富美實 (FMC) 2007 Q2 法說會逐字稿

Good morning and welcome to the second quarter 2007 earnings release conference call for FMC Corporation. Phone lines will be placed on listen-only mode through the conference. After the speakers' presentation, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Thank you. I will now turn over the conference to Mr. Brennen Arndt. Mr. Arndt, you may begin.

Thank you and welcome to FMC's second quarter 2007 conference call and webcast. Bill Walter, our Chairman, President, and Chief Executive Officer will begin the call with a review of our second quarter performance; Bill will then turn the call over to Ted Butz, Vice President and General Manager of our Specialty Chemicals group who will provide an in-depth review of the performance and prospects for our Specialty Chemicals business; Ted will turn the call over to Kim Foster, Senior Vice President and Chief Financial Officer, for a report on our financial position; and Kim will then turn the call back to Bill who will provide our outlook for the balance of 2007. We will complete the call by taking your questions.

A reminder that our discussion today will include certain statements that our forward-looking and subject to various risks and uncertainties concerning specific factors that are summarized in FMC's 2006 Form 10-K, our 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 FMC's website available at FMC.com you will find a definition of these terms under the heading entitled glossary of financial terms. We have also provided a reconciliation to GAAP of the non-GAAP figures we will use today on the call as well as have provided you our 2007 outlook statement. Now my pleasure to turn the call over to Bill Walter.

Thanks, Brennen. Good morning, everyone. As you saw in our earnings release we had a stronger than expected second quarter completing a very good first half for the Company. Let me summarize our results.

Sales of $658 million were up 11% versus the second quarter of 2006. Earnings before restructuring and other income and charges of $1.79 per share increased 22% over last year's second quarter of $1.47 per share. Both were records for the Company. Ag products had another exceptional quarter with earnings of $65.1 million up 46% versus a year ago, driven by significantly higher sales in Brazil as a result of increased planted acres in sugar cane, corn, and cotton, increased demand for bio fuels in Europe, the benefit of new product introductions and continued supply chain productivity improvements.

Specialty Chemicals earnings of $39.5 million increase 10% versus the year-ago quarter as a result of higher selling prices for lithium, across the board sales growth in BioPolymer, and the benefit of productivity initiatives. And in Industrial Chemicals earnings of $21.5 million declined, as expected down 14% versus the year-ago quarter as higher energy and raw material costs across the group and lower electricity selling prices in Spain more than offset the higher volumes and selling prices in soda ash. Energy and raw material costs were higher than a year ago across the Corporation versus the prior year energy and raw material costs unfavorably impact earnings in the quarter by $0.24 a share. Currency translation on the other hand had only a modest favorable impact of $0.01 per share in the quarter. On GAAP basis we reported net income of $8.6 million or $0.22 per diluted share. GAAP earnings for the quarter included $1.42 per share charge for restructuring and other charges including tax effects which was primarily related to the phase-out of operations at our Baltimore agriculture chemicals facilities, and a $0.15 per share charge related to discontinued ops. With those reconciliations our non-GAAP earnings were $1.79 per diluted share versus $1.47 per diluted share a year ago.

Let's take a look a little more closely at the performance at each of our businesses, moving to the segments then. First, in ag products. Sales of 219 million increased 19% versus the prior year quarter. Sales growth was particularly strong in Brazil as we benefited from increased planted acres in sugar cane driven primarily by higher demand for ethanol as well as increased acres in corn and cotton.

Sales in Europe increased as a result of higher sales into the oil seed rate market driven by increased demand for biodiesel, more normal weather conditions than a year ago and the favorable impact of stronger euro. Sales in North America were level to a year ago as higher sales in corn and the benefit of new product introductions were offset by the reduced planted acreage in other crops such as sunflower and cotton.

Segment earnings in the quarter were $65.1 million up 46% versus a year ago due to the higher sales and continued strong supply chain performance which benefited from higher production volumes and our continuous focus on manufacturing productivity initiatives.

Moving on to Industrial Chemicals, sales of $272 million increased 8% versus the prior year quarter as a result of higher volumes in selling prices and soda ash and volume growth in Foret. As expected, segment earnings of $21.5 million declined versus the year-ago quarter as higher energy and raw material costs across the group and lower electricity selling prices in Spain more than offset the benefit of the higher sales. In soda ash market conditions remain tight in North America and all U.S. soda ash producers continue to operate at full capacity. Increasing demand in the export markets remains the major growth driver.

In May, we announced a $15 per ton, per short ton price increase for the U.S. market effective July 1, for all grades of soda ash. And at the same time reaffirmed that our energy surcharge and freight policies will remain in effect indefinitely. Although we expect to see only a very small benefit from this increase in 2007 as little of our soda ash is sold on a spot basis, the increase will have much greater relevance as we move into the 2008 contract cycle.

