富美實 (FMC) 2012 Q2 法說會逐字稿

Good morning and welcome to the second quarter 2012 earnings release conference call for FMC Corporation. All lines will be placed on listen only mode throughout the conference. After the speakers' presentation there will be a question and answer period. (Operator Instructions). Thank you. I will now turn the conference over to Mr. Andrew Sandifer, Vice President Strategic Development and Investor Relations for FMC Corporation. Mr. Sandifer, sir, you may begin.

Thanks, Shannon. Welcome, everyone, to FMC's second quarter 2012 conference call and webcast. Joining me today are Pierre Brondeau, President, Chief Executive Officer and Chairman; Michael Wilson, President Specialty Chemicals Group; and Kim Foster, Executive Vice President and Chief Financial Officer.

We have a full agenda today, first Pierre will begin with a review of our second-quarter performance; Michael will then provide an in-depth review of the BioPolymer and Lithium businesses that comprise our Specialty Chemicals Group. Following this review Kim Foster will report on our financial position.

Next Pierre will update you on our significant progress in delivering our Vision 2015 strategic plan. Pierre will then finish our prepared remarks by providing our outlook for the third quarter and full year 2012. We will then complete the call by taking your questions. Joining Pierre, Kim and Michael for the Q&A session will be Milton Steele, President Agricultural Products Group, and Mark Douglas, President Industrial Chemicals Group.

Let me remind everyone 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 2011 Form 10-K, our most recent Form 10-Q and other SEC filings. This information represents or best judgment based on today's information. Actual results may vary based upon these risks and uncertainties.

Our discussion today will focus on adjusted earnings for all income statement and EPS references. The definition of adjusted earnings and certain other non-GAAP financial terms that we may refer to during today's conference call are available along under the heading of Glossary of Financial Terms on our website, www.FMC.com.

Also on our website we've posted our current 2012 outlook statement which provides our guidance for the full year and third quarter 2012 as well as a reconciliation to GAAP for the GAAP/non-GAAP figures we'll use today.

And finally, share and per share financial data discussed today reflects the 2-for-1 split of FMC's common stock that was completed on May 24, 2012. It is now my pleasure to turn the call over to Pierre Brondeau. Pierre.

Thank you, Andrew, and good morning, everyone. As you saw in our earnings release last night, we delivered another strong quarter with earnings per share up 20% versus the prior year period, continuing a trajectory to deliver another record year for FMC. Let me walk you through the Company's overall results for the quarter.

We delivered adjusted earnings of $0.92 per diluted share, an increase of 20% versus the year ago quarter. Total Company sales of $905 million increased $93 million or 11% versus last year. This strong performance was led by continued robust performance in our Agricultural Products segment and with sales growth in all businesses.

Sales grew most rapidly in Latin America, up 32%, followed by Asia, up 13%, and North America up 9%. Sales in Europe, the Middle East and Africa, or EMEA, decreased slightly less than 4% reflecting principally the impact of a weaker euro.

Gross margin of $341 million increased by $42 million or 14% versus last year. Gross margin percent of 37.7% improved by 88 basis points over last year driven by higher selling prices, higher volumes and improved mix only partially offset by higher costs.

SG&A and R&D of $148 million increased $18 million or 14% largely due to increased spending on targeted growth initiatives. Adjusted earnings before interest and taxes of $127 million increased $16 million or 15% compared to last year.

Let's now take a more detailed look at the performance of each of our operating segments in the quarter. First in Agricultural Products, second-quarter sales of $394 million increased 19% versus the prior year quarter with substantial sales gain in Latin America and North America. Latin America sales growth was driven by continued strength in sugar cane, growth in soybeans and sales from our new market access joint venture in Argentina.

North America saw strong demand for proprietary herbicides and higher insecticide sales due to strong [past] pressure and growth in the corn segment. Asia and EMEA sales were marginally down versus the prior year period. Segment earnings for Agricultural Products of $111 million increased 18% versus the year ago quarter driven by strong volume growth partially offset by higher spending on targeted growth initiatives.

Another development of note for our Agricultural Products Group in the quarter was the re-approval of bifenthrin for use in the European Union by the standing committee on the food chain and animal health. Bifenthrin has long been recognized as a valuable and effective crop protection product by growers around the world.

It is a unique, versatile insecticide that works quickly on the range of destructive insects. It will once again be available to growers in the EU where it will be registered for all (inaudible), cereals, vegetables, [ornamental] and other uses. FMC will also continue to develop new and innovative formulations for this product, which should lead to increased sales and market shares in key EU markets.

Though we are very excited about this news, due to the time line to register bifenthrin across target countries in the EU, we do not expect any sales or EBIT impact until 2014.

Moving now to Industrial Chemicals. Revenue in Industrial Chemicals increased 9% to $277 million driven by higher selling prices across the segment, especially in soda ash and volume growth in soda ash and specialty Peroxygen. Segment earnings of $43 million increased 18% as a result of the sales gains and the continued favorable mix shift in Peroxygens towards specialty applications, partially offset by [an anticipated] production down time in soda ash.

In soda ash we continue to see higher overall selling prices versus the prior year. Domestic prices showed continued year on year improvement and, as you saw, we announced in July the $10 per ton increase in off lease soda ash prices. As is the case every year, this increase will have very low impact on 2012 results since the vast majority of domestic contracts have prices fixed for the calendar year. This price increase announcement does however form the basis for 2013 contract negotiations which typically occur in November and December.

