FMC Corporation (FMC) Q2 2008 Earnings Report, Transcript and Summary

Good morning and welcome to the Second Quarter 2008 Earnings Release Conference call for FMC Corporation. Phone lines will be placed on listen-only-mode throughout the conference. After the speakers’ presentation, there will be a question-and-answer period. [Operator Instructions]. Thank you, I will now turn the conference over to Mr. Brennen Arndt. Mr. Arndt, sir, you may begin.

Thank you, Rachel and welcome, everyone to FMC’s Second Quarter 2008 Conference Call and webcast. Bill Walter, our Chairman, President and Chief Executive Officer will begin the call with review of our second quarter performance. Bill will then turn the call over to Ted Butz, Vice President and General Manager of Specialty Chemicals Group who will provide us with an in-depth review of the performance ands prospects for our Specialty Chemicals group. Following Ted, Kim Foster, Senior Vice President and Chief Financial Officer will report on our financial position. Bill Walter will then provide our outlook for the balance of 2008 and we will complete the call by taking your questions. 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 2007 Form 10-K, our most recent Form 10-Q and other SEC filings. This information represents our best judgment based on today's information. Actual results may vary based upon these risks and uncertainties. During the conference call, we will refer to certain non-GAAP financial terms on the FMC website available at fmc.com. You will find a definition of these terms under the heading entitled glossary of financial terms. We have also provided a reconciliation to GAAP of the non-GAAP figures that we will use on today's call as well as have provided you our 2008 outlook statement. So it's now my pleasure to turn the call over to Bill Walter. Bill.

Thanks, Brennen and good morning, everyone. As you saw in our earnings release, we had another record quarter completing a record first half of what we will expect to be another year of record performance for the company. Summarizing our second quarter results, sales of $806.6 million increased 23% versus the second quarter of 2007. And earnings before restructuring and other income and charges were $1.29 per diluted share, an increase of 43% versus the second quarter of last year. In Ag Products, sales of $277 million increased 26% and earnings of $84.4 million increased 30% versus a year-ago. Earnings performance was driven by higher sales in Europe, North America and Asia as well as continued supply chain productivity improvements. In Specialty Chemicals, sales of $192 million increased 15% and earnings of $41.5 million increased 5% versus the year-ago quarter. Higher selling prices and volume growth in BioPolymer and in lithium specialties drove the performance gains. Industrial Chemical sales, the $339 million were 25% higher than a year-ago and earnings of $45.3 million more than doubled versus the year-ago quarter driven primarily by strong commercial performance across the entire segment. A record second quarter results were achieved despite higher raw material costs and to a lesser extent higher energy costs, versus the prior year, combined raw material and energy costs unfavorably impacted earnings by $0.25 per share in the second quarter. Currency translation on the other hand had a favorable impact on earnings of $0.03 in the quarter. On a GAAP basis, we reported net income of $84.4 million or $1.10 per diluted share. GAAP earnings in the current quarter included a net charge of $0.19 per diluted share versus a net charge of $0.79 per diluted share in the prior year quarter. With that reconciliation, our non-GAAP earnings were $1.29 per diluted share in the current quarter, an increase of 43% versus the $0.90 per diluted share in the second quarter of 2007. Let me now take a more detailed look at the performance of each of our businesses in the quarter. Moving to the segments. First in Ag Products, sales of $276.6 million increased 26% as strong gains were realized in Europe, North America and Asia and across all product lines. In Europe, the growth was driven by higher sales in our number of key product areas including biofuel crops, new product introductions and the favorable impact of the stronger Euro. In addition, strong end use demand resulted in some shift in sales from the third quarter into the second. In North America, sales were higher as a result of growth from our new product introductions. In Asia, the sales increase was also broad based. Performance gains were achieved in many countries country, but were particularly strong in Indonesia, Pakistan, Korea and India due to favorable market conditions and strong commodity prices. In Latin America, sales were up as growth in key segments was partially offset by the timing of sales in Brazil sugarcane segment, which were exceptionally strong in the second quarter of last year. Ag Products earnings of $84.4 million were 30% higher than a year-ago, than the record year-ago quarter reflecting the broad-based sales gains and continued supply chain productivity, improvements which more than offset escalating raw material costs particularly for chemical intermediates and solvents. Moving on to industrial chemicals. Revenue of $338.9 million increased 25% versus the prior year quarter, driven by higher selling prices in all businesses, but particularly in soda ash and phosphates, and volume gains in major product lines. Segment earnings of $45.3 million more than doubled versus a Year-ago, as result of a sales growth and improved power market conditions in Spain. The gains more than offset higher raw material costs experienced in the segment. In soda ash, market conditions remain tight, as all U.S. soda ash producers continue to operate at full capacity. Both our domestic and export soda ash businesses continue to benefit from contract terms put in place at the beginning of the year, as higher selling prices were again the primary driver of earnings growth. Our North American Peroxygens business realized higher selling prices and volume growth, across both hydrogen peroxide and the specialty peroxygen businesses. Foret continued to deliver significantly improved performance relative to a Year-ago. Higher prices particularly in phosphates and improved power market conditions in Spain more than offset higher raw material costs, especially phosphate rock. Moving now to corporate items. Corporate expense was $13.1 million, down from $14.3 million a year-ago. Interest expense net was $8.3 million as compared to $10.0 million in the prior year quarter. On June 30 2008, gross consolidated debt was $554.3 million, and debt net of cash was $431 million. For the quarter, depreciation and amortization was $30.7 million and capital expenditures from $33.8 million. That's it for agricultural products. Industrial chemicals and corporate, for discussion on specialty chemicals, I will now turn the call over to Ted Butz. Ted?