Also during the quarter the Chinese government announced the elimination or reduction of VAT rebates, export tariffs, and export licenses on 2800 products exported by Chinese manufacturers. Many chemicals and other basic materials were on that list including soda ash. Directionally, this should be a positive for ANSAC but the magnitude of the impact will ultimately depend on the actions by the large Chinese soda ash exporters to maintain margins. Demand growth inside China remains robust and Chinese domestic pricing is higher than Chinese export pricing. Based on these factors we anticipate the Chinese exports will decline slightly in 2007 and grow only marginally thereafter for the foreseeable future.

In North American hydrogen peroxide business sales were level to a year ago. Volume growth was offset by reduced pricing as a result of lower energy surcharges and reduced capacity utilization levels. Following competitor expansions in 2006 the current utilization rate in the North American peroxygen business is in the low 90% range of effective capacity.

In Foret, sales increased as a result of volume growth and the favorable impact of a stronger euro. In line with our expectations at the beginning of the quarter however; earnings declined due to higher energy and raw material costs and reduced selling prices for co-generated electricity. Regarding the energy situation in Spain, effective July 1, the Spanish government enacted new legislation for electrical energy generators which replaced the previous decree. The changes are intended to improve the compensation system for electricity produced by co-generators and renewable energy producers.

Under the new regulation all electricity produced can be sold into the grid under a more favorable and less volatile compensation program. More specifically, cogen electricity producers have the option of selling electricity at an established tariff price in lieu of the more volatile daily price of wholesale electricity. The tariff price which will be adjusted quarterly is indexed primarily to the average cost of natural gas for Spanish cogen producers. The new decree also provides for higher incentives for cogeneration. The net effect will be more predictable selling prices and improved margins for all cogen operators. The financial impact to us in Foret at the changes in market structure is consistent with the expectations included in our guidance.

Moving on to the corporate items, corporate expense was 14.3 million as compared to $11.2 million a year ago. Interest expense net was $10 million as compared to $9.2 in the prior year period. On June 30, 2007, gross consolidated debt was $599 million and debt net of cash was $535 million. For the quarter, depreciation and amortization was $33.9 million and CapEx were 24.2 million. That's it for industrial products, ag products, and corporate. Now for a discussion on Specialty Chemicals I will turn the call over to Ted Butz. Ted.

Thanks, Bill, and good morning. Pleased to be with you today to report on the performance of Specialty Chemicals group and our prospects for continued profitable growth. Let me begin with a review of the second quarter. We had another good quarter. Revenue of 167 million increased 7% over the prior year's quarter while earnings increased 10%. Lithium and BioPolymer both showed improvement. Lithium had another strong quarter driven by higher sales in our primaries business and improved productivity in the downstream performance business.

The primaries business continues to benefit from a strong pricing environment as a result of tight industry capacity. In the performance business, sales of lithium compounds in the pharmaceutical synthesis market were lower than prior year as a result of timing of customer shipments. Bio polymers showed improvement across the board with good top-line growth in food ingredients, pharmaceuticals, and healthcare ventures. Higher volumes in the food and pharmaceuticals were partially offset by a less favorable sales mix.

Healthcare ventures benefited from several new contracts in our nova matrix and capsules technology. Improved BioPolymer earnings were driven by higher revenues and productivity initiatives partially offset by higher wood pulp and energy costs. Year-to-date performance for the group was also strong with revenues up 11%, earnings up 12% over prior year. For the full year versus 2006, we expect revenues to increase in the low teens and earnings to increase 20 to 25% over the prior year. This implies a strong second half result. Reflecting continued improvement in BioPolymer similar to what the level that was achieved in the first half of the yer and substantially stronger performance in lithium. Lithiums second half performance is expected to be driven primarily by higher pricing in primaries compared to prior year and to a lesser extent by good volume growth across the business and the benefit of productivity initiatives.

Let me now turn to specific opportunities we're seeing in the group. Starting with lithium, the division is a global supplier of value-added lithium chemistry. We are the second largest supplier in this market that's valued about $800 million. Overall growth in the industry is around 5 to 7% per year led by very strong demand in batteries and healthy growth in pharmaceutical synthesis and other markets.

The energy storage market accounts for approximately 20% of industry demand and it has been growing in excess of 15% per year. Growth has been driven by increased lithium use in cell phones, digital cameras, notebook computers, and more recently by power tools. Longer term the growth of hybrid vehicles will also lead to an increased demand for lithium. We continue to work with several battery manufacturers in this segment, and are receiving encouraging feedback on the potential for increased lithium usage.