Export prices overall were also up year over year in the second quarter. In Asia soda ash prices declined sequentially in the second quarter as anticipated in the first quarter call following the slowdown in soda ash demand growth in China that impacted export prices in Asia. Soda ash prices in Asia were however still up high single digit percent compared to the prior year period.

As sales to Asia represent less than a third of our total soda ash exports, sustained price increases in Latin America and other export markets helped maintain the upward trajectory of overall soda ash export prices. Soda ash prices within China and Chinese export market are both now at or below Chinese producers' cash costs.

In the midterm we are confident that prices in Asia will rebound due to a combination of demand recovery and the continued cost pressures related to energy, raw materials, labor and currency appreciation. That said, we expect to see continuing pressure on Asian soda ash prices as we enter the third quarter.

In light of these changes in domestic and export pricing we now expect our global average selling price for the year to be up in the high single digits on a dollar per ton basis. Soda ash volume was also up in the quarter, but growth was limited by unplanned production down time at our Green River site. The issues were one-off in nature and have been resolved. Overall a very positive quarter for our soda ash business.

Moving to our Peroxygen business, Peroxygens delivered sales growth in the quarter with somewhat higher volumes, higher prices and improved mix. We continue to be pleased with the transformation of the Peroxygens business with steady growth in our targeted specialty application in the quarter.

The new Environmental Solutions business formally launched in May is well underway. With a focused growing team now on the ground we are excited about the future contribution of this business to Industrial Chemicals' overall growth goals.

Let's now move to the Specialty Chemicals segment for an in-depth review of our BioPolymer and Lithium business that for Specialty Chemicals, I will turn the call now over to Michael Wilson. Michael?

Thank you, Pierre, and good morning, everyone. I'm pleased to review with you the current performance and outlook for our Specialty Chemicals Group. After updating you on our second-quarter performance and near-term outlook I will share some insights on the terrific progress we are making in the strategic evolution of our BioPolymer business. I will also address some of the midterm issues facing our Lithium business as we continue on our path to delivering Specialty Chemicals' portion of FMC's Vision 2015 strategic plan.

First a review of second-quarter performance. Revenue in Specialty Chemicals was $235 million, up 3% versus the year ago quarter driven by higher selling prices in all businesses and strong volume growth in specialty food ingredients. The revenue gain was partially offset by unfavorable exchange rate impacts from the weakening euro on the BioPolymer business.

On a constant currency basis Specialty Chemicals' sales were up 5% versus the prior year period. Segment earnings of $53 million were down 6% from the prior year quarter, as anticipated, with higher prices across the segment offset by higher manufacturing costs in Lithium, higher raw material costs in BioPolymer, increased investment to support growth initiatives such as the natural colors effort in BioPolymer, and unfavorable exchange rate impacts.

BioPolymer delivered another solid quarter achieving record EBIT. Sales grew in the low single-digits driven by price increases and stronger volumes, particularly in food ingredients, which were partially offset by the impacts of a weaker euro affecting mainly pharmaceutical ingredients.

Lithium sales growth was driven by continued price increases as the lingering impacts of the operational issues we faced in the first quarter kept volumes flat and continue to affect costs and efficiencies in the quarter.

Combined with the sustained high inflation in Argentina this led to weaker profitability in Lithium as compared to the prior year period. Sequentially lithium profitability improved versus the first quarter of 2012, but continues to be well below our expectations. I will address our expectations for improvement in Lithium in a few moments.

Looking ahead to the third-quarter and remainder of the year for Specialty Chemicals, we expect third-quarter segment earnings to be down approximately 5%. In BioPolymer higher selling prices and volume growth will be offset by higher raw material costs and increased spending on targeted growth initiatives.

In Lithium poor evaporative conditions during the Argentine winter have not allowed brine concentrations to recover from the impacts of the heavy rainfall and flooding in the first quarter as we previously expected. This has limited our ability to exploit the capacity expansion brought online in the first quarter and will result in continuing capacity constraints and higher manufacturing costs through the third quarter.

For the full year we expect revenue to be up approximately 5% driven by higher selling prices across the segment and volume growth in BioPolymer. We anticipate full-year segment earnings to be flat, with sales gains offset by production constraints and continuing cost increases in Argentina and Lithium as well as higher raw material costs and increased spending on targeted growth initiatives in BioPolymer.

I should note that while we expect considerable improvement in Lithium earnings in the second half of 2012 with earnings essentially doubling versus the first half, we will not see significant benefit from the recent expansion until the fourth quarter.

Let me now share with you an overview of the significant progress we are making in the strategic evolution of our BioPolymer business particularly in the area of specialty food ingredients.

When we launched FMC's Vision 2015 strategic plan in 2010 we established several strategic imperatives for our BioPolymer business including four specific imperatives for our food ingredients business -- invest in core products to strengthen our leadership position; leverage customer relationships by broadening our texturant portfolio; increase participation in higher growth, high-value added ingredients; and expand our RDE position by investing in growth markets.

I'm pleased to report that we've made substantial progress on each of these imperatives. We have reinforced our leadership position in colloidal microcrystalline cellulose, or MCC, and alginates through a series of capacity expansions in our Cork, Ireland; Haugesund, Norway; and Newark, Delaware facilities.

