富美實 (FMC) 2006 Q1 法說會逐字稿

Good morning and welcome to the 2006 first quarter earnings release conference call for FMC Corporation. [OPERATOR INSTRUCTIONS] I will now turn the conference over to Mr. Brennan Arndt. Mr. Arndt, you may go ahead.

Thank you and welcome everyone to FMC's first quarter 2006 conference call and Webcast. Bill Walter, Chairman, President and Chief Executive Officer will begin the call with a review of first quarter performance. Bill will then turn the call over to Milton Steele, Vice President and General Manager, Agriculture Products who will discuss the Group's performance and the evolutionary shift currently underway toward accelerating innovation and growth. Following Milton, Kim Foster, Senior Vice President and CFO will report on our financial position. Bill Walter will then complete the call with a discussion of our outlook and we will then take your questions.

Our discussion today will include certain statements that are forward-looking and subject to various risks and uncertainties concerning specific factors that are summarized in FMC's 2005 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 risks and uncertainties. During the conference call, we will refer to certain non-GAAP financial terms. On our FMC Website, available at fmc.com, you will find the definition of these terms under the heading entitled "glossary of financial terms".

Also on our Website we have provided a reconciliation to GAAP of non-GAAP figures that will be used on the call as well as have provided our 2006 outlook statement. It is now my pleasure to turn the call over to Bill Walter. Bill?

Thanks, Brennan and good morning everyone. As you saw on our earnings release we had an exceptionally strong quarter with all of our businesses performing well. Let me briefly summarize our first quarter performance. Sales of $594 million were up 8% versus the first quarter of 2005. Earnings before restructuring and other income and charges of $1.74 per diluted share were up 57% over the last year's first quarter of $1.11.

The quarter was led by ag products, which turned in unusually strong results, with earnings of $54.7 million, up 63% versus a year ago. Good sales growth in North America, Europe and Asia, favorable geographic and product sales mix, shifts in the timing of orders from the fourth quarter of 2005 and the second quarter of 2006, and continued global supply chain productivity gains; more than offset the impact of generic bifenthrin competition and higher raw material and energy costs.

Specialty chemicals earnings of $31.5 million increased 11% versus the year ago quarter, primarily as a result of higher volumes and selling prices in lithium, and improved BioPolymer pharmaceutical results. Higher energy and raw material costs and unfavorable currency translation offset part of the improvement in this segment. Industrial Chemicals earnings of $29.2 million increased 35% versus the year ago quarter, as higher selling prices across the group, particularly in soda ash, were partially offset by higher energy and raw material costs and the absence of profits from Astaris, which was divert divested in early November, 2005.

Our strong first quarter performance was achieved despite the impact of higher energy and raw material costs across the corporation. Versus the prior year, higher Company-wide energy and raw material costs unfavorably impacted earnings by $0.29 per share in the quarter. In addition, currency translation had an unfavorable impact of $0.03 per share versus the year ago quarter.

On a GAAP basis, we reported net income of $67.7 million or $1.71 per diluted share. GAAP earnings for the quarter included a $0.03 per share after-tax charge related to discontinued ops and restructuring and other charges charges. With those reconciliations, our non-GAAP earning were $1.74 per diluted share versus $1.11 a year ago.

A little more detail by segment. First specialty chemicals. Sales of $143 million grew 5% versus the prior year quarter. Our lithium business continued to experience strong top line growth as a result of broad-based volume growth and higher selling prices.

BioPolymer realized solid sales growth in its core pharmaceutical and food markets. However, this growth was largely offset by lower sales in pet food, industrial and personal care markets and unfavorable foreign currency translation. The segment earnings in specialty of 31.5 million, were 11% higher than a year ago, driven by the good volume growth and higher selling prices in our lithium business. BioPolymer earnings were essentially level to a year ago, as higher raw material and energy costs and unfavorable foreign currency translation, primarily the Euro, offset good commercial performance in our food and pharmaceutical businesses.