Two other key markets for lithium include pharmaceutical synthesis and specialty polymers which combined account for about 30% of industry sales. Both are the primary end markets for Butyllithium where FMC has a leading position.

The synthesis segment is driven by the continued growth in statin drugs and to a lesser extent by other pharmaceuticals and agricultural fungicides. Demand growth in any one year tends to be lumpy as customers campaign their drug production and new product launches vary from year to year. However, the long-term growth is expected to remain in the high single digits for this segment. On a geographical basis Europe has traditionally been the largest market for synthesis sales. However, we have seen rapid growth in emerging markets and particularly in India.

In specialty polymers demand is driven by a variety of end use applications including elastomers which are used in asphalt modification and adhesives, synthetic rubber used in tire treads and copolymer resins used in packaging. Asian polymer demand accounts for just under half of the industry and it is the fastest growing region. China is currently becoming an important end market production of many of these polymers. On a global demand basis we expect growth to remain slightly higher than GDP. The remaining 50% of the lithium market includes various industrial applications for the glass and ceramic industries, industrial greases, aluminum and air treatment. The majority of these applications are well established with growth consistent with global GDP levels. FMC's strength in the lithium business is in downstream specialty applications where we serve higher value end uses and have stronger technical capabilities.

To maintain our leadership position we have recently invested capital to build two new Butyllithium plants in India and China. The India plant was commissioned earlier this year, it allows us to capitalize on the expanding pharmaceuticals business in the region. In China our focus will primarily be on serving specialty polymer applications. We expect this plant to be operational in the second half of 2008.

In the upstream or primary markets we have benefited from tight industry capacity situation which has led to substantially improved pricing. We believe that capacity utilization will remain high throughout this year and pricing stable. Our focus over the last year has been to raise prices, drive productivity improvements and invest in small debottlenecking expansions to improve profitability. With each of these initiatives accomplished we are now considering additional expansion options to ensure that we continue to grow with the market.

The outlook for lithium remains healthy. We expect full year to remain well ahead of last year. Longer term we expect earnings to continue to grow albeit at a more moderate rate than we've seen over the last two years. Although demand growth should remain healthy, the timing of competitive expansion and their potential impact on market prices is an uncertainty that we expect to gain more visibility into over the next several quarters.

Let me turn to our largest division in the group, biopolymer which account for approximately 70% of group revenues. We have two vibrant market oriented business focused on food ingredients and pharmaceutical (inaudible). A third smaller business within BioPolymer is healthcare ventures which includes our emerging technology platforms focused on advanced biomaterials for medical devices and novel oral dose delivery systems. Across these businesses we are the global leaders in microcrystalline cellulose, Carrageenan and sodium alginates.

Let me provide you with some background and current trends in each of these businesses. Food ingredients account for about half of BioPolymer revenues and market products that provides processed food customers with unique texture ingredient solutions. Market for texture ingredients is approximately $5 billion growing about 3 to 4% a year. Health and convenience trends is the major driver of growth in this market. Capitalized on these trends we offer individual ingredients and functional systems that are based on proprietary applications, process knowledge, and strong customer relationships. We market products globally with over 60% of revenues occurring outside of the U.S. And more specifically, approximately 25% of our revenues are in faster growing emerging markets of Asia and Latin America, including the rapid growth markets of China, Thailand, and Brazil.

Our success in food ingredients is based on having strong leading positions in key enabling ingredients supported by the global application development and continual focus on productivity. These skills have allowed us to work collaboratively with customers to capitalize on new food trends as they evolve. In pharmaceutical recipient business we are a leader in supplying critical formulation chemistries to the world leading ethical and generic pharmaceutical companies. Our products primarily focus on oral dose form applications which account for 60 to 70% of the total market. FMC's Avicil brand is considered the Gold Standard in the industry. Avicel is used for tablet binding where we hold close to half the world market for applications using microcrystalline cellulose.

We also have significant positions in other [occipients] including disintegrants, coatings, alginates, and and colloidal cellulose which are marketed globally to many of the same companies. Growth in the $3 billion market for occipients typically follows trends in overall description and to a lesser extent the growth in nutritional vitamins. Over the last 10 years this growth rate has averaged 4 to 6% per year driven by new product launches and increased use of drugs to treat diseases that previously required surgery or extended hospital stays.

Last year I mentioned we had seen some slowing in the demand as fewer new drug therapies were launched and several key drug categories were negatively impacted by product recalls or significantly reduced prescription activity. This year we're seeing demand growth returning to historical levels led by generic marketers in the U.S. and in emerging markets such as India. We have a strong position with these leading generic players, and are well positioned to support their growth plan. Our newest business in BioPolymers is healthcare ventures which focuses on the development and commercialization of proprietary technologies that are marketed to the pharmaceutical and medical device industry. Over the last several years we have made substantial investments in research, CGMP operations, and commercial capabilities. To date we have been granted over 60 patents and have another 200 patents pending.

