FMC Corp. Q4 2009 Earnings Call Transcript

123jump.com Staff
10 Mar, 2010
New York City

Revenues fell 2% to $722.1 million and net income rose 34% to $62.1 million or 85 cents a share. On December 31, 2009, gross consolidated debt was $643.9 million and debt net of cash was $567.3 million. Corporate expense was $12.2 million as compared to $12.3 million a year ago.

FMC Corp. ((FMC))
Q4 2009 Earnings Call Transcript
February 5, 2010 11:00 a.m. ET

Executives

Brennen Arndt - Director of Investor Relations
Pierre R. Brondeau - President and Chief Executive Officer
D. Michael Wilson - Vice President, General Manager, Industrial Chemicals Group
William Kim Foster - Senior Vice President and Chief Financial Officer
Theodore H. Butz - Vice President, General Manager, Specialty Chemicals Group
Milton Steele - Vice President, General Manager, Agricultural Products Group

Analysts

Alex - Banc of America/Merrill Lynch
Frank Mitsch - BB&T Capital Markets
Peter Butler - Glenhill Investments
Dmitry Silversteyn - Longbow Research
Douglas Chudy - KeyBanc Capital Markets
Arun Viswanathan - UBS

Presentation

Operator

Good morning. And welcome to the Fourth Quarter 2009 Earnings Release Conference Call for FMC Corporation. All lines will be placed on listen-only mode throughout the conference. After the speaker’s presentation there will be a question-and-answer period. If you would like to ask a question during this time, please press star plus number one on your telephone keypad, questions will be taken in the order they are received. If you are on a speakerphone, please pick up your handset before asking a question, if you have already done so please press the pound sign now then press star one again to ensure your question is registered.

Thank you. I will now turn the conference over to Mr. Brennen Arndt. Sir, you may begin.

Brennen Arndt

Thank you. Welcome everyone to FMC’s fourth quarter 2009 conference call and webcast. Pierre Brondeau, President and Chief Executive Officer will begin the call with a review of our fourth quarter performance. Pierre will then turn the call over to Michael Wilson, Vice President and General Manager of our Industrial Chemicals Group for an in-depth review of the performance and prospects for our soda ash, peroxygens and Foret businesses that comprise Industrial Chemicals.

Following Michael, Kim Foster, Senior Vice President and Chief Financial Officer will report on our financial position and then Pierre will provide our outlook for 2010. We will complete the call by taking your questions. Joining Pierre; Kim; and Michael today for the Q&A session will be Milton Steele, Vice President and General Manager Agricultural Products; and Ted Butz, Vice President and General Manager of our Specialty Chemicals Group.

Remind you 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 2008 Form 10-K, our most recent 10-Q, and other SEC filings. This information represents our best judgment based on today’s information. Actual results may vary based on these risks and uncertainties.

During the conference call today, we will refer to certain non-GAAP financial terms. On our FMC website available at fmc.com, you will find the definition of these terms under the heading entitled Glossary of Financial Terms. In addition, we have provided our 2009 outlook statement and a reconciliation to GAAP of the non-GAAP figures that we will use today.

It’s now my pleasure to turn the call over to Pierre Brondeau. Pierre?

Pierre R. Brondeau

Thank you, Brennen, and good morning, everyone. As you saw in our earnings release, our fourth quarter results were consistent with our expectations. We realized strong performance in our businesses that serve end markets less sensitive to the broader economy like agricultural products and biopolymers.

And in our businesses serving end markets most sensitive to the economy, though volumes were lower than a year ago, demand continued to improve on a sequential basis related to the third quarter with further improvement expected in 2010.

Let me first summarize our fourth quarter results. Sales of $722 million were 2% lower than last year’s fourth quarter, while earnings before restructuring and other income and charges of $0.94 per diluted share were 8% lower than a year ago quarter.

In agricultural products, sales of $269 million increased 12% and segment earnings were $46.8 million, increased 39% versus the year ago quarter driven mainly by sales gains in Latin America.