And last week we announced that FMC's Board of Directors has approved a $100 million plus investment to build a new MCC plant in Thailand to serve the rapid demand growth for this highly differentiated food ingredient in Asia.

In addition, earlier today we announced yet another major new development -- FMC's entry into the pectin market through the acquisition of Pectine Italia. We have for many years explored opportunities to add pectin to our portfolio of texturants as it complements our existing product line well, particularly for low pH applications.

Our technical team already regularly works with pectin in solving specific customer problems. Pectin is a sizable global market, roughly $650 million in 2012, and is growing in the high single digits annually, substantially faster than the overall food ingredients market. We are confident we can leverage our global market knowledge and deep customer relationships to grow this business into a meaningful product line for FMC approaching $100 million in the five year time horizon.

While our initial entry into pectin is small, as with many of our external growth investments, Pectine Italia is rich in technology and know-how, it will provide the basis for future organic and inorganic investments as we build out this product line. Pectine Italia is also strategically located near important raw material sources. We expect to close this acquisition by the end of the third quarter and will certainly share more about our plans in pectin at our December Investor Day.

We are equally as excited about our substantial progress in natural colors. Natural colors is an even faster growing market than pectin. Roughly $750 million in size today, the natural colors market is growing at least 12% per year or three times the rate of the overall food ingredients segment. This growth is driven predominately by the strong consumer pull for more natural ingredients in food products which is driving a worldwide conversion from synthetic to natural colors.

The natural colors market is currently fragmented with only two truly global players and a large number of local and regional companies who lack the customer access and global reach to fully capitalize on growth opportunities. FMC first entered the natural colors market in late 2011 with the acquisition of BioColor business of South Pole Biogroup, a Chilean-based company that was an emerging technology leader in natural colors.

In June of this year we acquired Phytone Ltd., a more established natural colors company based in the UK which was led by two technical and commercial pioneers in the natural colors industry. With both BioColor and Phytone the previous owners have remained with FMC in advisory capacities as we build our technical depth.

We see tremendous potential for natural colors as a part of BioPolymer's food ingredients franchise. As with pectin we plan to build this into a $100 million plus product line for FMC over the next five years through a mix of continued acquisitions and focused organic investments in additional manufacturing, commercial and technical capacity.

And finally, as I hope is clear through the various actions I have highlighted thus far, through acquisitions and new plant investments we are greatly increasing our participation in rapidly developing economies. This is a very exciting time in BioPolymer's food ingredients business and we have great expectations for this business to continue to be a key franchise for FMC going forward.

However, I would be remiss to focus exclusive on the food ingredients portion of BioPolymer in my comments today. The FMC BioPolymer pharmaceutical ingredients business continues to be an anchor franchise for FMC as well.

The MCC capacity expansions and the new Thailand plant that I mentioned earlier will also support continued growth of our pharmaceutical ingredients franchise, particularly our leading line of Avicel brand MCC tablet binders. We continue to build our RDE presence in pharmaceutical ingredients, especially in India where we will open a new customer technical support lab later this quarter.

Turning now to FMC Lithium, we continue to have high expectations for growth and profit improvement in this business. The global market for Lithium at roughly $1 billion today is sizable and growing rapidly. We continue to expect robust growth in global demand for Lithium from roughly 100,000 tons of Lithium Carbonate Equivalent, or LCE, in 2010 to above 260,000 tons of LCE by 2020, an overall compound annual growth rate of approximately 10%.

This growth comes from a combination of sustained low single digit growth in traditional industrial and polymer applications coupled with high teens growth in demand for energy applications broadly, including electronic devices, transportation and other emerging applications. So the demand side looks very promising for Lithium, both in the near and the long term.

On the supply side, we continue to believe the existing industry leaders are best positioned to supply the growing needs of the market. While there is much attention paid to early stage development projects in Lithium around the world, no new source has been successfully commercialized in over a decade as the technical and logistical challenges in exploiting Lithium reserves are formidable.

The existing industry leaders are situated on the best resources in the world and will continue to have a substantial cost advantage over new entrants. Further, the existing industry leaders have deep technical expertise in the extraction and purification of Lithium that new entrants cannot readily develop. And while Lithium pricing continues to increase, the likely cost position of many new entrants is such that even with strong price increases, they will be challenged to make a reasonable return on investment.

That said, FMC's current Lithium base in Argentina does face some challenges. Putting aside the recent operational issues, which are well understood and being addressed, the biggest obstacle to continued long term supply growth for FMC is the current political and economic situation in Argentina.

While the stand-alone project economics of reinvesting in a proven existing reserve are compelling, the current high inflation and challenging political/economic environment make it difficult to commit to a significant investment decision in Argentina at this time. Consequently, as we shared with you in last quarter's call, we have delayed any decision on future expansion in Argentina through the end of the year as we continue to monitor the situation there. Meanwhile, we're evaluating other capacity alternatives outside of Argentina.

Let me be clear, FMC is committed to the Lithium business for the long term. We have deep technical expertise in both operations and applications and strong customer relationships that support a long term successful position, and we have multiple options for future expansion, including in Argentina if the situation there improves.

We will update you as we advance our future capacity plans and I expect to be able to provide clear direction on our path forward in the near future. In the meantime, we will continue to work with customer to maintain our leading positions, particularly in energy applications.

So in summary for Specialty Chemicals, I'm very pleased with our progress in driving strategic evolution of our businesses. We are greatly strengthening our BioPolymer franchise, positioning it for continued strong performance over the long term, and we will maintain our leadership position in the global Lithium industry.

