富美實 (FMC) 2010 Q1 法說會逐字稿

Good morning and welcome to the first quarter 2010 earnings release conference call for FMC Corporation. After the speakers' presentation, there will be a question and answer period. (Operator Instructions) Thank you. I will now turn the conference over to Mr. Brennen Arndt. Mr. Arndt, sir, you may begin.

Thank you, Carly. And welcome, everyone, to FMC's first quarter 2010 conference call and Webcast. Pierre Brondeau, President and Chief Executive Officer, will begin the call with a review of our first quarter performance. Pierre will then turn the call over to Ted Butz, Vice President and General Manager of our Specialty Chemicals Group, for an in-depth review of the performance and prospects of both our BioPolymer and lithium businesses. Following Ted, Kim Foster, Senior Vice President and Chief Financial Officer will give us a report on our financial position. Pierre will then provide our outlook for the second quarter and full year 2010. We'll complete the call by taking your questions.

Joining Pierre, Kim and Ted for the Q&A session will be Milton Steele, Vice President and General Manager of our Agricultural Products Group; Michael Wilson, Vice President General Manager of Industrial Chemicals; and Mark Douglas, Vice President of Global Services and International Development. A reminder, that our discussion today will include certain statements that are forward-looking and subject to various risks and uncertainties, concerning specific factors that are summarized in FMC's 2009 Form 10-K, our most recent form 10-Q and other SEC filings. This information represents our best judgment, based on today's information, and actual results may vary based on these risks and uncertainties.

During the conference call this morning, we will refer to certain non-GAAP financial terms. On the FMC Website, available at www.fmc.com, you will find a definition of these terms under heading entitled, "Glossary of Financial Terms." In addition, we have provided our 2010 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 Pierre Brondeau. Pierre.

Thank you, Brennen. And good morning, everyone. As you --.

(No Audio) Ladies and gentlemen, this is the operator, please hold and the conference will resume momentarily. Thank you for your patience.

We realized continued strong sales growth in agricultural products and specialty chemicals and demand recovery in industrial chemicals. Across the Company, our sales growth was especially strong in the rapidly developing economies in Asia and Latin America. Summarizing our first quarter results. Sales of $757 million, were 10% higher than last year's first quarter. While earnings, before restructuring and other income and charges, of $1.34 per diluted share were also 10% higher than the year ago quarter. In agricultural products, sales of $305 million increased 17%, while segment earnings of $93 million were level with a year ago. In specialty chemicals, sales of $203 million increased 16%, while earnings of $41 million increased 7%. In industrial chemicals, sales of $250 million declined 2%, while earnings of $35 million increased 51%.

On a GAAP basis, we reported net income of $77.4 million or $1.06 per diluted share. GAAP earnings in the current quarter included net charges of $21 million, after tax or $0.28 per diluted share versus a net charge of $20.2 million, after tax or $0.28 per diluted share in the prior year quarter. With that reconciliation and non-GAAP earnings, we are at $1.34 per diluted share in the current quarter, an increase of 10% versus $1.22 per diluted share in the first quarter of 2009.

Let me take a more detailed look at the performance of each operating segment in the quarter. First, agricultural products. Sales gains in Latin America, especially Brazil, led the increase, reflecting improved market conditions in several key crops, such as sugar cane and cotton, capital growth from new and recently introduced products. Our crop protection businesses in Europe and Asia also realized sales gains. Sales in Europe increased mainly due to a shift in sales. Sales in Asia improved, reflecting growth in several key countries, including Korea, India and Indonesia. In North America, sales were modestly lower than a year ago, as unfavorable weather conditions in high channels stocks delayed purchases by our distributors. Segment earnings of $92.8 million, were level to a year ago, as sales growth was offset by one-time distribution costs, the absence of the prior benefit of lower cost inventory, less favorable mix, and increased spending on growth initiatives.

Now, moving to industrial chemicals. Sales of $250 million, declined at 2% from the prior year quarter, as volume gains in soda ash, especially in export markets, peroxygens and phosphates were more than offset by reduced phosphates, hydrogen peroxide and soda ash exports selling price and lower electricity sales due to the divestiture of a Spanish cogeneration facility in the third quarter of 2009. Segment earnings of $35 million were 51% higher than the year ago quarter, as a result of the broad based demand recovery, the benefit of the work cost inventory versus the prior year, and the benefit of the one-time sales contract settlement, related to a take-or-pay provision. Though the one-time benefit was not in our prior guidance, excluding this benefit, segment earnings still exceeded our prior guidance, as a result of better than expected volume gains and lower operating costs.

