富美實 (FMC) 2010 Q3 法說會逐字稿

Good morning and welcome to the third quarter 2010 earnings release conference call for FMC Corporation. All lines will be placed on listen-only mode throughout the conference. All speakers' presentations -- after the speaker's presentation, there will be a question-and-answer period. (Operator Instructions) Thank you. I will turn the conference over to Mr. Brennen Arndt. Mr. Arndt, sir, you may begin.

Thank you, and welcome, everyone, to FMC's third quarter 2010 conference call and webcast.

Pierre Brondeau, Chairman, President, and Chief Executive Officer will begin our call today with review of third quarter performance. Pierre will turn the call over to Kim Foster, Senior Vice President and Chief Financial Officer, for a report on our financial position, as well as to provide our outlook for the full year and fourth quarter 2010. Pierre will then share with you our longer term perspective for FMC, in the context of the Vision 2015 initiative we launched last July.

We'll complete the call by taking your questions. Joining Pierre and Kim for our Q&A session will be Milton Steele, Vice President and General Manager, Agricultural Products; Ted Butz, Vice President and General Manager, Specialty Chemicals; Michael Wilson, Vice President and General Manager, Industrial Chemicals; and Mark Douglas, Vice President, Global Services and International Development.

A reminder today that our discussion 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 10K, most recent form 10Q, and other SEC filings. This information represents our best judgment based on today's information. Actual results may vary based upon these risks and uncertainties.

Also, during the conference call, we will refer to certain non-GAAP financial terms. On the FMC website, available at fmc.com, you will find a definition of these terms under the heading entitled, "Glossary of Financial Terms." We have also provided our 2010 outlook statement and a reconciliation to GAAP of the non-GAAP figures that we will use today. It's now my pleasure to turn the call over to Pierre Brondeau.

Thank you, Brennan, and good morning, everyone.

As you saw in our earnings release, we delivered strong third quarter performance at the high end of our expected range. We realized strong, double-digits earnings growth and significant margin expansion across all three segments. Third quarter earnings increased 28% to $1.14 per diluted share for restructuring and other incoming charges, on revenue of $772 million, which increased 8%. In Agricultural Products, sales increased 15% to $309 million, while earnings increased 27% to $75 million, consistent with our expectations. In Specialty Chemicals, sales increased 5% to $202 million, with earnings up 15% to $47 million, again in line with our expectations. And in Industrial Chemicals, sales increased 3% to $262 million, and earnings were up 45% to $30 million, which was better than we expected.

On a GAAP basis, we reported net income of $83 million or $1.13 per diluted share. GAAP earnings in the current quarter included a net charge of $0.6 million after tax, or $0.01 per diluted share, versus the net charge of $37 million after tax or $0.51 per diluted share in the prior year quarter. With that reconciliation, a non-GAAP earnings, we are $1.14 per diluted share in the current quarter, an increase of 28% versus $0.89 per diluted share in the quarter of 2009.

Going forward, our outlook is for the strong performance to continue for the balance of the year. In the fourth quarter, we expect earnings of $0.95 to $1.05 per diluted share before restructuring and other incoming charges. And for the full year, 2010, we have raised the midpoint of our guidance with our expectation for earnings before restructuring and other incoming charges to $4.70 to $4.80 per diluted share, a 14% increase above last year at the mid point of this range.

Let me now take a more detailed look at third quarter performance in each of our operating segments. First, in Agricultural Products. As I noted a moment ago, revenue increased 15% versus the prior year quarter. This was driven by higher sales in all regions. In Latin America, the sales increase reflected improved market conditions and growth in planted acres for key crops. In Asia, sales were up in most key countries reflecting improved market conditions, the introductions of new products, and favorable currency impacts. Sales in North America improved due to a strong demand in the cotton market partially offset by lower price pressure in the market. Sales in Europe increased as a result of higher herbicide sales and the sheep wool sales from the second quarter due to the delayed growing seasons. Agricultural segment earnings increased 27% to $75 million driven by the sales gain and favorable product in geographic mix, partially offset by increased spending on new product introductions and growth initiatives.

Moving now to Specialty Chemicals. Revenue in this segment of $202 million was 5% higher than the prior year quarter, driven by the continued demand recovery in lithium primaries, higher volumes and selling prices in lithium specialties, and volume growth in BioPolymer. Segment earnings of $47 million increased 15% above prior year, driven by the sales gain, favorable mix in BioPolymer's food ingredients business, and continuous productivity improvements, partially offset by higher raw material costs. In lithium, upstream primaries volumes increased substantially versus prior year, driven by strong battery in Asian demand. In downstream specialties, growth was driven by higher volumes and selling price in butyl lithium. Lithium earnings increased significantly versus last year as a result of the sales gain and continuous productivity improvements.