The outlook for Specialty Chemicals Group is bright and I'm honored to lead the talented group of FMC employees driving our efforts. With that I'll now turn the call over to Kim Foster who will be happy to answer any question during the Q&A.

Thanks, Michael, and good morning, everyone. Today I will report on our free cash flow, the recent stock split and finally comment on our tax rate. First, as a reminder, free cash flow is defined as after all uses except acquisitions, dividends and share repurchases. We are reaffirming our previous forecast of $200 million to $225 million for the year.

As previously stated, the full year free cash flow guidance includes forecasted capital expenditures of $250 million. Through the first six months of 2012 cumulative free cash flow has been $153 million, which includes capital spending of $81 million. Clearly the pace of capital spending in the second half of the year will be significantly in excess of the pace during the first half. This will include the first phases of the Asia MCC plant project that Michael described to you a few moments ago, completion of the Newark, Delaware MCC expansion, as well as other smaller expansion projects and maintenance projects across all of our businesses.

As I mentioned during the first quarter conference call, our Board of Directors declared a 2-for-1 stock split of our common stock at the April Board meeting. The split was affected in the form of a distribution paid on May 24, 2012 to shareholders of record as of the close of business on May 11, 2012. Trading in the common stock on a post-split basis began on May 25, 2012.

Consequently we all need to adjust our key metrics by 2. For example, our previous full-year guidance of $6.80 to $7.05 per diluted share translates to $3.40 to $3.52 per diluted share. And our shares outstanding are revised from 69 million shares to 138 million shares. And of course our three digit stock price is now on its way back to the three digit level.

Regarding share repurchases, our strategy of returning cash to shareholders continues to balance prudent financial policy with the competing demands of investments to support organic growth and the capital to support selected external investments. While we have $245 million of repurchase capacity remaining under our existing Board authorization, we made no additional share repurchases in the second quarter as we prepared to fund heavy capital spending in the second half of this year.

Moving to taxes, let me note that we are now forecasting a full year tax rate of 27.5%, 50 basis points higher than our previous forecast. This increase is driven by significantly higher profits in the United States largely due to higher sales of ag products in the first half of 2012. The tax rate in the second quarter was 28% and the tax rate for the last two quarters is projected to be 27.5% which will result in a full-year tax rates of 27.5%. With that I will now turn the call back to you, Pierre.

Thank you, Kim, and I must say we are fortunate to have one of the best CFO's in America in our ranks, as was commented yesterday by the Wall Street Journal. Well-deserved, Kim.

Before we get into outlook for the third quarter and the full year I'd like to give you a brief update on Vision 2015 progress. As we begin the second half of 2012 I am pleased to report that we continue to be well on plan toward realizing our Vision 2015 objectives.

First, relative to our key P&L objectives, 2015 sales in excess of $5 billion and EBIT of $1.2 billion. We continue to deliver results at or above the trend line required to reach these targets.

In terms of return on capital, we are delivering results on average invested capital well above our commitment of sustained mid-teens. In fact, our return on average invested capital in 2011 was 23.9%, a strong performance, well above our minimum commitment.

We continue to show improved earnings stability, especially in our Industrial Chemicals Group reflecting the strength of our portfolio and in fact of actions we took in 2010 and 2011 to exit the underperforming and highly volatile first phase in sodium percarbonate business lines.

As Kim has highlighted, we remain disciplined toward cash with a balanced deployment among organic and external growth investments and return to cash to shareholders -- of cash to shareholders.

In fact, not quite halfway through our Vision 2015 plan cycle we have already returned or have committed to return $750 million to shareholders through share repurchases and dividends. This is more than half of the minimum commitment of returning $1 billion of cash to shareholders that we announced at the launch of the plan. So from a cumulative perspective we are making great progress.

Beyond the metrics we also delivered against our overall Vision 2015 strategic imperative in the first half of 2012, first growing our leadership position. As Michael described, we brought on our specialty food ingredients platform with the acquisition of Phytone Limited in the natural colors space and the announced signing of definitive agreements to purchase Pectine Italia.

Increasing our reach, we continue to increase our participation in rapidly developing economies with sales in RDEs up 25% in the first half of 2012 and sales in RDEs representing nearly 47% of the total Company sales for the last 12 months.

Capturing the value of common ownership, we continued to shift from a highly centralized organization to balanced centralized/decentralized model that better leverages our size and scale and to act as one FMC where it matters. Realizing efficiencies we are maintaining stronger (inaudible) to our business units.

Our global procurement team is making great progress and we're on schedule to deliver projected cost savings. Our operations group is also making great strides in building excellence in operations, supply chain and in environment, health and safety across FMC. We are beginning similar exciting initiatives on the operations area particularly around manufacturing efficiency improvements. I will share more on this effort in the future.

Proactively managing our portfolio, Industrial Chemicals portfolio has been an area of focus. We have addressed businesses that we are competitively disadvantaged and underperforming for an extended period of time. In 2010 we exited our phosphates and sulfur derivatives business.

In mid-2011 we announced our exit of the sodium percarbonate business line, which was completed in early 2012. With these moves Industrial Chemicals has been transformed into a segment with sustained higher margin, greater earnings stability and significantly higher [return on assets].