Moving to corporate items. Corporate expense was $12.1 million, as compared to $11.3 million a year ago. Interest expense, net, was $10 million versus $7 million in the prior quarter. On March 31, 2009, gross consolidated debt was $699.9 million and debt, net of cash, was $613.2 million. For the quarter, depreciation and amortization was $33.9 million and capital expenditures were $31 million. Now, I'll turn the call over to Ted Butz for a review of the performance and prospects of our Specialty Chemicals segment. Ted?

Pierre, thank you. And thank you and good morning. I'm pleased to be with you today to report on the current performance and outlook for Specialty Chemicals group. After updating you on our current performance, I would like to provide insights into the growth strategies that will lead specialty chemicals continuing to deliver record performance for the group. Revenue of $203 million, was 16% higher than the prior year's quarter.

Strong commercial performance in BioPolymer and higher volumes in our lithium business was partially offset by lower pricing in lithium primaries. Segment earnings of $41 million were 7% higher than prior year, consistent with our guidance for the quarter. Favorable commercial performance and the benefits of productivity initiatives were partially offset by lower pricing in lithium primaries and the absence of the benefit from lower cost inventories in the first quarter of 2009.

In our lithium business, revenues increased by 25%, driven by strong end use demand, particularly in our primaries segment. Pricing levels in lithium primaries were lower than prior year but have shown signs of stabilizing in recent months. Our downstream butyllithium business saw improvement in both volume and average price levels. Lithium earnings were lower, as expected, due to the lower pricing in our primaries business and the absence of prior year benefit of lower cost inventories.

These items more than offset the favorable impact of strong volume growth and the benefits from last year's restructuring initiatives and ongoing productivity initiative programs. BioPolymer's first quarter revenues also increased significantly, with broad-based volume gains across food and pharmaceutical segments and higher pricing in food ingredients. BioPolymer earnings increased in line with revenues, driven by strong volume growth across BioPolymer, higher pricing in food ingredients and productivity initiatives.

Looking at the outlook for the second quarter and the remainder of the year. We expect continued strong performance across this segment. Second quarter revenues are expected to be up in the low double digits, over prior year, driven by improved results in both BioPolymer and lithium. We expect earnings to be up 25% to 30%, driven by continued strong commercial performance in BioPolymer, significant demand recovery in lithium primaries and higher selling prices in lithium specialties.

Revenues for the full year are expected to be approximately 10% higher, driven by continued growth in BioPolymer and a strong return of volume in lithium. Partially offsetting this growth, is the expected unfavorable impact of European currencies. Full year earnings growth is expected to be in mid teens for specialty chemicals segment. We expect BioPolymer to deliver record earnings for the sixth year in a row. And for our lithium business to make a substantial progress in recovering from a difficult market condition in 2009.

Let me now turn to a more detailed review for each of our business unit strategies, that will allow us to continue to sustain our performance. Starting with lithium. We've been in the lithium business for more than 50 years. We are the second largest supplier in terms of revenues, with a broad presence in both upstream primaries and downstream performance markets. After a difficult 2009, the lithium industry is witnessing a strong recovery in demand. Although, we do not expect the industry to fully achieve pre-recession volume levels until later in 2011, we remain encouraged by the sequential improvement over the last several quarters. Increasing demand is fairly widespread, reflecting the economic recovery and selective inventory restocking in energy storage in other segments.

Our longer term outlook also remains bullish, as strong demand in established energy storage applications and downstream market applications are driving growth. We expect the current market for lithium, excluding automotive applications, will increase approximately 6% annually through the next decade. The energy storage segment is expected to be a key growth driver for the overall market. With the increasing focus on electric vehicles, future growth of lithium to support new battery solutions in this segment, is expected to be significant. We continue to be encouraged by the amount of activity occurring in this space and believe that the lithium material supplying the automotive segment could account for over 40% of future demand by 2020. However, the majority of this growth will not occur until the second half of the decade and is dependant on a number of critical assumptions remaining valid.

Given the expected long-term growth in demand, a number of new capacity investments are being discussed through the Americas and Asia. The majority of these investments will not impact industry demand for three to five years. Many may not be commercially viable at current price levels. FMC's strategy is to remain a broad based supplier to the lithium industry. In our downstream business, we have aggressively altered our footprint by expanding in rapidly growing economies of China and India and restructured operations in the more mature markets of North America and Europe.

