FMC Corporation
Q3 2008 Earnings Call Transcript

Published: 29 Oct 2008

[Operator:]

Welcome to the third quarter 2008 earnings release conference call for FMC Corporation. All lines will be placed on listen-only mode throughout the conference. After the speakers presentation, there will be a question and answer period. (Operator Instructions). I will now turn the call over to Mr. Brennen Arndt. Mr. Arndt, sir, you may begin.

[Brennen Arndt:]

Thank you and welcome everyone to FMC's third quarter 2008 conference call and webcast. Bill Walter, Chairman, President and Chief Executive Officer will begin the call with a review of our third quarter performance. Bill will then turn the call over to Milton Steele, Vice President and General Manager Agricultural Products Group, who will provide an in-depth review of the performance and prospects for our global agricultural group. Following Milton, Kim Foster, Senior Vice President and Chief Financial Officer will report on our financial position. Bill Walter will then provide our outlook for the balance of 2008. We will complete the call by taking your questions. Our discussion today as a reminder will include certain statements that are forward-looking and subject to various risks and uncertainties concerning specific factors that are summarized in FMC's 2007 Form 10-K, most recent Form 10-Q and other SEC filings. This information represents our best judgment based on today’s information. Actual results may vary based on these risk and uncertainties. During the conference call we will refer to certain non-GAAP financial terms. On the FMC website available at fmc.com, you will find the definition of these terms under the heading entitled, Glossary of Financial Terms. We have also provided reconciliation to GAAP of non-GAAP figures that we will use on the call, as well as our 2008 outlook statement. It is now my pleasure to turn the call over to Bill Walter.

[Bill Walter:]

Thanks Brennen and good morning everyone. As you saw in our earnings release, we had a record third quarter, completing a record nine months to what we expect will be the fifth consecutive year of record performance for the company. Summarizing our third quarter results, sales of $821 million increased 31% versus the third quarter of 2007 and earnings before restructuring and other income and charges were $1.13 per diluted share, an increase of 64% versus the third quarter of last year. In Agricultural Products, sales of 264 million increased 37%, and earnings of $44.1 million increased 13% versus a year ago driven by broad based sales growth, but particularly in Latin America. In Specialty Chemicals, sales of $198 million were 20% higher and earnings of $35.9 million increased 7% versus the year ago quarter. Volume growth in all businesses and higher selling prices in biopolymer drove the performance gains. Industrial Chemicals sales of $360 million were 33% higher and earnings of $67 million increased 174% versus the year ago quarter, driven primarily by higher selling prices across the segment. Our record third quarter results were achieved despite higher raw material costs and to a lesser extent higher energy costs versus the prior year combined raw material and energy costs unfavorably impacted earnings by $0.40 per share in the third quarter. Currency translation favorably impacted earnings by only $0.04 during the quarter. On a GAAP basis, we reported net income of $80 million or $1.05 per diluted share. GAAP earnings in the current quarter which included a net charge of $5.6 million after-tax or $0.08 per diluted share versus a net charge of $15.9 million after-tax or $0.21 per diluted share in the prior year quarter. With that reconciliation, our non-GAAP earnings were $1.13 per diluted share in the current quarter, an increase of 64% versus the $0.69 per diluted share in the third quarter of 2007. Let me take a more detailed look at the performance of each of our operating segments in the quarter, first, in Specialty Chemicals. Revenues of $190 million increased 20% over the prior year's quarter. Volume gains in both businesses and higher pricing in biopolymer were the primary drivers of top line growth. Segment earnings of $35.9 million increased 7% over the prior year as the higher sales were partially offset by increased costs for raw materials, energy and export taxes in Argentina. Biopolymer achieved strong top line growth. Volume gains and higher selling prices were realized across all of biopolymer’s businesses but we’re particularly strong in the food and personal care businesses. Biopolymer earnings also increased driven by the sales gains, continued productivity improvements, and reduced selling expenses partially offset by higher raw material costs particularly for wood, pulp and seaweed and higher energy costs. During the quarter, we closed on the ISP alginates and Co Living acquisitions. The integration of both businesses are on schedule. Both acquisitions support our growth initiatives to expand our franchise in food ingredients and pharmaceutical incipient. These acquisitions though had minimal impact on results in the third quarter. In the fourth quarter, however, our sales growth will benefit from the full quarter inclusion of the two acquisitions. The bottom line we expect the acquisitions (inaudible) accretive this year. In lithium, increased volumes were in primary compounds and in the pharmaceutical market with primary drivers of top line growth. Earnings declined modestly compared to a year ago however as the sales gains were more than offset by higher raw material costs and export taxes in Argentina which were put in place last December. Moving onto Industrial Chemicals; revenues of $360 million increased 33% versus the prior year quarter driven by higher selling prices in all businesses but particularly in soda ash and phosphates. Segment earnings of $67.3 million, increased 174% as a result of the broad based sales growth, and improved power market conditions in Spain, and favorable currency impacts which more than offset higher raw material costs experienced across the segment. In soda ash, market conditions remain very tight as all US soda ash producers continue to operate at full capacity. Both our domestic and export soda ash businesses continue to benefit from higher selling prices. In addition to price gains put in place at the beginning of the year, we are also realizing modest gains from recently announced increases at non-contract accounts. And finally, the business is also benefiting from ongoing volume growth. Looking ahead to 2009, we expect global soda ash market conditions to remain favorable leading to further price gains. Our North American peroxygens (peroxides?) business realized higher selling prices in both our hydrogen peroxide and specialty peroxygens businesses in the quarter. The hurricane impacts on our Bayport, Texas facility though had a minimal impact on our third quarter results. Foret continued to deliver significantly improved performance relative to a year ago. The earnings increase was driven by higher prices particularly in phosphates, improved power market conditions in Spain, and favorable currency impacts. These benefits however were partially offset by higher raw material costs, especially phosphate rock. Moving on to the corporate items on the P&L, corporate expense was $12.5 million as compared to $12 million a year ago. Interest expenses net were $7.5 million, down from $8.6 million in the prior year quarter. On September 30, 2008, gross consolidated debt was $576 million and debt net of cash was $481 million. For the quarter, depreciation and amortization was $32.6 million, capital expenditures were $59.5 million, and spending on acquisitions was approximately $90 million net of acquired cash. That's it for Specialty Chemicals, Industrial Chemicals and corporate, and now for a discussion on Ag Products, I will turn the call over to Milton Steele. Milton?

