富美實 (FMC) 2008 Q3 法說會逐字稿

Good morning, and welcome to the third quarter 2008 earnings release conference call for FMC Corporation.

Phone 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) Thank you.

I will now turn the call over to Mr. Brennen Arndt. Mr. Arndt, sir, you may begin.

Thank you and welcome, everyone, to FMC's third quarter 2008 conference call and web cast.

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 risks 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 a 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.

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 chemical 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 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 were 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 is on schedule. Both acquisitions support our growth initiatives to expand our franchise in food ingredients and pharmaceutical incipients. 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 from Argentina. Thank you for the music interlude.

In lithium, increased volumes were in primary compounds and in the pharmaceutical market were the 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 on to 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, 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're 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 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 expense net was $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?

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, first, demographics. The world's population is growing at 1.7% per year, while planted acreage is static to declining in many countries; therefore, we expect higher demand for food to be produced on a relatively affixed amount of arable land.

The second is increasing demand for protein which has been generated by rising global per capita income in the world's most populated regions. The third is biofuels, which are competing with food, fiber, and feed for land and other resources. Despite the recent drop in oil prices, biofuels remain politically and in some cases economically attractive. We expect the increasing demand for biofuels from relatively scarce agricultural resources to continue for many years to come.

Together these three trends are likely to continue driving stronger Ag commodity prices and simultaneously the demand for products and technologies that increase farm productivity and yields. Naturally, we expect there to be some cyclicality in the markets we serve, but the long term trend is clear: strong and increasing demand by global farmers for products and technologies that enable yield increases.

Additionally, while demand is high, there are four forces in our industry that keep us agile and focused. These forces include: first, ongoing consolidation and vigorous competition in the Ag chem industry. Second, product competition for Ag biotech technologies. Since 1996, this technology has grown into approximate $8 billion market.

Third, a demanding regulatory environment that is costing us more to register new products and to keep existing products registered. And finally, escalating raw materials and manufacturing costs in our industry. Despite our record performance this year, Ag products has had to absorb almost $50 million in increased raw material, intermediate solvent, and freight related costs. Though we have not recovered all these cost increases, we expect to recover the balance in the form of higher selling prices in 2009. That said, the recent drop in oil prices is welcome on many fronts and we expect some cost roll backs from our suppliers to begin soon. In summary, certainly a challenging and dynamic industry, but one we believe with many opportunities for our business.

With this industry context, let me now provide an overview of our business and strategy. We are a focused competitor in the estimated $40 billion global agricultural chemical crop protection market. Over the last 12 months our sales totaled $1.1 billion of which approximately 60% is insecticides and the remaining 40% predominantly herbicides. This compares with $855 million in sales for the 12 month period ending September 30, 2007. Over the last 12 months, our EBIT totaled $243 million compared with $197 million for the 12 month period ending September 30, 2007.

In 2008, we expect to achieve our fifth consecutive year of record sales and profits. It is important to note that we have accomplished these record financial results without any major acquisitions and without being a player in the glyphosate and soybean fungicides, two of the highest growth chemical crop protection product groups over the past few years. As I mentioned we compete globally and enjoy relatively strong niche positions in agricultural and non-agricultural markets in North and South America, Europe and Asia.

Our success in growing our profits and strengthening our competitive positions is related to a number of factors, which include restructuring our global supply chain in order to drive our costs and achieve global cost competitiveness; exiting R&D activities associated with the discovery of new active ingredients, and focusing our innovation spending on prospecting for and developing differentiating technology platforms; optimizing our existing product lines while accessing new products to expand our offerings in focused markets; leveraging our strategic alliances, for example, our EU and Eastern European market access alliances; focusing on key customers, markets, crops and products. Given our relative size, focus was and remains a key element of our strategy. And finally, developing a superb organization that is empowered and structured to execute on these initiatives with agility and speed.

So where is our future growth likely to come from? The strategies that have helped us achieve profitable growth over the past five years will continue to move us in the right direction. So let me expand on some of these and how they relate to future profit growth. First, our global supply chain. We are now sourcing all our major products from a low cost virtual manufacturing operation.