Finally, disciplined cash deployment, which I updated you on a few moments ago. In short we are making exceptional progress towards delivering our Vision 2015 strategic plan and I and the FMC management team look forward to sharing much more detail and context about Vision 2015 progress and long-range plans at our institutional investors conference to be held on December 11, 2012 in New York.

Moving on to our outlook for the full year 2012. We raised slightly the midpoint of our previous outlook for the full year 2012 and now expect adjusted earnings of $3.42 to $3.52 per diluted share, a 16% increase above last year at the midpoint of the range.

Our agricultural products segment expects to achieve its ninth consecutive year of record earnings with year-over-year earnings up in the high teens reflecting increased volumes especially in Latin America, North America and Asia due to strong market conditions and growth from new and acquired products, but partially offset by higher spending on targeted growth initiatives.

As Michael described earlier, segment earnings in Specialty Chemicals are expected to be flat for the year. We are forecasting the eighth straight year of record earnings in BioPolymer with higher selling price and volume growth partially offset by the impact of higher raw material costs, increased spending on targeted growth initiatives, and unfavorable exchange rate impacts.

However, segment earnings will be dampened by weak performance from the Lithium business with the operational issues Michael highlighted as well as continued cost increases in Argentina offsetting higher selling prices.

And in our Industrial Chemicals segment we expect earnings to be up in the high teens percent due to higher volumes and selling prices in soda ash and the third consecutive year of record earnings from the Peroxygens business reflecting the continued mix shift of that business towards specialty applications.

Now moving to our outlook for the third quarter 2012. We expect adjusted earnings of $0.70 to $0.80 per diluted share for the third quarter, a 9% increase at the midpoint of this range. In Agricultural Products we expect third-quarter segment earnings to be up approximately 10% reflecting strong growth in Latin America, especially Brazil, partially offset by continued investment and targeted growth initiatives.

Specialty Chemicals' third-quarter segment earnings are projected to be down approximately 5% as higher selling prices across the segment and volume growth in BioPolymer are offset by higher operating costs in Lithium as well as higher raw material costs and increased spending on targeted growth initiatives in BioPolymer.

In Industrial Chemicals we expect third-quarter segment earnings to be up in the mid-teens percent driven by higher selling prices in soda ash and specialty Peroxygen, volume growth in soda ash and the continued mix shift towards specialty Peroxygens partially offset by a planned maintenance outage in our Tonawanda, New York Peroxygens facility.

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

(Operator Instructions). Frank Mitsch, Wells Fargo. Your second question comes from the line of John McNulty, Credit Suisse.

Just a couple of questions. First on your ag outlook, I know last year I guess there was an issue with a relatively severe drought down in Texas and that nicked the quarter and the outlook in the middle of -- or in middle of last year.

This time around where we have got a huge drought across most of the US we are not hearing really much of any commentary on that and it doesn't seem like your actually seeing much in terms of weakness. So I guess what has changed in your ag business or what is maybe a helping to offset some of the issues that you may be seeing in the US and how should we think about that going forward?

Thanks, John. Yes, if you look for us, the ag market in North America is mostly in the first half of the year. So yes, a drought could impact the third quarter in North America, I mean we could see some impacts on rescue applications, for example, but we really expect this to have a very limited impact.

In addition, it is important to remember that we have a very global footprint and that our ag performance in the second half largely relies on Latin America. So at this stage we do not foresee a major impact of the drought situation in North America because of what I just said.

Okay, fair enough. And then with regard to the -- also sticking to ag, with the re-approval in Europe for [bifendrol] or bifenthrin -- can you give us some clarity as to what that might mean in terms of sales when they do come back in in 2014?

Once again, I want to reiterate the fact -- the fact that there will be no impact in 2013; we need to have the re-registration process. But it's a multi -- [24] is a multi-tens of millions of dollars, which we would be expecting coming from the bifenthrin. It's an important product and with high profitability.

Okay, great. And then just one last question. When we look at the Specialty Chemicals segment there is a lot of moving parts between the Newark expansion this year and some of the Lithium issues. And I know 2013 is a ways away, but if we just kind of assume that pricing stays relatively level and the demand volumes kind of stay roughly in line, how we should be thinking about growth in 2013 versus 2012? Because it seems like 2012 is just unusually kind of artificially low for a whole host of reasons.

If you look at Specialty, we believe that our BioPolymer business is well-established. I think we are going to benefit from the capacity expansion we did in Cork and the one we did in Newark. So this is a high -- mid to high single digit sales growth business for BioPolymers. And we expect continued growth in this business which will be even better with the addition of the pectin and the BioColor business.

So we can keep on looking at the same [time] of performance year after year we've been having in BioPolymer. Now the bigger side for us is obviously Lithium. We do expect to have turned around the performance of the Lithium business during the fourth quarter and not only benefit from better operation, replenished inventory, but also benefit from the capacity expansion.

So there should be a significant jump in performance going forward, but not in the BioPolymer, which has been stable growth, but by the turnaround of the Lithium business.

Great, thanks very much for the color.

Kevin McCarthy, Bank of America.

Just a few questions on BioPolymers. First, congratulations on penetrating pectin, I know you have been looking at that for a number of years. Can you speak to the initial sales contribution from the Pectine Italia deal? I think you mentioned it could ramp to $100 million as a category in five years. So what might that look like? And then as you broaden the portfolio into both pectin and natural colors, can you speak to cross-selling opportunities in the category?