Good, thank you, bill and good morning. I'm pleased to be with you today to report on the current performance and outlook for specialty chemicals. Let me begin with the review of our second quarter. We had another record quarter. Revenues of $192 million increased 15% over prior year's quarter. Higher volumes and pricing in both BioPolymer and lithium were the primary drivers of our top line growth. Stronger European currencies also favorably impacted results. Segment earnings of $41.5 million increased 5% over prior year. Favorable commercial performance in BioPolymer and lithium was partially offset by increased costs for raw materials, energy and export taxes. Biopolymer achieved top line growth across all business areas. Each business benefited from increased volume and higher selling prices. BioPolymer earnings also improved driven by higher revenues and continued productivity initiatives, partially offset by higher raw materials and energy costs. In lithium, increased sales of the... through the pharmaceutical market and to a lesser extent higher volumes in our primaries business drove top line results. However, earnings were slightly lower than prior year, due to export taxes in Argentina, which took effect last December and the absence of a gain on an insurance settlement that was recorded in the second quarter of 2007. Lithium primaries, sales were higher driven by increased sales of lithium hydroxide and especially inorganic. In our downstream performance business increased sales were the result of higher butyllithium and especially organic sales to the pharmaceutical synthesis market. Year-to-date specialty chemicals revenues increased 13% driven by good commercial performance in both biopolymer and lithium as well as stronger European currencies. Segment earnings increased 8% over prior year. Biopolymer and lithium increased earnings on the same year-to-date basis. For the full year excluding the impact on pending acquisitions, we expect revenues to increase at the rates consistent with first half results in earnings growth of 5% to 10%. Let me now turn to a detailed review of the opportunities and the market dynamics that we are seeing across the group. Starting with lithium, the division is a global supplier valued-added lithium chemistry. We are the second largest supplier in this $800 million market. Overall growth in the industry is around 6% to 7% per year led by strong demand in primary and secondary batteries and healthy growth in pharmaceuticals synthesis and other markets. The energy storage market accounts for over 20% of industry demand and has been growing in excess of 15% per year. Growth has been driven by increased use of lithium ion and lithium polymer batteries in cell phones, digital cameras, notebook computers and power tools. We expect growth to continue at a healthy rate in these applications. Growth in electric vehicles which is recently getting substantial coverage in the news, should lead to increased demand for lithium over the longer term. We continue to be optimistic on the growth of lithium batteries in hybrid electric and all electric vehicles, and are working with several battery and automotive manufacturers in the segment. We are also progressing with several proprietary technologies that will improve the cost effectiveness and energy output of advanced battery systems. Although there remain technical hurdles that need be to be addressed, we expect lithium usage will begin to make substantial inroads in the next three to five years. Lithium carbonate and lithium hydroxide will be the primary beneficiaries of this demand growth. A recent Deutsche Bank research report forecasts global lithium demand to double by 2015 driven by primarily, by this battery growth. Two other key markets for lithium include pharmaceutical synthesis and specialty polymers, which combined account for 30% of industry sales. Both are an important end market for butyllithium, where FMC is a market-leading position. The synthesis segment is driven by the continued growth in statin drugs and to a lesser extent by other pharmaceuticals and agricultural fungicides. Demand growth across sequential quarters can be uneven as customers campaign their drug production and new product launches vary from year to year. However long-term growth is expected to remain in the high-single digits for this segment. We continue to see strong pharmaceutical demand growth in Asia, particularly in India. In 2007, we started up a new butyllithium facility in India to serve this important and growing base of customers. This plant has exceeded our initial expectations and we are now evaluating further expansion options for this site. In Specialty polymers’ demand growth is driven by a variety of end-use applications including the elastomer for asphalt modification and adhesives, synthetic rubber used in tire threads and copolymer resins used in packaging. Asian polymer demand accounts for just under half of global demand and is the fastest growing region. China has become an important end market for production in many of these polymers and on a global basis we expect growth to remain slightly higher than GDP. To meet the growing regional demand, in Asia we will commence operations later this year with a new butyllithium plant near Shanghai. This plant is expected to come on stream in the fourth quarter of this year, will offer significant freight and logistics advantages compared to current sourcing alternatives and provide our Asian customers with high quality, local source of supply. The remaining lithium markets include various industrial applications for the glass and ceramic industries, industrial greases, aluminum and air treatment. The majority of these applications are well established with growth consistent with global GDP levels. Industry capacity utilization remains relatively tight in the lithium industry, despite new capacity having been brought on into the market the most recent new capacity is in China. However, the rate at which this capacity is coming to market appears to be delayed due to brine quality issues and pressure from increasing costs. We believe that over the longer term, this capacity will be fully utilized by the growth expectations in the market. As a result of the tight capacity, pricing in primary products remain strong in most markets and they have shown signs of stabilizing in China. Late last year we called your attention to the Chinese capacity addition and the anticipated price pressure. Prices did fall in China, but are now showing signs of stabilizing. FMC's objective is to maintain its market position, both downstream performance and the upstream primary segments of the market. We are near completion of investments in downstream butyllithium capacity that will enable us to continue to expand our franchise in Asia. In primaries, we have recently expanded capacity in lithium hydroxide and are evaluating several options to increase capacity in lithium carbonate and chloride. The outlook for lithium is solid. Short-term capacity constraints in the primary segment may slow our overall growth. However, we expect to benefit from continued productivity gains in the start-up of our new China butyllithium plant. Longer term, we expect our growth to be consistent with the market. Let me now turn to our largest division, BioPolymer which currently accounts for 70% of group revenues. We have two well established market oriented businesses focused on food ingredients and pharmaceutical excipients. In addition, we have an emerging growth business called Healthcare Ventures. In each of these businesses, we have key product positions where we are the market leader. Our key products include microcrystalline cellulose, carrageenan and sodium alginates. Over 90% of BioPolymer revenues are accounted for by-products where we are the market leader. Turning to Food Ingredients. Our focus is on providing innovative solutions for our customers in the area of texture, structure and physical stabilization. We play globally with the leading food companies through a network of regionally located sales and application resources that can tailor products to the local needs of the market. Our strength comes from having deep understanding of our products coupled with strong customer relationships, superior quality and innovative technologies. The market for food texture ingredient is fairly fragmented as many ingredients offer unique functionality for a specific application, but also compete with other ingredients on a cost and use basis in a number of other application areas. The global market is approximately $10 billion in size growing 3% to 4% per year. Health and convenience trends are the major drivers of growth. The growth opportunities for Food Ingredients business has been driven by focusing our marketing and innovation efforts on improving our customer product attributes to deliver better convenience, health and cost and use. We also continue to expand our presence in emerging economies. Our success in China, Brazil and Thailand continue to encourage us to the future potential of these markets. Turning to our Pharmaceutical business, we are the global leader in providing oral dose excipients to pharmaceutical companies throughout the world. Our Avicell brand continues to be the market leader refining the oral tablets. In addition to Avicell, we market a broad line of high value exepient that aid in tablet dissolution, liquid suspension, controlled release and anti-reflux and dental impressions. The global market for excipients is approximately $4.5 billion and is growing four to five percent per year. Similar to our food business, we have a global footprint and are actively expanding in our emerging markets. Over the last several years our customer base has broadened, its generic players have increased their penetration in many drug categories. We have strong positions with both major innovators and key generic company's and remain in an excellent position to support our future growth plans. Our newest business is Healthcare Ventures, which focuses on the development and commercialization of proprietary technologies that are marketed to the pharmaceutical and medical device industries. Our NovaMatrix's line of ultra-pure BioPolymers is used in the medical device filed in a number of innovative applications such as dermal filling, orthopedics and wound care. In Oral dose capsules, we are commercializing several technologies for the pharmaceutical nutritional market that provide customers cost effective solutions that are also animal free in origin. We remain on track to achieve our market in the financial goal for Healthcare Ventures. Revenues year-to-date have increased 40% over prior year. And for the full year, we are forecasting a similar trend in revenues and expect to record a small loss, as we continue to invest ahead of the curve in these technologies. We expect to be profitable over the next year. In addition, to our internal efforts, we have been active in expanding our biopolymer business with attractive bolt-on acquisitions. Earlier this quarter, we announced the intention of acquire ISP's food ingredient business which is comprised of alginates and functional system blends. Alginates are derived from brown seaweeds that are sourced from a number of locations throughout the world, and majority of ISP sales are to the food industry, although they have attractive positions in pharmaceuticals and other specialty markets. The acquisition is currently under standard regulatory review. ISP's alginate and blends are an excellent fit with our biopolymer business. The combination will create a world leading alginates and blends producer and will have stronger customer and geographic breadth, lower cost structure and a broader innovation capabilities. ISP's business has over 200 employees with its main production location in Girvan, Scotland, and seaweed sourcing locations in Iceland and Tasmania. The acquisition will add approximately $80 million in revenue on a full year basis. We expect to achieve significant synergies over the next three years through operational and sourcing efficiencies, in addition, to reduction of commercial and administrative overlaps. More recently, we announced our intention to acquire the CoLiving Company in Guangzhou, China upon satisfactory government approval. CoLiving is small food ingredient supplier that focuses on providing innovative functional systems for there ingredients market in China. The market is a key focus for FMC's products and the acquisition will add to our efforts in broadening our customer base and serve this offering. The impact of both transactions is expected to be marginally accretive to earnings per share in 2008 and 2009. Longer term as full synergies are realized, we expect that these two acquisitions will add earnings of $0.10 to $0.15 per share. Turning back to the issues facing specialty chemicals group, a major issue across our businesses has been the increase in raw material and energy costs. In lithium we are seeing increased costs in solvents and in inorganic materials, in addition to rising energy costs. In biopolymer, we have seen strategic materials including specialty pulps and seaweeds rise significantly, in addition to the cost of fuel oil used at several of our plants. Both businesses are also seeing higher freight and distribution costs. Increased pricing remains a key priority and has been implemented in most product areas. In our lithium business we are totaling our pass-through arrangements with many of our customers to offset the rising cost of solvent. In biopolymer we have instituted across the board price increases, in addition to energy surcharges. Our expectations are that these pricing actions, in addition to ongoing productivity initiatives, will offset the majority of the increase in these input costs. As I mentioned at the start of my comments and specialty chemicals group is on track to have another record year of performance 2008. We remain bullish on the inherent growth in each of our business areas and expect that innovation of ISP and the CoLiving acquisitions into our portfolio will drive growth even higher. That's it for specialty chemicals. I'd like to thank you for your interest and happy to answer any questions at the end of the conference call. Now, I will turn the call to Kim Foster, who will report on our financial position.