In BioPolymer, third quarter revenues increased as a result of volume growth in food and pharmaceutical businesses. BioPolymer earnings increased significantly versus a year ago, driven by volume gains, favorable product mix in food ingredients, and reduced operating costs, partially offset by higher raw material costs.

Moving to Industrial Chemicals. Sales of $262 million increased 3% from the prior year quarter. Volume gains in soda ash, especially in export markets and in North America and European peroxygen markets were partially offset by lower selling prices. Segment earnings of $30 million increased 45% versus last year as a result of the volume gains, lower raw materials and energy costs, and lower plant outage costs. This year-on-year performance exceeded earlier guidance for the quarter, in part because we chose to shift to the fourth quarter some outages we have usually planned for the third quarter for commercial and operational reasons.

In soda ash, volumes continued to rebound significantly above last year. In the domestic market, mid-single-digit volume growth year-to-date is in line with demand recovery in flat glass, detergents, and chemicals markets. And in the export markets of Asia and Latin America, our demand growth is more robust, up approximately 50% year-to-date, versus last year, resulting from higher market demand in the success of ANSAC share recapture strategy. ANSAC's primary competitors in the exports market, Chinese soda ash exporters, have reduced export volume by approximately 35% versus last year. Continued constraint on Chinese exports is expected due to input cost pressure and government imposed energy restrictions. This strong rebound have moved US producers to near full utilization. We expect tight conditions to continue across the balance of this year and into next year. In reflection of these industry conditions, FMC announced a $10 per ton price increase in May for the domestic market, and last month, we announced another $10 per ton price increase. However, given the full year nature over domestic contract pricing, no material increase will be achieved prior to January 1, next year.

Our peroxygens business performed well in the quarter, delivering a significant earnings increase, driven by volume growth and improved mix, due to growth in our specialties business. In specialties, environmental solar mediation, food safety, and oil field businesses all continued strongly to the earnings increase.

I will now turn the call over to Kim Foster for a review of corporate financial items and to provide our outlook for the balance of the year. Kim?

Thanks, Pierre, and good morning, everyone.

Continuing on third quarter items, corporate expense was $16 million as compared to $10 million a year ago. Interest expense, net, was $10 million versus $6 million in the prior year quarter. On September 30, 2010, gross consolidated debt was $668 million, and debt net of cash was $400 million. For the quarter, depreciation and amortization was $33 million, and capital expenditures were $36 million.

Moving to free cash flow, we are maintaining our cash flow projection for the full year 2010 at approximately $200 million. As a reminder, free cash flow is defined as after acquisitions but before cash returned to shareholders. Regarding share repurchases during the quarter, we repurchased 156,000 shares for a total value of $10 million. The share repurchases we have made year-to-date have essentially offset dilution from the issuance of restricted stock and stock option exercises. The existing board authorization has $155 million remaining.

Let me now provide more detail regarding the outlook for the balance of the year that Pierre summarized earlier. For the full year, 2010, we've raised the midpoint of our guidance with our expectation of earnings before restructuring and other income and charges of $4.70 cents to $4.80 per diluted share, a 14% increase above last year at the midpoint of this range. We expect Agricultural Products to deliver its seventh straight year of record earnings, with segment earnings up in the mid-single-digits, while increasing investment in innovation and continuing to deliver high profit margins. In Specialty Chemicals, earnings are projected to increase by approximately 20%. We expect BioPolymer to achieve its sixth straight year of record earnings, and lithium to realize significant earnings improvement through the robust demand recovery in lithium primaries. In Industrial Chemicals, we project earnings to increase by approximately 35%, driven by a significant volume rebound in favorable raw materials costs, only partially offset by reduced selling prices.

Moving to our outlook for the fourth quarter, we expect earnings before restructuring and other income and charges of $0.95 to $1.05 per diluted share. In Agricultural Products, we look for fourth quarter earnings to be up approximately 20%, driven by continued growth in Brazil. In Specialty Chemicals, earnings are expected to be up approximately 30%, driven by volume growth across the segment and favorable mix in food ingredients, partially offset by higher raw material costs. In Industrial Chemicals, we expect earnings to decline approximately 20%, primarily due to the move from the third quarter to the fourth quarter of the planned maintenance outages, including the successful completion of the boiler repair at our Wyoming soda ash facility early in the fourth quarter. Commercial performance in the segment will continue to benefit from higher volumes and lower raw material and energy costs, only partially offset by reduced selling prices relative to a year ago.

