富美實 (FMC) 2009 Q1 法說會逐字稿

Good morning, and welcome to the First Quarter 2009 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 conference over to Brennen Arndt. Mr. Arndt, sir, you may begin your call.

Thank you, and welcome everyone to FMC's First Quarter 2009 Conference Call and webcast. Bill Walter, Chairman, President and Chief Executive Officer, will begin the call with a review of our First Quarter's performance. Bill will then turn the call over to Kim Foster, Senior Vice President and Chief Financial Officer, for a report on our financial position. Following Kim, Bill will provide our Company's outlook for the Second Quarter and full year 2009. We'll then complete the call by taking your questions.

A reminder that our discussion today will include certain statements that are forward-looking, and subject to various risks and uncertainties concerning the specific factors that are summarized in FMC's 2008 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 the FMC website, available at www.FMC.com, you'll find the definition of these terms under the heading entitled, glossary of financial terms. We've also provided our 2009 outlook statement and a reconciliation to GAAP of the non-GAAP figures we will use today.

It's now my pleasure to turn the call over to Bill Walter. Bill?

Thanks, Brennen, and good morning, everyone. As you saw in our Earnings Release, in the First Quarter we delivered record earnings per share and met our expectations. I'd describe that as a remarkable achievement given the current economic climate. We were not immune to the global recession however, as we experienced lower volumes in several of our businesses. Let me summarize our First Quarter results.

Sales of $690 million were 8% lower than the First Quarter of 2008, and earnings before restructuring and other income and charges of $1.22 per diluted share increased 3% versus the First Quarter of last year. In Ag Products, sales of $261 million declined 6%, while segment earnings of $92.5 million increased 12% versus the year ago quarter. Strong performance in North America and Europe, and favorable product and geographic mix more than offset lower performance in Latin America.

In Specialty Chemicals, sales of $175 million declined 5%, and earnings of $38.1 million declined 4% versus the year ago quarter. Strong commercial performance in BioPolymer was more than offset by lower volumes across our lithium business.

In industrial chemicals, sales of $256 million declined 12%, and earnings of $22.8 million declined 36% versus the year ago quarter. Higher selling prices across the segment were more than offset by volume declines, and higher raw material and energy costs. Across the Company, higher raw material costs, and to a lesser extent higher energy costs, limited our earnings growth. Versus the prior year, combined raw material and energy costs unfavorably impacted earnings by $0.25 per share in the First Quarter.

And while currency translation negatively affected our year on year revenues, it had virtually no impact on our earnings in the quarter.

On a GAAP basis, we reported net income of $69.1 million or $0.94 per diluted share. GAAP earnings in the current quarter included a net charge of $20.2 million after-tax or $0.28 per share, versus a net gain of $2.7 million after-tax or 4% per share in the prior year quarter.

Most of the charges in the current quarter related to decisions taken to permanently close capacity in our butyllithium and North American hydrogen peroxide businesses, and to ongoing restructuring of the alginates business we acquired last year.

With that reconciliation, our non-GAAP earnings were $1.22 per diluted share in the current quarter, and as I said, representing a 3% increase versus the $1.19 per diluted share in the First Quarter of 2008.

Let me now take a more detailed look at the performance of each of our operating segments in the quarter. First, in Ag Products. First Quarter sales of $261 million were 6% lower than the prior year quarter. Lower sales in Latin America more than offset sales gains in North America and Europe.

In Latin America, which is primarily Brazil, the decrease was primarily due to lower planted acres in cotton and reduced volumes to the sugar cane market, driven by unfavorable market conditions, including the lack of readily available financing for many sugar mills. In North America, the sales increase was driven primarily by growth from new product introductions and strong early season herbicide demand.

Sales in Europe increased, driven by higher selling prices and the timing of sales, partially offset by unfavorable currency impacts. Asian sales declined modestly as a result of lower sales in Australia compared to a particularly strong demand a year ago.

Ag segment earnings in the quarter of $92.5 million increased 12%, driven by the strong results in North America and Europe, favorable product and geographic mix, new product introductions and lower raw material costs, partially offset by the lower performance in Brazil.

Moving on to specialty chemicals. Revenues of $174.6 million decreased 5%, driven by lower volumes across our lithium business. The decline in lithium more than offset strong commercial performance in BioPolymer. Segment earnings of $38.1 million decreased 4% versus the prior year quarter, as lower lithium volumes more than offset the positive results from BioPolymer.