In tandem with restructuring initiatives, we are successfully implementing price increases in a number of downstream markets that have enabled us to improve profitability and provide a strong position to profitably grow for the foreseeable future. In our primaries business, we are continuing to build relationships with key suppliers in the electric vehicle battery market. We are encouraged that the combination of our quality, cost position and broad geographic presence is resulting in FMC being considered as one of the leading suppliers of lithium-based chemistries for this growing segment.

As a result of current customer demand, our Board has recently approved a major expansion at our operations in Argentina. We expect that this new expansion will come online by the end of 2011 and will add between 25% to 30% to our current capacity. In addition to serving the demand growth of our existing customers, we expect this project to significantly lower our overall costs due to improved process technology. The longer term outlook for FMC remains very attractive in lithium. In addition to the ongoing recovery in industry demand, we expect the benefits from the expansion in Argentina, commercialization of new lithium technologies for batteries, and ongoing productivity initiatives; will provide an excellent backdrop for significant top line and earnings growth.

Turning to our largest division. BioPolymer currently accounts for over 70% of specialty chemicals revenues and earnings. We have two established market oriented businesses focused on food ingredients and pharmaceutical excipients and have leading physicians that account for more than 90% of BioPolymer's current revenues. These businesses are supported through a common infrastructure that delivers cost efficient product supply, core technology and administrative support to each business. BioPolymer's core markets are growing approximately 4% to 5% a year. Over the last five years, BioPolymer has grown its top line at an annual rate of 10% through a combination of organic growth and bolt-on acquisitions.

On an earnings basis, our growth over the same period has been in the low to mid teens, resulting in overall margin improvement. We believe that today, we are among the most profitable ingredient suppliers in food ingredients or excipients. The drivers for this performance and the ability to sustain margins into the future is based on our ability to successfully execute across six strategic initiatives. Focusing on market segments where we can extend the customer's product lifecycle. Partnering with major category leaders across the globe. Employing deep product and application expertise to customer solutions. Building a global footprint and investing in rapidly growing markets. Relentlessly driving for productivity and efficiencies. And identifying and integrating attractive bolt-on acquisitions.

Let me go into a little more detail on each of those initiatives. Although our food and pharmaceutical markets have different market and competitive drivers, we are able to drive a premium for our products, in both businesses, by focusing on segments where our products add clear value to customers' ability to sustain and grow their own products. To a large extent, we do not participate in commodity applications. We also have not over invested in early stage development opportunities, that can often take five or more years to play out and have significant commercialization risk. Our target customer has a product portfolio that has a lifecycle that is somewhere in between. Our core expertise is driving improvement in our customers' lifecycle through the combination of new technology, improved focus on cost and use, and global reach.

Partnering with category leaders has been and will remain critical to our success. In food ingredients we play with the majority of the global food processors and have strong positions with many regional leaders throughout the world. In pharmaceuticals, we play with a similar presence, with almost all of the key innovators, in addition to strong positions with the leading generic players. In our experience, it has been the leading customers who have grown the fastest and have the best ability to commercialize new products around the world, whether internally developed or acquired. As these customers expand globally, we intend to grow with them.

A core strength of FMC BioPolymer is through its understanding both customer applications and product technology. BioPolymer has invested significantly in technology mainly to maintain leading capabilities across the globe, with seven innovation centers that are close to our customers. We have also built deep capabilities in core product technologies, based on innovative material science and process technology. We have successfully integrated these approaches for years and can offer many of our customers the best technology solution at a favorable cost in use. This is a very leveragable capability that has allowed us to develop opportunities across business segments and regions, in addition to bringing new capabilities through the acquisitions that we have made.

The fourth strategy area is focused on increasing our presence in rapidly growing markets. Today, these markets account for approximately 30% of our revenues and continue to offer significant growth opportunities. In Asia alone, revenues generated this year will be more than double those generated four years ago. And China and India will represent the BioPolymer's largest markets, after the United States and the UK. To support this growth, we've continued to add resources in Asia and Latin America. And in 2008, we acquired a dairy blending business in China to expand our commercial capabilities and customer reach.

We are actively engaged in discussions with several other potential bolt-on acquisition targets that would further increase our position in these markets. Outside of Asia, we are growing in Brazil and Mexico and are increasing our focus in eastern Europe, where we have a relatively low position -- penetration. For the future, I expect these markets will continue to offer attractive growth that is often more than double the growth rates we are seeing in developed regions.