This strategy makes our manufacturing capabilities globally cost competitive with any of our competitors including generic manufacturers. Currently we have identified tens of millions of dollars worth of additional productivity enhancing and of cost reduction opportunities that we expect to realize over the next five years. Second, in mid-2006 we significantly changed our innovation paradigm by redirecting R&D spending from the discovery of new active ingredients to focusing on shorter term innovation opportunities. We are now focusing on developing technology platforms that will enable us to differentiate existing and specifically off patent chemistries.

We have a robust innovation pipeline with approximately 100 potential technologies identified, another 10 in the proof of concept stage; and, in addition, we have two technology platforms with a number of potential products in development with the potential for commercialization over the next five years. We recognize that not all the technologies identified will make it to full commercialization, but we are confident that inherent in our innovation efforts are commercial opportunities that have the potential to generate 100 to $250 million in new sales within the next five years.

The third element of our growth lies in expanding our product lines to offer full solutions in our focused markets. As I mentioned earlier, one of the reasons for our recent success has been our ability to access third party products, and expand our existing product lines by a co- formulations and premixes. Many of these combinations are complimentary to biotech crops. As we have developed these skills so has the potential growth opportunity space expanded for us. Currently we have more than 50 new product combinations in development across our global organization, and these have the potential to generate another 150 to $300 million in new sales within the next five years.

The fourth key element of our future growth is acquisitions and alliances. This entails finding and realizing a number of strategic opportunities aimed at increasing Ag products' long term profitability and strengthening our strategic positions in key markets. Based on the industry dynamics I described earlier, we believe that there should be a number of acquisition and alliance opportunities over the foreseeable future.

And finally, the fifth element of our future growth revolves around our organization. It is key that we continue to invest in people, development, and that we maintain and even enhance the speed with which we realize new growth opportunities. Accordingly, we have and will continue to grow significant resources ensuring organizational effectiveness and competitiveness.

In summary, we have met an aggressive growth strategy for FMC's Ag products business. We recognize that not all opportunities we pursue will materialize and undoubtedly there will be bumps and detours along the way; however, when we consider all the up sides versus the down sides we are confident that FMC Ag products has many years of profitable growth ahead of it.

With this overview of the industry and our strategy, let me know review our third quarter financial performance. Third quarter sales of $263.8 million were up 37% compared with the prior year quarter. We experienced sales increases in most regions particularly Latin America. In Latin America, which is primarily Brazil, sales increased significantly reflecting a strong start to the 2008/2009 crop season buoyant market conditions. The impact of price increases and growth in planted areas for our key crops.

In Europe sales benefited from good market conditions, growth in several of our newer products, and favorable currency impacts. North America sales improved in the quarter reflecting heavy aphid infestations in certain parts of the country as well as growth from new product introductions.

Segment earnings in the quarter of $44.1 million increased 13% driven primarily by the broad based sales growth. As expected, the year-over-year earnings improvement was negatively impacted by higher raw material costs of $13 million. In addition, increased R&D spending on growth initiatives as well as unfavorable currency impacts in Brazil negatively affected third quarter earnings by another $8 million.

We have had another exceptional year-to-date performance. Year-to-date sales were $817.9 million, an increase of 24% compared with the first nine months of 2007. Earnings of $211.5 million were 21% higher than last year.

Looking to the fourth quarter, we believe that fourth quarter earnings will improve approximately 5% to 10% due to continued strong market conditions in Latin America. Higher raw material and shipping cost expected to continue in the fourth quarter and are estimated at $10 million.

In addition, fourth quarter earnings will be affected by a higher one time sourcing and shipping cost associated with a recent incident at the bioplant in Institute, West Virginia. Since the incident the production has been curtailed and we have been forced to source the related product from higher cost sources. We estimate the total financial impact of the buy incident will be approximately 4 to $5 million all within the fourth quarter. To counter these cost pressures, we have initiated price increases across the board and for the most part these increases are taking affect.

In closing, we look to record financial performance in 2008 for the fifth consecutive year. We are making good progress in our focused growth strategy, and are highly confident that we will continue to deliver sales and earnings growth for our shareholders in the fourth quarter of 2008 and across 2009. Thank you for your time. I look forward to taking your questions during the Q&A session.

I would now turn the call over to Kim Foster.

Thanks, Milton, and good morning everyone.

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 chemical 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 strong focus on cost and capital spending that we will have higher free cash flow in 2009. Our net debt at the end of September was $481 million. 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 have 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 both 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 24th, our board of directors authorized a new $250 million share repurchase program. This new program is in addition to the $250 million program 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.