Top line growth in BioPolymer was driven by steady volumes and higher selling prices across all product lines. Sales were particularly strong in the food and personal care market. BioPolymer earnings also increased, driven by the pricing gains and favorable product mix. Higher raw material and energy costs partially offset these gains.

In lithium, the sales decline was due to significantly weaker demand and inventory destocking along the Supply Chain for primary compounds and butyllithium. Our industrial, energy storage and polymer markets were particularly affected. Pricing across the business remains stable, however. Earnings declined versus a year ago, driven by the volume declines and higher manufacturing costs.

Finally, moving on to Industrial Chemicals. Sales of $256 million declined 12% from the prior year quarter, as higher selling prices across the segment were more than offset by volume declines in each business, and unfavorable currency translation. Segment earnings of $22.8 million decreased 36%, as the reduced volumes, and higher raw material and energy costs more than offset the pricing gains.

In soda ash, both domestic and export selling prices benefited from higher 2009 contract levels. Volumes were down however, relative to a year ago, particularly in the export market. Across all regions, flat glass demand was most affected by the economic downturn. We also experienced significant destocking at all levels of our customers'supply chain.

During the quarter we took the decision to temporarily curtail production at our Granger facility- capacity which we brought on over the last few years to supply growing export demand. We took this action to ensure that supplies align with demand in the near term.

Going forward, we intend to take full advantage of the low cost position of US production to focus on gaining Global Market share at attractive margins. We intend to do so primarily by acquiring new customers in export markets such as Asia through ANSAC.

Due to constrained supply from soda ash producers in a sold out market, ANSAC has appropriately marketed US soda ash with a strong focus on improved pricing over the last several years.

From our perspective however, ANSAC was slow at the outset of the economic slowdown to take advantage of the significant cost advantage of natural US soda ash by shifting its focus to gaining share. The appropriate shift in strategy has now been made. With this in mind, our current forecast projects the need to restart Granger during the third quarter of this year.

Moving to North American Peroxygens, higher selling prices were realized in both our hydrogen peroxide and specialty peroxygens businesses, while volumes declined primarily as a result of soft pulp and paper, polymer and oilfield services markets.

Foret also realized higher selling prices across its entire product line. As in North American, hydrogen peroxide volumes in Europe declined as a result of softer pulp and paper market conditions.

In phosphates, reduced volumes were primarily driven by lower phosphate based detergent demand, due to generic substitution and product reformulation. Foret's profitability was also materially impacted by higher raw material costs, particularly phosphate rock and energy.

Moving on to corporate items. Corporate expense was $11.3 million as compared to $11.9 million a year ago. Interest expense net was $7 million, down from $8.7 million in the prior year quarter.

On March 31, 2009, gross consolidated debt was $668.2 million and debt net of cash was $613.3 million. For the quarter, depreciation and amortization was $30.3 million, and CapEx was $31 million.

That's a quick review of our segments. I'll now turn the call over to Kim Foster to report on our financial position. Kim?

Thanks, Bill, and good morning, everyone. This morning I'll review our net debt and liquidity positions, provide our cash flow forecast and update you on our share repurchase program.

As Bill said, our net debt at the end of March was $613 million, up from last December's level of $571 million. The increase is primarily due to the normal seasonal working capital build in Agricultural Products. As I've said over the past several years, we are targeting net debt between $500 million and $600 million.

Our liquidity profile is strong. As of March 31, 2009, we have available funds under committed credit agreements of $370 million and cash on hand of $55 million. In addition, we have no significant maturities until late 2010.

Our free cash flow position is similarly strong. We expect free cash flow this year to be approximately $175 million. This level compares to the $200 million in free cash flow I outlined last quarter. The reduction is attributable to a lower profit projection and spending for the CB Waterbury acquisition in Agricultural Products, partially offset by reduced capital spending.

Regarding our share repurchase program, last quarter I foreshadowed that we would likely dial down our share repurchase program relative to historical levels. Accordingly, for the First Quarter we did not repurchase shares. In the current credit environment, we think the prudent action is to preserve the strength of our Balance Sheet.

As we began the Second Quarter, we had $220 million remaining under our existing share repurchase authorization. As I do each quarter, I'll remind you that our share repurchase program does not include a specific timetable or price target, and may be suspended at any time. Our guidance for 2009 assumes that we do not repurchase any shares.

To summarize our view, despite the credit market uncertainties, we're in a strong financial position with full flexibility to execute our strategies. We will continue to look for opportunities to grow the Company through a combination of internal and external investments, however, we will preserve our strong Balance Sheet and maintain our solid liquidity position.

With that I'll now turn the call back to you, Bill.