Thanks, Ted, and good morning, everyone. At the last conference call, we projected 2008 free cash flow at $300 million. We continue to anticipate free cash flow at that level, as higher profitability is largely offset by higher working capital and higher capital spending. The free cash flow forecast does not include any cash related to either of the acquisitions that Ted just reviewed. We remain confident in FMC's free cash flow generating capabilities. We will continue to balance the cash requirements of our growth initiatives, with the alternative of returning cash to shareholders. Regarding our share buy back program, during the quarter we repurchased 400,000 shares at a cost of $30 million. Since our buyback programs began in February of 2006, we've repurchased over 6.2 million shares at a cost of $260 million. During the same period, we paid approximately $66 million in dividends. In total therefore, we returned $326 million to shareholders since February of 2006. In addition to the acquisitions that Ted just mentioned, we are evaluating several additional opportunities in the Specialty and Agricultural segments. While we cannot predict their outcome, we remain…we maintain the financial flexibility necessary to execute the potential transactions without exposing FMC to the vagaries of the current financial marketplace. In closing and as I’ve indicated in previous conference calls, the share repurchase program does not include a specific timetable or price targets and maybe suspended or terminated at any time. Our future forecasts do not assume further share repurchases. I've also indicated, however that FMC does not intend to significantly reduce net debt below the balance at the end of 2007. To the extent that new growth opportunities are not present in the near term, FMC can take advantage of the recent drop in share price to accelerate our stock repurchase program. With that, I will now turn the call back to you, Bill.