Driving productivity and efficiency has been a hallmark of FMC across all of its business units. We are very good at this and our success has led us to have the lowest delivered costs to serve in almost all of our product lines. Our success is twofold. First, in operations, we have a strong culture that annually targets to drive out costs, every year, through a defined cost improvement plan. In most years, this is achieved through a combination of project savings, focused on raw material yield improvements, maintenance or energy savings and low capital capacity debottlenecking.

The second area of efficiency is in how we go to market. Our sales, marketing and administrative structure is lean and efficient. And it's significantly lower than most of our competitors. We like it this way and believe that we can successfully continue to drive productivity to offset on going cost increases. The final strategic initiative is finding the right bolt-on acquisitions and integrating them well. In 2008, we acquired ISP's alginate business and CoLiving's dairy blend business. Both acquisitions have been successes in terms of returns and earnings contribution. Both are ahead of acquisition plan and give us increased confidence that our model for identifying, acquiring and integrating businesses is on track.

So, what does the future look for BioPolymer? In food ingredients, we are pursuing several strategies that would providing opportunities to expand our position into other value-added food texturizing ingredients. Given our deep application knowledge in texture, the understanding of other ingredients base is strong and provides a foundation for us to leverage our capabilities into other texture ingredients. We are also selectively evaluating opportunities that could move us outside of texture and build on capabilities to provide improved solutions to the dairy and beverage customers, both are key markets for our ingredients. Finally, we are working on developing several specialty ingredient technologies, based initially on seaweed, that have unique health and nutrition properties.

In pharmaceuticals, we have a great franchise and strong customer relationships that will provide a solid basis to broaden our footprint. In this business, expanding our presence in rapidly growing countries is underway and should result in attractive growth. We are also focused on adding to our capabilities in controlled release technologies, alternative dose forms and in partnering with customers to improve the potential of drugs with poor solubility. Overall, BioPolymer is an excellent platform, well positioned to capitalize on further growth potential.

And in summary, for Specialty Chemicals, I feel good about where we are and where we're headed. We have an attractive, organic growth in BioPolymer and lithium. A track record of strong performance, success in integrating acquisitions and a portfolio of attractive opportunities to advance our growth. As mentioned earlier, our expectation is have another record year in 2010. Revenues up 10% and earnings up in the mid teens, compared to prior year. With that, I'll turn the call over to Kim Foster and be happy to answer any questions during the Q&A. Kim?

Thanks Ted. And good morning, everyone. Moving to our financial position. First, free cash flow. As a reminder, free cash flow is after acquisitions but before cash returned to shareholders. For 2010, free cash flow is still projected to be approximately $200 million. The free cash flow is higher than 2009, mainly due to higher earnings, lower capital spending, better working capital performance and the absence of acquisition spend. While our projections do not include funds for acquisitions, we continue to pursue acquisition opportunities in 2010.

Each quarter, prior to the conference call, we post the FMC outlook on our Website. The bottom portion of the statement addresses corporate and other financial items. Let me make a flew explanatory comments to address a few of these disclosures. Interest expense is expected to be approximately $42 million, an increase over the last year due to the bond offering completed late last year. Capital spending of $130 million is projected to be below depreciation and amortization of $135 million. We expect this relationship to continue for the next several years.

Other income and expense is expected to be down year-over-year to $18 million of expense. The primary reason for the lower expense is that higher pension expense is more than offset by favorable LIFO charges. We will continue to look for opportunities to grow the Company through a combination of internal and external investments. However, we will retain a strong balance sheet and maintain a solid liquidity position. We will continue to err on the side of financial prudence. With that, I will now turn the call back to you, Pierre.

Thank you, Kim. Regarding our outlook for the full year of 2010, we have raised our guidance for earnings before restructuring and other income and charges to $4.45 to $4.80 per diluted share. The midpoint of this range implies growth of 12% above last year. We anticipate another year of strong performance for the Company and are pleased with the progress of each of our businesses. We expect agricultural products to deliver its eighth straight year of record earnings, while increasing investments in innovation and continuing to deliver high profit margins.

Our second and third quarters, in ag products are driven by Northern Hemisphere markets. Let me provide our outlook for North America and Europe. First, in North America, planting is ahead of anything achieved in the past several years and opportunities for our product look very good. In Europe, conditions appear to be improving after a relatively slow start. In the first quarter, we had very good sales of bifenthrin, driven by our intention to meet the May 2010 regulatory deadline. We also will have the benefits from the fungicide product line, we acquired last year, as well as from new premixes we introduced this year.