Moving on to industrial. Sales of $245 million increased 12% versus a year ago, driven by higher selling prices across the group. As expected, performance in soda ash was particularly strong as a result of continued favorable market supply and demand conditions. North American hydrogen peroxide also benefited from higher selling prices and a favorable product mix.

And at Foret, our Spanish subsidiary, revenue was level to a year ago, as sales growth across most product lines was offset by unfavorable currency translation. Segment earnings of $29 million increased 35% versus the year ago quarter, driven by the higher selling prices. Partially offset by higher energy and raw material costs and the absence of profits from Astaris, which again, was divested in November of 2005.

And finally, the corporate items. The corporate expense of 11.3 million was essentially level to a year ago. Interest expense net was 8.4 million, down from $17 million in the prior year period, due to a combination of lower interest rates and lower debt levels. On March 31, 2006, gross consolidated debt was 726.6 million and debt net of cash was $542 million. For the quarter, the D&A was 32.1 million and CapEx was 17.1. That's it for specialty, industrial and corporate.

Now for a discussion on ag products, I would like to turn the call over to Milton Steele.

Thanks, Bill, and good morning to everyone. It's a pleasure to be with to you review our first quarter performance and share our outlook for the balance of the year. Let me begin by providing a brief refresher on the strategic focus of our ag products business. As well as outline the evolutionary shift we currently have underway, aimed at accelerating our innovation and growth. We have delivered two straight years of record sales and earnings. The formula for our strong performance has been the successful execution of our focused strategy in selected products, crops and markets. Couple with our unique low cost sourcing strategy.

Our continued success however, will depend on our ability to deliver unique, innovative solutions to our customers at an ever accelerating rate. A key message this morning and I hope a take-away of yours, is that we are shifting ag products primary innovation paradigm from a twelve-year or longer discovery cycle to a significantly shorter innovation cycle, with a goal of achieving bigger paybacks from product and technology developments and acquisitions.

Aligned with this shift, we recently redeployed our R&D discovery of sources to a new internal organization called [Innova Solutions]. Innova's role is to focus and drive our global innovation efforts and to deliver a stream of value-adding solutions to our customers quicker than we have ever done before. They have already made good progress in their efforts to acquire licenses proprietary actives, novel formulations, technically advanced delivery systems and unique product premixes in combinations that are closely aligned to our customers' needs.

We are already seeing benefits from this paradigm shift, as this year we are launching several new products. We end licensed [Flanicamed] a novel insecticide that controls pests on a broad range of crop and noncrop uses. Flanicamed received its first registration in key crops from the U.S. EPA in mid-2005 and we launched Flanicamed into Brazil's cotton market this past quarter. I'm pleased to say that we experienced one of our most successful product launches ever, selling out all inventory in a matter of weeks.

The farmers really value this unique mode of action insecticide that fits so well into Brazil's resistant management programs. Flanicamed will also be launched into the U.S. cotton markets later this year and we are optimistic about its prospects in this important market. We just launched [asetemerckred] in North America, a patented and highly effective insecticide for household and termite markets. Asetemerckred had demonstrated outstanding activity on an array of pest and we expect to have additional asetemerckred based product launches over the next several years.

Also end license is a proprietary new fungicide, [Cyazapamed] for crop and noncrop uses in the Americas, with initial sales expected in the second quarter. Collectively, we expect these three new products to result in greater than $50 million in new sales by the 2008, 2009 time period. In addition to these product launches, we have more good news that will drive earnings growth for the business.

We are now well into the process of negotiating several new product acquisitions, assessing development of a new FMC proprietary herbicide and end licensing additional products, that combined, have maturity sales potential in excess of $250 million. You can expect by the next time I talk with you, we will have more details to share on these particular growth initiatives. Besides end licensing and product acquisitions, another area of growth reflected strongly in our first quarter performance in North America is our portfolio of herbicides.

Due to our unique formulations, expanded labels and proprietary chemistries, our herbicide product line is enjoying a resurgence, as these products fit well in acres where traditional and widely used herbicides appear to be losing efficacy. We also plan to offer -- launch additional new insecticide products for unique formulation to our North American customers this season. For example, we just launched Capture LFR, which recently received EPA registrations for use on corn in the United States.