[Milton Steele:]

Thanks Bill, and good morning to everyone. Today, I’ll be reviewing Ag Products 2008 third quarter and year-to-date financial performance. In addition, I will provide our perspectives and recent trends in the chemical crop protection market, include an overview of FMC Ag Products strategy, and highlight some of the opportunities we foresee to sustain our profitable growth. First, let me provide an overview of our industry and the trends that are impacting our business. I would characterize the approximately $40 billion global chemical crop protection market as challenging and highly competitive but one that will continue to benefit from favorable macro trends that provide several opportunities for growth. There are three mega or secular trends that bode well for the future of our industry. These are

[Kim Foster:]

This morning I will review our financial position with you, particularly our strong free cash flow, balance sheet, and liquidity position. At the last conference call, we projected 2008 free cash flow at $300 million. That forecast did not include the cost of the ISP and Co Living acquisitions in the Specialty Chemicals segment. We closed on both of these acquisitions in the third quarter with combined transaction costs of approximately $90 million. We’ve also experienced slightly higher working capital requirements, as our sales have exceeded our expectations. Consequently, our revised forecast for the full year 2008 is approximately $200 million. We not only have confidence in the remainder of 2008 but we have confidence that with the diversity of our end markets and the strength of our market positions and a sharp focus on cost and capital spending, we will have higher free cash flow in 2009. Our net debt at the end of September was $481million. Comparing our net debt to the last 12 months EBITDA yields a leverage statistic of 0.8. In summary, we have very low levels of debt compared to the cash generating capabilities of our company. Our liquidity profile is similarly strong. At the end of September, we had available funds under our domestic and European credit agreements of over $450 million. We also have no significant maturities until late 2010. Regarding uses of our free cash flow, during the quarter we repurchased approximately 990,000 shares at a cost of $65 million. Since our buy back programs began in February 2006 through the end of the third quarter, we have repurchased over 7.2 million shares at a cost of approximately $325 million. During the same period we paid approximately $75 million in dividends. In total, therefore, we have returned approximately $400 million to shareholders since February 2006. Simply put, we have the financial strength to execute bolt-on acquisitions and return substantial cash to shareholders without significantly adding to our net debt or materially reducing our strong liquidity position. At the end of the third quarter, we had $35 million remaining under our existing $250 million share repurchase program. At our regularly scheduled board meeting on October 24, our Board of Directors authorized a new $250 million share repurchase program. This new program is an addition to the $250 million that has been active since April 2007. As I have indicated in previous conference calls, our share repurchase program does not include a specific timetable or a price target and may be suspended or terminated at any time. And we continue to evaluate several bolt-on acquisitions in both the Agricultural and Specialty Chemical businesses. However, at our current stock price, you should expect us to be aggressive acquirers of FMC stock. We will execute these strategies while maintaining a conservative financial profile and focusing on free cash flow. With that, I will now turn the call back to you Bill.