So, in summary, we are bullish about our Northern Hemisphere markets and are expecting strong year-on-year performance in the second half of the year for Agricultural Products. In Specialty Chemicals, we expect BioPolymer to achieve its sixth straight year of record earnings, while lithium realizes significant earnings improvement, mainly through volume and sales growth. In Industrial Chemicals, we expect to record the seventh highest profit in the past ten years, from the strength of the significant volume rebound from the prior year.

Moving to our outlook for the second quarter. We expect earnings, before restructuring and other income and charges, of $1.15 to $1.25 per diluted share. In Agricultural Products, we'll look for second quarter earnings to be 15% to 20% lower, as a result of a shift in sales in Europe, the absence of prior year benefit of lower cost inventory, and increased spending on growth initiatives. As Ted mentioned, in Specialty Chemicals, earnings are expected to be up 25% to 30%. Driven by continued strong commercial performance in BioPolymer, significant demand recovery in lithium primaries and higher selling prices in lithium specialties.

In Industrial Chemicals, we expect earnings to be up 75% to 85% versus the weakest quarter of 2009. Driven by volume growth across the segment and the benefit of lower cost inventory in the prior year, partially offset by reduced selling prices. Sequentially, for the first quarter, industrial chemicals segment earnings will decline due to scheduled outages in the second quarter, including the move of our longwall mining equipment to another area of the soda ash mining in Wyoming and the absence of the favorable one-time sales contracts permit realized in the first quarter. With that, I thank you for your time and attention and I'll be happy to answer any of your questions.

(Operator Instructions) Your first question comes from Frank Mitsch with Banc of America Merrill Lynch.

You got the Frank Mitsch part right, I'm not sure the name of the company is right but BB&T Capital Markets. Pierre, you're talking about the ag business, I noted that it was hampered in the first quarter by increased spending on growth initiatives. You said the same thing for the second quarter. Can you talk a little bit about the order of magnitude of that and when would be the expected payoff of the higher spending? And speaking of higher spending, I also noticed that SG&A was the highest the past decade. Could you talk of some of the factors that went into that?

Sure, Frank. First, let me talk about ag. We decided to increase the spending for the year. We announced that at the first -- in the February call. We decided to increase the spending by roughly $10 million in innovation. So, the cost increase on innovation for this quarter was slightly lower than $3 million. And we do have ongoing benefits. Some of the program will have a payoff by the 2014 but some also are driven by short-term product development, which are resulting in increased sales very quickly. In terms of our spending for SG&A, this quarter, the quarter was up by $10 million. 50% of it, $5 million was the announced increase in pension cost. It's been, all along, part of our guidance. And the rest of it, $3 million, the innovation number I mentioned before and the remaining $2 million being exchange rate based.

Okay. And then, speaking of spending, your guidance for the year is $130 million. Does that include the cost of the Argentina lithium expansion? And orders of magnitude, what is the cost affiliated with that expansion and is most of the expense in 2011 or is it 2010?

All right, first, to the $130 million, yes. To the cost of such an expansion, the extension, we believe, will be in the $20 million to $25 million, with about 1/3 of the spending this year and 2/3 of the spending in 2011.

All right, terrific. And then, lastly, Pierre, I know that you are undertaking a review of various businesses and so forth. And had mentioned the phosphates as one area that you're taking a particular look at. Where can you stand on that analysis?

I think we are making progress. I do hope, really, that we'll be able to have some firm recommendation towards the end of the third quarter. We do have a current lease on interesting leads in order to remove the cyclicality of the earnings in this business. So, we're making good progress. And not being, I am at freedom to give any detail about at this stage but I'm pretty confident that there are options, which are showing up right now.

Terrific, thank you.

Your next question comes from Arun Viswanathan with UBS.

Hi, guys. Thanks for taking my question. Was curious about the pull-forward into Q1 from Q2 in agricultural products. Can you describe a little bit more as to what you think that was attributed to? It's not necessarily what we saw with some of the other competitors in Europe.

Your call was breaking up. Are you asking the earnings changes sequentially in ag chemical?

Correct and the shift to Q1 from Q2 in Europe?