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

Thank you, Kim.

I would like to share with you the longer term perspective for FMC in the context of the Vision 2015 initiative we launched in July. As we will provide you with a more in depth review of Vision 2015 at our investor conference on December 2 in New York, but I want to take this opportunity to preview its key elements.

In short, Vision 2015 is about driving strong shareholder value creation by aligning our organization around clear and ambitious financial goals. By 2015, we envision an FMC that generates $5 billion of annual revenue, delivers improved sustained EBIT margin greater than 20%, demonstrates significantly less earnings volatility, sustains high returns on investment capital and provides strong free cash flow. We have a well-defined, executable plan to grow our current businesses above $4 billion in revenue through organic initiatives. The result that, by itself, would significantly enhance shareholder results.

On top of that, we expect external growth initiatives, including acquisitions, to increase our total revenue to $5 billion by 2015. We have developed a focused, disciplined plan that reduces the risk normally inherent in external growth, and believe this target is achievable. Importantly, we believe that our external growth target will not require all of our expected free cash flow and debt capacity. As a result, we fully intend to return a meaningful amount of cash to shareholders. Starting in the fourth quarter, we intend to repurchase $100 million in open market transactions under our existing board authorization.

We are launching Vision 2015 from a position of strength. FMC's recent past has been a period of strong financial performance. Most of our businesses now enjoy margins and return on net assets well above P/L levels. FMC is also strongly positioned financially with a liquid balance sheet, with high operating ROI and substantial free cash flow.

Our performance created attractive shareholder value over the period of 2002 to 2009. FMC delivered 17% compound annual total shareholder return, putting us in the top quartile of our industry. Our goal is to sustain this high level of performance and to drive even greater value creation by growing our leadership position, increasing our reach, leveraging the size and scale of our operations, and reducing costs, more actively managing our portfolio of businesses and maintaining the highly disciplined focus on our use of cash.

Let me briefly touch on each of these strategic dilemmas. First, growing our leadership position. We will strengthen and build FMC's leadership positions in our current core businesses and market. We will not seek to add a new business leg to (inaudible) volume. We strongly believe our portfolio of businesses and the markets they serve are attractive and provide ample opportunity for profitable growth over the planned horizon.

Second, increasing FMC's reach. We intend to accelerate the global growth of many of our businesses with a particular focus on rapidly developing economies, or RDEs. Our goal is for RDEs to contribute roughly half of FMC sales by 2015.

Third, we seek to capture the value of common ownership by shifting from a decentralized model to one that better leverages the size and scale of our company in a few key areas to realize greater savings and operational efficiencies, while maintaining autonomy and accountability in the positioning. Prior area include optimizing procurement in our supply chain, and as I previously stated, building the essential infrastructure in RDEs.

Fourth, we will move actively -- we will more actively manage our portfolio. While nearly all of the current businesses and divisions are well-positioned for sustained growth, we'll continue to assess their performance and address any issues hindering profitability or growth. And finally, we will maintain the highly disciplined and focused approach to cash deployment. During the 2010 to 2015 period, we expect to generate cumulative excess cash of approximately $2 billion, after taxes, capital spending, and regular dividends. Our balance sheet strength also gives us the opportunity to increase debt while maintaining the strong investment grade credit rating. Overall, we expect to have approximately $3 billion in available excess cash to be deployed. As I've noted, we intend to return the meaningful amount of cash to shareholders over this period as our external growth strategy will not consume all the available cash.

Those of you who have followed FMC in the past will recognize the Vision 2015, both the limits of continuity and important elements of change. Let me begin with what will be different.

There are four key change elements that we expect will contribute significantly to the success of Vision 2015. First, external growth in our ag business will be driven by smaller transactions, including product line acquisition, licensing, development investments and alliances, and gaining access to third party active ingredients. We will not pursue transformational or bolt-on acquisitions.

Second, BioPolymer's food ingredient business is a top priority for M&A. We will proactively seek bolt-on acquisition targets to extend into other texture and product, build on our position revenues, economies, and evaluate entry into additional specialty ingredients.