In Specialty Chemicals, sales of $194 million were up 2%, while earnings of $40.1 million increased 14% versus the year ago quarter, as strong commercial performance in biopolymer especially in the food ingredient market was partially offset by lower lithium performance.

In Industrial Chemicals, sales of $260 million declined 16% and earnings of $32.7 million were 39% lower than the year ago quarter, impacted by lower phosphate selling price in soda ash volumes partially offset by lower raw material and energy costs.

On a GAAP basis, we reported net income of $62.1 million or $0.85 per diluted share. GAAP earnings in the current quarter included a net charge of $6.8 million after-tax or $0.09 per diluted share versus a net charge of $29.1 million after tax or $0.39 per diluted share in the prior year quarter. Our non-GAAP earnings were $0.94 per diluted share in the current quarter, a decrease of 8% versus $1.02 per diluted share in the fourth quarter of 2008.

Let me now take a more detailed look at the performance of each of our operating segments in the quarter. First, Agricultural. Fourth quarter sales of $269 million increased 12%, compared with the prior year quarter.

In Latin America for our business, sales increased significantly reflecting slowly improving market conditions and growth from new products. Market conditions improved compared with the first half of 2009, driven by growth in planted acres for a number of our key crops and a positive start to the 2009, 2010 crop season.

Our crop production businesses in Asia and Europe also realized sales gain, reflecting a horrible currency impact and the increased contribution from growth initiatives.

In our North America crop business, sales were lower than a year ago as unfavorable weather conditions resulted in fewer late season treatments. Segment earnings of $46.8 million increased 39% versus the year-ago quarter as a result of the sales growth, lower manufacturing costs, the recovery of certain indirect taxes in Brazil and favorable currency impact.

Now, moving on to Specialty Chemicals. Revenues of $194 million were 2% higher than the prior year quarter. The results of strong commercial performance in biopolymer partially offset by lower volumes in lithium primaries. Segment earnings of $40.1 million increased 14% versus the prior year driven by sales gain and favorable mix in biopolymer, partially mitigated by lower lithium performance.

In BioPolymer, volume and selling prices increased revenues in both pharmaceutical and food ingredients market. Gains in food ingredients were especially strong led by growth in the new beverage application and growth in emerging markets. BioPolymer earnings improved significantly over prior year, driven by strong commercial performance and aided by lower operating costs.

In our lithium business, volumes and revenues were lower than the prior quarter mainly due to reduced demand in lithium primaries. However, volumes continued to improve sequentially which we expect will continue in 2010. Lithium earnings were modestly lower than a year ago due to the revenue decline partially offset by the favorable manufacturing and supply chain performance.

Moving now to corporate items, corporate expense was $12.2 million as compared to $12.3 million a year ago. Interest expense net was $7.3 million versus $7.4 million in the prior year quarter.

On December 31, 2009, gross consolidated debt was $643.9 million and debt net of cash was $567.3 million. For the quarter, depreciation and amortization was $33.7 million and capital expenditures were $54.4 million.

I would like now to turn the call over to Michael Wilson for a review of the performance and prospects of our Industrial Chemicals segment. Michael?

D. Michael Wilson

Thank you, Pierre. Good morning, everyone. It’s a pleasure to be with you today to highlight our Industrial Chemicals segment, review our fourth quarter 2009 performance and provide our outlook for 2010.

Three businesses comprise our Industrial Chemicals segment. Our Alkali Chemicals division or soda ash business, North American peroxygens, which is comprised predominantly of hydrogen peroxide, also includes several specialty peroxygens. And Foret, our wholly-owned Spanish subsidiary, which manufactures peroxygens and phosphates as well as lesser quantities of other inorganic ingredients for powder detergents.

As most of you are already familiar with our businesses, I’m going to forego a detailed overview of each of them and move straight to the results of our fourth quarter 2009 performance. I’ll then discuss our 2010 outlook for the segment, touching on the key earnings drivers for each of the three businesses.

For the fourth quarter of 2009, sales of $260 million declined 16% from the year ago quarter, reflecting reduced phosphate selling prices, lower soda ash volumes and lower electricity sales due to the divestiture of the Spanish co-generation facility earlier in the year.

