KEY RATING DRIVERS
The ratings reflect Monsanto's substantive market positions in corn, soybean, cotton and vegetables seeds and traits; leading or sizeable positions depending on crop and geography. The company has R&D-driven expertise in plant biotechnology that enables high profit margins and strong cash flows. The company's portfolio benefits from patent protection for most of its key products which creates high barriers of entry for new market entrants. In addition, Monsanto licenses its technologies and traits to its competitors. These agreements generate a recurring royalty stream that further supports the company's profitability.
Monsanto's credit profile is strong, marked by robust operating margins, significant free cash flow, moderate leverage and solid liquidity. The company generated
Fitch expects Monsanto to continue to generate substantial positive free cash flow in most fiscal years and to maintain a strong credit profile appropriate for an R&D-driven company.
Monsanto's operating profits are driven by its corn seeds and traits which accounted for over half of the company's gross profits again in fiscal 2013. Farm economics are very healthy, which enables more farmers to buy newer generation seeds and traits. Corn planting in the U.S. may be lower in 2014 than in 2013 due to lower corn prices, but Fitch expects Monsanto's corn seeds and traits gross profits to grow due to U.S. farmer demand for new seeds and traits and growing hybrid corn planting in
The rating is somewhat constrained by the company's growth-through-acquisition strategy and its sizeable dividends and share buyback program. Since 2007, Monsanto completed multiple acquisitions for an aggregated amount of roughly
The Stable Outlook is based on robust operating performance and expectations for continued sales and earnings growth. In year to
Fitch notes that the May quarter is the seasonal working capital high/cash low quarter. The company's liquidity totaled approximately
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Total Debt/EBITDA declines on a sustained basis below 1.25x.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--Total Debt/EBITDA increases on a sustained basis above 2.25x;
--Liquidity, of which cash is at least
--Regulatory actions that threaten Monsanto's business model.
Fitch downgrades Monsanto's ratings as follows:
--Long-term IDR to 'A-' from 'A+';
--Senior unsecured revolving credit facility to 'A-' from 'A+';
--Senior unsecured debt to 'A-' from 'A+';
--Short-term IDR to 'F2' from 'F1';
--Commercial Paper to 'F2' from 'F1'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
--'Rating Chemical Companies' (
--'North American Chemicals 2014 Outlook' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Rating Chemical Companies
Source: Fitch Ratings
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