Thanks, Kim. Looking ahead, we remain confident of delivering another year of strong performance. Regarding our outlook for the full year 2009, we have revised our expectation for earnings before restructuring, and other income and charges to $4.40 to $4.80 per diluted share. For the Second Quarter of 2009, we expect earnings before restructuring, and other income and charges of $1.10 to $1.20 per share.

In Ag Products, we look for Second Quarter earnings to be up in the mid single digits, driven by strong performance in North America, partially offset by less favorable agricultural chemical conditions in Brazil.

In Specialty Chemicals, we expect earnings to be down 10% to 15%, as strong BioPolymer results are more than offset by lower lithium volumes, resulting from continued weak end-use demand, multiple plant outages taken to rebalanced inventories and a less favorable mix.

And in industrial chemicals, we expect earnings to be down 40% to 50%, as higher selling prices are more than offset by lower volumes, and higher raw material and energy costs.

With that, I thank you for your time and attention, and I'll be happy to take your questions. Operator?

(Operator Instructions), Your first question, sir, comes from Mike Judd from Greenwich Consultants. Go ahead.

Good morning.

Good morning, Mike.

Phosphate rock prices were relatively high last year, and they've come down a bit here. I'm just curious, as we look at your earnings expectation for the second half of the year, we're expecting a little bit of a hockey stick improvement there.

I was just wondering if you could go through the phosphate rock issue, and give us a sense of what magnitude of benefit the prices there, in terms of raw materials. And how does that work in terms of margin, and what are the various components we should be thinking about as we think about that, maybe that entire detergents business?

Mike, I'm going to answer the question a little more broadly than asked because I think behind your question is really a question on the Industrial Chemical segment, and its second half versus first half performance.

First to your specific question though, yes, phosphate prices are coming down. Phosphate prices, as we sit today, are about comparable to where they were in the Second Quarter of 2008. So at least at the moment we don't have a particular year-over-year headwind or tailwind. As we move forward through the year though, we anticipate those rock prices to continue to decline, and we will see the benefit of that flowing through our second half results.

To the broader question that wasn't asked, what else is going on in the segment that leads us to a much stronger second half than what we are currently guiding for the first, and it's primarily volume related. Prices and costs are playing out as we had expected in our Fourth Quarter Conference Call, when we gave guidance initially for the year. The volume improvements are across all three businesses, soda ash, Peroxygens and Foret, driven in part in all of those by a cessation of the customer inventory liquidation that's been going on now for the last four months or so.

The other element in the higher volumes in the second half are in the soda ash business, where, I'm going to say this a little unkindly, but ANSAC got caught flat footed in the First Quarter and lost share in the export market. And they have been charged and refocused now to correct that issue, but we should see higher soda ash volumes on the strength of ANSAC.

We also expect some further volume increases in our soda ash business due to some caustic conversions, which are taking place right now, as well as our having won the business in South Africa that ANSAC was forced to abandon as a result of an anti-trust settlement last year.

So in summary, as we move into the second half, phosphate rock will be favorable, but more importantly, across the segment we're going to see some volume improvements.

If you were to look at the various components that you've just described, and maybe think about it in terms of a pie chart, I'm just making this up, but could you say 50% is due to lower phosphate rock prices and 50% is due to higher volume? How would you break that up into a pie chart, using whatever numbers you want to use?

Yes, Mike, I'm speculating with you because I've not done that, so next quarter if you ask the question again I'd give a different answer. It's because, again I'm guessing a little bit.

The majority of the second half versus first half improvement is volume, significant majority of it. While we're not going to get into the details of First Quarter volumes by businesses, they were off significantly. And we don't anticipate a material improvement on those volumes in the second half, largely related to continued inventory destocking and ANSAC getting up to speed to gain share back. Again, a long winded answer to your question. If you force me to put a number on it, I'd say north of 75% of the second half improvement is volume related as opposed to cost.

Thanks for the help.

Your next question comes from Kevin McCarthy of Banc of America Securities. Go ahead.

How are you? Bill, I was wondering if you could comment on your operating rate at Green River, excluding the capacity that was decommissioned at Granger. And what gives you confidence that you would be able to increase volumes or increase the Granger operating rate in the back half of the year?

I'm not sure, Kevin, exactly what our operating rates are today, but without Granger, I'd say we're very close if not at, capacity. So that answers the first question.

What confidence do I have in the volume increases in the second half? A high degree of confidence, and if you again, go back to the components of that half over half improvement, not necessarily in order, South Africa is a certainty. We've got that volume and it will be shipping this quarter to arrive in the third quarter.