Segment earnings of $32.7 million declined 39%, as a result of the lower selling prices and the impact of lower volumes partially offset by favorable raw material costs, particularly for phosphate rock and energy costs.

While segment earnings compared unfavorably to the year ago period, earnings improved sequentially for the second consecutive quarter up 58% from the third quarter on the strength of improving volumes and lower raw material costs.

With that summary of the fourth quarter 2009 results, I’ll now shift to our 2010 outlook for Industrial Chemicals. On a full-year basis, we expect earnings to improve by 5% to 15% over 2009 as improved volumes and lower raw material energy prices more than offset lower selling prices.

Before commenting specifically on the businesses that comprise Industrial Chemicals, allow me to first summarize at the segment level the impacts of the three major drivers of profitability for the segment, volumes, selling prices and input costs.

We are experiencing increased demand across our businesses, particularly in soda ash export markets. We also anticipate volume growth in our North American peroxygens business in both hydrogen peroxide as well as in specialty peroxygens serving environmental, food and aseptic packaging applications. Overall, across the segment, we expect aggregate net volume impacts to earnings of approximately $35 million in 2010.

As a result of the significant decline in demand in the first half of last year, utilization rates across the industries in which we participate generally reached low points during the middle of the year. Consequently, market pricing in some of our markets declined with demand, notably soda ash exports and phosphates. To some extent, annual pricing contracts insulated us from the full impact of market price declines in 2009.

Sequential demand recovery that we experienced in the second half raised utilization rates across our businesses, though utilization rates rose, the key determinant for 2010 pricing was whether utilization was to a sufficient level to return pricing leverage to producers by the time of the annual negotiations.

In phosphates, soda ash exports and hydrogen peroxide, market pricing levels have begun the year essentially at the level they ended 2009. As a result, when compared to higher pricing in the first half of last year, pricing will be a headwind to the segment in 2010.

As many of you know, historically, the vast majority of our businesses tend to be on annual contract rather than spot basis. While this will remain true for domestic soda ash and hydrogen peroxide in 2010, export soda ash and phosphates will have a higher component of quarterly price contracts this year. Given current market direction, we view this as advantageous.

Overall, we expect aggregate net price headwinds of approximately $65 million for the segment in 2010. Conversely, raw material, energy and other input costs will be tailwinds for Industrial Chemicals. Foret will be the biggest beneficiary, particularly in phosphate rock as well as for caustic soda and energy.

Our soda ash business will also benefit from lower energy costs. In total across the segment, raw material, energy and other input costs are expected to provide a tailwind of approximately $40 million in 2010.

With that as background, let me review each business in more detail, starting with soda ash. As we begin 2010, global soda ash demand recovery is underway. Though challenging global economic conditions persist, we expect global demand for soda ash to grow by approximately 4% in 2010, following a decline of 3% in 2009. This outlook returns global demand to its 2008 level of approximately 48 million metric tons.

For both 2009 and 2010, flat glass demand is the primary driver of the demand change due to the impacts of the recession and the forecasted recovery on automobile production, housing and commercial construction.

Recall that globally, glass in all forms, flat, container and fiberglass, accounts for approximately 50% of soda ash demand. Demand growth, however, is not expected to be uniform across the globe. We expect domestic demand, defined as the U.S. and Canada to grow approximately 3% in 2010 following the decline of 13% in 2009. The recovery in domestic demand will also be driven by increased flat glass demand as U.S. housing starts and auto sales are forecasted to rebound off the very low basis recorded in 2009.

Overall, we expect flat glass demand domestically to improve by approximately 10%, while year-over-year demand in container glass, which was less affected by the recession is forecasted to be flat.

We’re also projecting a 5% improvement in non-glass applications, chemical and detergent uses, for example, which will grow with improving industrial production and detergent mix changes favoring powders respectively.

In China, the world’s largest soda ash market, demand is expected to grow 5% and accordingly, China will account for almost 50% of global volume growth. After dramatically declining in 2008, Chinese domestic pricing has recently turned upward, pressured by rising input costs and the strengthening of demand within China.