[Bill Walter:]

Thanks, Kim. Looking ahead, we are confident of delivering another year of record performance. Regarding our outlook for the full year 2008, we have raised our guidance for earnings before restructuring and other income and charges to $4.45 to $4.55 per diluted share. For the fourth quarter of 2008, we expect continued strong sales growth across all segments resulting in earnings before restructuring and other income and charges of $0.85 to $0.95 per diluted share. In Ag Products, as just said, we look for fourth quarter earnings growth of 5% to 10% driven by continued favorable market conditions in Brazil. In Specialty Chemicals, we also expect earnings growth of 5% to 10% as a result of strong commercial performance in biopolymer, continued productivity improvements, and the fourth quarter inclusion of the ISP and Co Living acquisitions. And in Industrial Chemicals, we expect earnings to almost double as we once again benefit from higher selling prices and volume growth across the segment. In summary, we expect a strong finish to what has been a very good year for us, our fifth consecutive year of record sales and earnings. The big question on everyone's mind is what affects a slowing economy or possibly even a prolonged recession, a significant realignment of the US dollar vis-à-vis the euro and the real, the decline in commodity crop prices and generally tight credit markets will have on FMC next year. My answer is some, but not a lot. Clearly, there are some negatives. If exchange rates stay where they are today, foreign exchange translation will have an unfavorable, but not significant effect on our 2009 results. As a reference point for you, year-to-date through the third quarter of this year, translation gains added only $0.09 to our earnings per share and yes, 20% of our end markets are economically sensitive and we have seen a slowdown in demand in many of them; pulp and paper, industrial greases, ceramics, commodity polymers, and flat glass in particular. But having said that, I would also like to remind you that 80% of our revenues come from end use markets that are not directly correlated to broad macroeconomic events. And while commodity crop prices have fallen, they still remain high by historical standards, and higher than they were a year ago. In addition, certain input costs, primarily fuel and fertilizer are falling and the balance sheets of most farmers around the globe are stronger than they have been in decades and credit remains available to most of them. In our soda ash business, US producers remain sold out, global demand remains tight, and a number of announced synthetic soda ash production expansions have already been deferred or canceled outright. My expectation as a result is that both domestic and export prices will increase year-over-year. The only uncertainty in my mind as I sit here today is by how much. Finally, we are seeing some softening in our raw material costs, which when coupled with the price increases we have put in place in all of our businesses should provide further benefit to our profit growth in 2009. I know that the answer I gave you, some, but not a lot is not as precise as you would like but we’re still early in our budgeting process and as a result I have yet to see any detailed forecasts from our businesses. Having said that, however, I remain bullish about our prospects for 2009. With that, I’d like to thank you for your time and attention and I’ll be happy to take your questions.

[Operator:]

(Operator Instructions). Your first question comes from the line of Mike Judd, Greenwich Consultants.

[Mike Judd:]

Congratulations on a great quarter and it’s nice to see a company that’s actually increasing the guidance for the year.

[Bill Walter:]

Thanks Mike. It feels good here too.

[Mike Judd:]

That’s great. So my question really relates to a comment that you just made about anticipating higher soda ash prices potentially in 2009 versus 2008. It was that on sort of an annualized basis or is that from current levels that you see here? I realize that these prices are often set at the beginning of the year but I guess there is some drift during the year, right?

[Bill Walter:]

Very little Michael, through the course of the year. I think I would answer your question, it’s both. It’s both relative today's price and the average for 2008.

[Mike Judd:]

Could you just try to expand upon that, talk about some of the factors. Is it in a material competition with caustic or is it just continued strong demand? What are some of the factors that are leading you to believe that that will be the case?