Caustic conversions are well under way. Customers are putting equipment in place as we speak to make the conversion, and ANSAC has the capability of reacquiring the share that it lost, and clearly should. As I've said any number of times in the past, US industry should never operate in a condition other than a sold out condition. As the lowest cost supplier in the world, we should never be in a position where we're not sold out. And again, ANSAC understands that and is working aggressively at it.

And then finally, we would estimate that somewhere between a third and a half of the volume declines we saw in the entire segment in the First Quarter were supply chain corrections, a customer and end customer who inventory liquidations. Those are going to come to an end. There is already evidence in a number of our end use markets that that has already happened.

So again, back to your question I have a high degree of confidence regarding the second half volumes.

As a brief follow-up to that, Bill, you mentioned that you won some business from traditional caustic soda customers that are converting over. Is that volume meaningful to you?

It certainly helps. It's not the major driver of our volume improvements.

Okay. And then shifting gears if I may to Ag, and I have to apologize here because I disconnected from the call involuntarily and dialed back in, but your margins were at record levels, operating margin around 35% or so. To what extent if any, are you seeing increased competition at this profitability level, and do you anticipate that looking out over the next year or two?

Kevin, I think as you understand, competition in the Ag business is intense, and the fact that we did particularly well in the First Quarter is not changing the dynamics of that competition in any way. Unasked in your question is, what drove that quarter-over-quarter margin expansion. We did see some price effectivity, which we talked about in both the Third and Fourth Quarter Conference Call last year.

We are beginning to see some price relaxation, cost relaxation, I'm sorry. We did have very favorable product and geographic mix in the quarter. I mean all of those things contributed, and then finally, we continue to introduce new products and those new products carry better than average margins.

Okay, thanks. I'll get back in the queue.

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

Hi, guys. Just a couple of quick questions. First, following up on a previous question regarding Foret's profitability, more specifically the price cost dynamic impacting Foret on your STPP product line. Could you discuss how that price cost gap fared through the quarter, and the progress you're making on narrowing it, and whether or not you still expect a crossover point to profitability occurring in the third quarter?

Rob, Bill. We had a mixed quarter with respect to price. The Chinese have once again re-entered the traditional export markets of Foret, and have driven pricing of sodium tripolyphosphate down significantly.

Having said that, there is still a core customer base that we have, where pricing was very attractive in the quarter relative to the quarter a year ago. And on average, I would say pricing was up for sodium tripoly in the First Quarter versus a year ago.

As I commented earlier, phosphate rock, the major cost, although not the single cost driver in sodium tripolyphosphate, in the quarter was about even with where it was a year ago. In fact, it may have been slightly higher than where it was, yes, it was higher than where it was a quarter or a year ago. Actually, significantly higher now that I think about it.

It was really at the tail end of the First Quarter of '08 that we began to see the explosion of phosphate rock prices. I think our average phosphate rock price in the First Quarter of 2008 was around $50 a ton, and in the First Quarter of this year, it was $300 or $400.

Okay, but if I think about it sequentially, it sounds like you've made some progress with the price increases narrowing that spread on a sequential basis. And if I remember correctly, on the Fourth Quarter call you'd mentioned you expect the crossover point to profitability occurring in the third quarter of this year. Given the fact that the Chinese have moved back into the market and are pressuring price, do you still expect that dynamic to occur?

Well certainly it's putting some more pressure on our outlook for Foret's phosphorous business than we had a quarter ago. You've looked at the numbers, Rob. I'm sure the principal change in the guidance we've given for the Corporation for the full year is in the industrial chemical sector.

As I just commented, soda ash through the balance of the year is going to largely play out as we expected, so you can infer from that that a not insignificant portion of the change in our guidance for industrial chemicals is in Foret.

Okay. And then I guess flipping gears to lithium, could you give us a sense as to how much of the volume decline you saw this quarter stemmed from inventory destocking verse the underlying decline in demand. And then how we should think about volumes in lithium unfolding on a sequential basis through the year, as its destocking phenomenon comes to an end?

The volume declines in lithium in the First Quarter were significant. I don't know if you happened to listen to SQM or Rockwood's Conference Calls, but SQM reported sales down 42%, Rockwood 15%. And if you look at the export statistics of lithium carbonate out of Chile, they were down 52% in January and February of this year versus a year ago.

We don't get that granular, Rob, about our volumes by business, but they were down in the order of magnitude, well someplace between Rockwood and SQM.

Of that volume decline, we've spent a lot of time trying to figure out how much of that is true end-use demand destruction versus inventory liquidation through the entire value chain, not just our customers but our customers' customer. And at least half of that decline, and I underscore the at least, is due to inventory destocking.

