DBRS Confirms Cargill, Incorporated at “A” and R-1 (low), Stable

DBRS Limited (DBRS) has today confirmed Cargill, Incorporated’s (Cargill or the Company) Issuer Rating and Senior Unsecured Debt rating at “A” and its Commercial Paper rating at R-1 (low), all with Stable trends. DBRS has also confirmed the 10 1/8% Senior Notes and Commercial Paper of Cargill Limited (guaranteed by Cargill) at “A” and R-1 (low), respectively, both with Stable trends. The confirmation acknowledges sustained pressure on earnings from cyclical socio-economic headwinds in developing markets, balanced by the Company's relatively stable financial profile. Cargill’s ratings continue to be supported by its leading market positions and strong product and geographic diversification. The ratings also incorporate the effects of volatility in commodity prices and trading, as well as risks related to the Company’s continuing investments in growth.

DBRS believes that Cargill’s earnings profile should remain stable over the longer term. Cargill’s strong product and geographic diversification helps to mitigate the impact of variance in earnings in each of its segments from changes in commodity prices, macroeconomic conditions and geopolitical turmoil. DBRS believes that the Food Ingredients & Applications segment should stabilize and begin to recover over the near to medium term, after being negatively affected by socio-economic conditions in many developing markets, benefitting as well from the Company’s focus on changing consumer preferences in developed markets. Cargill is expected to continue to realign its portfolio of businesses by investing in growth in certain segments (i.e., aquaculture) while rationalizing and reducing capacity in others. Cargill will maintain its long-term view and continue to invest in developing markets albeit at a more moderate pace, as the Company believes that existing socio-economic headwinds are more transient in nature. Margins should benefit over the medium term from the Company’s cost reduction and efficiency improvement initiatives as well as from the introduction of higher-margin, customer-focused products. However, should operating results not continue to display signs of recovering as a result of issues that are more structural in nature than cyclical, a negative rating action could result.

DBRS believes Cargill’s financial profile should remain relatively stable in a range considered acceptable for the current rating, based on the strength of its cash generating capacity and stable leverage levels. Cash flow from operations should continue to track operating income and remain sufficient to fund capex, dividends and any repurchases from the Company’s employee stock option program (ESOP) and stock compensation plans. Capex will be directed primarily toward investing in growth in developing markets and new and existing product categories. The Company’s dividend payout ratio is expected to remain linked to earnings on a two-year trailing basis. DBRS expects that Cargill will continue to use any free cash flow and cash-on-hand to invest in growth and/or complete repurchases from its ESOP and stock compensation plans. Should credit metrics deteriorate beyond a level acceptable for the current rating (i.e., long-term debt-to-EBITDA above 2.25 times) as a result of more aggressive financial management (due to debt-financed acquisitions and/or shareholder returns) and/or weaker-than-expected operating performance over an extended period of time, a negative rating action could result.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Rating Companies in the Consumer Products Industry (August 2015), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015) and DBRS Criteria: Guarantees and Other Forms of Explicit Support (February 2015), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

The ratings of Cargill Limited are guaranteed by the U.S. parent, Cargill, Incorporated.

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