June 21 - Fitch Ratings has affirmed the long-term Issuer Default Rating
(IDR) and debt ratings of Monsanto Company (Monsanto) at 'A+'. Fitch has
also affirmed Monsanto's short-term IDR and commercial paper rating at 'F1'. The
Rating Outlook is Stable. A full rating list is provided at the end of the
The ratings reflect Monsanto's leading market positions in corn, soybean, cotton
and vegetables seeds and traits, and its 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
Monsanto's credit profile is strong. The company generated $3.7 billion of
operating EBITDA in the last 12 months (LTM) to Feb. 29, 2012, corresponding to
almost 29% of net sales. LTM free cash flow was approximately $1.9 billion.
Gross balance sheet debt to EBITDA leverage stood at 0.6 times (x). Net debt was
negative $1.3 billion including $3.1 billion cash and cash equivalents and $302
million short-term marketable securities.
The rating is constrained by the company's growth-through-acquisition strategy
and its sizeable dividends and share buyback program. Monsanto recently
announced its agreement to purchase Precision Planting, Inc. for $210 million
with a performance-based payment of up to $40 million. Since fiscal 2007,
Monsanto has completed multiple acquisitions totaling $3 billion to broaden its
product portfolio into cotton, vegetables and other seeds and to expand its
Shareholder-friendly actions include $622 million dividends paid and $340
million share buybacks net of proceeds from stock option exercises LTM to Feb.
29, 2012. The Board of Directors recently approved a new $1 billion three-year
share repurchase program, effective July 1, 2012, to commence after the
completion of Monsanto's existing $1 billion program started in July 2010.
The Stable Outlook is based on robust operating performance and expectations for
continued sales and earnings growth. In the first half of the company's fiscal
2012, sales grew 19% year over year to approximately $5.5 billion and gross
profits increased to $3.4 billion or 62% of sales.
The company has substantial liquidity which totaled approximately $5.4 billion
at Feb. 29, 2012, based on the company's undrawn $2 billion revolving credit
facility, cash and cash equivalents and short-term marketable securities.
Monsanto's facility expires in April 2015 and requires the company to maintain a
total debt to total capital ratio of less than 66 2/3%. Monsanto has significant
headroom under the covenant as Fitch calculates the company's total debt to
total capital is 15% at Feb. 29, 2012.
Monsanto has $486 million of 7 3/4% notes maturing Aug. 15, 2012, which Fitch
expects the company to refinance. Monsanto's next maturity is $300 million of 2
3/4% notes due 2016, making their maturity schedule very manageable.
Fitch expects Monsanto to continue to generate positive free cash flow in most
years and to maintain a strong credit profile appropriate for an R&D driven
company. However, negative free cash flow over multiple years and deterioration
of credit metrics due to sizeable M&A, substantial dividend increases or share
buybacks that are debt-financed could lead to a negative rating action. Adverse
outcomes resulting from the ongoing litigation with competitors or the
Department of Justice's antitrust investigation that substantially impact
Monsanto's businesses and market positions could also result in lower ratings or
a Negative Outlook.
Catalysts for an upgrade or a Positive Outlook would be further regional and
product diversification beyond corn & soybean seeds, traits and genomics in the
Americas while maintaining sales growth, operating margins and cash flows.
Fitch affirms the ratings of Monsanto as follows:
--Long-term IDR at 'A+';
--Senior unsecured revolving credit facility at 'A+';
--Senior unsecured debt at 'A+';
--Short-term IDR at 'F1';
--Commercial Paper at 'F1'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and