[Bill Walter:]

It is a combination of things, Mike. The least of which I think is the inter product competition with caustic. However, with caustic pricing where it is, we continue to see caustic customers coming to us looking for supply of soda ash. More important than that is, despite the slowing global economy, we have yet to see any significant erosion of demand growth and I emphasize the growth part. We have seen no decline in demand other than that in North America in the housing and auto sectors which we largely have felt in 2007 and early 2008. Global demand growth as we sit here today continues to grow. Supply additions are limited to those in China and even those capacity additions in China that have been announced, a number of them seem to be being deferred or canceled outright.

[Mike Judd:]

Okay and then I am not an expert on seaweed, but I thought I read somewhere that in the third quarter there had been an increase in seaweed prices and then a collapse in prices. Can you just elaborate please if that’s the fact even the case.

[Bill Walter:]

We have been talking Mike about escalating seaweeds specifically cutting seaweed prices now for several quarters and there was a front page article in the Wall Street Journal earlier this month that described a phenomenon that was occurring there. Seaweed was caught up in the commodity bubble like a lot of other things and that bubble has burst. We have already seen prices beginning to come down and the rate of decline seems to be accelerating. The result is optimistic, I don't think optimistically, I think, I’m not conservatively either. Objectively, I would expect that we are going to see a decline in seaweed prices year-over-year 2009 to 2008.

[Mike Judd:]

Thanks for the help.

[Operator:]

Your next question comes from Rosemarie Morbelli with Ingalls & Snyder.

[Rosemarie Morbelli:]

Good morning all and I will add my congratulations for this quarter. Going back to the seaweed price decline, will that affect your capability of increasing prices in your biopolymer business and even if you cannot increase and the selling price is in line with the cost of seaweed would that affect your margin, the profitability of that particular business?

[Bill Walter:]

Yes Rosemary, first, thank you for the compliment on the quarter. With respect to declining seaweed prices and potential affect on pricing, I can't say the two are unrelated to each other, but certainly we don't price in our Specialty Chemical business our cost. So as a cost decline, I don't anticipate that it’s going to have any affect on our ability to affect the price increases that we have already announced. The result is that while we have seen compressing margins in that business through the course of 2008. I'm optimistic that we will see some expansion of them as we move into next year.

[Rosemarie Morbelli:]

Okay. If you could give us a little more details on the turmoil in Latin America, particularly in Brazil, Argentina, what this is it going to do to the small farmers buying your products?

[Bill Walter:]

Rosemarie, I am going to ask Milton to answer that question for you.

[Rosemarie Morbelli:]

Thanks.

[Milton Steele:]

Hi, Rosemarie. Argentina, we do not do a lot of business, most of our business is in Brazil. You asked about what impacts it’s going to have on the small farmers. A predominant amount of our sales are to the larger more technified farmers in Brazil. Yes, certainly, there has been turmoil in the market but we’ve started off with 2008-2009 season well. We’ve met with most of our, all our customers I should say, our large customers and we believe that the government is going to step in and provide financing that might have been available last year from the private sector. In general as Bill said earlier on, commodity prices are still higher today than they were a year ago. The Brazilian real has devalued 36% and a number of farmers that sold in dollars and are now receiving an unexpected increase in income. Fertilizer prices are down, so all in all we are going to continue to remain bullish about Brazil going into 2009.

[Rosemarie Morbelli:]

Okay, that is very helpful, thanks. One last question if I may with the situation in soda ash, are you still planning in the bottlenecking (inaudible) are we opening it, whatever the proper term is?

[Bill Walter:]

Rosemarie, we are. I think as we’ve announced previously, our intent is to bring on an additional 100,000 tons of capacity in 2009 and the balance of the mothballed capacity by 2012. I remind everybody that we had the flexibility to re-mothball that capacity should the market develop less bullish than we currently anticipate.

[Rosemarie Morbelli:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Frank Mitsch with BB&T Capital Markets.

[Frank Mitsch:]

Good morning and thanks for the happy recap. It’s hard to figure out who is more optimistic in Philadelphia these days, Bill Walter or Jimmy Rollins but I could look tonight. Bill you guys just spent $90 million in the third quarter on M&A. Milton mentioned M&A opportunities in the ag space. Can you talk about the current environment on M&A as well as what sort of order of magnitude might you be looking at in this regard?

