CHICAGO – Fitch Ratings said the rating outlook for Cargill remains negative on uncertainty about the sustainability of the company’s earnings recovery.
Future developments that could negatively impact the company's rating include:
• Lack of sustainability of Cargill's earnings recovery in fiscal 2013, without material and permanent debt reduction.
• Fitch's determination that given recent earnings volatility and elevated commodity prices, Cargill’s total debt and unadjusted leverage over a multi-year period remains too high for the rating level.
• Large, debt-financed acquisition(s) and/or extraordinarily high increases in capital expenditures.
Future developments that could lead to a positive rating action include a substantial decrease in leverage in fiscal 2013 from fiscal 2012 due to significant, sustainable earnings improvement on an annual basis. Also a permanent debt reduction, along with the maintenance of high liquidity, could result in a “stable” outlook.
“Fitch will monitor Cargill's earnings and cash flow for the remainder of fiscal 2013 to better assess future potential volatility and the appropriate amount of total debt to maintain current ratings,” the ratings agency said. “Cargill's net earnings rebounded strongly in the fiscal first quarter of 2013 ended Aug. 31, 2012, increasing 313 percent to $975 million, from a very weak $236 million in the prior year period. Each of the company's five business segments showed improvement.
“Although the US drought impact is likely to provide near-term headwinds, including lower North American grain handling volumes and challenges in animal protein businesses, there may be some earnings offset from other businesses,” Fitch concluded.
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