Capture LFR is an FMC proprietary technology for insect control in corn. This enhanced formulation allows Capture LFR to be mixed directly with liquid fertilizers. This means growers can plant, fertilize and get economic control of seed and seeding pests in corn, including corn [wrigworm] all at the same time; saving time, fuel and other expenses in the process. This is a great example of us working closely with our customers to deliver value adding innovations. New product launches have not been limited to the Americas.

Earlier this year in Australia, with launched a novel proprietary system to protect new homes from termites with the brand name HomeGuard. This system has the potential to capture a significant share of the Australian reconstruction termite market. And we continue to experience growth in Western and Eastern Europe, due to our market access joint ventures, expansion of product labels, development of premixes and our focus on key crops and markets. In the first quarter, we expanded our lines with [Bellham] in Western Europe to include Spain and Portugal.

With also anticipate growth in Eastern Europe and expect to capitalize on this growth through our joint venture alliances with [New Farm]. While I'm excited about our many growth initiatives, our business does have its challenges. In Brazil we foresee difficult market conditions this year, driven by lower growing income resulting from a strong Real, coupled with lower commodity prices, rising input costs and reduced planted acres in several crops crops. Our first quarter performance in Brazil reflects these market conditions. The upcoming November elections also add some uncertainty in terms of economic stability and exchange rates.

Nevertheless the longer term growth prospects are positive due to Brazil's basic favorable agriculture economics. And I believe we are well-positioned to participate in this growth. For example, last year was also challenging but we out performed most of our competitors in the Brazilian air care market. A recent survey had FMC's year over year growth at 20% versus the industry's overall market decline of 7.5%.

FMC's growth was significantly higher than any of the top competitors. In large part, this was a function of our organization, the unique relationships we've developed with our customers and our proprietary product offerings.

To further strengthen our position in Brazil, we recently negotiated long-term access to a proprietary soybean rust fungicide. Arming us to compete in this key market with an even broader and more competitive product line. Sales for the fungicide product commenced in the second half of this year. Staying lean is also a consider critical dimension of our ag strategy. Ag products is in its seventh year of implementing a multifaceted plan that reduces manufacturing costs and maintains global cost competitiveness.

These cost reduction initiatives have also resulted in significantly lower capital expenditure requirements. Since 1999, we have reduced manufacturing costs by about $60 million on an annual basis. We have identified approximately $30 million in additional manufacturing cost reductions, which we expect to realize over the next few years.

We are also focusing on ensuring that our selling, administrative and research costs, also called SAR costs, are competitive. And expect to implement several programs aimed at improving our efficiencies and global competitiveness over the next few years. A third challenge is rising raw materials and energy costs, which continue to pressure our margins. In addition to our future cost reduction and productivity enhancing programs, price increases in various market segments have been contemplated or implemented to offset or mitigate their impact.

With this is overview, let me now review our first quarter performance. First quarter sales of 206 million were up 4% compared with the prior year. Sales increased significantly in North America, driven by strong herbicide sales, as well as a shift of sales from both the fourth quarter of last year into the first quarter and from the second quarter into the first quarter.

Continued growth in Europe and Asia also contributed to top line growth in the quarter. These improvements were offset in part by the continued and favorably impact of generic bifenthrin competition in North America. And reduced sales in Brazil, due to lower planted cotton acres and more normal pet pressures relative to strong conditions a year ago. Segment earnings in the quarter of 54 million were up 63% versus last year's quarter.

This stellar performance was a result of several factors. First, as we mentioned in our last conference call, we foresaw a shift in sales in North America from the fourth quarter of 2005 into the first quarter of 2006. We projected the earnings impact to be approximately $2 to $3 million, as we worked with our customers to make sales close to the growing period. This certainly occurred.