[Bill Walter:]

Frank, first, I would characterize generally or broadly valuations are falling in the marketplace which is favorable to those of us who are still in a purchasing mode. There are a number of opportunities that we are in various stages of development in both our Ag Products Group as well as our Specialty Chemicals Group. For me to go any further than that well in terms of trying to quantify dollar value or timing, I think is probably inappropriate if not speculative at the moment. However, having said that, I think as we have said in the past within Ag, we are looking from a range of single product and single technology acquisitions to the purchase of small to medium size businesses and/or companies to potentially large strategic acquisition. However, given the current turmoil in the credit markets, I would say the prospects for us doing that latter here any time near-term are probably fairly low. I don't think I have answered the question, Frank, as clearly as it was asked but we will continue to look, and we will continue to be very prudent however particularly in the light of today's credit environment.

[Frank Mitsch:]

Prudent is appreciated as always. Bill, you mentioned that the acquisitions would be adding to your top line in the fourth quarter. Can you talk about the potential for those two transactions to add to the bottom line and at what point in order of magnitude I guess.

[Bill Walter:]

Yes, Frank, our expectation is that that sum of the ISP alginates and the CoLiving dairy will be slightly accretive in Q4. We haven't quantified exactly what slightly means, a couple of cents.

[Frank Mitsch:]

Okay, terrific. Then if I could just jump back to the original question on perspective of M&A, would that be your intent that if you were to do something that it would be accretive year one?

[Bill Walter:]

Certainly we’d hope so, Frank. I mean, I wouldn't want to dismiss entirely the prospect of doing something that could be marginally unfavorable in the year that it is done. But again, our hope is that all of the acquisitions we make will be accretive immediately.

[Frank Mitsch:]

All right, terrific. Thank you.

[Operator:]

Your next question comes from the line of Kevin McCarthy with Banc of America Securities.

[Kevin McCarthy:]

Yes, good morning. Bill, you posted exceptional profits in Industrial Chemicals. I was wondering if you could discuss the factors behind the sequential improvement in profit. I think the press release and your remarks focus mainly on a year-over-year basis, but profit jumped about 22 million it looks like sequentially versus the second quarter, a lot more than I would have thought, given the fact that soda ash prices are annual in nature for the most parts. Maybe you could break that down for us a little bit.

[Bill Walter:]

Sure Kevin. It’s a number of things. First we generally had good if not very good operating performance across all of our businesses in the quarter so that from manufacturing standpoint we probably ran better than we did in the second quarter and probably even better than we can on a continuing basis. Second, while soda ash contracts tend to be annual and pricing annual, I think as I said, we did see some benefit in the quarter from the cumulative $90 a ton price increases that have been announced to-date through our non-contract customers, primarily our distributors. Then lastly and probably most significantly was our performance in Foret largely around our phosphate business where through formula contract pricing as the price of rock has gone up so has our sales price and our margin dollars. We benefited from that in the quarter as phosphate rock pricing declines that same formula is going to cause some deterioration in Foret's profitability in the fourth quarter versus the third but still remain very attractive.

[Kevin McCarthy:]

That's helpful. Thanks. Shifting gears to the soda ash business, I guess across a wide variety of commodities we’ve heard about Chinese demand dropping over the last four to six weeks in particular. Can you talk a little bit about what you are seeing in that market and any implications that you would foresee for the Chinese trade balance in soda ash in 2009.

[Bill Walter:]

Kevin, first of all you have obviously got more market intelligence than we have. I don't get Chinese domestic consumption on a four-week lag. I need to find out where you are getting your information, so we can get the same. Our date is now probably 30 to 60 days old but on that basis, we actually see no slowdown in domestic production or consumption. Total production is at about 1.6 million, 1.7 million metric tons a month. That's been fairly stable, constant through all of 2008 but at a level that was higher than the prior year. Export volume out of China has increased in 2008 but it hasn’t increased as we had expected. The Chinese have brought capacity on and our expectation is that; not an expectation at least announcements of further capacity will come on in 2009. The question though that emerges out all of those facts is, all right, what does it mean going forward as the calendar rolls into next year. Let me remind you and you probably appreciate this, Kevin more than most, Chinese domestic demand in a 10% GDP growth environment is 1.7 to 1.9 million metric tons a year. Demand growth in ANSAC’s territory ex-China in a normal economy is another million metric tons or more a year. Even if we see a decline in that demand growth in the regions, I don't see enough capacity coming on stream in China, in Turkey, in Kenya or anyplace else that is going to upset the supply/demand equilibrium next year. In fact, if you look more closely at is what has happened to Chinese pricing here over the last few months, Chinese domestic pricing and Chinese export pricing has continued to increase. I think it is in part because of a relatively balanced supply and demand, but also in part driven by a rapid escalation in the Chinese cash cost of production. We estimate that the most cost efficient Chinese synthetic soda ash producer has seen an $80 to $85 a ton cash cost increase in 2008, bringing his cash cost to around $235 to $240 a metric ton. The point of that is that there is a lot of upward pressure on the Chinese to maintain high pricing, as well as pressure that potentially may discourage additional capacity.