Thanks, Kim. Looking ahead, we're confident of delivering another year of record performance. Regarding our outlook for the full year 2008, based on our strong first half performance and a belief that this performance will continue through the second half, we have raised our outlook for earnings before restructuring and other income and charges to $4.20 to $4.40 per diluted share. In Ag products we expect full year segment earnings growth of nearly 20%, driven by sales growth and further supply chain productivity improvements. In Specialty Chemicals, as Ted has just said, we project full year segment earnings growth of 5% to 10%, led by strong commercial performance in both BioPolymer and lithium specialties. In Industrial Chemicals, we anticipate full year segment earnings to approximately double the level of last year as a result of higher selling prices and volume gains in all businesses. In each of our operating segments, we are experiencing significant and accelerating raw material cost increases. Despite this, we were expecting to achieve record results. Moving more specifically to the third quarter of 2008, we expect earnings before restructuring and other income and charges of $0.95 to $1.05 per diluted share driven by continued strong performance in all three segments, but particularly in industrial chemicals. In Ag products, we expect segment earnings to be up in the mid-teens due to continued strong growth in Brazil. In Specialty Chemicals, third quarter segment earnings are projected to be up in the mid-single digits driven by continued strong commercial performance in BioPolymer and continued productivity improvements In Industrial Chemicals, we expect third quarter earnings to more than double as a result of the Agro good price and volume benefits. With that, we will turn the call over to questions. Question and Answer

[Operator Instructions]. Your first question comes from Frank Mitsch from BB&T Capital Markets. Your line is open, sir.

Good morning and nice results, fellows. There was a news breaking last week out of the EPA suggesting that they were going to ban carbofuran on domestic food as well as on imported food. Can you step through what impacts you believe this would have on your business?