We also foresaw that some second quarter 2006 business would move into the first quarter, due to low pipeline inventory and early demand from our distributors. This shift did indeed occur. But it was greater than expected. In addition, some European business, which was scheduled for the second quarter moved into the first quarter at the request of our customer. We estimate that approximately $8 million of earnings shifted into the first quarter.

Second, we had a favorable geographic mix in the first quarter. A relatively strong sales in North America and Europe and weaker sales in Brazil impacted our overall margins. Our margins in North America and Europe tend to be higher than our margins in Brazil. And finally, reduced SAR spending also contributes to our quarter over quarter earnings improvement.

We are extremely pleased with our first quarter performance. And despite the challenging market conditions particularly in Brazil, we expect higher sales and increased profitability in 2006. Driven by our strong first quarter performance, to benefit from our manufacturing productivity initiatives and continued growth in Asia and Europe. In addition, our growth initiatives will begin to contribute to our bottom line performance. The two big unknowns regarding the rest of the year are pest pressures in North America and Brazil ag economy.

It is simply too early to determine the level of pest pressures in key geographies. Our 2006 forecast is based on pest conditions similar to those in the past few years, when pest pressures were generally moderate. Our performance for the balance of the year in Brazil will depend on many factors including; farmers' liquidity, planted acres, pest pressures, commodity prices, the upcoming elections and exchange rates. Sugar cane growth will continue to be driven by ethanol demands and the outlook for this crop remains positive.

There is some expectation that cotton acres will rebound but it is too early to make a definitive position. Other crops will be more directly affected by market conditions and commodity prices. In spite of these uncertainties, we expect FMC sales and profitability in Brazil for 2006 to be approximately equal to the results achieved last year.

In closing, we look to improve financial performance in 2006 for the fourth year in a row. We are confident that we will continue to deliver sales and earnings growth. And aggressive efforts to acquire complimentary chemistries and related technologies will enhance our positions in key crops and regions. We anticipate that these efforts, coupled with further cost reduction initiatives, should drive additional value creation for FMC shareholders. While our move to the shorter cycle innovation paradigm is still a work in progress, I'm sure that we will have lots of good news to share with you over the next year and onwards.

Thank you for your time. I look forward to taking your questions during the Q&A session. And I would now like to turn the call over to Kim Foster.

Thanks Milton and good morning, all. At the fourth quarter conference call, I indicated that FMC expected a free cash flow of approximately $150 million during 2006. We are on track to meet or slightly exceed this target. I also indicated that 2006 free cash flow is below a normalized amount due to several factors. Firstly, we are projecting $30 million in voluntary cash contributions to our pension plan during 2006. This compares to voluntary cash contributions of 15 million and 8 million respectively for 2005 and 2004.

We are making these contributions because we believe that smoothing our cash contributions is the best investment strategy. And because we believe that some form of pension reform will be enacted by Congress requiring full funding of pension obligations over the next several years. Secondly, legacy environmental spending, which we projected at approximately $50 million for 2006 during our last quarterly conference call, includes approximately 17 million to settle the future obligations of several sites in New Jersey. We took a charge to provide through this obligation in 2004.

In addition on April 20 we received the necessary clearances from the California Environmental Agency to proceed with the sale of phase II of our San Jose property. While there are several administrative matters yet to be concluded, the environmental clearance was a significant milestone. We could receive the final payment of approximately 25 million from the City of San Jose as early as the end of the second quarter. I have not included this amount in the free cash flow projection for 2006.

On February 24, the Board of Directors approved the initiation of a quarterly cash dividend and declared a dividend of $0.18 per share on April 20, 2006, to shareholders of record on March 31, 2006. Additionally, the Board authorized the repurchase of up to $150 million of our common stock. Shares may be purchased through open market or privately negotiated transactions at the discretion of management, based upon its evaluation of market conditions and other factors.

Although the repurchase program does not include a specific timetable or price targets, it may be suspended at any time, we expect that this program will be accomplish over the next two years. We will not provide any more specific guidance on our plans and have not included future repurchase amounts in our earnings earnings per share or free cash flow projections for 2006. We did not purchase any shares in the first quarter.