Chinese synthetic cost producers will face further cost challenges as global economies recover and their input costs for energy, coke, ammonia and salt increase. They also face increasing environmental pressures, tightening lending and credit practices and the continued revaluation of the Yuan.

We further expect rising ocean freight rates will make some export markets less accessible. As a result, we forecast Chinese exports to be flat year-over-year at approximately 2.3 million metric tons.

Among our key export markets, we foresee market growth at 3% in Latin America and in Asia, ex-China, while the Western European market is expected to be flat. Rest of world demand is projected to grow at a healthier 5% rate.

Given the low cost position of U.S. producers, ANSAC will be able to profitably sell the available capacity of U.S. producers. Consequently, we see the U.S. industry remaining at or near 100% utilization in 2010. This will not be the case for synthetic producers around the globe.

With this as a backdrop to the global environment, let me comment on pricing for 2010. In North America, soda ash price increases varied by customer, depending upon contract provisions, timing and competitive dynamics. Overall, we realized a small net price increase.

As mentioned earlier, the vast majority of our domestic business remains on an annual contract basis. Therefore, I see little risk or opportunity for pricing changes as the year progresses.

ANSAC’s contracting for 2010 has been more challenging, given export pricing levels in 2009. As we reported in our third quarter call, ANSAC successfully regained market share last year albeit at lower prices. Consequently, we’ll begin 2010 with lower export prices than in 2009.

That said, ANSAC’s 2010 contracts contain a higher proportion of quarterly price commitments relative to prior years. While not embedded in our outlook, we believe ANSAC could achieve some price improvement as we progress throughout the year.

Nevertheless, the earnings impact of the forecasted export price decline is expected to be more than offset by higher volumes and lower raw material, energy and other costs, such that our soda ash business will once again deliver earnings growth in 2010.

Let me note, as I do each year, that we own 87.5% of the earnings stream of our soda ash business. The balance is owned by our two Japanese partners.

Finally, a comment on our capacity plans. As you know, we mothballed our Granger production facility during the second quarter of 2009. It is our intent to leave this capacity idled until export market conditions warrant its restart. When that time comes, Granger clearly represents a volume upside for the business.

Moving now to North American peroxygens. The largest component of this business is hydrogen peroxide. While hydrogen peroxide is consumed in a wide variety of applications, the single largest use is as a bleaching agent for pulp and paper, which accounts for about two-thirds of North American demand.

In 2009, hydrogen peroxide demand for pulp and paper applications fell 18% versus 2008. The demand decline was particularly acute in the first half of 2009 due to destocking associated with the high level of global market pulp inventories at the end of 2008. The pulp and paper segment decline drove an overall North American hydrogen peroxide demand reduction of 15%.

Peroxide demand in the pulp and paper market is expected to increase approximately 4% in 2010, driven primarily by a recovery in market pulp and bleached paperboard. While non-pulp markets are expected to grow 3%.

Market pulp demand improved significantly in the second half of 2009, driven by increased demand from China. Global pulp inventories are currently low and demand is expected to benefit from a stronger economy in 2010.

North American market pulp mills are forecasted to operate at approximately 95% capacity utilization in 2010, with total pulp production approximately 10% below the 2006 to 2008 levels due to capacity closures. Paper grade mix and brightness are forecasted to be favorable to peroxide demand in 2010.

Commodity pulp market hydrogen peroxide demand will be augmented by continued growth in specialty applications. Non-pulp hydrogen peroxide markets in total are expected to gain at a 3% rate in 2010 driven by growth in environmental, electronics and water treatment applications. Semiconductor production in the U.S. is expected to continue the recovery started in the second half of 2009 with year-to-year demand up 10%.

North American hydrogen peroxide industry capacity utilization though improving, is forecasted to remain significantly under-utilized at approximately 80% of name plate in 2010. As a result, average hydrogen peroxide prices are forecasted to decline modestly in 2010 from 2009 contract levels.