Yes, Frank first thanks for the compliment on the quarter. We thought it was an outstanding one. For those on the call not as familiar as Frank is with the announcement the EPA put out last week, let me just briefly try to describe it for you. Carbofuran has been in a process of re-registration with the EPA now for three or four years. Two years ago, they announced the intent to revoke the registrations on Carbofuran. We have been working with EPA over that period of time trying to convince them of the fallacy of their science and therefore their conclusions, and believe that we have been successful in doing that. Last Thursday, the EPA took a surprise move and rather than trying to address Carbofuran under FIFRA, they decided to begin addressing Carbofuran based under the food quality protection act. Now having said that let me now try to answer Frank's question. We don't expect any impact on Carbofuran sales in 2008 as a result of their recent announcement. In fact we are optimistic that there will be no impact even longer term. The process with the EPA is going to take several months to resolve and the EPA has offered us the opportunity to request a hearing to review their underlying science, which we believe is faulty. While it's too early to tell should we not prevail in that discussion, impact even in 2009 is... will be little if any. One last act on this issue, the EPA, while they proposed revoke all tolerances, their proposal also acknowledges that some tolerances are acceptable. And it's also clear from their announcement that the tolerances for the five key crops in the U.S. are very close to meeting their standard for risk. And we'll have the opportunity to propose further refinements to the risk assessment that will show to them that furan should be continued in commerce and does not present any health risk to the public.

Alright. So you would expect to be no impact in '08, little impact in '09 if you do not prevail. And can you talk about… if the worse case scenario plays out, what are your prospects for substitute products?

Yeah, worse case I guess would be of revoking Carbofuran entirely from commerce in the U.S. We have several products that can be substituted on the margin for Carbofuran and we would then try to position those products. We have several other products in development which may fit in the crops that Carbofuran fits in. But beyond that we really don't have a solution to it. Let me put Carbofuran in U.S. in some perspective. It is a minor use product for us in the U.S. And the consequences even long-term of a revocation or the tolerances on EPA or by the EPA on the product will be minimal. I don't want to go so far as to quantify it, but it's going to be in the single-digits.

I see. Alright, terrific. And then, Ted, you mentioned that there is an expectation that perhaps three to five years from now we could see a significant increase in the use of lithium in electric vehicles. Can you talk about your ability to supply the market should that be the case, at what point would you need to... would A, would you need to expand your capacity and B, how much of lead time you need to do so, and are you confident you'll be able to meet this extra demand that could be coming lithium's way?

Frank, clearly, we would have to expand. We are on the primary side of the business right now capacity limited. And as Ted talked about, we are evaluating currently several expansion alternatives, have yet to make a decision which route we are going to go. Lead time, 18 months, 24 months. And we are planning to be in a position to meet the increased demand that, we think will come from electric vehicles.

Terrific, thank you.

Thank you. Your next question comes from Kevin McCarthy from Banc of America Securities. Your line is open, sir.

Yes, good morning. And add, my congratulations as well, Bill. On soda ash, could you update us on the supply situation for the remainder of this year and into 2009, kind of running through what you see in China as well as some of the other projects in Kenya and Turkey and elsewhere?

Yeah. Kevin, thanks for the compliment. The supply situation through the balance of this year is not going to change from where it is today. There are small almost… well, I'll just characterize them as small increments of capacity coming on at various places in the world, but with the current demand growth globally, it's not going to change the supply/demand balance at all. As you look forward into 2009, you have got what I’ll characterize as certainty around certain expansions. The Magadi expansion in Kenya is underway and capacity will be coming on. But the total amount of that capacity is about 300,000 metric tons. The Etibank project in Turkey is moving forward, but we don't see the first volume of any real volume or production coming on to the market until 2012 which then gets you to China, and there has been rumors about your recently, regarding capacity expansions in China. And to-date, we have been unable to get clarity on how much of that is rumor and how much is fact. But let me put China and potential expansions there in China into some perspective. First of all, Chinese domestic demand is growing 1.7 million to 1.8 million metric tons a year. The ANSAC territory, ex-China demand growth is another 1 million metric tons a year. So, we have got a demand growth that is approximating 3 to 4 million metric tons a year and Chinese capacity should have come on stream, I think largely we will get absorbed by that demand growth. Couple of other facts that, at least historically most announced capacity in China is not brought on stream. At least there is more announced than is ever built. And second, to the extent capacity may come on stream, it's going to bring downward pressure on domestic Chinese soda ash pricing, which I think will tend to push out projects rather than accelerate them. So, our view it as we sit here today, is that whatever China may actually do, should have a minimal impact on the global supply demand balance in 2009.

That sounds encouraging. On the pricing subject, Bill, I mean anecdotally, we have been hearing about prices in China as high as US$350 a ton or I suppose roughly triple, what large buyers might pay stateside. Can you talk about the ANSAC pricing opportunity. I know you… you have $50 a ton on the table domestically, but it would seem to me that despite higher inland and ocean freight, that there would be a very attractive export arbitrage opportunity opening up there.

Well, I think there is, Kevin, the issue… the fundamental issue though that ANSAC has is the supply constraint. It's difficult to pursue more attractive pricing in China when you don't have enough capacity to serve your current market base. But having said that I would expect that ANSAC will be aggressive here this fall in trying to move export pricing up even further to take advantage of the current situation.

Okay and then finally if I may, elsewhere in Industrial Chemicals, your phosphate prices have risen rapidly. Could you comment on the margins? I know your input costs are up there. How are the margins trending in phosphate?