[Kevin McCarthy:]

Good to hear. Thank you, Bill. Final question if I may for Milton I suppose. In the press release, you alluded to higher spending on growth initiatives, and I was wondering if you could just elaborate on what those are please.

[Milton Steele:]

Hi, Kevin. I mentioned that we have a number of technology platforms, or products within these technology platforms that we are currently developing. So, it’s R&D or innovation spending around the testing and developing prototypes of these products, that's really what I was referencing. I also mentioned that we have over 50 new product combinations going on around our global organization, so some of that spending is associated to developing these new premixes and formulations of our products for third-party products.

[Kevin McCarthy:]

Great, thank you very much.

[Milton Steele:]

Thank you.

[Operator:]

Your next question comes from the line of Robert Felice with Gabelli & Company

[Robert Felice:]

Hey guys. I’ll add my congrats on a very nice quarter. Just a couple of questions. Bill, you mentioned earlier the collapse we’ve seen in commodity prices everything from oil to copper to corn, even seaweed hasn't been spared. I guess in this environment folks wonder how FMC could get additional pricing through on soda ash. I know its is not your practice to talk about how contract negotiations are going on the third quarter call but any flavor around what you’re seeing in the market place would really be helpful.

[Bill Walter:]

Bob, you’re right. We don't talk about the state of contract negotiations inside the quarter. All I can do for you at this point Bob is to ask you to reflect on the comments I made in my scripted remarks which said something to the affect that we remain bullish or optimistic that both domestic and export pricing will increase in 2009.

[Robert Felice:]

Well, if we look historically, we’ve often said you get about 50% of your announced pricing, any reason to think positive or negative that that wouldn't be the case this year? What factors would change that?

[Bill Walter:]

Rob, I'm smiling as I listen to your question. I’m going to have to go back to the transcript of the second quarter conference call but I think you asked exactly the same question then and I'm going to answer it exactly the same way as I did it then. Historically the industry has realized somewhere between zero and 120% of announced price increases and while the last year or two has averaged around 50, I would be hard-pressed to predict the outcome of the 2009 contract season based upon our track record. Having said that Rob the environment out there today remains such that the US producers are sold out. The world is operating tight and there is not a significant amount of capacity coming online that could disrupt that balance, at least I don't see it in 2009.

[Robert Felice:]

Okay. That's helpful. It is a big dynamic for the '09 outlook. So, I need to constantly ask that question.

[Bill Walter:]

I understand. I would probably want to ask it here about once a day.

[Robert Felice:]

In terms of the spot business, how much of the $90 have you realized?

[Bill Walter:]

Rob, I don't know to be honest with you. There was a $90 off list and something less than or at least different than that on list and most of that non contract business goes at that list price and I just don’t know, I am looking around the table to somebody to help me here and they are all looking at share shoe laces.

[Robert Felice:]

All right, I will follow-up off line on that one. I guess lastly, in terms of Foret you mentioned it’s doing significantly better than a year ago. You mentioned that perhaps phosphate rock and the pricing dynamic there will be somewhat of a headwind over the next couple of quarters. But aside from that how sustainable is the rebound that we have seen in Foret here?

[Bill Walter:]

I think it is sustainable Bob. One has got to remember the challenges that Foret had in 2006 and 2007 and ask the question of whether those are going to continue going forward. I don't think they are; I mean, we had this whole crisis and collapse around natural gas pricing and electricity pricing in Foret which probably cost us $10 million to $20 million in '06 and early '07. We had operating problems; there were some weaknesses in the hydrogen peroxide market and again, I think most of those are historical and will not sustain themselves on an ongoing basis. Can Foret on an going forward basis generate the type of earnings that they are going to in 2008? Probably not, but pretty close to it. So, I'm not sure I answered your question. That's the best I can do right now.