In terms of sequentially, sequential Q2 versus Q1, we anticipate continued inventory destocking. It is not out of the system, completely out of the system yet, but we do anticipate that that will complete itself sometime in the Second Quarter.

Then the final comment on the sequential comparison is that, while I was a little critical of ANSAC, maybe I'll be a little critical of ourselves. We got caught a bit flat footed on the magnitude of the volume decline in our lithium business, and continue to produce during the quarter at a level that was significantly higher than our sales level. And as a result, we're going to take extended outages, multi-month outages in the Second Quarter in a number of our lithium operations, in order to rebalance our inventory.

So I guess with that said, would you expect a pretty large cost hitting in the Second Quarter, Third Quarter, associated with fixed cost absorption?

Certainly in the Second Quarter. Again, those outages are scheduled to be completed during the Second Quarter.

Okay, great. Thanks for taking my questions.

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

Good morning, I guess it's still morning, barely. A couple of questions, if I may.

First of all, when you talk about raw material and energy cost being higher year-over-year, I just want to understand, were you speaking specifically about Industrial Chemicals or were you referring to some other business? Now I understand the phosphate rock costs in Foret, and I guess because of your hedging policies, you may still be seeing a little bit higher natural gas costs year-over-year for 80% of your needs. But were there any other raw material costs that were significantly higher year-over-year, and where are they as we get into the Second Quarter?

Yes, Dmitry, good morning to you as well. The comment I made about $0.25 was for the Corporation, it was not the Industrial Chemical segment. Having said that, the majority of that was in Industrial Chemicals. And you've identified several of them already, the principal driver being phosphate rock, the second being energy, but there were also caustic soda, caustic pot ash, potassium carbonate and a few others were higher in the quarter.

Elsewhere in the Corporation, we're seeing normal inflation in labor and general supplies. We did see in the quarter higher both seaweed and pulp input costs, and I'm sure there was some cost increases elsewhere in the business. I'm just drawing a blank at the moment, Dmitry.

Okay, all right, and then I guess let me ask a question I was asked earlier just to make sure that I understand the answer. The record margins that you're getting in the crop protection business, I understand the drivers behind them. They sound like they are somewhat sustainable drivers, so without getting into specifics in margin, if you just generally speak of levels of profitability, are we at a new level of profitability for the crop protection business?

Well certainly the First Quarter was a new level. The question is whether it's sustainable at that. Again, I'm going to give you a less than clear answer.

A part of the strength in the margins in the First Quarter was a geographic mix. Brazil was weaker, North America and Europe were stronger, the latter two carry higher margins than we realize in Brazil. As Brazil, things straighten out down there, that favorable event in the First Quarter will go away.

The other side, not the other side of that coin but another driver going in the opposite direction, iswe did get price increases in. They seem generally to be sticking, and we're seeing relief on the raw material costs. How those two, the geographic mix with Foret and the pricing cost dynamics, play out across the entire segment over the balance of the year, I guess I'm not smart enough at the moment Dmitry to figure that out.

Okay, fair enough. Just want to clarify on the comments you made about ANSAC and Asia. The market share that they lost in Asia, can you talk about, besides the fact that falling asleep at the wheel, what led to the loss of market share, and will ANSAC have to compete more aggressively in the spot market at a lower price to try to recapture that volume. How do you see the market dynamics playing out in Asia?

Again, I may have been a little unfair in my characterization of their having fallen asleep at the switch being caught flat footed or whatever I said, but we have been, we, the members of ANSAC, have been driving ANSAC for several years now as the US industry was sold out to pursue pricing optimization, if you may. And we didn't get the message into ANSAC, and ANSAC didn't react quickly enough when things turned a little bit soft.

You understand as well as anybody else out there, the importance of capacity utilization as it relates to pricing and therefore profitability in our soda ash business, and we will get ANSAC turned around.

I have to say, I have 100% confidence in ANSAC's ability to keep the industry sold out, may be a bit of a stretch but not much of one. They are out there, as we speak, more aggressively. Yes, they are going to have to take some business on the margin at lower prices. However, those lower prices are fully baked into our guidance for the segment for the year, and in fact, are consistent with the guidance we gave at the Fourth Quarter Conference Call with respect to ANSAC pricing for the year.

Okay, that's helpful, and then final question, your guidance, you said, did not include the repurchasing of any shares but you are going to generate free cash, so does that include paying down the debt or what are the uses of cash that you have planned for the year?