Kevin, well first we have been successful in recovering through our product pricing the full effect of the phosphate rock cost increases we have seen. We have also been successful in managing the mix of what we produce from that limited supply of phosphates to improve margins overall. But it's been through managing mix as opposed to pricing.

I understand. Thank you very much.

Your next question comes from Robert Felice of Gabelli & Company. Your line is open, sir.

Hi, guys. Congrats on a very nice quarter. I guess first on the lithium side, FMC doesn't have a very large presence in lithium carbonate, so I guess I'm wondering if or when demand emerges for automotive applications, would you divert product away from downstream applications to serve that market? Or would you add additional capacity.

Robert, also to you, thank you for the first quarter… the second quarter compliment, we would add capacity. The underlying demand growth in lithium is too attractive for us not to do so.

So you wouldn't divert away from other applications. Then I guess…

Potentially short-term, but longer term, now our intent is to add capacity to maintain our market share both in the primaries and in the downstream products.

Okay and then I guess I'm wondering to what extent with the emergence of the car market for lithium because I guess a recalibration along the entire value chain, not just in lithium carbonate but across the entire spectrum of product?

I don't see that happening, Robert to be honest with you. Lithium carbonate is a pure unadulterated commodity and we will continue to be going forward unless there is some technology break through in the… unless there is some technology breakthrough that is not clear to me at the moment. So I don't see any fundamental shift in that value chain. The downstream end of the business will continue to remain the more attractive end.

Okay, so longer term all demand for lithium carbonate would likely come from new supply to the market as opposed to anyone shifting away from any downstream product.

Correct.

Okay and then I guess flipping over to the soda ash business. Historically you’ve received about 50% of your pricing and as Kevin mentioned you’ve got $50 on the table right now imagining you will go out in the August, September timeframe with additional increases. But if I were to take that 50% and that $50 per ton increase as a proxy, that's about $25 per ton, around 4 million tons. All else equal, you could be looking at another very robust year in the industrial business. And I guess I don't want to… don't mean to jump the gun ahead of renegotiations, but are you looking for a similar magnitude of earnings growth in '09 versus that which you have seen so far in '08?

I'm not going to foreshadow '09 with you Robert. Again I commend you for your efforts to try to get me to do that. I just remind you that of announced price increases historically in soda ash we've gotten anywhere between zero and 120% of the announced pricing increase. So it's rather difficult to at this point for anybody including us to guess where we're going to come out with respect to that $50 price increase. And the market conditions are such that we should be able to get a significant portion of that. What is unknown to us at the moment and will be unknown to us until we get into contract negotiations, are the extent of collars and caps that our competitors may have in place. And the competitive behavior this fall, and we'll just going to have to play that out and get what we can.

So I guess maybe asking it a different way for a qualitative perspective. If you were to characterize the current tightness in the market, how would that compare with the situation you experienced in '07 versus '06?

The domestic situation has not changed. There has been no additional capacity brought on stream. Their domestic demand continues to be level with last year. And export demand growth continues as well.

So would you characterize the existing environment more, talking about the international market as tighter, similar to '07?

I would characterize I guess as similar, Robert. I am going to repeat myself, supply has not changed demand continues to grow. Therefore the conditions are similar to what they were a year ago.

Okay, great. Thank you for taking my questions.

Thank you. Your next question comes from Jonathan Chung [ph] of Wellington Management. Your line is open.

Hey, guys. Congratulations on a phenomenal quarter and what's shaping up to be a phenomenal year, I guess. So I had a couple of questions. Firstly, they are all going to be on the industrial side. But in terms of phosphates, is the phosphate market much tighter now primarily because the Chinese are out of the market, in terms of downstream specialty phosphates for the most part?

Yes, Jonathan and thank you for the... congratulations on the quarter. The phosphate and specifically the sodium tripolyphosphate market in Europe is tighter for I think for three reasons, Jonathan. One is the tightness in phosphate rock supply phosphate rock suppliers are able to get a higher price from their fertilizer customers and their industrial customers. Second, the Chinese for a whole host of reasons have been less aggressive in the STPP business globally, host of reasons, including power shortages and earthquake, but more fundamentally the continued and rapid increase in their costs and therefore their competitiveness. And finally there is another STPP supplier in Europe who is struggling both operationally and financially and has proven to be a fairly unreliable source of supply.

Okay, great. And the second part of my question really is on the soda ash piece, like everyone sort of approaching. So we know supply and demand is very well balanced if not tight. I guess I've heard numbers higher than what Kevin McCarthy there cited. I think he cited 350. What's interesting that I have noticed is I guess the synthetic producers’ cash costs are going up significantly and my understanding is at least one of the south side analysts has helped me this number and I can't confirm it or deny it. But is the cash cost for synthetic soda ash is above $200 per ton now. So, with that sort of back drop, I guess the question I have for you guys is directionally. Because we are in negotiation season for soda ash a couple months away and you don't know how that settles out. But directionally, we headed it up towards cash cost or above where global prices of soda ash are.

Sorry Jonathan, I wasn't paying and wasn’t listening carefully enough. Our cash cost going up...