We are also on track to achieve our financial targets. 2000 revenues are expected to increase 50% over prior year. We expect to substantially narrow our loss positions this year in this business and turn profitable over the next two years.

Let me briefly take you through two of our technology platforms to give you a better idea the opportunity we see. Our traditional occipients have mainly targeted oral dose tablets with our Avicel binders and other related product lines. Soft gel capsules are another key dose form that has attractive growth, and a unique appeal among consumers. The important issue for capsule marketers is to find animal free solution to the ingredients they currently market. We have developed several novel soft gel capsule technologies that provide customers in both pharmaceutical and nutritional markets alternatives to the current methods that require use of animal derived gelatin.

In addition our technology is in part significant benefit that lead to improved patient compliance. A key issue in the pharmaceutical industry today. Capsules made with technology provide range of benefits that include ease of swallowing, reduction in the heartburn after-effects associated with a number of drugs, and a dose form that is available -- is able to deliver the same amount of actives in a smaller size versus conventional capsule.

The second platform for healthcare ventures is our Nova Matrix line of advanced bio material. These materials are naturally derived and bio resorbable by the human body. Our products are highly purified, characterized in engineered materials that operate in a highly regulated environment. We target several end markets including dermal filling where we are the leading supplier to cosmetic injection treatments currently in the market and this business has doubled for us over the last two years. In wound care applications we are the leader in woven fiber technologies used in both trauma and chronic wound situations. Our customers bandage systems based on FMC alginates and [chidisan] technology are increasingly used in severe hemorrhaging situations in military and civilian use.

We also see promise and are working with customers in the orthopedic, cardiovascular, and tissue and engineering applications area. The outlook for healthcare ventures is very good. Continued success with our current technology platforms will lead to healthcare ventures being a more significant part of BioPolymer, create a business that has attractive earnings and growth profile over the longer term.

Turning back to the group as a whole, specialty chemical has strong market franchises with attractive growth opportunities in both emerging markets and through commercialization of new technology. We're also continuing to actively pursue external growth opportunities that leverage our current business position. As I mentioned at the start of my comments specialty chemicals group is on track to have a strong 2007. Over the longer term we expect revenue growth in the mid single digits with slightly higher earnings growth. Thank you for your interest. I will be happy to answer any questions at the end of this conference call. I will now turn over the call to Kim Foster who will report on our financial position.

Thanks, Ted. In the last quarter's call I projected 2007's free cash flow to be approximately 180 million. Based upon our recent announcement to shut down the ag products Baltimore facility I am now projecting 2007s free cash flow to be approximately 160 million. The decision to shut down Baltimore is consistent with our strategy to maintain globally cost competitive manufacturing positions by sourcing raw materials, intermediates, and finished products in lower cost manufacturing locations. All the products currently produced in the Baltimore facility will be sourced from several of FMC's manufacturing alliance partners.

Let me now briefly review the financial consequences of the decision. The phase-out of operations should be completed by the second quarter of 2008. As a consequence, we will take pretax charges of between 125 million and 135 million over five quarters including this quarter. Of the total charges, approximately 115 million will be for accelerated depreciation. The remaining cash based costs of approximately 15 million are for severance and other shutdown charges to be paid in 2008, although some of these costs will be charged against income in 2007.

For the -- the second quarter charge of 75.2 million, consists of 71 million for accelerated depreciation and 4.2 million of other charges. This strategy also requires that we invest approximately 20 million in manufacturing assets in Asia. A majority of this capital will be spent in 2007. In addition to the capital spending, we're planning for a temporary build of inventory through year end. Together these two items will reduce 2007's free cash flow by approximately 20 million. The annualized benefit to income from continuing operations before income taxes of the Baltimore phase-out is estimated to be approximately 25 million to 30 million which is expected to be fully realized in 2009.

As I have mentioned in previous calls, an item not included in our $160 million free cash flow projection for 2007 is the proceeds from the sale of our Princeton New Jersey properties. We still anticipate the sale to close in early 2008 with a modest upside that the sale could occur late in 2007. Proceeds from the sale are estimated to be approximately $60 million.