Yes, Dmitry, I think what Kim said is that in our guidance, we don't include a share repurchase. We never have. Don't read into that that we will not use the free cash flow for share repurchase.

Kim and I made a decision early in the First Quarter to keep our powder dry, given the uncertainty of the economic, the economy and given the uncertainty in the credit market. We'll continue to make decisions which we think are conservative and prudent in this environment.

Does that mean we'll stay out of the market in the Second Quarter? I'm just not going to go there. Interesting though, you guys are all created an even better buying opportunity for us today with your (inaudible), characterize your reaction.

Well, I guess we do what we can.

I know you do.

All right, thank you.

Your next question comes from Frank Mitsch from BB&T Marketing. Go ahead.

Good morning. Just a follow-up. How does M&A play into the possible use of cash in 2009?

Frank, good morning, that's one of the reasons we're keeping our powder dry, but for me to go beyond that, I think you would even agree is inappropriate.

How would you characterize the M & A market in terms of attractiveness of properties that are available? Is this say a prime hunting season, or you're just trying to be opportunistic?

We're scaring a lot more birds out of the corn field. The M&A market is significantly more attractive to us today than it was a year or two ago, and continues to get more attractive each day.

All right, fair enough, but as you commented, so does FMC shares, at least today. Just on the likelihood of pricing in the foreign markets coming down, can you talk about the potential for pricing of soda ash in the domestic market. Where does it stand relative to the beginning of the year, what are your expectations throughout 2009 for domestic soda ash pricing?

Domestic pricing has remained, it remains stable, consistent with contract levels, consistent with the guidance that we gave in the Fourth Quarter Conference Call, and our expectation is that's going to hold through the year. As I said earlier, we're operating sold out right now.

Our view is that the US producers for the calendar year 2009 are going to operate at 96% of capacity, and as we enter the third and Fourth Quarters, are going to operate, if not at 100%, very close to 100%. And in that environment, I see very little risk of downside in our domestic price.

Okay, great. And in discussing the volume declines that you saw in industrial chemicals, can you at least rank order them with respect to Foret as hydrogen peroxide, soda ash? Where did you see more volume erosion in the First Quarter?

Well in percentage terms, it was probably Peroxygens first, and I'm not sure where soda ash and phosphates, they're probably comparable.

Okay, terrific, and then the expectation on Foret with respect to the Second Quarter, you're going to see a little bit of a break I guess on, sequentially on the raw side, but the weakness in Europe, doesn't that seem to be accelerating or no?

The weakness? No.

Okay. All right, so we hit bottom with respect to Foret volumes in the First Quarter?

I think so.

Thank you, Bill.

Yep.

Your next question comes from the line of Jay Harris with Goldsmith and Harris. Go ahead.

I'd like to hear you talk a little more about ANSAC, and it seems to me that there's perhaps a slight difference in objectives of several of the ANSAC members. It's my perception that FMC is the only ANSAC member with easily expandable capacity, so that would place more emphasis coming from the other members on price, it would seem to me, and I'd like you to talk a little more about that. And then if you could, extend your comments out a couple of years in terms of what you expect to happen to total volume demand and why.

Jay, Bill. I think there is great alignment among the owners of ANSAC with respect to the objectives of ANSAC. All of the members understand the leverage of price versus volume.

And the direction that the members have given ANSAC over the years, again, once the US producers got sold out, was to chase price. In today's environment, they are all aligned and saying, fill us back up, and that's happening as we speak.

And I don't see a conflict between us in the easily expandable capacity and the other members on price. We only want to bring on that capacity to serve a growing market. If that market doesn't grow, we're not going to bring it on. We're not pushing ANSAC to fill up unutilized as mothballed capacity that we have.

As I look out a few years from now, Jay, first of all I've got to assume that the global economy is different a few years from now than it is today on May 5. You're going to return to a situation that we had here as recent as mid last year, where the world is sold out of soda ash. There is a high correlation, I don't remember what the r squared is, but there's a high correlation between soda ash demand and per capita GDP in the world, and that relationship should continue.

Capacity is not going to be brought online any place in the world other than that which has already been announced and potentially the Chinese. I think we've got an environment today that we've got to work through, which is a short-term, First, Second, maybe Third Quarter issue for the US producers, but as you get beyond that, I remain as confident as I've ever been about the future of our soda ash business.

Well, what kind of operating rate did you experience in the First Quarter?

Boy, let's see.

I'm talking soda ash.