Third, soda ash and peroxygens are highly valued contributors to, and key long-term components of, the FMC portfolio. We will retain these businesses as core parts of our portfolio.

Fourth, as previously mentioned, given our expected free cash flow, debt capacity, and expected cash needs, we plan to return a significant amount of cash to shareholders. While these four elements each will present a degree of change in our direction, the forward focus of a business unit provides continuity. While we provide more detail at our December 2 investor conference, I want to mention some initiatives here.

Our products will focus on maintaining premium margin through the continued successful execution of its current business model. Specifically its focus on niche crops, selective penetration of larger crops, and its valuable manufacturing paradigm. Market innovation, improving the productivity of product division, and reinforcing a different share position through selective external growth are also critical elements to achieve its margin objectives.

In addition, we will actively explore opportunity in adjacent spaces in order to expand our technology platform. Within Specialty Chemicals, as I mentioned earlier, BioPolymer's food ingredients business is a priority area for bolt-on M&A. While it continues to pursue attractive opportunities for organic growth, and (inaudible) technology development, with an increased focus on RDEs, especially China, India, and other parts of Asia. Our intent is to maintain and strengthen its industry-leading margins while pursuing external growth.

In BioPolymer's pharmaceutical business, our strategy priorities are to maintain our leading positions, increase our presence in RDEs, and very selectively explore adjacent products and markets, including positioning ourselves differently in the value chain.

Lithium is also positioned to become a major growth platform, and we will focus on continuing organic growth in its attractive end markets, enhancing margins, and preparing its business for significant growth by mid-decade. Our refocused industrial chemicals business will produce higher margin, stronger cash generation, and less earnings volatility.

Our soda ash business is a highly valued component of our portfolio, with no volatility, strong profitability, and high returns on capital employed. Soda ash will focus on maintaining leadership in the rebounding market and continuing to work to improve our cost position through operational excellence initiatives and advancements in process technology. We consider a grander facility a strategic asset and will deploy its capacity as needed to meet growing demand.

In peroxygen, we will significantly shift our product mix to specialty products and markets, including antimicrobial applications. We will consolidate our North America and European businesses into a single global business to leverage scale and accelerate the penetration of specialty initiatives across geographies. By 2015, we expect the majority of our sales to be generated in specialty applications.

Across the businesses of Industrial Chemicals, we have some promising early-stage environmental solutions offering. We currently have two potentially significant applications, nearing commercialization. Hydrogen peroxide for NOx control and peracetic acid biocide for shell (inaudible). Though each -- it depends on successful field testing and regulatory outcomes. These, plus a few other potential products across the portfolio, could provide the foundation for a significant environmental solutions growth platform longer term.

As we have discussed in recent quarters, we are in the process of restructuring Foret down to its profitable core, through the exit of the phosphate business and the consolidation of its peroxygen business into FMC peroxygens. The restructuring of phosphate is critical to achieving our vision for and industrial chemical segment that achieves and success stains the higher operating margin and significantly reduced earnings volatility. We are currently pursuing two parallel paths with respect to phosphate and are working hard to achieve resolution in the coming weeks. Therefore, we are not in a position to provide anymore details today.

To sum up, I hope this review has provided a good road map for you to begin thinking about FMC's future. Through Vision 2015, we have identified clear, strategic priorities in the associated financial goals.

To reiterate again, a few key points. In Agricultural Products, we will not pursue transformational or bolt-on transaction, but will pursue growth opportunities through smaller transactions and by building on innovation strategies. BioPolymer;s food ingredient business is our number one priority for bolt-on M&A and product line expansion is mission critical. Soda ash and peroxygen are attractive businesses, and we believe they are substantial opportunities to drive earnings in both businesses. Finally, given FMC's expected future cash generation and investment needs, we will be focused on disciplined cash deployment, including returning cash to shareholders. This will start in the fourth quarter, as I said, when we intend to repurchase $100 million in stock in open market transactions under our existing board authorization.

This is truly and exciting time for FMC. We look forward to sharing our Vision 2015 with you at our investor conference on December 2 in New York. With that in mind, in today's Q&A session, we would ask that you focus your questions on our third quarter results, fourth quarter outlook, and only general questions regarding our strategy direction. We will be happy to address more specific Vision 2015 questions on December 2 and in New York.

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

(Operator Instructions) We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Frank Mitsch of BB&T Capital Markets.