Yes. I think we have -- what Michael said is, when we look at those two businesses combined, it would be a contribution of a couple hundred million dollars in the next four to five years. Now today -- today, it is a business, which sales are quite small. I think the natural colors business is a few tens of millions of dollars of sales and the pectin business is more on the single-digit million dollars.

What we are doing with the pectin acquisition is truly acquire a plant, knowledge and the process and we are going to be, from that acquisition, organically expanding that business by increasing our capacity around the world. So it is a step for us to get the product and the technology and the manufacturing capability and we are going to grow from this.

So in the short term, those businesses have a slight dilutive impact on earnings next couple of quarters, should become accretive fairly quickly, but it is mostly an organic growth now from acquired capabilities.

And then as a follow-up, you cited some raw material cost pressures. Is that on the lithium side or seaweed for biopolymers or both? Can you maybe elaborate on the sources of increases there?

Yes, the market has been tight, it is mostly in BioPolymers, mostly in specialty pulps that we are seeing significant cost pressure.

And then final question, if I may, switching gears into Industrial Chemicals. What was the financial impact of the unplanned outage that you had in Green River in the second quarter? And then looking ahead to 3Q, a similar question, what is the anticipated impact of the maintenance outage that you have scheduled there in Peroxygens?

Kevin, we don't go into the detail at this level. I would say, for the outage we had in soda ash, it was mostly a problem of tons of product we were not able to sell more than an operating cost. It is a single-digit million dollars impact we see on the business, the same range looking at kind of one-time next quarter?

Thanks very much.

Mike Harrison, First Analysis.

In the Lithium business, Michael, I was hoping that you could help us understand what specific actions you are taking to get operations back on track. And particularly how does limiting production in order to increase your pond inventory contribute to the long-term health of the ponds or operations overall?

Yes, Mike, as you recall from the discussion at the end of the first quarter, what had happened is we had very unusual rains in the December through February period. So what the impact of that was it diluted brine that we have both in pre-evaporation ponds, which is prior to processing, and also our final solar brine.

So we as we moved into the second quarter we began to produce more Lithium, but, because the concentration of Lithium in the brine was lower than ideal, that creates a manufacturing inefficiency. If you think about the energy that you have to consume, et cetera, you're processing twice as much water, evaporating twice as much water if your concentration is half of what you would ideally like it to be.

So we have sort of suffered through that situation with manufacturing at below optimal conditions in brine concentration for some period of time and we finally got -- and what we had hoped was that we would see evaporative conditions that would improve that situation over the course of the second quarter. The reality as it turned out was that during the Argentine winter we didn't have very favorable evaporative conditions, so the brine concentrations haven't improved all that much.

So rather than continue to process those brines at low concentrations, we've sort of taken the difficult but necessary decision to scale back production to give the brines time to concentrate so then when we do produce it will be at an optimal condition and we will have a much better cost position for the product that we produce.

And when you talk about limiting production, is it primarily lower volumes of the commodities or primary in Lithium products or specialties or both?

In particular we have taken an extended outage, maintenance outage, if you will, for our lithium chloride operation. And we are allocating product predominantly to carbonate which is a predominant feedstock for the downstream products like lithium hydroxide.

So as you know we are sort of preferentially looking at our marketplace and our customers based upon strategic importance in profitability and allocating on that basis. That's not to say we are not producing any lithium chloride or lithium metal that would be produced from that, but we have clearly shifted the focus of what we are producing and we are taking that outage on the chloride side.

And then in terms of the ag business, I know the warm spring weather resulted in some pull forward from Q2 and the view was that we probably, with the warmer weather and the early season, might have a bumper crop of pests in North America. Given the drought and just what you have seen through Q2, did customers work through the pesticide volumes that they purchased in Q1 or were -- is it your view that they're left holding some additional inventories that maybe hurt your volumes in the next growing season?

We are not expecting to see our volumes being hurt. We do not believe -- I think they worked more or less through the inventory and the demand was very strong in the first quarter, very strong in the second quarter. So we do not have worries today about our situation in North America. The strong second quarter which we saw as a possibility did happen and we believe we are in an acceptable situation around the inventory, which is around the supply chain right now.

And then last question just on soda ash pricing. To what extent are you guys able to shift -- or ANSAC I guess -- export mix away from Asia? And you did comment that Asia export pricing was lower quarter on quarter in the second quarter. Can we just get some more detail on how you expect pricing to trend in Asia exports for Q3 and Q4?

I think just to correct one statement. I will let Mark comment around how we shift on that volume from Asia to other markets like Latin America and how can we do that. Just to correct, pricing was not down a quarter on quarter. Just to make sure, pricing was down sequentially but year on year pricing in China is -- in Asia is still up in exports. And mark, do you want to address how do we potentially see volumes?

Hi, Mike, its Mark. We do have through ANSAC, and through our own direct exports around the world, have some ability to move from region to region as demand sees fit. But as you can imagine, a lot of our business is either quarterly or longer-term contracts, so we are tied to some extent. But we do out some freedom of movement.

And in fact, if you recall in the first quarter, we did talk about the export mix for FMC being very favorable. That occurred because we were not shipping to some countries in the world where we have lower prices. So we do have some flexibility, but it is not probably as much as you imagine.

All right. And just -- Pierre, just so I understand, you were saying export pricing to Asia was higher year on year but lower sequentially, lower quarter on quarter, correct?

Exactly.

Okay.