No, no, I understand. I'm trying to do some math, Jay, as I speak to you. We're sold out today. Granger had an effective capacity online of 600,000 tons or 150,000 tons a quarter, so we were operating the First Quarter 150,000 tons below our effective capacity of 1 million tons a quarter or about 15%, so we were operating about 85% of capacity utilization the First Quarter.

And you'll be operating because shuttering Granger, you'll be operating at capacity starting the Second Quarter?

Yes, we are as I speak.

All right, those former caustic soda users that are switching to soda ash, how frequently are they likely to switch back and forth?

Good question. Those who have installed capacity, soda ash comes in a dry form, caustic is wet. You have to put soda ash in solution to use it in your process, those that have the pots and pans in place to do that, can and will switch back and forth on a six-month notice or basis.

Those who are in process of putting pots and pans in today, I think in order to justify the investment in those pots and pans, will stay with soda ash longer than those that have got the pots and pans in place. I'm not sure I've answered your question very clearly.

Well, you colored it in a little. When the new pots and pans come on stream, what percentage of the soda ash demand in the United States will come from people who have the ability to go back to caustic soda?

We've always said historically, Jay, that there's 5% of the soda ash demand in the US and globally that could switch back and forth between caustic and soda ash. In the last run up of caustic prices, virtually none of that 5% converted to soda ash because the US soda ash industry was already sold out. But what we're talking about is the potential for that portion of the caustic market that is switching to soda ash today, to revert back to caustic. And that probably represents, probably 1% of the US demand for soda ash.

Insignificant, okay.

Right.

Thank you very much.

Your next question comes from the line of Arthur Winston with Pilot. Go ahead.

The soda ash shipments in tons go through ANSAC, last year, for example.

I'm sorry, Art, the question was what?

What part of the soda ash shipments go through ANSAC in 2008?

Approximately one third of the US production goes through ANSAC.

Same for the United States, FMC's production?

Ours was slightly higher than that.

Higher than 33. Okay, good. My next question, is it possible that in lithium, that either you're losing market share or lithium is being substituted by something else?

The latter, no, clearly, where lithium is used, there is, well I can't say no substitute, in some distant markets there might be. Is there a chance we lost share in the First Quarter? There's a chance, but I think highly unlikely. Again, if you look at the, listen to the Conference Call of SQM and Chemital, and look at the export statistics coming out of Chile in the First Quarter, they're all experiencing the same thing we are.

Okay, thank you.

Your next question comes from Rob Norfleet with Diamondback. Go ahead.

The capacity obviously that you're shuttering in the lithium market in the Second Quarter to kind of right size inventories, what kind of cost is associated with that and is that included in your guidance?

Rob, the costs are not insignificant, and they are included in our guidance. It's less than $10 million and more than $1 million. I don't mean to be evasive, but you've asked a question of granularity that we generally don't get into.

Okay, that's fair. I appreciate it. Thank you.

Your next question comes from the line of Eugene Fox with Cardinal Capital Management. Go ahead.

Sorry if I've missed this, gentlemen. You guys have very detailed guidance and you've given guidance for operating profit, I believe, earnings in the segments. Have you updated your annual guidance for the segments based on Q1, and could you make any comments directionally as to those?

Yes, Eugene, we did in the Press Release last night. There is something we call an outlook statement that goes through, by segment, and talks about full year revenue growth, full year earnings outlook, it is on our website. I mean, I could go through it.

No, that's fine, Bill. That's what I wanted to know. Thank you so much.

Right.

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

Just a few follow-ups. Bill, I would say the majority of US chemical companies have announced some fairly large scale restructuring initiatives, including headcount reduction. Do you anticipate the need for additional cost cutting measures at FMC as the year progresses?

Fortunately, Kevin, we've not been faced with some of the issues that most of our other chemical companies have, with the exception of the First Quarter volume challenges we've had, exclusively in our industrial and lithium businesses. We're having a pretty good time, so we've not had to put in place company-wide restructuring, cost reduction, salary freezes, roll backs, benefit reductions.

That doesn't mean we haven't surgically done things. I mean we froze officer salaries, for example.

We did, and you'll see it in our Q, permanently shut down a butyllithium plant in the First Quarter, permanently shut down a hydrogen peroxide facility in Mexico. We've talked about the Granger facility. We're doing things surgically, not with a meat ax that some of our peers have been doing.

Okay, and then shifting gears to Ag, I think you alluded to some planted acreage weakness in Brazil, and maybe some credit issues around sugar. What kind of insect pressure did you see in that market relative to normal levels?

I would characterize it, Kevin, as just normal.

Okay, so it wasn't a situation where the bugs didn't come, it was more around the industry issues?