Good morning, gentlemen, and a heck of an advertisement for the December 2 meeting here in New York. Pierre, you talked about the decision to shift some of the -- some of the plant shutdowns and industrials business from the third quarter to the fourth quarter. I'm trying to size that -- is that about a nickel a share in terms of impact to the earnings?

If you look, Frank -- good morning first, and thank you. If you look at -- you remember, we were planning as we said in the second quarter call, about $7 million spending for the border repair and plant outage. We were expecting a large part of that to be in the third quarter and a smaller part to be in the fourth quarter. For operation and commercial reasons, we have shifted that toward the beginning of the fourth quarter. The good news is, all is well, the boiler is repaired and functioning, and the outage is behind us. We do believe that the range we gave to you of $4 million to $7 million is on the high side of that range, spent over two quarters. It's about one third in the third quarter and about two third in the fourth quarter.

All right, terrific. So everything is complete now. So that's behind us. All right, great -- I understand that you're not going to comment on the two parallel paths for the phosphates business in Europe, but I just wanted to ask -- is fixing that business and keeping it in the portfolio, that's not one of the two parallel paths, is it?

It is not.

All right, terrific. And then lastly, I noted that in the ag business, you have sales moving up for the year in excess of what your EBIT will be moving up. Can you just spend another minute or two talking about why that would be?

Yes, Frank. There is two major reasons for which we do have such a situation. First of all, remember that business from an earnings standpoint was penalized in the first half of the year on inventory costs, and there was about a $20 million over two quarters of penalty at the gross margin level. It's truly accounting -- there is nothing to do with the quality of the performance or of the scale of the operations of -- or the operation of the business.

Second of all, we have made a very conscious decision to increase our spending in market innovation and technology innovation for growth. So, we knew getting into the year that those two reasons would create lower earning growth than sales growth. We do believe it's going to be a situation that's going to change, where we will be, starting next year, able to leverage top line growth into earning growth.

All right, terrific. Thank you.

Thank you.

Your next question comes from the line of John McNulty from Credit Suisse.

Yes, good morning. Just a few quick questions. On the specialty chemical front, with what we've seen in terms of lithium volumes and maybe the pricing coming back and BioPolymers looking pretty good, I'm surprised growth was maybe as moderate as it was in the quarter. Can you give us a little bit of color as to what might have driven that?

John, good morning. You are talking about the growth, year-on-year, sequentially?

Year-on-year.

Year-on-year. Yes. There was a couple of -- actually it was one main reason. If you look at our specialty chemical business, this business is made of three businesses. We do have the lithium business, we have the food business, and we have the pharma business. Year-on-year, the lithium business was up 14%, so well within expectation. The pharma business was up 9%, well within expectations. The food business was only up 4%, which is below what we would be expecting.

And there is one main reason for that. As we had an acquisition we made of ISP, and this year we completed the integration process of that acquisition, creating some lower capacity because we faced some problem in transferring the process and moving that to our North American plant. So, what happened is in this quarter, we were limited in our growth not by customer demand -- we actually were operating through the quarter with a significant backlog -- but we were limited in our ability to supply product customers because of those integration issues. We do have -- worked those issues very hard, and we do believe that they are very close to being behind us, and we can resume normal growth very quickly.

Okay, great. That color's very helpful. Second question would be in the soda ash business -- and maybe there's two parts to it. First part would be on the pricing. I know you've announced a couple price increases. Given what is going on in Asia, with the weakness or -- weakness in supply, outside of Asia, because of the energy issues that you mentioned, how should we think about pricing in terms of where it can go, and if the full increases that you've announced are likely to stick? How should we think about that?

Let's break it down into two category areas. The domestic market and as we said, we have two increases for a total of $20 per ton. And ANSAC announced a little while ago a $30 per ton increase for our export market.

Now , for the domestic markets, as we said before, we are operating very near to full capacity. So we are just getting, right now, into contract negotiations. It's always hard before you negotiate your contract to know where you will end up and how much of this price increase you'll see. Nevertheless, looking at the near full capacity utilization, in North America, we are getting into those negotiations quite confident.

Regarding the export market, we do have many reasons to believe that ANSAC will be successful. I think we are seeing more and more limitation on Chinese exportability because of their pricing and cost situation, so we do believe that the price increase ANSAC is pushing will result in some success. Once again, this price increase for us, applied to Latin America, where most of the contracts are annual, so hard to know until we get closer to January. We might actually, in Asia, outside of China, see some impact of this price increase because we're operating on shorter term contract in Asia, and we might be able to see some improvement on a pricing situation for export in Asia outside of China. But really, the full impact, John, we will know that when we get closer to the month of December,

Fair enough. Just last question, same topic, with Solvay exiting ANSAC, what are your thoughts in terms of what that does overall to the competitive market?