Regarding the intended uses of our free cash flow, our dividend program will use 30 million in 2007, including the increase from $0.18 per share to $0.21 per share approved by our Board that began with the July payment. As it concerns our stock buyback program, during the second quarter 2007 we repurchased 352,000 shares at a cost of 30 million under the existing $250 million program authorized by the Board in April 2007. Since February of 2006 the inception of our share repurchase programs we have repurchased 2 million shares at a cost of $140 million. The current program does not include a specific time table or price targets and may be suspended or terminated at any time. However, we expect that the current program authorized in April in 2007 will be accomplished over a two-year period. Let me remind you that our earnings guidance does not assume that we repurchase any shares under the share repurchase program in future quarters. We remain confident in FMCs free cash flow generating capabilities. As we have said over the past year, we will balance the cash requirements of our growth initiatives with the alternative of returning cash to shareholders. With that I will now return the call back to you, Bill.

Thanks, Kim. Regarding our outlook for the full year, first we remain confident of delivering another year of record earnings. With our strong first half performance we'reour raising expectation for earnings before restructuring and other income and charges to $6.20 to $6.40 per share, which at the midpoint of this range represents a 15% increase above 2006.

Looking at the segments for the balance of the year. In ag products we expect full year revenue growth in the mid teens as a result of a healthy global agricultural economy, new product introductions, and increased demand for biofuels. Full year segment earnings in ag are expected to be up 30 to 35% as a result of the strong sales growth, new product introductions and further supply chain productivity improvements. Offset in part by higher selling and distribution costs as well as increased spending on growth initiatives.

In Specialty Chemicals as Ted just mentioned, we expect full year revenue growth in the low teens driven by higher volumes and selling prices in both lithium and BioPolymer. With full year segment earnings expected to be up 20 to 25% as a result of the benefits of the good top-line growth and continued productivity improvements.

Finally, in ag products we expect full-year revenue growth of approximately 10% as a result of higher soda ash volume and selling prices and volume growth in Foret. I am sorry, I should have said industrial. I have my staff here to correct me whenever I make a mistake. They do that frequently. Full year segment earnings in industrial are expected to be down approximately 5% as aggregate price and volume benefits are offset by higher energy and raw material costs across the group.

Moving now to the third quarter, we expect earnings before restructuring and other income and charges of $1.25 to $1.35 per diluted share driven by continued growth in ag products, specialty products, and soda ash, as well as the improved energy market conditions in Foret. In ag products, third quarter segment earnings are expected to be up 20 to 25% as a result of improved market conditions in Europe, continued strong market conditions in Brazil, and the benefit of further supply chain improvements. In Specialty Chemicals third quarter earnings expected to be up 30 to 35% as a result of good commercial performance in BioPolymer and lithium and the benefit of productivity improvements.

Finally, in Industrial Chemicals we expect third quarter earnings to be level to the prior year quarter as aggregate price and volume benefits are offset by higher energy costs across the group and the timing of a equipment move in soda ash. We remain confident that Industrial Chemicals will be back on track building considerable earnings momentum across the second half of the year and into 2008. With that, I thank you for your time and attention. We'll be happy now to take your questions. Operator.

Thank you, Mr. Walter. (OPERATOR INSTRUCTIONS)

Anybody still out there?

Your first questions comes from Robert Felice.

Just a couple of quick questions. First, on ag, you've taken a lot of costs out of the business the last couple of years. If my math is correct, adding back the cost savings from the Baltimore closure, the businesses EBITDA margin so probably somewhere up near 30%, maybe a little below that. Really quite strong. Is that sustainable longer term and if so why?

Rob, Bill. I think it is. I guess I would come back to you and say why not. If you think of how we've gotten where we are those conditions ought to continue going forward. We have new products, we have further supply chain productivity improvements that we have been able to identify. As the top line grows we ought to get leverage on the fixed costs of the business. Again, may expectation is that we should be able to sustain those margins somewhat indefinitely.

Okay. And beyond the Baltimore closure do you see further opportunity to take costs out of the business?

We constantly are looking at opportunities to take cost out. The answer -- direct answer to your question is yes. If the next question is how much, I'm not going there yet with you, Rob.

Do you see some kind of ceiling to the margins in this business?

Yes, that question was asked a conference call or two ago and I flippantly answered it and said yes, it will not exceed 100%. I don't know where that is Rob, exactly. But there is a metric limit to where you can take margins in this business. Driven by competitive environment if nothing else.

Okay. And then I guess, I know this question will probably be hard to quantify. What portion of the earnings improvement in ag I guess would you attribute to the extraordinarily bullish external environment versus internal initiatives to improve the business' cost structure?

You're right, Rob, it is impossible. There's no question that we've got some favorable tail winds right now in the business. Biofuels, commodity crop prices, overall health of the global ag economy, but for us to be able to separate that from the things we're doing right and outperforming our competitors is -- borders I think on the impossible.

Well, I guess what I am trying to get my hands around, is at some point that tail wind will become a head wind. And just trying to get my hands around the magnitude of that head wind.