The division continues to invest in promising growth initiatives in specialty peroxygens and expects further success in 2010. Our sulfate growth initiatives are focused on the continued globalization of branded closure for sulfate for environmental soil remediation and oil field product portfolio expansion. Closure and oil field sales volumes are budgeted to increase 16% and 35% respectively over 2009.

Peracetic acid sales to the food safety industry are budgeted to grow by 42% in 2010, as FMC’s Spectrum Program captures an additional 5% of the U.S. poultry market. Other developing adjacent growth initiatives for peracetic acid in packaging and wastewater markets are expected to deliver significant growth as well.

Our effort to diversify our market exposure in peroxygens to lessen our dependence on commodity hydrogen peroxide remains on track. Overall, since inception of the strategy in 2007, specialties have grown to account for more than 40% of divisional revenue.

Despite the progress in product line and market mix diversification, North American peroxygen’s earnings remain dependent for now on the performance of the commodity hydrogen peroxide segments. Division earnings will be level to slightly down in 2010, as the price declines in commodity hydrogen peroxide are offset by volume and specialty mix benefits.

Turning to our European hydrogen peroxide business at Foret. In Western Europe, hydrogen peroxide demand experience a decline of 15% in 2009, also due to weakness in the pulp and paper sector.

For 2010, we expect a similar demand pattern to emerge in Europe as in North America, though demand will be somewhat weaker due to the strength of the euro, which limits European pulp producers’ participation in the global market pulp segment. Overall, we’re forecasting demand to be flat to down 2% versus 2009.

Also similar to North America, we expect weakness in Western European hydrogen peroxide pricing given an expected 86% capacity utilization rate. Foret’s phosphorus chemicals products, its other major business are used in a range of applications including detergent, feed and industrial uses.

Demand growth for phosphorus chemicals in these applications tends to mirror GDP. The major product in phosphorus chemicals’ line is sodium tripolyphosphate or STPP, a key builder for powder detergents. Throughout most of 2009 STPP and other phosphate selling prices fell faster than raw material prices significantly reducing phosphates margins.

As we move into 2010, on a comparative basis, the year-over-year price erosion threat we’ll experience in phosphates will be more than offset by lower raw material and energy pricing. Phosphate rock raw material prices has now fallen 80% from their 2008 peak, with volume impacts forecasted to be relatively flat. Phosphates will contribute to Foret’s overall improved profitability in 2010.

In light of that detailed outlook for the businesses that comprise Industrial Chemicals, let me summarize our aggregate view for the segment for the year ahead. We expect full year 2010 revenue to be level to prior year as stronger volumes across the group are offset by reduced selling prices.

We expect full year 2010 earnings to be up 5% to 15% to prior year, as volume growth and favorable raw material and energy costs are partially offset by lower selling prices.

For the first quarter, we expect segment earnings to be level to up 10%, as higher volumes and lower raw material energy costs are partially offset by reduced selling prices.

With that, I look forward to taking your questions during the Q&A period and I’d like to now turn the call over to Kim Foster. Kim?

William Kim Foster

Thanks, Michael, and good morning, everyone. Let me start by saying that our earnings before restructuring and other charges in the quarter of $68.9 million or $0.94 of earnings per share, included taxes at 26.6% for the quarter.

Our earlier guidance for the quarter and the full year assumed a tax rate of 32%. However, our full-year tax rate came in at 30.8% instead. The full catch-up adjustment was taken in the fourth quarter. This change in tax rate favorably impacted earnings per share by $0.07 in the quarter.

Moving to our financial position, I’m pleased to report that we ended the year with a very strong balance sheet. Net debt of $567 million was in the middle of our $500 to $600 million target range. We maintained our net debt target while investing approximately $35 million on two acquisitions in the ag products group and returning approximately $71 million to shareholders, comprised of approximately $35 million in share repurchases and $36 million in cash dividends.

Free cash flow for 2009 was approximately $100 million. As a reminder, free cash flow is after acquisitions but before cash returned to shareholders. For 2010, free cash flow is projected to be approximately $200 million.

The free cash flow is higher than 2009, primarily due to higher earnings, lower capital spending, better working capital performance and the absence of acquisition spending. While our projections do not include funds for acquisitions, we will continue to pursue acquisition opportunities in 2010.

