DBRS Confirms Cargill Inc. at A (high), Stable Trend

DBRS has today confirmed Cargill, Incorporated (Cargill or the Company) at A (high) and R-1 (middle). The trends remain Stable. Cargill’s rating continues to be supported by strong agribusiness earnings growth, the Company’s well-diversified and integrated operations, its formidable market position and scale and the ongoing growth in global demand for agricultural commodities.

Earnings growth continues to be supported by strong performance in the Company’s Origination and Processing (O&P) and Industrial business segments. These segments have benefitted from unusually strong demand and pricing for agricultural commodities (especially fertilizer), as well as market volatility that has enhanced trading opportunites.

Although O&P and Industrial continue to drive year-to-date earnings growth in F2009, DBRS notes: 1) greater weakness in Risk Management and Financial Services, which has been increasingly affected by weak capital markets and; 2) lower earnings year-over-year (yoy) in both the Food Ingredients and Agriculture Services segments, which are beginning to feel recessionary effects. DBRS expects earnings in F2009 to be moderately lower yoy due to these factors. Notwithstanding our expectation of lower F2009 profits, strong year-to-date results in O&P and Industrial will continue to keep full-year earnings well above historic levels and maintain Cargill’s strong earnings profile even as demand slows and commodity markets remain cool.

As commodity prices eased in F2008, Cargill’s working capital requirements reduced substantially, contributing to a notable increase in free cash flow. Strong free cash flow allowed Cargill to reduce short-term borrowings and lower its total recourse debt balance to $14.9 billion, compared with $17.4 billion at Q2 F2007. Stronger operating cash flow, reduced debt levels and larger cash balances have resulted in a noticeable improvement in credit metrics to a level more commensurate with the Company’s rating category.

While earnings and cash flow will be lower in F2009, DBRS believes that reduced capex and lower working capital requirements (through lower commodity prices and sales volumes) will help maintain relatively stable levels of free cash flow. DBRS expects that Cargill will therefore be able to continue controlling debt levels, keeping its risk profile relatively stable in the near term.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The 10 1/8% Senior Notes are guaranteed by U.S. parent Cargill, Incorporated.
The applicable methodology is Rating Consumer Products, which can be found on our website under Methodologies.
This is a Corporate rating.