[Robert Felice:]

No, that's helpful. It sounds like, excluding headwind from phosphate rock, price is coming down. We should see less variability or volatility around the earnings stream there.

[Bill Walter:]

I would certainly hope so.

[Robert Felice:]

Then I guess lastly, second half results, '08 results in Ag will show quite a bit of margin compression, and you have detailed some of the reasons there around higher costs. How quickly would you expect to recoup those costs, and when should we expect the margins to rebound back to the more normalized levels?

[Bill Walter:]

Yes, given the price actions that we took in the third quarter and are taking in the fourth, I would expect Rob, we are going to see that turnaround here as we move into calendar 2009.

[Robert Felice:]

Okay, so the margin compression here isn't anything systemic or structural. It’s just a short-term blip.

[Bill Walter:]

Absolutely not. We’ve just seen an unprecedented run up in raw material freight solvent and virtually every cost and we got behind the curve on those and lost ground but we’re seeing a decline in some of those prices as we speak and our pricing actions are taking effective.

[Robert Felice:]

Great. Thanks for taking my questions.

[Operator:]

(Operator Instructions). The next question comes from the line of Paul Christopherson, Gilford Securities.

[Paul Christopherson:]

Good morning all and compliments. Bill, if you’ve already answered this excuse me missing it. What is the market price right now for lithium carbonate and has it changed in the last several months?

[Bill Walter:]

Paul, you have not or it had not been previously asked. Carbonate, I think globally is selling for around $2.75 a pound and that's largely or that is unchanged from Q2 and only marginally below where it was a year ago.

[Paul Christopherson:]

Thank you Bill

[Operator:]

Your next question comes from the line of Dmitry Silversteyn, Longbow Research.

[Dmitry Silversteyn:]

Good morning. Couple of questions since a lot of them have been answered. When you talked about the margin impact on the Specialty Chemicals side, you talked about raw material pressures in the lithium business. Can you give us an idea of which raw materials are affecting your lithium profitability?

[Bill Walter:]

Yes Dmitry, they’re largely solvents.

[Dmitry Silversteyn:]

Okay. So just the solvents to get the product out of the grind?

[Bill Walter:]

No, no. These are solvents that we mix with lithium to make downstream products.

[Dmitry Silversteyn:]

Okay. I got you. All right and that's, that those are the materials that are starting to roll over now in the wake of oil prices declining?

[Bill Walter:]

Correct.

[Dmitry Silversteyn:]

Okay. Then secondly I wasn't sure I heard correctly. The delta on costs and agricultural chemicals, was that $15 million or $50 million?

[Bill Walter:]

It’s $50 million.

[Dmitry Silversteyn:]

Okay. Secondly, you did talk about the outlook for crop protection over the longer-term or more of a kind f a global high level picture. Clearly they are getting off to a very good start in Brazil with both volume growth there and price realization. If you look over the next six months and given the declines are rather steep declines in fertilizer prices, is there anything that can happen to that business that would cause you to deliver a lower performance let's say in 2009 versus 2008?

[Bill Walter:]

The way the question was asked, it is hard to answer, is there anything that would cause…

[Dmitry Silversteyn:]

I'm not talking about Six Sigma and then, but I'm talking about that I mean what combination of events has to take place for you, for example, to see volume declines and needing to bring your pricing down to maintain market share?

[Bill Walter:]

I think what we would have to see Dmitry further collapse in commodity crop prices. That would clearly affect farmers’ income and therefore planting intentions in the northern hemisphere in 2009. But I am looking at Milton to see if he could think of any other circumstances that would cause us to have a different view and if he does, jump in.

[Dmitry Silversteyn:]

What I'm hearing is that given the strong start to the Brazilian planting season and the fact that it is going to go through the first quarter of next year, it sounds like the next six months at least are, I don't want to use the word, in the bag, but you are pleased with the market conditions as they are currently, and if you are going to see weakness from lower commodity prices, it will be North American markets or it is more like, end of second quarter, third quarter type of an impact.