No. I'm sorry. I don't mean cash cost. So, cash cost for synthetic soda ash is already sort of in the 200 as well as $250 per ton, right? And so, the question I have is really directionally, are we headed in terms of the price that you guys are able to negotiate with your customers. Are we directionally headed towards whether it's the cash cost of synthetic producers or global soda ash prices. I don't know if we will get there next year or the year after. But directionally is that the way we are headed?

I really not thought about export pricing in the context of the way you ask the questions. So I'm struggling a bit with my answer, Jonathan.

Okay.

We will continue to push export pricing and domestic pricing for that matter, to its equilibrium pricing level wherever that is. I don't know that it will settle out above, below or equal to the cash cost of the Chinese or other producers.

Okay. Great, that's all I had. Thanks a lot, guys.

Thank you. Your next question comes from Sal Kamalodine from B. Riley. Your line is open, sir.

Hey guys, I'm a little new to the story, so I apologize if you already discussed some of this. But the Ag business seems to be a reasonable chunk of your overall business and it looks like it's one of the higher margin segments. And then it doesn't sound like you talked about it in great detail, so first of all wondering if you can just talk about or go into a little more detail in the drivers of the growth in the quarter by geography or crop or just product lines in general.

I don't know how much time you have, but I don’t have that much time to answer the question. It's a great question. Let me encourage you to follow-up with Brennen, but I am going to try to hit the highlights of this. Global Ag economy is robust. That's probably an understatement. Given the high commodity crop prices globally, virtually all food commodities. We have experienced in the quarter and have experienced over the last few years a broad global growth virtually across every region and across almost all product lines. I think we did say specifically in the second quarter that we saw growth particularly in Europe, North America and Asia and across our herbicide insecticide and fungicide portfolio. So, Sal at this point, I am going to just stop, I don’t know where to go with your question from here without taking the next 10 minutes of our conference call. But let me... I'm going to ask Brennan to follow up with you and try to put your question... try to put more color around the answer to your question.

Okay. I will follow up on that off-line then. One follow-up then, also on the Ag business, it sounds… you talked about looking at certain opportunities to maybe acquire some product lines in that piece of the business and you also talked about circumventing capital market, so it sounds like you are probably looking at something that is reasonably sized, just wondering if you can give it a little more color on that or are you looking at small bolt-on acquisitions for that business? Or are you looking at anything that is potentially bigger?

Sal, we continue to look across our quarter… across the spectrum and size from single product and single technology acquisitions to small to medium-sized businesses companies and have and will continue to look at what could be a large strategic acquisition in Ag. Having said that, I think it would be inappropriate for me to comment any further on where we are with respect to any of those.

Okay. Thanks.

Your next…

Operator, are there any more calls out there?

Yes, sir, we do have one more question. Our last question comes from Robert Felice of Gabelli & Company. Your line is open.

Hi guys, just a quick follow-up on Ag. You are guiding for earnings up nearly 20% for the full year and if I look at the first half of the year they were up in excess of that plan that you expect growth on a year-over-year basis to slow in the back half. So I guess I'm just wondering why you expect the sequential slowdown? Is it just that the comps are tougher? Or you are just erring on the side of caution given how robust things have been?

I don't think either one, Rob. I think there are two reasons for it. One is the source of revenue and profit growth in the second half was in Brazil and Brazil has a lower average gross margin than an EBIT margin than the rest of our business, the rest of our Ag business. And second as I mentioned with respect to all of our businesses we are seeing escalating raw material costs that are going to hit us harder in the second half than they did in the first. And we’ll still have work to do to recover those escalating raw material costs through higher pricing.

Okay, that's helpful and then I guess just lastly, what is the run rate savings the Ag business is at from the Baltimore closure and how much did that benefit FMC during the quarter?

I think Robert as we said, it's $25 million to $30 million on a full-year basis which is expected to be realized in 2009 and I think we’ve further said that on a quarter basis since the announcement we’ve been saving about $3 million a quarter.

Okay, so, but the run rate at this point is somewhere in the mid teens?

Four times three is…

12. There you go. All right, thanks for taking my question.

Any other questions, operator?

Yes, sir. Do we have time for a few more questions?

Yes, you do.

Okay, your next question comes from Dmitry Silversteyn of Longbow Research. Your line is open.

Good morning, gentlemen, kudos on an excellent quarter, a couple of questions. First of all, given what's going on in the soda ash market with the continuing strong demand in the export market and the tight supplies, I know you’ve talked about bringing partially Granger back online in 2009 and then I think the rest in 2010 or through 2012, I forget the exact timing. Have you given any thought to accelerating the timeline and getting something up in the second half, either second half of this year or early next year?

Yeah, Dmitry. Let me refresh people what we have said and that is that we will bring on approximately 100,000 tons of incremental capacity in 2009. And intend to bring the balance of the 750,000 tons of capacity on, no later than the end of 2012. So that partially answers your question, we are bringing capacity on next year. Over the short-term, we don't have the ability to bring any further capacity on in 2008 and would even probably be challenged if we were to bring further capacity on then that 100,000 tons in 2009 if we wanted to. So if I was building a model Dmitry, I would assume all we're going to get in 2009 is that 100,000 tons.