Correct, and our heavy orientation, if you may, to sugar cane and cotton, sugar cane has the fundamental, has got the issues of credit into the sugar mills, and they aren't developing or didn't in the First Quarter, didn't bring any more land into cultivation, and cotton, cotton prices remain relative to most other commodities, a little weak.

Thank you very much.

Your last question comes from the line of Rosemarie Morbelli with Ingalls and Snyder. Go ahead.

Hello. Bill, given the high profitability level in the First Quarter, the fact that you have cost relaxation, to use your term, do you expect sequential lower margin due to price, now relaxation going along with the cost relaxation, or do you feel that you can hang on to the pricing and the margin? Hello?

Rosemarie, I'm sorry. I forgot to put my microphone on.

Oh, okay, I thought it was on my end.

I feel very confident in our ability to hold pricing across the Company, and if we had more time I could go into each segment and my logic for that, but no, again, I feel good about pricing. Sequentially as we move forward then, the story is a combination of volume and cost, and I've talked through I think in the last hour both of those in some detail.

No, you expect costs to come down, volume to go up, and I was wondering what was happening to pricing in that environment, whether you have to give back some or whether you could hang on to it?

Yes, and again, as I said, ANSAC is probably going to have to give up some volume to regain the share that they lost, but other than that, and the pressure that we're seeing in Foret on sodium tripoly prices as phosphate rock prices come down, and as the Chinese competitors remerge, I just don't see it any place else.

In the industrial side, was your lower volumes mostly due to the lower demand, the global economy decline and so on, or did you also give up voluntarily some volume as you were aiming to get price increases?

Other than ANSAC, and we didn't voluntarily give up any share, and I'd argue with you that ANSAC didn't voluntarily do it. They just got caught at the switch. No, we had no material market share changes in any of our businesses. I was just mentally going through all of ours as I was speaking, and we didn't.

Okay, and then given the seasonality of the Ag business, when would you expect the conditions in Brazil to improve? I am not familiar enough to know if they have two crops a year or if they have any one and we have to wait until next spring.

I think you should know, Rosemarie, the growing season in the southern hemisphere is just reverse opposite of what it is in the northern. The northern is late First Quarter, Second Quarter, Third Quarter season, and in Brazil and Latin America, it's late Third Quarter, Fourth Quarter and First Quarter. So, we're looking at probably the third quarter before we've got certainty as to how Brazil is going to play out the balance of this calendar year.

Okay, and then lastly if I may, you gave us guidance regarding the income by segment for the Second Quarter. In terms of top line, do you expect the decline to continue versus last year at the same level it did in the First Quarter, or do you expect the decline to accelerate in the Second Quarter versus what it did in the first?

Rosemarie, I don't know the answer to your question, very honestly with you. I don't focus very much on quarterly revenues. Having said that, I think everything else I've said in the last hour would suggest volumes, prices, therefore revenues in the Second Quarter should not be noticeably dissimilar to what they were in the first.

Okay, thank you.

Yep.

At this time I would like to turn the call back over to Mr. William Walter for any closing remarks.

Thank you, Operator. Like most anybody's standards, I think we had an exceptional quarter given economic conditions we face, and I hope you'd agree with me.

The impact of the economy however, is going to be with us again in the Second Quarter, as end-use demand remains weak, additional supply chain destocking occurs in some of our businesses, and we adjust our production to address inventory imbalances that we have in several of our businesses, but in particular in lithium.

However, as I look forward to the second half, I feel pretty confident that we will see a marked improvement in most of the businesses, at least by contrast to the first. The global Ag market remains strong, and as I just talked about in Brazil, we expect to see some improvement as commodity prices remain attractive and the credit situation in that country improves.

In BioPolymer, had a very good First Quarter. We've guided to a very strong first half, and I expect we'll have an equally strong second half in BioPolymer.

And in lithium, stability and end-use demand and the completion of our inventory rebalancing in Q2, should result in a significant improvement the second half versus the first. And in industrial chemicals, again the end of customer inventory destocking modest, and I mean very modest, end-use demand improvement, ANSAC regaining lost share and lower phosphate rock prices combined to result in a much stronger second half.

Altogether, I remain confident about our outlook for the full year. At the mid point of our guidance, earnings will be essentially flat to last year, a result that I'll argue with you is unmatched in the chemical space, and among few equals in industry in general. With that, let me again thank you for joining us, and look forward to talking to you in the weeks ahead.

Thank you. This concludes the FMC Corporation First Quarter 2009 Earnings Release Conference Call. You may now disconnect.