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 Milton has just said, we look for fourth 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 full 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-a-vis the euro and the real, the decline in commodity crop prices, and generally tight credit prices 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 slow down 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.

And 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 are 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 would 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 with Greenwich Consultants.

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

Thanks, Mike, it feels good here too.

That's great.

So my question really relates to a comment that you just made about anticipating higher caustic -- sorry, not caustic, soda ash prices potentially in 2009 versus 2008. 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 there is -- I guess there is some drift during the year, right?

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

Can you just try to -- expand upon that? Talk about some of the factors, is it inner 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?

It is a combination of things, Mike. Not the least of which, I think, is the interproduct 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 -- which were largely 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.

Okay, and then I'm not an expert on seaweed, but I thought I read somewhere that there in the third quarter there had been an increase in seaweed prices and then a collapse in prices; can you elaborate please if that's, in fact, even the case?

Yes, we have been talking, Mike, about escalating seaweed, specifically cottony seaweed prices now for several quarters; and there was a front page in the article in the Wall Street journal earlier this month that described a phenomenon that was occurring there. Seaweed got 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 -- and not conservatively either. Objectively, I would expect that we're going to see a decline in seaweed prices year-over-year 2009 to 2008.

Thanks for the help.

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

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, will that affect -- would that affect your margin, the profitability of that particular business?

Yes, Rosemarie, 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 off cost. So as costs decline, I don't anticipate that it's going to have any effect on our ability to get 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.

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

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

Rosemarie, in Argentina we do not do a lot of business, most of our business is in Brazil. And you asked about what impact it's going to have on the small farmers. A predominate amount of our sales are to the larger, more technified farmers in Brazil. Yes, certainly there has been turmoil in the market, but we have started off the 2008 and 2009 season well.

We have 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 not have -- that might have been available last year from the private sector, and 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 -- continue to remain bullish about Brazil going into 2009.

Okay. That is very helpful. Thanks.

And one last question, if I may. With the situation in soda ash, are you still planning in debottlenecking Granger or re-opening it, whatever the proper term is?

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 mothball capacity by 2012. I'll remind everybody that we have the flexibility to re-mothball that capacity should the market develop less bullish than we currently anticipate.

Okay. Thank you.

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

Good morning, and thanks for the happy recap.

Hard to figure out who is more optimistic in Philadelphia these days, Bill Walter or Jimmy Rollins, but good luck tonight.

Bill, you guys 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?

Frank, first, I would characterize generally or broadly, valuations are falling into 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 chemical group. For me to go any further than that, though, 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 the range of single product and single technology acquisitions to the purchase of small to medium sized businesses and/or companies to a 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.

Prudence 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 transactions to add to the bottom line and at what point in order of magnitude, I guess?

Yes, Frank, our expectation is that the sum of the ISP Alginates and the Co-Living dairy will be slightly accretive in Q4. We haven't quantified exactly what "slightly" means. A couple of cents.

Okay. Terrific.

So, and if I can just jump back to the original question, on prospective of M&A, would that be your -- would that be your intent that if you were to do something, that it would be accretive year one?

Certainly would hope so, Frank. 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.

All right. Terrific. Thank you.

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

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 part. Maybe you could break that down for us a little bit.

Sure, Kevin.

It is 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 a 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 pricing -- 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 $90.00 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 a 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. And 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.

That's helpful, thanks.

Shifting gears to the soda ash business. I guess across a wide variety of commodities we have 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?

Kevin, first of all, you've obviously got more market intelligence than we have. I don't get Chinese domestic consumption on a four-week lag, and I need to find out where you are getting your information so we can get the same. Our data is now probably 30 to 60 days old, but on that basis, we actually -- we see no slow down in domestic production or consumption. Total production at about 1.6, 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; it has increased as we had expected. The Chinese have brought capacity on and an expectation is that -- not an expectation, at lease announcements that 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 -- 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 any place else that is going to upset the supply/demand equilibrium next year.

In fact, as you look more closely it 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 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 its 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 to -- that potentially may discourage additional capacity.

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. I was wondering if you could just elaborate on what those are please?

Hi Kevin.

I mentioned that we have a number of technology platforms or products within these technology platforms that we are currently developing. And 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.

Thank you very much.

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

Hey, guys, I will add my congrats on a very nice quarter.