I wish I could help you, Rob. I can't. I think one way to try to get at it is to look at our performance over a longer period of time where there may not be tail winds behind it. And let's just take the '04 to '07 period. '04 was any -- the industry was facing head winds. Just look at our sales performance, our earnings performance since then. In what -- well, I take it back. '04 we did have tail winds. I'm sorry. '05 was down. So I think those are two good places to compare. '04 to '07. I don't have the data in front of me Rob but I suspect our sales are up 20% or more, our earnings have probably more than doubled. In essentially a comparable healthy environment. I might attribute really all of that improvement to our own -- to us having outperformed in a healthy market.

It sounds like you feel confident that despite any kind of head wind in the future, you can continue to grow this top line and bottom line for this business over a longer period of time.

Well, it's the any comment that you threw in there, Rob, that would give me reason to pause. I guess could I think of an environment out there where what you said may not be true. But under any reasonable scenario, I think what you said is correct.

Okay. Fair enough. I have a couple more questions but I'll hop back in queue.

Your next question comes from Dmitry Silversteyn.

Good morning, gentlemen. Congratulations on another solid quarter. There just seems to be no stopping. Speaking of ag business and the impact that Brazil had on the second quarter, according to your comments, expecting to have on the third quarter, this used to be more of a seasonal business for you in Brazil with first and fourth quarter impact. Is this now becoming a year around driver for your ag business and if so what has changed?

Dmitry, first thanks for the congratulations. The seasonal pattern in the business for us in the ag business in aggregate I think is smoothing out. Both in -- well, given largely the increasing importance that the southern hemisphere has to us in total. With respect to Brazil itself I think the season is extending but is not going to be uniform or level across all four quarters. When I say extending, I think it's extending on both the front end and the back end. So I think we're going to see earlier fourth quarter activity and later market activity into the second quarter than what we have historically seen.

Okay.

What's driving it? A whole bunch of things. Sugar cane may be the classic example. In order to get greater efficiency out of the mills in Brazil, farmers are planting their -- or managing the development of their sugar cane crop to mature at different points in time so that the mill operators can get eight, nine, maybe even ten months of utilization out of their facilities. So it's stretching the growing season even later each year. In addition to that, they continued to expand acreage in sugar cane and that's being done in part off season which again is giving -- is having a smoothing or tempering effect -- tampering effect on the seasonality for us.

That makes sense. To follow-up on ag in North America you talked about the results there being flat in the quarter. You have launched a couple of new products either end of last year or beginning of this year in this market. Obviously the planted acreage in North America is expanding as well with corn and biodiesel or I guess ethanol would be more correct. What accounts for flattish performance? Are you experiencing some pricing pressures or market share somewhere in the business?

Yes, first of all, it's not unique or particular pricing pressure. What I would attribute it to on the plus side here is corn and expanded acreage that we've seen this year and second, new products that we've introduced. But offsetting that has been the reduction -- largely offsetting that has been the reduction in planted acreage in some important crops to us, notably sunflower and cotton.

Okay.

And I think as we have said in previous conference calls at least in North America. This whole biofuel phenomenon is probably a net neutral to us. Positive obviously for corn but negative for other things.

Okay. I got you. All right. Shifting gears, on the industrial chemical side, speaking of prices first, do you have -- is there something you can share with us as far as ANSAC's opportunities to raise prices in the second half of the year as you were hoping they would be able to do at the beginning of the year especially now given that the repeal of the Chinese export credit? Has this taken place? Are negotiations going on now or do you expect it to happen early enough to impact third quarter? Are we waiting for the end of the year to see that happen?

Yes, Dmitry, as I've said before, we don't have total transparency into what goes on within ANSAC and so I am unable to answer the question as clearly and as specifically as you asked it. Certainly the environment, market environment out there for ANSAC to raise prices in Asia is as good if not better than what we thought it was going to be.

Okay.

However, having said that, we have learned since the last conference call that ANSAC has more of their volume on an annual contract than we had been led to believe, so therefore the opportunity for a midyear price increase is less. Having said all of that, my expectation is that ANSAC is going to lead a Asian price increase sometime in the third quarter, and we're just going to have to see what the magnitude of that increase is and how it plays out over the balance of 2007 and into 2008.

Okay. I understand. That's a very good answer. Thank you, Bill. And on the domestic soda ash prices you announced $15 a ton price increase I think it's been followed by at least one other, maybe more by now. Typically, by July at least if you look in the past two or three years you guys would be in your second round of price increase announcements to get ready for your October, November negotiations. Should we read anything into the fact that you've only gotten, and by you I mean the market overall has only gotten one round of price increase announcements?