However, we have completed all administrative matters necessary to begin execution of this program. We will detail future purchases at our quarterly conference calls and SEC filings. With that, I will now turn the call back to you, Bill.

Thanks, Kim. Looking ahead, we are confident of delivering another year of strong performance. And one that will again meet our strategic objectives for earnings growth and return on capital. Regarding the outlook for 2006, with our strong first quarter performance, we've raised our full year earnings outlook to $2.35 to $2.55 per share. For the balance of the year, we expect to realize ongoing benefits of the higher selling prices in industrial chemicals, lower interest expense and continued profitable growth in agriculture products and specialty chemicals.

Though, I must say that unfavorable currency translation and higher energy and raw material costs are expected to persist. As Milton just covered, ag product full year revenue is expected to be up slightly, with full year earnings growth in the mid-teens. In specialty chemicals, we expect full year revenue growth in the low to mid single digits as a result of improved volumes and higher selling prices in lithium and BioPolymer .

Full year segment earnings growth in the mid single digits is expected, driven by higher sales and continued productivity improvements. In industrial chemicals, we expect full year revenue growth in the mid-teens, driven by higher selling prices across most businesses, most notably in soda ash. Full year segment earnings growth of 40% to 45% is expected as a result of the higher selling prices, offset somewhat by higher energy and raw material costs and the absence of the Astaris earnings.

And as a result of our favorable refinancing of debt reduction in 2005, we now expect interest expense in 2006 of approximately $35 million. Moving closer in to take a look at the second quarter of 2006, we provided guidance that we expect earnings before restructuring and other income and charges of $1.40 to $1.50 per share. In ag product segment, earnings are expected to be flat to slightly down, largely as a result of the shift to sales from the second quarter to the first that Milton has already described. The continued impact of generic bifenthrin competition and higher raw material costs are expected to largely offset the broad-based market growth and continued manufacturing cost improvements.

In specialty chemicals, we expect second quarter earnings growth in the mid single digits, as a result of continued higher selling prices and improved product mix. And in industrial chemicals, we expect earnings growth of approximately 10%, driven by higher selling prices across the segment. Partially offset by higher energy and raw material costs, a planned long wall move in Green River and the absence of Astaris earning. With that, I thank you for your time and attention and I will be happy to take your questions. Let me, before we open it up. Let me correct something that I just said. I wanted to reaffirm 2006 guidance at $5.35 to $5.55. I think I misspoke and said $2.35 to $2.55. Thank you, operator.

Okay. Thank you, Mr. Walter. [OPERATOR INSTRUCTIONS] Your first question comes from Marshall Read of Bank of America.

Good morning. If I look at your previous guidance, I assume you took into account the ag shift from fourth quarter to first quarter. So what changed in ag and/or industrial to led you bump up your full year earnings here?

Marshall, first of all while we did anticipate some shift in ag from the second quarter of '06 to the first quarter we didn't anticipate the magnitude of it. And what we saw was probably $5 to $6 million of earnings that we previously had expected to occur in the second quarter, move forward into the first. But then your question, what has led us to the up the overall guidance for the year? It is a more favorable outlook -- generally more favorable outlook in both ag and industrial. Ag is stronger sales growth in North America, Europe and Asia and industrial, slightly higher average prices both domestically and in the export market than we anticipated three months ago.

What sort of increase was [ANSAC] able to secure for export sales for soda ash in '06? And are you guys considering new capacity to serve the export market this year? And if so, how much is that capacity and what timing?

Marshall I got the first half of that question. Let me answer that. And then would ask you if you would, please, to reask the second one. I think we provided guidance in the first quarter, Michael Wilson did, that we expected ANSAC prices to be up slightly year over year. We didn't quantify it precisely. And our outlook today is slightly more favorable to that. And again, Marshall, with respect to your second question, could you please repeat it?

I was wondering, are you considering new capacity to serve the export market? And if so, how much and what would be the timing on that?