At this stage, I think, life is going to change more for Solvay than it is going to change for us. We keep on going, we do believe we are in a very strong position. ANSAC is doing a tremendous job on the export. So we are not looking at that as a very threatening -- or very much changing of the situation.

Okay, great, thanks very much for color.

Thank you.

Your next question is from the line of Kevin McCarthy from Bank of America.

Yes, good morning. How are you? I was wondering if you have an estimate of how much capacity -- how much soda ash capacity would have been removed from the Chinese market? It seems prices have gone parabolic there over the last six weeks or so.

I'm going to ask Michael Wilson to address that question.

Hi, Kevin. I don't have an exact number for you, in terms of the amount of capacity that's been taken offline. Sometimes it's hard to track. We do know that at least two significant plants have been taken down, we believe permanently, and others have been curtailed. A lot of this has to do with China and its targets for energy usage as a percentage of GDP. So, there were a lot of restrictions in the third quarter. I think overall, China's operating at about 80% capacity utilization, but if you go into some of these provinces where they're really up against their targets, capacity has been ratcheted back to 30%, 60%.

So, it's really hard to judge overall. What we do know is that exports from China, year-on-year, are down some 35%. So, between the energy restrictions and between their inability to compete on price with ANSAC, there's been a significant impact in terms of our influence in the export market.

If I look at the composition of your soda ash sales, Michael, what's the approximate split of US versus exports -- say, year-to-date or over the last year or so?

About 52% of our total sales are in export markets, either through ANSAC or direct.

Okay. And where is freight running to Asia these days?

I'm not sure I have an exact number, but freight has come down to Asia, which has benefited ANSAC. And, as we look forward to 2011, we think freight again is going to be beneficial to ANSAC, as well as our exports to Europe.

Okay. And, last question, if I may, for Pierre. You made it clear that BioPolymers is your top priority for M&A. I was wondering if you could just talk about the criteria for acquisitions that you're evaluating, in terms of any color on timeframes for earnings accretion, multiple ranges, size of deals, that sort of thing.

Yes. First of all, size of deal -- we are looking in bolt-on, looking at all these expansions. I would say anything from companies which are running $10 million in sales with good growth potential in international expansion to $200 million, $300 million, $400 million in sales would be the bolt-on acquisition we would be looking at. What we would like to expect, from a multiple standpoint, is to make acquisition where past synergies multiple -- do not create dilution, and of course, we like acquisitions to be accretive very quickly -- first year, and if not first year, year two at the latest.

From a strategy standpoint, we are looking at acquisition. If you look, we have product line in the texturing business where we do have high market share in a niche area where we are very strong, but pretty much limiting growth to whatever market growth we have. So our intent -- and we believe we could gain share as critical customers if we would increase our position in the textures market with other technologies than the one we do have today. So, that's going to be a priority, but once again, we've thought through that very carefully. It's going to be small companies feeding our strategy. We are not going for, by any mean, for a large transformational deal. We do not believe it would feed our strategy, and it could dilute our successful business model.

Okay. That was very helpful. Thank you.

Thank you.

Your next question is from the line of Mike Harrison from First Analysis.

Hi. Good morning.

Good morning.

I wanted to ask the about the raw material pressure that you noted in the BioPolymers business. What specific raw materials are higher, and do your contracts allow you to pass that through in any capacity? Or is that going to create some margin pressure until each of your contracts come up for renewal?

Yes. I'll ask Ted Butz to address the raw material questions. Ted?

Mike, this is Ted. Good morning. We're seeing in BioPolymer, pressures, raw materials, going up in both our seaweed businesses, especially carrageenan, and in our pulp businesses. A number of our accounts and customers in our seaweed businesses, we have some pass throughs, or we're actively raising prices to help pass that through. In the pulp side, we have some of that, we also have contracts, so it comes in at different stages. But, they're not in every seaweed where we're seeing the prices coming up, but it's up, and continuing -- we feel it will grow for the next several months, increasing in pressure.

And can you talk a little bit, Ted, about what flexibility you have to shift among different raw materials? I know you don't want to spend too much time sourcing things from different geographies and paying for freight and that thing, but are their specific areas or regions where you're seeing the greatest pressure?