All right. Let me explain to you. It's quite a simple situation we do have in ag. We had sales, which -- of high profit product -- actually, it's bifenthrin, which we moved to the first quarter because of the statement I made before that the legislation forcing us to deliver on all of our sales for this year before the month of May. So, we had a significant amount of bifenthrin sales, which are moved from Q2 into Q1. We also have a significant bifenthrin sales, which are being moved intentionally outside of the US to another market. We realized those sales early last year, in Q2. They are now being pushed into Q3. So, if you look at performance we are expecting for Q2, we'll have a short fall in earnings versus the first quarter or even year-on-year. But we are expecting a much stronger performance in Q3 and Q4, year-on-year because of the ship of those sales. We, at this stage, remain in line with our guidance of mid single digit earning growth for the ag business for the year.

And a couple of other questions. In soda ash, have you started to see any of export prices flow through your earnings in that segment and when do you expect that to reflect, if at all?

All right. Today, the way we have built our guidance, we have not been forecasting any strengthening of export pricing. I stay with the same statement I made in February, that there is some potential upside on the pricing front but we are not in a position to know how quickly. Because of our quarterly or six month contract we have, we do not know how quickly those pricing will be impacting. We clearly see strengthening of pricing because of increase in China. Our pricing is getting more robust. We have not factored that in our guidance. And we could see an upside starting in Q3 for export pricing.

And similarly, on the volume front, are you guys, in soda ash, back up to where you were pre the recession or how would you characterize your volumes on an absolute level?

No, we are not. We are operating at very high capacity utilization today but remember, that we had moth balled our Granger facility. So, we are operating with a lower overall capacity. The question for us is to understand when the demand will be strong enough? And if it continues to strengthen, we will have the make the decision for a partial or full opening at some point of the Granger facility. So, we are still below big volume but operating at high capacity because of the fact that we are still holding the mothballing of Granger.

Do you think some of those sites could be expanded as soon as next year or when do you expect to make a decision?

The timing, we have not decided on the timing. Certainly, the balance of supply and demand will not be strong enough in 2010 for us to make such a move. We'll make a decision in 2011 of when we will need to re-open that facility. It will not be a 2010 event. It's quite a quick thing we can do. It's a solution mining facility. It's something we can partially open quite quickly but it will be a 2011 decision.

Okay, great, thanks.

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

Good morning all. Good morning, Pierre.

Good morning.

Could you talke -- you have talked about specialty chemical revenues growing at about 10% for this year. You have given us no idea for ag and industrial. I would guess that if you have a feel for what will happen to your bottom line, you also do have a feel for revenues. Could you help us on that in those categories?

Certainly. For the full year we are expecting ag to be up in the mid to high single digits. And regarding industrial chemicals, we are expecting the full year revenue to be up in the 5% range. And that would be based on stronger volumes but year-on-year price declines.

And I was correct on the 10% on the specialty chemicals, right? That's for the year not for Q2?

Correct, for the year, around 10% for specialty chemicals.

Okay. And could you give us some details on this one-time distribution cost in Asia, on the ag category?

The one-time, no, it's not no Asia. I suppose you're talking about additional freight cost we had in ag. What has been happening is, there was a lack of ability of all of our suppliers to supply some of the product because of a shutdown by one of the contract manufacturers. As a consequence, we have been incurring air freight to maintain supply of our customers. And this has been creating an additional cost, which was in the $4 million range.

Okay and that is over now?

It's over now. It was just a one-time event coming from one of the suppliers.

Okay. And if I may ask one other question. In the weakness of the ag business in North America, due to the weather, are those revenues that you can make up in the second quarter or whatever is gone is gone?

Absolutely, I just want to make sure, actually, there is a good understanding of our ag story. We are feeling very very strong about ag from a top line and earning power. What we need to do is we have to look at ag on a year basis. And we are very comfortable with the guidance to have ag revenues up in the mid to high single digits. We are feeling very strong about the second half of the year for ag in North America and Europe. And you will see, in Q3, a performance, which will be a step-up versus Q3 of last year. So, all-in-all, yes to answer your question. Also, you know that the ag strength for us is very much based in the strength of Brazil in the second half of the year. There is always question mark that early but all indications we have today is we should feel confident about the back end of the year. So, all-in-all, it's very important not to look at Q2 as a sign of weakness of our ag business. It is just a part of sales and earnings for the year. But all of that will turn in a strong year for ag at the end of the year.

Thank you. That was very helpful.

Your next question comes from the line of Peter Butler from Glen Hill Investments.