Well, we are in fact. We have initiated efforts to reopen a second increment of capacity at Grainger. Another 250,000 tons of production will be coming on in the third quarter of this year. We have incorporated into our guidance both the capital and operating costs that we are going to incur to start up that second increment. That leaves us with about 800,000 tons of mothballed capacity. And as we have said previously, we will continue to consider bringing on increments of that, as export demand warrants.

And then last question and I will get back in queue. You mentioned a resurgence in your herbicide business. I assume that's products that address [glycosage] resistance. So, what's the revenue opportunity there and how many acres?

Marshall, the acres I will have to get back to you on the opportunity. I prefer to do that than just speculate. But it is in the number of crops in North America. And it does address, as you said, some of the resistance or the tolerance to glycosage that's been used on these crops. And I'll have Brennan -- I will get the numbers and get Brennan to get back to you later on today or tomorrow.

Great. Thanks, guys.

Your next question comes from Mike Judd of Greenwich Consultants. Please go ahead with your question.

Mike, are you out there? We can't hear you if you are. Operator, take the next person.

I sure will. Your next question comes from Dmitry Silversteyn of Longbow Research.

Good morning, gentlemen. A couple of questions. First on the ag business, I just want to make sure that I understood the very detailed presentation that was given. The three products that you are launching, I guess they have been launched, you expect sales by '08, '09, of $50 million. Is that correct?

Dmitry, yes, around 50 million plus.

And it will obviously ramp up at some slope between 2008 or '9?

Correct.

And the second question I had, you talked about end licensing and other products. Did I hear you correctly that it had revenues of 250 million? Or it will have potential revenues for you of 250 million?

Dmitry, what I said is that the growth opportunities that we currently are working on have the growth potential of around $250 million.

Okay. So that's the development of new herbicide, the acquisition of a new product as well as end licensing of new product all together?

That is correct.

And that 250, is that by the same time frame, '08, '09, or is that longer term?

It will be slightly longer term.

Probably by the next decade.

Correct.

Okay. That's fine. Second question I have on the specialty chemicals business, can you give us an idea of what percentage of the specialty chemicals does not go to the food and pharma-market? My understanding was that it was only about 20%. Is that higher than that?

Dmitry, Bill, I'm had hard pressed right now to answer the question.

I am talking about BioPolymers specifically.

BioPolymers, specifically. I would say that probably 80% of it goes -- 75% to 80% goes into food and pharma. The balance is an assortment of other end use markets including several industry, textile, personal care, oilfield. But again, those nonfood pharma end use markets are probably 20% to 25% of BioPolymer sales.

And that 20%, 25% that's totally enough in the first quarter to offset the gains in pharma and food markets. So, the food I can understand stand, personal care I guess I've been hearing it from some other sources that it's not been a great market in the first quarter. But industrial seems to be doing pretty well. I would think that the oilfield related chemicals would be doing real well. So, is there anything fundamentally changing in the businesses that has done poorly in the first quarter? Is there some downstream inventory issues? What's accounting for the weakness that you are seeing in the nonpharma and foods business?

I think wha can explain it is actions that we've taken. The nonfood pharma markets and BioPolymer tend to be our -- are less attractive end use markets, lower margins. We've been aggressively trying to move profitability up in those segments even at the expense of losing some volume.

Okay. So, you are raising up prices and you're giving up volume when they don't pay those prices.

Right.

I understand that. And finally this is just a bookkeeping, and I know you mentioned but you were going through some fast numbers and I couldn't write it down quickly enough. What as the D&A in the quarter?

D&A was 31.7 -- 32.1, I'm sorry.

That's all I had, Bill, thank you very much and congratulations on another excellent start to the year.

Your next question comes from Bob Goldberg of Scopus Asset Management.

Good morning, guys. On the industrial business, Bill, your guidance is for 10% earnings growth in the second quarter year over year, which gets you to around 27 million down from the first quarter. I see in the outlook, you are talking about higher energy, raw materials, a mine equipment move. I was wondering if that was related to the start-up of this incremental capacity at Grainger? And on Grainger I'm just wondering -- I would think that would be a little bit dilutive to this year's earnings because of the start up costs involved, the fact that you're starting them in the second half of the year. Is that a fair assumption, what are the start up costs for that?