No, I wouldn't read anything into it, Dmitry. First of all, to set the record straight, four of the five U.S. producers have now increased, announced price increase of $15. And I think also, and you can correct me if I'm wrong because I am about to correct you, I don't think the second round of price increases have generally been as early as July 26. My recollection is to the extent there has been a second round it's been later in the year than now. So again, to answer your question, no, I would not read anything into it.

Okay. Very good. Then just to close the loop on hydrogen peroxide and your peroxide business in general, given the little bit of capacity expansion here in the States and somewhat weaker pricing as a result, what does it say about the prospects of you getting a price increase in this business in 2008 having been unable to to obtain it in 2007?

Well, the North American hydrogen peroxide industry is still operating in 92, 93% capacity utilization which historically at least has been a level that would support producers being able to move through price increases. So I don't get all that nervous or uncomfortable about the pricing outlook in hydrogen peroxide in 2008. What affected us in 2007 was the inappropriate expansion by ARCAMA and the market's reaction to an initial 3 to 4% of capacity having been brought on line. Half of that will have been consumed already this -- by demand growth this year.

That that's all I have. Thank you very much.

Your next question comes from Frank Mitsch.

Good morning. Glad that the time didn't slip out of here. In looking at the industrial chemical segment you're looking at flat earnings year-over-year, yet it it sounded very positive in terms of the situation in Spain where not only do you have easy comps you have a new pricing mechanism that theoretically will also add to profitability there. So it seems like just on the surface of it you ought to be able to post a higher earnings. You did reference the moving of some mining equipment negatively impacting results. I'm just curious, how large of that movement of soda ash mining equipment will be and I guess also your guidance of flat earnings does not factor in any pricing improvement in the export market in soda ash?

Frank, first of all, with respect to your quarter question, we are guiding flat year-over-year. There are two things in the third quarter, one of which we did mention which was the long wall move, that occurs about every 15, 18 months, and negatively affects the quarter's results in which it it happens by $3 million to $4 million. Second, we've got a boiler outage scheduled in the third quarter in Green River which will affect the quarter's results probably by another $2 million to $3 million. So it's those two events which are, if you can call them one-time in nature, that are keeping -- are limiting the guidance we've been able to give for the third quarter. With respect to the full year, the guidance we have given does not assume any ANSAC price increases over the second half of this year.

Terrific. Ted, you mentioned that the -- in the Specialty Chemicals business that your lithium sales of pharmaceuticals are impacted by the timing of sales. Can you also talk about the order of magnitude there and the lumpiness there and if 2Q is on the light side should we start looking at 3Q, 4Q being a little bit higher?

Thanks, Frank. First quarter we had a strong quarter in pharmaceuticals. Year to date we feel fine about it. I don't want to get that granular on the exact impact of that for the pharm business but we've had many quarters like this where it's also clearly is just timing issues. Our ability to predict year-over-year when their customers are campaigning. I failed to do that very well over the last several years. On that. But we feel pretty good about the continued growth of the business and the second half. With pharmaceutical orders at hand.

All right. You also referenced growth opportunities in the battery market due to hybrids. Order of magnitude and when do you think we might be able to see, start seeing that on the income statement.

Frank, let me jump in here. I mean, I'm not sure I'd be putting in put it in my model right now. I'll put it that way. There are a lot of technical issues that need yet to be worked out before the automotive industry moves into hybrid electric vehicle that has got a lithium ion-based battery in it it. And a break-through could come inside of a year or two. It could be three to five years out. We are not including anything in our model.

Great. You can understand that should something develop there that obviously would be massive.

Oh, yes. I think you you've heard me quote this before. That if only 5% of the world's new car sales were to convert to a hybrid electric vehicle with a lithium ion storage battery in it it would double the demand for lithium overnight. So, yes, it would be huge.

All right. Great. I'll keep looking for the press release on that then. Thanks a lot guys.

So will I.

Your next question comes from [Robert Neal].

Good morning. I just wanted to follow-up on the comment you made about share repurchases. And I just want to try to understand a little bit better what the thinking is in terms of size of share repurchases at any given time and what your philosophy is. First quarter I think you bought back about $22.1 million worth of shares and second quarter it looks like about 32.4. I was wondering if you just have any more thoughts on that?

Robert. This is Kim. And just to refamiliarize you with the size of our program, it's $250 million over two years or eight quarters, and that's -- arithmetically comes out somewhere near $30 million a quarter. We have consistently done something on that order of magnitude for the last eight quarters. What we have said is, however, is because it's a program can be terminated at any time is it should -- and we're trying to grow the Company through a series of growth initiatives, should we have the opportunity to do that we're not committing to continue that share repurchase program.