Yes, Mike, I think we have a number of flexibilities, and over the last several years, we've built in a lot more capability to do that, both in seaweeds with multiple geographies where we can get many of the seaweeds, and we work through that with many different traders. Then the pulp side, we have many alternatives that we continue to work on that area. And, that takes different amount of times between customers for qualification approval , but that's been a very successful strategy over the last several years for us to help mitigate some of these -- the volatility in raw

Mike, I would like -- I mean, it's very important, raw material cost, when you look at the segment level then. But I would still like to put a color on the numbers because -- a company (inaudible) one of the great strengths, even when there's variation on raw materials, it's not like we're dependent on all price with significant variation, like some chemical companies could be facing.

Just to give you a sense, when we talk about a raw material impact, year-to-date, for a business like BioPolymers, it's in the mid-single-digits. So you're talking about $5 million, $6 million, $7 million overall, year-on-year, numbers. We are not talking about double-digit significant differences. We look at it because at the segment level it is very important, but in the big scheme of the Company, those are not big ups and downs.

Understood. Thanks, Pierre. And then I was also hoping to ask about the lithium market. Can you talk a little about the supply and demand dynamics, specifically in the butyl lithium area? And what support you're seeing in the marketplace for pricing to offset some of the higher electricity and other costs that you're seeing on the lithium specialties side?

Michael, this is Ted again. On butyl lithium, which is our key downstream product in the lithium business, we have been successful in seeing prices increase. Supply and demand are fairly (inaudible), and that's improved over the last couple years. We are getting price increases in most markets today, and continue to see steady growth for the business. So, our profitability of this side of the business has been improving.

All right. Thanks very much.

Your next question is from the line of Peter Butler from Glen Hill Investment.

Good morning. Pierre, thanks for the superb look at your strategy. That was very helpful today. Thanks. I have just two questions. What's your best guess, given all the moving parts, on how much of an earnings swing you might have in soda ash next year versus this year.

Peter, we are just in the process really of looking through all of that. I mean, we do have a very rigorous process. I have not, myself, yet, seen the budget coming from each of the business unit. We will start to have a good color by the middle of November, and then we'll have to have those numbers for board approval sometime around mid-December. So, it's still a work in progress. It depends a lot on volume, but also on what do we believe will be happening on pricing? It's very early now that we have not started solid negotiations. So, I'm not in a position, Peter, to give you any color at this stage. I will need a few more weeks.

Okay. You've had Mark Douglas on your conference calls the last several times, but I don't think he has said a word yet. Does Mr. Douglas have some observations he'd like to share today?

Well, I am real. Thanks for the question, Peter. Observations going forward, really, as Pierre has said, my (brief) is to look at the procurement area and rapid developing economies. And, Pierre has already talked about that as a key part of our strategy going forward. So, I'll certainly be talking December 2 in New York, and hopefully you'll hear more details around procurement and rapidly developing economies then, but rest assured the work is going forward.

Okay.

Your next question is from the line of Douglas Chudy from KeyBanc Capital Markets.

Hi. Good morning. I guess first, you noted for BioPolymers that you did receive a benefit from some productivity improvements. Can you give us a little more color here -- where you're driving these improvements and maybe some future potential?

Most of the productivity improvements today are coming unfortunately for also what is the reason of some of the limitation in the top line growth. Must be from integration of the acquisition -- the ISP acquisition which was done. So those are mostly numbers which were announced of -- and, we are just delivering on the integration cost savings from the ISP acquisition.

Okay, so one-time in nature versus ongoing here is the way to think about it?

No, it's ongoing because once the consolidation is done, we are shutting down plants. So, if you look at the performance we do have today, it will be sustained. We shut down plants from the former company we acquired and consolidated manufacturing on single plants. So those are ongoing savings now -- if, by saying one time, you mean we will not realize versus this year the same amount the following full year. It is correct that operating at the level where we are is good for the future.

Okay, that's helpful. Just secondly, you noted again for the outlook for the fourth quarter for Industrial Chemicals that you would see year-over-year pricing headwind. If I recall, I think the soda ash markets -- pricing market, at least, stabilized last year around the third or fourth quarter. So would you actually start to see a positive year-over-year comp in terms of soda ash pricing.

I think if you look, the pricing differential is increasing each quarter. And, I think it's not minor, but really starting to be at much lower level in the fourth quarter, and that will be turning going into first quarter next year.

Okay, thank you.