Our current stock repurchase program has a remaining authorization of $190 million. As I do each quarter, I’ll remind you that our share repurchase program does not include a specific timetable or price target and may be suspended at any time. And our guidance for 2010 assumes that we do not repurchase any shares.

The fourth quarter brought several improvements to our capital structure and liquidity profile. After being upgraded to BBB+ BAA1 by Standard & Poor’s and Moody’s, we completed a $300 million 10-year senior notes offering at a coupon of 5.2%.

We believe that our bond pricing had one of the tightest spreads of any BBB chemical issuer for any maturity during the year. Proceeds from our offering paid down outstanding borrowings on our domestic credit facility and also the European credit facility which comes due at the end of this year.

At year-end, we had available funds under our committed credit facilities of $762 million and cash on hand of $77 million. Debt maturing in the next five years is less than $200 million.

Although we are not required to make a contribution to our U.S. defined benefit plan during 2010 to reduce future volatility we anticipate voluntarily contributing approximately $80 million this year, which is included in our free cash flow estimate.

Each quarter prior to the conference call, we post the FMC outlook statement on our website. The bottom portion of the statement addresses corporate and other financial items. Let me make a few explanatory comments to address a few of these disclosures.

Interest expense is expected to increase to $42 million due to the recently completed bond offering. Capital spending of $125 million is projected to be below depreciation and amortization of $135 million. We expect this relationship to continue for the next several years.

Other income and expense is expected to be down year-over-year to $18 million of expense, as I foreshadowed in the third quarter conference call. The primary reason for the lower expense is that higher pension expense is more than offset by favorable LIFO charges.

To summarize, despite the challenging market conditions we all experienced in 2009 and the uncertainty still ahead of us, we exited 2009 with a stronger balance sheet and liquidity profile than we entered the year.

Consequently, we will continue to look for opportunities to grow the company through a combination of internal and external investments. However, we will retain a strong balance sheet and maintain a solid liquidity position. We will continue to err on the side of financial prudence.

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

Pierre R. Brondeau

Thank you, Kim. Regarding our outlook for the year 2010, we expect earnings before restructuring and other income and charges of $4.35 to $4.75 per diluted share. The midpoint of this range implies growth of 10% above last year.

For the first quarter of 2010, we expect earnings before restructuring and other income and charges of $1.20 to $1.35 per diluted share. The midpoint of this range implies growth of 5% above last year’s record quarter.

In agricultural products, we look for first quarter earnings to be up in the mid single-digits driven by improved market conditions in Brazil and the timing of shipments in Europe, partially offset by increased spending on growth initiatives.

In Specialty Chemicals, we expect earnings to be up 5% to 10%, driven by higher volume and improved operating efficiencies across the segment. As Michael mentioned, in Industrial Chemicals, earnings are expected to be level to up 10% versus the year ago quarter, as higher volumes and reduced phosphate rock costs are partially offset by reduced selling prices.

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

Question-and-Answer Session

Operator

At this time, I would line to remind everyone that in order to ask a question press star then the number one on your telephone keypad, if you would like to withdraw your question press the pound key. We’ll pause for a moment to compile the Q&A roster.

Your first question comes from the line of Kevin McCarthy from Banc of America.

Alex - Banc of America/Merrill Lynch

Good morning. This is Alex (inaudible) on behalf of Kevin. Pierre, congratulations. And the first question for you, in the short time that you have had the opportunity to look at FMC’s portfolio, what areas would you like to strengthen or potentially deemphasize?

Pierre R. Brondeau

Thank you, first. And yes, I’ve been spending now a full month with the company but certainly I had the time to appreciate a very rich possible view in terms of opportunities and it goes without saying that from a growth standpoint, we do have a very attractive biopolymers business in food and pharmaceuticals and agricultural business. Both of those activities are certainly places which will be a very high priority for growth.