[Bill Walter:]

Exactly. In the southern hemisphere planning is well underway; the uncertainty to the extent there is any about '09 is in this northern hemisphere and that is largely North America and Europe.

[Dmitry Silversteyn:]

Okay. Then returning to lithium for a second, have you seen any slowdown in volume growth in lithium given that a certain percentage and I’m not sure what that percentage is. If you can enlighten me that would be helpful as lithium goes into rechargeable batteries and with consumer spending perhaps decelerating here, you may see the growth in lithium slow down. Pricing has been fairly stable in that market in 2008 given relatively strong demand even with the new capacity coming on stream. If the demand weakens significantly, can you see price erosion as a risk to earnings in the lithium business in '09?

[Bill Walter:]

Well, let me set facts here for us. Rechargeable or at least lithium ion or lithium polymer batteries represent about 20% of the global demand for carbonate equivalents and that has been growing at 15 to 20% a year for the last several years. As the global economy slows, demand growth in that area is got to slow. We have not seen it to-date, but our expectation is that it will slow as we move into 2009. However, I emphasize that the growth is going to slow; it’s not going negative. Will that create a condition in 2009 where carbonate prices come under pressure? It could particularly if those who have expanded capacity do not intelligently manage that capacity in the light of a slowing demand growth. Dmitry I'm sure you’ve done the numbers on SQM for example and they are the ones with capacity that’s coming online. If they don't carefully manage that, it could have a very significant impact on their financial performance. As you know, we’ve got very little exposure to lithium carbonate and if the situation that I just described were to develop, it should have a minimal impact on us.

[Dmitry Silversteyn:]

Okay, okay that's helpful. Then just to finish up on lithium and I apologize for the questions. Chinese demand or Chinese supply actually was slower in the first half of the year than people originally thought. I understand there was Australian material that made its way into the market to kind of help offset that. Have Chinese gotten their act together as far as getting lithium from the Himalayas out to the coast or is that still to come in 2009?

[Bill Walter:]

They’re still having issues to be (inaudible) in particular or specifically, they have a brine issue. They’ve got operating issues at their plant. They’ve got inland transportation logistic issues. The result is that as we sit here today in late October, the amount of product coming out is no more than it was a quarter ago and no more than it was two quarters ago. Will they be able to successfully address all those questions? Our intelligence says, yes, eventually but it is unclear when eventually will be.

[Dmitry Silversteyn:]

Okay, Bill. Thank you very much. I appreciate it.

[Operator:]

Your last question comes from the line of Richard Riley with Standard & Poor's.

[Richard Riley:]

Good afternoon. Just two quick questions. Walter, can you tell us the announcements for export soda ash export prices for '09?

[Bill Walter:]

Richard, we sell through an entity called ANSAC and ANSAC does not announce a price increase as pricing in the export market is very local and as a result a price announcement means nothing.

[Richard Riley:]

Okay. Second one for Kim. The stock buyback, I think you said $65 million in the quarter. I think that's a much faster, much greater amount than in the last couple quarters. When you say you'll be aggressive, is this the rate we should be thinking of or what is your thinking there?

[Kim Foster:]

Richard, this is Kim. Your memory is correct. In the first quarter we repurchased about $30 million, in the second quarter we repurchased about $30 million. So, we did a little over double that in the third quarter. You probably also know that we haven't checked this morning but the prices of FMC stock are even lower now than they averaged in the third quarter. So, we will continue to be financially prudent but yes, you have the order of magnitude approximately right.

[Richard Riley:]

Okay great. Thanks a lot.

[Operator:]

I will now turn the call over to Mr. Walter for closing remarks.

[Bill Walter:]

Thank you, operator, I guess as I sit here right now, what more can I say? A strong third quarter, an expectation for an equally strong fourth and early and positive outlook for record sales and earnings in 2009, a solid balance sheet, good liquidity and strong cash flow generation and a stock price that is trading at less than seven times current year’s earnings per share and 4.5 times current year's EBITDA. Undervalued? Never more so in my entire seven years as CEO. These are uncertain times and let me assure you that during these times, we intend to continue to manage our businesses and your capital appropriately. We remain cautiously optimistic about 2009, but bullish on the company's performance over the longer-term. With that, let me thank you for joining us today, and thank you for your continued interest in FMC.

[Operator:]

Thank you. This concludes today’s FMC Corporation third quarter earnings release conference call. You may now disconnect.