Correct.

Thank you very much.

Peter Butler, Glen Hill investment.

It seems like you have a rather unusually large amount of investment spending and CapEx, et cetera. I'm wondering whether this is more than you had anticipated in your 2015 goals or targets. And what I am hoping you are going to say is that the business has been coming along better, the cash flow better, et cetera, and this has allowed you the luxury of increasing your investment spending.

Well, we, Peter, the comment is good and is important. Really we still have a lot of work to do and we intend to give a full picture of cash utilization toward capital spend and acquisition when we get together in December at our Investor Day.

But directionally what we believe is capital spending will be higher through the period than what we were expecting initially when we brought Vision 2015 in place for two reasons. One is that our business is growing faster than what we were expecting, leading most likely to a higher contribution of organic growth toward our target than we initially thought and the fact that we had significant capacity limitations.

So, yes, we should be looking at stronger capital spend. I think here we are contemplating $[215] million of capital spending, which is higher than what has been done in the past. So it could be -- and we are looking to that at a different balance of cash utilization between capital spending and M&A versus where we were originally planning to spend to spend the money.

We still have to do it some prioritization. As you know, we have big-ticket items coming toward us like Lithium expansion or our Granger II expansion for soda ash. So those have to be prioritized and discussed in terms of timing.

To circle back on an earlier question, could you give us some semi-qualification of the year to year costs or the delta you are going to have in Lithium? It seems like you have a lot of issues this year that you feel that are going to be put behind you going into next year. So what sort of a delta in earnings might one expect?

Peter, I am sorry if I missed some of your question, it's very hard to -- for some reason to hear you. But --.

Okay, let me restate. What sort of delta are you expecting year-to-year in your Lithium business? You are hurting this year in Lithium and it looks like maybe next year you could be back above trend. What is the delta in earnings?

It all depends, delta in earnings all depends how quickly we turn the performance of the business around in the fourth quarter. But generally speaking, if you look at Lithium we have all the reasons in the world to believe that the Lithium business is a business which has a limit to sales ratio under normal operations in the 20% to 25% range like most of our businesses at FMC.

This business, this year, is operating more into the low double-digit range than the 20% to 25%. So if you look at what we could expect as an upside that is the kind of differential.

Okay, sounds good. Thanks for your help.

Laurence Alexander, Jefferies.

Good morning, two quick ones. First on BioPolymers with the mix shift, how do you see now the margin -- the margins trending over the next call it three years?

I am not sure as to the importance of the mix shift. If you talk about mostly [food] towards pharma or --. But generally speaking, to answer your question, margins in BioPolymer are trending up.

Do have a sense for what you think will be the upper limit or is it just going to be 25 to 30 basis points a year?

Michael, (inaudible).

Yes, I think if you look at -- if you go back to our Vision 2015 plan that we put together, we had margins in the business that were in the low 20s and we indicated that we expected those to grow to the 25% range, by 2015. I think we are still on track to do that.

We are obviously making a lot of investments and I think the acquisitions that we are bringing in are going to bring us the same kind of margins that we have in the business as a whole. So I don't see any reason that it is going to be different than that.

If the current economic environment persists for several more quarters, so we stay in a choppy environment, how long -- what is your read for how long it would take for the soda ash pricing behavior to normalize? That is for the Asian competitors to switch to -- moving prices up above their cash breakeven level?

I think for us, first of all, even if there is pressure on the business, we are sold out. So we do have a situation where we do not expect to suffer from an under utilization of our assets.

From a pricing -- today we are assuming with the context -- the economical context we are in that we are going to see pressure into Q3, potentially Q4. But we believe we are renegotiating contracts going into 2013 with a pretty strong situation.

Thank you.

Mike Sison, KeyBanc.

In terms of your outlook for Industrial Chemicals, you reduced it a little bit from the first quarter plus 20 to high teens. Is that largely due to the maintenance impacts that you had versus let's say any significant changes in the fundamentals of soda ash near term?

Yes, absolutely, absolutely. It's a maintenance and operational -- no fundamental change, normal bumps on the road you have when you operate a large facility like the one we had.

In terms of Peroxygens, that continues to be a nice little positive here as you look to transition to more specialty areas. Can you give us an update of roughly where you are at in that strategy?

Yes, Mike, it's Mark here. I think we have indicated for quite some time that the mix has been roughly 70-30 in terms of commodity to specialty. I think where we are today, we are more in the 65 commodity to 35 specialty.

So we are well on our way in terms of delivering on our Vision 2015. And I have to say the specialty applications that we are involved in, they are growing well above GDP rates for many of the markets we are in. So we are seeing a lot of good traction.

And last question, Pierre, when you talked about getting your new pectin business to $100 million plus, can you do that with this business alone or will you need to add a couple acquisitions here and there over that time period?

We have a couple of ways to do it. I think the favorite way we have today is to replicate the kind of plant we are buying in other regions of the world, which is more of an organic approach to the growth. We are still looking at a couple of smaller acquisitions that feel -- but you know acquisitions are fairly uncertain.

So we will look at both ways. We will definitely grow that business, most likely organically, we are building another plant somewhere else in the world, could take advantage of another acquisition but it is not absolutely necessary.

Right, thank you.

Dmitry Silversteyn, Longbow Research.