Yes, Bob, first, with respect to the long wall move in the second quarter or what we referenced as a mine move in the second quarter it is not related to Grainger, it is related to our existing West [Maco] operations. Historically, we had a long wall move about once a year due to some efficiencies we've been able to realize in our long wall operation. We've been able to extend that move to 15 to 18 months. That move is now occurring in the second quarter of '06. And that will have an unfavorable volume and overhead absorption impact of about $1 to $5 million. Just for reference purposes we did not have a long wall move in industrial last year at all.

How often do you have a long wall move?

Well, historically it had been annually. And now we've been able to stretch it out to every 15 to 18 months. But again, it is not linked to the Grainger capacity addition at all. It's normal operations within our West Maco facility. With respect to your second question, Grainger, to the second increment of Grainger be dilutive in '06, it's not going to add much to the results, Bob. We do have some start up costs, which we -- and capital costs, the sum of which we've said is probably not to exceed $5 million, that will impact us this year. And won't see much of the volume and won't see any of the volume incremental until the second half.

I imagine the profit contribution will be less than 5 million for this year.

As I said, the net contribution of that second increment will be very small.

Okay. So just to circle back to the first part of the question, the reason for industrial chemicals being down 1Q to 2Q. is strictly due to this long wall move?

Sure. You put t3 to 5 million on top of our guidance that we provided for the second quarter, you will see earnings that are essentially flat or slightly up over the first quarter.

Okay. And one question for Milton. Milton, the ag business you are forecasting revenue to be relatively flat, maybe up a little bit in 2006. You're still absorbing some hit from the bifenthrin going generic this year. If we look out to it next year, 2008, now that you've fully anniversaried the generic impact, what kind of top line growth are you targeting for the agriculture business?

Bob, hi, I have not -- we have not made a specific specific forecast beyond 2006. And so at this time we will not be doing that.

But am I right to assume that you -- if you look at just qualitatively the positives and negatives without putting any numbers on it, can you go through that maybe? Because I'm not sure what the -- other than the cyclical forces, which we never know about, but in terms of product contributions and products going generic, can you just talk a little bit about that? Beyond this year, I mean?

I am not going to be specific and give you sales forecasts. That on balance we will have some impacts on the negative side from generics, as we talked about. And we have some new product introductions. And on balance, I would expect the new products to more than balance the down sides.

Let me add to that, Bob. As Milton talked about this effort he's got underway to shift the innovation paradigm within ag, all of that is directed at accelerating the rate of growth in the future. I think it would be away to answer your question would be to look back at the growth that ag has been able to realize the last three or four years and assume that where Milton is trying to drive the business is to a rate higher than that. Again, we haven't quantitied what that higher rate is. But that's where we are trying to drive it to. And we think that we have in place the plans and the programs to achieve that.

Thank you.

[OPERATOR INSTRUCTIONS].

Mike has fallen into a dark whole here someplace go ahead, operator.

At this time there are no further questions.

Okay, thank you, operator. And first of all let me thank all of you for your interest in FMC. We obviously had a very good quarter. Admittedly, as Milton has walked through with you, some of it was timing related. But nonetheless, given the strength of the quarter and a more positive outlook for ag and industrial than we had three months ago we've raised the guidance for the year. Milton identified two risks that still exist in that higher guidance; pest pressure in North America and the Brazilian ag economy. Having said that, we feel comfortable with the revised guidance.

We also remain bullish about our future beyond 2006. Milton has described the things he is doing to shorten the innovation cycle in ag and therefore accelerate growth. Our specialty businesses' outlook continues to remain favorable with sales and earnings expected to continue to grow. And the prospects for further and potentially significant price increases in industrial are good as well. The net of all of which should be continued double-digit growth for the next several years. With that, let me again thank you for joining us.

Thank you for participating in today's conference call. You may now disconnect.