Just a couple of questions. Bill, you mentioned earlier the collapse we have seen in commodity prices everything from oil, to copper to corn, even seaweed hasn't been spared. In this environment folks wonder how FMC could get additional pricing through on soda ash. I know it's not your practice to talk about how contract negotiations are going on the third quarter call, but any flavor on what you are seeing in the market place would really be helpful.

Bob, you are right.

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

Well, if we look historically, we have 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?

Rob, I'm smiling as I listen to your question. I'm going to have to go back to the transcript for 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 0% 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 not -- I don't see it in 2009.

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

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

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

Rob, I don't know, to be honest with you. I don't know what -- there was a $90 off list and something less than or least different than that on list. Most of that non-contract business goes at that list price; and I just don't know, I'm looking around the table -- somebody to help me here, and they are all looking at their shoelaces.

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've seen in Foret here?

I think it is sustainable, Rob.

One has got to remember the challenges that Foret had in 2006 and 2007, and I ask the question of whether those are going to continue going forward, and I don't think they are. We had this whole crisis and collapse around natural gas pricing and electricity pricing in Foret, which probably cost us 10 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 a 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.

No, 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 earning stream there.

I would certainly hope so.

Okay, and 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?

Given the price actions that we took in the third quarter and are taking in the fourth, I would expect, Rob, we're going to see that turn around here as we move into calendar 2009.

Okay. So the margin compression here isn't anything systemic or structural, it's just a short-term blip?

Absolutely not. We have 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 going to -- we are seeing a decline in some of those prices as we speak, and our price effectivity -- our pricing actions are taking effective.

Great. Thanks for taking my questions.

(Operator Instructions)

Your next question comes from the line of Paul Christopherson with Gilford Securities.

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

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 -- that is unchanged from Q2 and only marginally below where it was a year ago.

Thank you, Bill.

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

Good morning.

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

Yes, Dmitry , they are largely

Okay, so just the solvents to get the product out of the brine?

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

Okay. I got you.

And that's -- those are the materials that are starting to roll over now in the wake of oil pricing declining?

Correct.

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

$50 million, five, zero.

Okay.

Secondly, you did talk about the outlook for crop protection over the longer term or more of a kind of a global high level picture. You clearly 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 -- 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 ?

Wow, the way the question was asked, it is hard to answer. Is there anything that would cause --?

I'm not talking about Six Sigma, but I am talking about 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?

I think what we would have to see, Dmitry, is further collapse in commodity crop prices. That would clearly affect farmers' planting -- farmers' income and, therefore, planting intentions in the northern hemisphere in 2009.

I'm looking at Milton to see if he could think of any other circumstance that would cause us to have a different view, and if he does, jump in.

I guess 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 so it is more like end of second quarter, third quarter type of an impact?

Exactly. The southern hemisphere planting is well underway; the certainty, to the extent there is any about '09 is in the northern hemisphere, and that is largely North America and Europe.

Okay.

And then returning to lithium for a second. Have you seen any slow down in volume growth in lithium given that a certain percentage, which I'm not sure what that percentage is, if you can enlighten me that would be helpful, of 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 a price erosion as a risk to earnings in the lithium business in '09?

Let me set facts here for us. Rechargeable -- at least lithium ion and 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 has 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 is 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.

And, Dmitry, I'm sure you have 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, and as you know, we have 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.

Okay, that's helpful.

And then just to finish up on lithium, and I apologize for the questions. Chinese demand -- or Chinese supply actually was slower in this first half of the year than people originally thought. I understand there were some Australian material that made its way into the market to 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?

That's -- they are still having issues, Dmitry. Specifically, they have a brine issue, they've got operating issues at their plant, they've got inland transportational logistics 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.

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

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

Good afternoon.

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

We don't make those -- Richard, we sell through an entity called ANSAC and ANSAC does not announce price increases. Pricing in the export market is very local, and as a result, a price announcement means nothing.

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. Is this -- when you say you be aggressive, is this the rate we should be thinking of, or what is your thinking there?

Richard, this is Kim.

Your memory is correct. In the first quarter we repurchased about 30 million and in the second quarter we repurchased about 30 million. So we did a little over double that in the third quarter; and you probably also know that I haven't -- 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.

Okay. Great. Thanks a lot.

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

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 four and a half times current year's EBITDA.

Undervalued, never more so, 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.

Thank you.

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