s criticisms during the call after doing so last quarter could be a sign that other institutional investors are not as concerned about the future of the company as the activist firm. In fact, JPMorgan Chase upgraded its position on Corteva on Friday, projecting a higher future share value as demand rises for its seeds.
Starboard is one of the most well-known and feared activist firms on Wall Street, as it succeeded in replacing all of Darden Restaurants’ board in a high-profile 2014 bid. It has also targeted other companies including AOL, Office Depot, Smithfield Foods, Yahoo, Macy’s and more.
But it owns only about 1.5% of Corteva across a variety of entities, meaning it must rally support from other investors for its slate of eight board candidates to replace those currently serving. Last month, Corteva Board Chair Greg Page issued a statement defending Collins and stating that “the board is unanimous in its view that Jim Collins’ proven track record and industry expertise make him exactly the right leader to assure the company delivers on its potential during this critical period.”
A Thursday request for comment to Starboard regarding whether the unexpected profitable quarter would change its takeover campaign was not returned.