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

Good afternoon, gentlemen. I guess we just got into the afternoon hour. A couple of questions, as most of them have been answered. Number one, I know you guys are hedging your natural gas exposure about 80%, and by this time of the year, you should be mostly hedged toward 2011. So my question is, what should our expectations be for, natural gas costs in 2011 versus 2010?

And then secondly, more of a strategic question along the same lines -- several companies in our space who have hedged natural gas in the past and proceeding as operating in an environment of inflationary natural gas pricing, have backed away from hedging, given that the price of gas has declined, and projections at least for the near to mid-term, are for continuing benign -- $4, maybe even sub $4 natural gas. So have you considered going away from your hedges, or hedging less of your upcoming needs?

Hi, Dmitry, this is Kim. Good questions. As far as the first question on the hedging program, we are essentially complete. And, natural gas -- that component of our energy cost that is represented by natural gas -- will be a slight tailwind for us in 2011 versus 2010. But only slight. As you remember, it was a significant tailwind for us in 2010 versus 2009.

As it relates to your second question, we are going to do a fairly in depth relook at our hedging strategies. Both whether we should do them, the scope we should do them at, and the duration, if we continue them, that we would do them at. And, I guess Peter Butler gave Mark a chance to say something. But one of the things he's also going to look at -- we're going to have procurement specialists in the energy area, and in treasury in conjunction with procurement, is going to relook at our hedging strategies going forward.

Very good. That's helpful. Thank you. Then, question -- switching gears onto Industrial Chemicals business. Have your plans for the timing of the Granger restart changed, given how much export volume you're pushing out, and the outlook for very strong volume growth in the export market of Chinese continued to back away from it? Or are we still looking for sometime in the middle of next year as the most likely timeframe?

We're looking at an opening -- it takes a few months anyway to get the plants up and running, so it's very high on our priority list to make a decision. Which we have not made yet. But, I think it's safe to think about sometime toward the middle of next year if the market condition continued to support the opening. So we have to decide timing, but Q2, Q3, are a good timeframe, and we still have to decide what percentage of the plants we'd be launching. So, I'd say Michael Wilson and his team will make a decision most likely sometime in the first three month of next year to contemplate a mid-year opening of the plant.

Okay. And then the final question on the acquisition strategy that you outlined here. In the past, obviously the BioPolymers was always an area FMC to find acquisitions, and have done at least one -- a couple actually. The other area was identified as crop protection, but know you're saying that you're going to be doing more in licensing and maybe expanding the face of what you're doing already. But you seem pretty categorical about not growing that business through even bolt-on acquisitions. Can you give us some flavor for why the thinking has changed? And what's become less attractive about growing that business through M&A?

Yes. First of all, let me make sure, I'm very clear on this business. It is a critical business from a growth and earnings standpoint. So, external growth of this business is absolutely critical. Now here is what is the thinking behind the decision.

First of all, we do have a very high quality franchise. Our earnings and repeated performance demonstrate that we do have a unique business model which is very sustainable. When we look at other companies, which could be potentially, at some point, variable for acquisition, it is very hard to find any company which is close to the performance or business model we do have in our ag business. And we are concerned -- I am concerned about potentially having a negative impact if we do acquisition on the quality and the performance of this franchise. These specially come in with the type of multiple which are seen today in the ag world, which are very high. And, I'm just afraid we would not get the right type of returns taking into account the performance of our business.

It also comes from the fact that the agricultural team has uncovered maybe stronger way to grow, and I'm talking about smaller transaction. Smaller transaction, in the sense that they might involve less of a cost because it will not be straight acquisition of company, but more acquisition of product line. So, it's licensing in is one of it. Joint technology development is one of it. But, think about companies which might have product line, which would have a lot of synergy with a product and might not be as critical for them. We would be willing to make significant investments to bring these in our portfolio. And, we believe it's a safer way to protect the quality of our franchise. Now, we will uncover more about the size, but the actual growth in ag, through this process, could be significant. By no means we are reducing that to no growth. It's still pretty ambitious, but a very different approach and a cheaper approach with higher return to do it.

That's been very helpful. Thank you for that color, Pierre.

You're very welcome. All right, I think I'm going to go now in my very quick closing remarks. First of all, I would like to thank everyone for your time and attention. We look forward to seeing you at our investor conference on December 2 in New York. And on this [world], it concludes our call. Thank you very much.

I will now turn the call back to Mr. Brondeau for closing remarks. Thank you. This concludes the FMC Corporation third quarter 2010 earnings release conference call. You may now disconnect.