Okay, that's fine, Bill. Is there been... has there been any, I don't know how to put this, any rumblings of your peers in the Green River valley bringing on soda ash capacity or is everybody looking at Granger as kind of a hurdle that has to go away first before anybody considers building capacity in North America?

Yet, Dmitry I've heard no rumbling and none are been reported up to me. I would hope that the rest of the U.S. soda ash producers understand the economic attractiveness of the Granger capacity and wouldn't do anything foolish or premature until we fully brought that capacity back online.

Okay, fair enough. Secondly, staying with industrial chemicals, you talked about Foret results in the quarter which were still pretty robust besides pricing I think, you also talked about getting some pretty good volume growth there. As the European economy slows particularly the southern European economy where Foret is most active, how do you see... what's the outlook for that business for the second half of the year or is improvements in profitability of the energy market going to offset whatever slow down you may or may not get in the second half of the year?

Yes Dmitry, as, you know, we don't give discreet guidance or even results by individual business within segment. Having said that, though, I have no reason to believe that Foret's performance in the second half is going to be any different than what it has been in the first half which has been very good.

Okay. So you expect that market conditions to persist basically at current levels?

Correct.

Okay and then just one final question. On the Healthcare Ventures business you talked about that, business running at a little bit of a loss right now and EBIT line hopefully turning profitable sometime in '09. What is the kind of the magnitude of the losses right now that this unit is running in?

Low single digits.

Okay. So it's like 2 or 3 million a quarter?

Low single digits.

Per quarter or per year?

Per year.

Per year, okay. So that's really pretty negligible. Alright, that's all have I. Thank you.

Your next question is a follow-up question from Kevin McCarthy from Banc of America securities. Your line is open.

Thanks for taking my follow-up. On the lithium side, what was the impact of the higher export taxes in Argentina in the quarter?

Kevin, I think it was about under... 2 million or so for the quarter or just under that.

Okay.

And that's been consistent each quarter.

Okay. On the ISP hydrocolloid deal, can you give us a general sense of the synergies that you would expect from that transaction either as percent of sales or just qualitatively?

Well Kevin, qualitatively the areas of synergies come out are mainly in two big buckets. One is operational synergies that we have from both our manufacturing locations and our seaweed sourcing and logistics which we expect to be fairly substantial. And we will take sometime to get to. The other is reducing what I would call our administrative and commercial overlaps as we play in similar markets and so those two together we see we will be fairly significant over the next three years.

Okay, thanks. And then finally, Bill, I think one of your competitors in soda ash had declared force measure for at least a portion of the second quarter. Did you benefit from that competitive situation in anyway or is it more of a situation where you have been sold out, you remain sold out, so you couldn't pick-up much incremental volume?

Its the latter, Kevin. We are sold out. Don't have a ton of spare capacity available. We realized no benefit from it.

Okay, that's all I had. Thank you very much.

Thank you. Our last question for today comes from Ethan Steinberg from Frees Associates. Your line is open, sir.

Hi, guys and congrats. I am sorry, if I missed this. I just wanted to go back to the comment on the China soda ash capacity because I heard there has been some capacity coming on there and some inventory build. Can you guys give a little more color on that, do you think that impacts the competitiveness of any other potential discussions or price increases as we go into the fall?

Yeah. Ethan, my... until there is greater clarity to me for me, on exactly how much capacity is being brought on stream, it's difficult to answer the question with great certainty. Having said that, the demand growth within China is approaching 2 million metric tons a year. The China would have to be bringing... and demand growth in freight logical if there is such a thing for Chinese capacity, freight logical Chinese market is probably growing another 500,000 to 700,000 metric tons a year. You add those two together, the amount of capacity that would have to be been brought on in China today to have any impact on the export pricing would have to be tremendous. And I just don't see it at the moment.

Okay. And I guess I want to make sure. So, that the competitiveness of the environment today is not any worse because of either China reality or rumors than it was when you guys put through the last $50 price increase?

Absolutely not. In fact, the environment I think is more positive, more conducive to us at the moment. There is a shortage of soda ash globally. Factories are being shut down for the lack of supply.

Okay. Thanks and great quarter.

Thank you.

Thank you. Mr. Walter, do you have additional or closing remarks.

I do. First of all thank you, operator. Our record second quarter and first half results in the face of a slowing global economy and accelerating input cost increases, once again I think demonstrates fundamental strengths of our company. The quality of each of our businesses, the attractiveness of the end use markets they serve our global footprint and the limited exposure we have to oil and petrochemicals. We remained confident about our ability to continue to grow the top-line and leverage that growth to the bottom. And then finally to generate cash, which exceeds our internal requirements. We are also more optimistic than ever in our ability to find attractive accretive acquisitions that will provide further momentum to our growth. With that, let me say thank you for joining us today and thank you for your continued support of FMC.

Thank you. This concludes the FMC Corporation second quarter earnings release conference call. You may now disconnect.