Pierre, could you sort of aggregate or summarize what the benefits you were expecting from previous cost reduction programs? And it feels like you're starting off on some new cost reduction programs. So could you aggregate and estimate for us the impact of any new programs?

The key thing we are looking at today, in terms of cost reduction, is really leveraging our size in places like procurement, supply chain, logistics. We have, right now, as part of the organization, a consulting firm, which is in full speed, moving forward, in gathering data around our spend. The initial finding is confirming to us that there is benefit to be realized in the short-term and are expecting positives, in fact, this year. None of that being in our guidance for the simple reason that we need another six weeks to get to the numbers and define our target numbers for an annual savings. So, we are not close to being able to get you those numbers. I might be able to have more information when we'll be getting into the Q2 earnings call. But this this stage, I'm not capable of putting a number around those cost reductions.

Okay. What does the road map for your M&A initiatives look like now? You've had, obviously, a few more months to scan the horizon. And what to you see for the possibilities and perhaps timing on several bolt-ons?

We are still -- and, Peter, it's always difficult to comment on M&A in any precise way. We have continued to refine our road map. We do have identified targets. I was about to say most but it's not most, it's all of these targets are in either agricultural or the food and pharmaceutical segments. All of these are bolt-ons. As I said before, I'm a much bigger fan of small, quickly integrated acquisitions than transformational. And we are in discussions with small and medium sized opportunities. So, the process is moving forward. I would like to have one or two meaningful moves this year but you know how acquisitions are, it's all or nothing. So, can't be sure.

Okay, thanks for your help.

Thank you.

Your next question comes from the line of Douglas Chudy with Keybanc.

Good morning. First off, moving over to the ag segment, does the increased planned acreage in the Southern Hemisphere over the past two quarters for key crops, such as sugar cane, does that provide any kind of read through for pesticide demand when we enter say, fourth quarter or the first quarter of next year?

Hi, Doug, it's Milton Steele here. Yes, we do expect hectares or acres to be up in the Southern Hemisphere, Brazil, specifically, in cotton and sugar cane and probably soybeans. And that does all go well for the 2010, 2011 season.

So generally, is there a timing where for the first couple of years it would require more pesticides as those crops initially are harvested?

In general, yes, Doug.

Okay and then secondly, moving to the industrial segment. Can you just provide, what was the volume and price breakdown during the quarter? Certainly, you saw nice a volume rebound inside of the pricing head wind.

Yes, -- let me hold on a minute. I can give you some information around the pricing for industrial chemicals. If you look on a gross margin standpoint, we had a volume contribution, which was -- let me go to revenues. For ICG, overall, pricing was down by 15% on exports and flat on North America and volume was up 12%.

Okay, that's helpful. And just one final question. Where around are your operating rates for the phosphates business, right now? And kind of how do you see this trending out as the year continues?

The phosphate business today is still operating at a rate which is not high and the profitability is still very questionable. So, really, it's a business where we do have to make strategy move. Let me be quite open. It's a business today, which at best, breaks even. So, we need to look at -- it goes beyond capacity utilization. It's overall leveraging over source of raw material, the phosphate rock situation, pricing of phosphate rock and the market, especially, in the markets we are addressing. So, I think we have a problem, which is beyond capacity utilization today. It requires some strategy move to get out of the situation where, at best, we break even.

Okay, thanks very much.

Your next question comes from the line of Kevin McCarthy with Banc of America - Merrill Lynch.

Good morning. This is Alex for Kevin. I had a question on the specialty business. You forecast acceleration in earnings in the second quarter versus first. Can you tell us if incremental earnings are coming from mostly BioPolymers or lithium or just break out the extra earnings somehow?

I think the major difference you will see -- we do have top line growth in BioPolymers. And we've mentioned many times this accounting situation, where you do face inventories. And when you have a situation like the one we had in 2008, where raw materials go up and then go down dramatically, depending upon your inventory turns, you do have variation on the cost of your inventory. So, what does it do for the Company, FMC? All-in-all, nothing. Pretty much a zero impact on the bottom line of the Company. But it has different impacts on the business segments in the first quarter. And it was a positive situation for industrial chemicals. For ag chemicals, it is a negative situation year-on-year on the first and second quarters. For specialty polymers, it's a negative impact on the first quarter but not in the second quarter. So, sequentially, you're getting a benefit from that situation.

Okay. Thank you. Maybe just in terms of underlying business trends. I had a question on lithium pricing. The press release mentions higher prices in specialties. Could you comment, if you've raised prices recently or as priority increases?