A couple of questions if I may. First of all on the crop protection business, you talked about strong North American/Latin American sales, but you saw some weakness in Asia and Europe. Was the European weakness a foreign exchange issue in terms of sales or was there real demand downside? And then also why were sales weaker in Asia?

Hi, Dmitry, it is Milton here. Yes, a part of the answer in Europe certainly was exchange, lower prices of course because we sell in Europe. And in Asia it was a combination of also exchange and some lower past pressures, but nothing fundamental to the business.

Okay. So there is no -- are you impacted at all in Europe by the austerity programs and lower subsidies from governments to farmers? Or is the European market like the US market, it's mainly dictated by the price of commodities?

No, that is not the issue, Dmitry.

Okay. Secondly, on the Lithium business, when you talked about exploring options for your future capacity expansion whether in country in Argentina or outside of Argentina, I'm a little bit -- I'm interested in following up on the line of thought of what you can do if you decide not to expand in Argentina.

I mean, do you have current leases that you can exploit in other countries? Or how much groundwork would you have to do to get the business outside of Argentina up and running in Lithium if you had to?

Dimitry, we are going to stay quiet on this one because we are in the middle of exploring options. We have a few options we are contemplating, but we will be happy to report on these options and the direction we take as soon as we are in a position to do it.

All right, fair enough. On the soda ash business, just we are seeing a second quarter in a row of declining Asian pricing. Assuming that they are on this trajectory for a couple more quarters or even flatten out at this level, you are probably going to get into flattish comps in terms of pricing in the second half of the year on a year over year basis.

Pierre, I think you talked about -- or you just mentioned in answer to a previous call -- that the soda ash business is pretty solid as you enter the negotiating season for 2013. But you only had one price increase announcement this year which typically, if you read between the tea leaves, indicates that the business is not that strong in terms of pricing realization for next year.

Just looking at the global economy, looking at the auto builds with construction and glass demand, so on and so forth, how confident are you in the soda ash business beyond the Asian pricing issue, just overall demand and pricing environment in other parts of the world?

Hi, Dmitry, it's Mark. I will take that one. You are right, we have had a price announcement for the domestic market and it is round about its normal time. And when you look at anybody that wishes to follow a second announcement which we sometimes do, it is usually later in the summer when we do that. So the fact that we have only made one announcement at this point, I wouldn't read anything to that at this time.

I would say secondly from a demand standpoint, as Pierre just said, we are in sold-out mode and we have been for some time now. So we are very confident being the world's lowest cost producer of natural soda ash that we will be able to place our volume at premiums around the world.

I would say the other thing you have got to remember is North American demand is some still some 10% below its peak of 2008. So any signs that these markets come back further from where they are today it is going to get tighter. So we are very confident moving into the 2013 season that we have pricing leverage.

Okay, all right, that is very encouraging. And then final question just maybe for Kim. On the working capital inventory, if you sort of look at inventory turns of working capital as a percentage of sales, both of those metrics have gotten worse year over year.

I would assume the working capital would get better as well as inventory as raw material pricing declines, but you are not as exposed to raw materials as some of the other chemical companies. So what is behind the inventory and working capital inflation we have seen and do you have any plans -- I mean is this a concern at all or is this part of a strategy or kind of what is going on there?

Dimitry, that is a good question. This is Kim. And we have spent -- we spend a lot of time working on inventories. I would like to at least offer to you if we look, however, on a rolling 12 month basis so you can address the seasonality that we have in our businesses, we actually don't have deteriorating working capital performance and/or inventory performance. It is difficult when you take six months of one year and compare it to a sequential period in time.

Having said that, Dmitry, I think the thing -- the lesson we are learning on the ag business, as you have seen, as we've continued to have some upsides realized in our ag business. And I think you know how that works which is if you don't have the product on the shelf and you end up having to air express it around the world there is a lot of inefficiencies in that.

And as Milton has mentioned and Pierre mentioned, there is -- we are entering into the Brazilian season. So we want to make sure that we have the right amount of inventories in the right places in our Latin American market.

Okay, so you would say that the inventory increases are mainly preparation for a strong Latin American season; we should see these work down as that season comes to an end?

Right.

Okay, fair enough. Thank you, that is all --.

Dmitry, I would like to also take -- since you asked me a question -- the opportunity to mention something. Pierre in his prepared remarks mentioned that we had returned and/or committed to return already, in which case he was referring to the dividend that we announced following our July Board meeting which is payable in October, mentioned a number of $750 million. He meant to say $570 million, which was the amount that has been returned or committed to return since the Vision 2015 program began in 2010.

Got you. Thank you for that clarification.

Mr. Brondeau, please continue with closing remarks.

Thank you very much. Thank you all for your questions. I think we can all see that FMC continued to perform very well in the first half of 2012 with sales up 15% and EPS up 25%.

As we said during the question and answer, we have begun to see some indicators of overall economic health trending downward slightly. Examples were soda ash consumption in China and lower hydrogen peroxide volumes in Europe, for example. However, more than 80% of the portfolio is not linked to GDP cycles.

We have a limited line of sight on leading indicators for the global economy beyond what we see and hear going into the second half of 2012. We continue to see a strong performance for FMC through the remainder of the year despite any macroeconomic trends.

Overall we are forecasting second half sales growth in the high single digits and EBIT growth in the low double digits. So the bottom line for FMC is still very positive and we should result in another record year for sales and earnings. Thank you very much for your time.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. This concludes the FMC Corporation quarter 2012 earnings release conference call.