Fitch Affirms Monsanto's IDRs at 'A+/F1'; Outlook Stable

Fitch Ratings has affirmed the Long-term Issuer Default Rating (IDR), revolving credit facility rating, and senior unsecured note 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 list of rating actions follows at the end of this release.

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, low leverage and large cash balances. The company generated $4.4 billion of operating EBITDA in the LTM period ended Nov. 30, 2013, corresponding to 29% of net sales. Over the same period, free cash flow was approximately $1.1 billion. Gross balance sheet debt-to-EBITDA leverage stood at 0.8x. Net debt was negative $1.2 billion given $4.5 billion of cash and cash equivalents.

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 South America.

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 $4 billion, including the recently completed The Climate Corp. acquisition, to broaden its product portfolio into cotton, vegetables and other seeds, expand its geographical footprint and enhance service offerings to farmers.

Shareholder-friendly actions included $829 million dividends paid in the LTM period ended Nov. 30, 2013. Dividends have been growing quickly and are expected to continue to grow. The company's board approved an almost 15% increase in the dividend per share in August 2013. The company reported $1.3 billion of share buybacks net of proceeds from stock option exercises in the LTM period, and repurchases are also expected to grow. Monsanto commenced a $2 billion three-year share repurchase program on Aug. 20, 2013, after exhausting a previous $1 billion program that commenced Jan. 14, 2013. At Nov. 30, 2013, Monsanto had $1.4 billion of availability under its share repurchase program.

The Stable Outlook is based on robust operating performance and expectations for continued sales and earnings growth. In the company's fiscal 2013, sales grew 10% year over year to approximately $14.9 billion and gross profits increased to $7.7 billion from $7 billion a year earlier, accounting for 51% of sales.

The company's liquidity totaled approximately $6.7 billion at Nov. 30, 2013, 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 2016 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 the company's total debt-to-total capital was 21% at Nov. 30, 2013. Monsanto's next maturity is $300 million of 2 3/4% notes due 2016, making their maturity schedule very manageable.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Meaningful product diversification beyond seeds and traits and agricultural productivity;

--Substantially increased earnings contribution from outside North America.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Significant deterioration of credit metrics following potential sizeable M&A;

--Substantial dividends or share buyback payouts that are debt-financed;

--Regulatory actions that threaten Monsanto's business model.

Fitch affirms Monsanto's ratings 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'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (August 2013);

--'Rating Chemical Companies' (August 2012);

--'North American Chemicals 2014 Outlook' (December 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Effective from 8 August 2012 - 5 August 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Rating Chemical Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682313

2014 Outlook: North American Chemicals

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724885

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818350

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Fitch Ratings
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