Ted, do you want to take that?

Sure, Alex, in lithium, we are benefiting from some price increase that we launched last year. But in our downstream business, which is primarily our butyllithium business, we continue to see progress being made in pricing. And we think that appetite continues in that industry as the health of that business improves.

Okay, thank you. And finally, could you quantify the impact of outages in the industrial segment in the second quarter?

Yes, I can give you some numbers. I believe that moving the longwall is usually a cost of about $4 million. So, that is the one big cost we're going to be facing this quarter. And then the rest, the multi-pullout edges, we do have for maintenance of the plant and other capital in there. So, you have about a $6 million link to outage and moving of the longwall.

Thank you.

Your final question comes from Dmitry Silversteyn with on grow research.

Longbow Research. Good morning, everybody. A couple of questions. First of all, you mentioned ongoing cost increases, I think, in discussion of the crop protection business. Although, I may have missed it. It may have been on the industrial side. Can you talk about what those are? And then, secondly, your increased spending or investments, as you call it, in the crop protection business. Can you give us idea of what that money is spent on, distribution channels or are you redirecting your internal R&D program? Kind of where is that incremental spending going -- is being deployed?

Okay. Yes, most of the increased spending is in the ag segment. There is multiple places but the two big buckets are increased spending in innovation. It accounts for about $10 million a year, slightly short of $10 million this quarter. That's one increase. The other increase is texture recent selling cost increase in Brazil, to allow the growth we do have today. So, those are the two biggest buckets of spend increase for the ag business.

The innovation spending is directed to new technology. Short-term, making sure we increase the number of registrations of products we do have around the world. We do have very aggressive registration program to allow us to introduce new premixes and formulations. We do have also novel technology in multiple fields, including biology, coal, which are being worked on today, which are more midterm and you also know that we are very active licensing in technology to deliver this technology with some of our internal technology. That's where the $10 million of annual increase is being spent. All of that to create short-term and midterm sales increase.

Okay. So in addition to a kind of your normal end licensing of new products, it sounds like you're going to be spending more money on that, as well as maybe getting some branded or proprietary mixes our there registered. So, when do you expect to see the benefit of that starting to hit? And are we going to see the benefit of that mainly in the top line or in the mix and margin as well?

We should see both. I think it's absolutely critical for us, if we increase spending, that that increased spending is more than we carry through the profit of the product. So, our intent is quickly. And we will see signs of progress as soon as 2011 in some aspects. But our intent -- for example, the results of new registrations and new products, we have multiple programs around the world. Those benefits will be seen very quickly. So, it will have a positive impact on the top line and the bottom line.

Okay. And then, one final question. Can you remind us if your exports soda ash business is denominated in dollars or in local currency?

Michael, do you want to take that?

Sure, Pierre. Dmitry, it's in dollars.

Okay. So, the stronger dollar even, in the absence of price increases in the export market, should be a positive for you in terms of both profit and top line.

Yes.

Okay, thank you very much.

This does conclude the Q&A portion of today's conference. I'd now like to turn the call over to Mr. Brondeau for any closing remarks.

Thank you very much. Yes, I would like to make some closing remarks and confirm that the Company will remain a highly focused Company, operating along five strategic fronts. First, it is our intent and we will maintain financial strength and strategic flexibility. We have a solid balance sheet, investment grade rating, a conservative liquidity profile and a strong cash flow. Next, we will be lowering our operating costs by leveraging the Company's size in places such as procurement, logistics and supply chain.

Third, we will focus on growth in agricultural products and BioPolymer, with an increased emphasis on internal technology development, complemented by financially attractive bolt-on acquisitions, and technology end licensing, and a bias toward capturing share in rapidly developing economies. Fourth, we will strengthen the industrial chemicals product portfolio. We will reduce earnings volatilities and liberate the strength of soda ash peroxygen, and evaluate a new environmental platform. Our last objective is to make sure that we position our lithium business for mid decade as the next growth platform.

Today, a full strategic review of the Company is underway to develop a road map for greater top line growth, without compromising our commitment to shareholders to deliver sustained earnings growth. This full strategic review will be completed and ready to be implemented by the October Board meeting. We will shortly follow by an investment day to share our strategic direction and introduc our five year vision for FMC. Once again, thank you very much for your time and for listening to our comments.

Thank you, this concludes the FMC Corporation first quarter 2010 earnings release conference call. You may now disconnect