Okay. So it's just basically simple math at this point. Absent something better. Okay. Thank you.

That's right.

Okay. Thanks.

Your next question comes from Kevin McCarthy.

Hi, this is Chris actually stepping in for Kevin. Would you guys shed some light on how you can compare, contrast growth in insecticides or herbicides in 2Q?

Compare and contrast the growth between insecticides and herbicides when, Chris?

In this past quarter.

In the second quarter?

Yes.

Globally, our herbicide demand, wow, I don't think I can, Chris, sitting here. There's nothing that is standing out in my memory bank very clearly about differential growth rates between the two. We -- well, it's not obvious, we saw good growth across both herbicide product lines and insecticides.

How about maybe looking forward? Is there any sort of -- anything more you can add looking forward?

Well, no. Unfortunately, Chris, there's not. I wish I could help you a little bit more. But we have a hold of positive view on demand growth for both. Nothing I can think of offhand that again would result in a differential growth rates between one product family and another.

Okay. I guess specifically about insecticides, how would you characterize I guess insect pressure in 2Q relative to normal levels and I guess looking forward do you sort of have an early read on 3Q?

Yes, clearly I think, Chris, the pest pressure in Brazil in late season pest pressure in Brazil helped us in the second quarter and I would characterizes pest pressure there as measurably above normal but not excessive. We are just entering the period in the calendar in North America where pest pressure should begin to show up. At this point, all the reports we're getting from the field would suggest pest pressures this year should be moderate, normal.

Okay. I guess sort of switching gears here, I guess more towards Kim. You mentioned the uses of free cash flow and you highlighted specifically dividends and buyback. Did you guys looking at any M&A opportunities right now as uses of cash and sort of where, in what areas are you looking?

Yes, Chris, we are. We have a number of acquisitions that we're looking at. As we have indicated in the past, we're in general looking in both our specialty chemical business and our ag business for acquisition. None of those acquisitions are far enough long that I think you should expect anything imminently in any of those areas.

Very good. Thanks a lot, guys.

Your next question comes from Mike Judd.

Congratulations on a great quarter also.

Thanks, Mike.

My question is about the new electricity agreement that you have, I guess that's starting effective July 1, in Spain. You mentioned that the pricing tends to have some relationship to natural gas. Are there any leads and lags associated with those natural gas prices?

Yes, Mike there is. The current quarter electricity pricing is related to the prior quarter's natural gas prices.

Okay. So is that why we don't really begin -- I mean, I guess will we begin to see a benefit really in the fourth quarter and not so much in the third quarter? Is that the implication?

You'll see some of it in the third quarter, but while this decree or regulation came into effect July 1, by the time we were able to fully understand the regulation and figure out what it meant to us we were unable to avail ourselves of that benefit to that new decree until August 1.

Great. Just lastly, on interest expense, I see there was a little bit of a tick up here in the second quarter. Do you have a forecast for the third quarter or maybe the second half of the year what you think your interest expense will be?

This is Kim. We don't provide guidance specifically for the third quarter but we do provide guidance in our outlook statements for the full year and for the full year we're estimating interest expense of $34 million.

Thanks for all the help.

Your last question comes from [Ian Safino].

Thank you. Just wanted to follow-up on the soda ash price increase question. Is there -- I guess there were two announcements made last year when you get to December 31, and you finalize these contracts it often changes a lot. Is there any indication that you could give us, I know it's very, very early but is there any indication you could give of us what portion of those price increases should stick.

Should it it be the traditional 50% or could it be less than that which we have experienced before? Thank you.

Ian, unfortunately we're not going to be able to give what you you're looking for. We're all just going to have to wait to see how it plays out.

I guess we'll hear on January 1, huh?

Yes, it's late Christmas present.

All right. Thank you, gentlemen.

Okay. Thank you. Well, thank you, operator, and thank all of you for your continued interest in FMC. We obviously had a very good quarter and great first half. With that we've raised our expectations for the full year 2007. The global ag economy remains strong, largely on the back of increased demand for biofuels and the effects that is having on commodity crop prices globally. And we're well positioned to take advantage of what's happening in that economy.

End use demand growth in specialty remains attractive and broad based and our market position in each of the end use markets is very strong. In the soda ash market as we've just heard conditions are potentially developing more favorably than previously thought. And then really, finally, we can see the light at the end of the tunnel in Spain as it relates to energy costs and electricity selling prices. Two issues which have been major drag on Industrial Chemicals earnings for the last 12 months. All of which should result in a strong third and fourth quarter performance and put us in excellent shape moving into 2008. With that let me end and say again thank you for joining us. Thank you, operator.

This concludes today's second quarter 2007 earnings release conference call for FMC Corporation. You may now disconnect.