Cargill debt rating outlook stable

by Erica Shaffer
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CHICAGO – Fitch Ratings affirmed Cargill's Issuer Default Rating (IDR) at 'A' with a Stable rating outlook. The ratings apply to about 13.8 billion in total outstanding debt, the ratings agency reported.

In October, Cargill significant losses in energy trading resulted in a 26 percent drop in earnings. Slumping prices for grains, currency changes and slowing economies in countries where Cargill does business contributed to additional losses in earnings. In response, Cargill sought to streamline some of its operations which Fitch expects will produce positive results in fiscal 2015.

"Actions taken hence including exiting certain trading markets and organizational restructuring should serve to support EBITDA growth in the current fiscal year," Fitch reported. "Accordingly, Fitch sees EBITDA moving up around 5 percent in FY2015 given the backdrop of steady, low commodity pricing favoring raw material costs and high protein pricing benefiting the animal protein businesses as well as carryover of crop commercialization into the second half of the year."

Fitch added that Cargill's position in every major country and nearly all agricultural commodities gives the company clear advantage over its competition.

"Cargill's diverse operations geographically, logistically, and across virtually all key commodities offer substantial protection from volume fluctuations from changing demand dynamics or supply disruption of any specific marketplace or product line," the ratings agency noted.

Fitch pointed out that Cargill remains vulnerable to crop cycles. The largest producing regions for key crops are South America and North America, which have nearly opposite growing seasons.

"Nevertheless, volatile commodity pricing leaves Cargill susceptible to working capital swings that could negatively affect leverage, specifically when commodity prices and working capital increase in tandem," the ratings agency said. "Fitch takes the view of commodity processors' operational performance on an annual basis, as quarterly earnings can be highly erratic due to many external factors, including weather conditions, geopolitical issues, food safety scares and animal and plant disease outbreaks.

Fitch added that developments that could lead to a negative rating action include another year of weak earnings, leveraging acquisitions resulting debt remaining in the high 2x range; and poor operational performance, which would reflect a lack of success in countering pressures on its credit profile.
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