I must say also that our lithium business, if you look in the mid to long-term, is certainly a very interesting place to be. I would not talk about deemphasizing any part of the portfolio because in the parts which are not today, the growth drivers. We do have a very strong position, for example, in soda ash and it’s certainly with the cycle to move up in the years to come will be a very important business for us in terms of cash generation.

Alex - Banc of America/Merrill Lynch

Great. Thank you. And then second question, on soda ash perhaps you, Pierre or Michael may comment. On ANSAC contracts what portion of those contracts are quarterly now? You mentioned that it’s a higher portion than previously but maybe you could give us an idea what kind of upside is potentially there if prices start to move up?

Pierre R. Brondeau

I think that as Michael said, we do have on the domestic pricing, those are mostly, as you know, annual contracts. So we do expect very little change from the pricing situation on the domestic side, very different for ANSAC and exports where we do have a much larger and a significant part of the contract which are on a quarterly basis.

So if you look at the way we’ve built against, it’s been very hard for us to predict when the market will tighten enough to see the export pricing going up. So we have a forecast, which is reasonable and not contemplating any major change but certainly we do expect the overall pricing on exports to go up in the quarters to come. The question is only the timing. That’s why we decided to remain conservative. But certainly, quarterly contract on exports are a big part and we could see change in our numbers because of that.

Alex - Banc of America/Merrill Lynch

Thank you.

Operator

Your next question comes from the line of Frank Mitsch with BB&T Capital Markets.

Frank Mitsch - BB&T Capital Markets

Good morning, everyone. And Pierre, it’s nice to hear your voice again.

Pierre R. Brondeau

Thanks, Frank.

Frank Mitsch - BB&T Capital Markets

Pierre, obviously you’ve got a very strong background in many specialty areas and electronics is one that stands out. As you look at your position in the lithium business, what sort of opportunities do you see over the next, call it 24, 36 months to grow that business?

Pierre R. Brondeau

I think today, lithium, if I look at the lithium business, certainly with the growth and demand for batteries. It will be a business in the market, which will be a growth opportunity for FMC.

But if I would compare the lithium business to some of the other businesses we have like food, pharmaceutical or ag. I would say that if you look at the 24-month or 36-month, those other businesses do have more growth opportunity than the lithium business.

I think lithium is going be a platform which is going to we’re expecting strengthening. We’re going to be looking at strengthening our capacity position but I would see major change in the current growth maybe in the three to five-year time range.

Frank Mitsch - BB&T Capital Markets

All right. So the potential does exist to expand the capacity in this operation?

Pierre R. Brondeau

Yes. There is and we’re looking into it.

Frank Mitsch - BB&T Capital Markets

All right. Now, I think you’ve mentioned that the lithium primary -- primary lithium products were weak in the fourth quarter. Can you, I think you mentioned it on the pricing side. Can you talk about how are we starting 2010 in that area?

Theodore H. Butz

Yeah. Frank, this is Ted Butz. As we start coming into 2010, we’re seeing volumes in the primary side continuing to grow. Pricing is a little softer in a couple of product lines, it’s not broadly based. So that’s something we’re keeping our eye on as we go but sequentially we still see volume growth coming back. We’re still below 2008 levels from where we were and we believe, where the industry is.

Frank Mitsch - BB&T Capital Markets

Now.

Theodore H. Butz

That’s positive encouragement.

Frank Mitsch - BB&T Capital Markets

Now, Ted, on a couple of product areas, is that related to the SQM price action that was announced I guess back on October 1?

Theodore H. Butz

It’s hard to say whether it’s directly related to that or not. We’re not seeing the pricing move to the extent that the public announcement was and it’s in a couple different markets and it’s not directly related to carbonate across the board whereas SQM announcement focused on that.

Frank Mitsch - BB&T Capital Markets

All right. Sounds like it’s in a minority part of your lithium business?

Theodore H. Butz

Yes.

Frank Mitsch - BB&T Capital Markets

All right. Great. Thank you.

Theodore H. Butz

Thank you.

Operator

Your next question comes from the line of Peter Butler from Glenhill.

Peter Butler - Glenhill Investments

Pierre, you and Mr. Gupta did a fabulous, very, very strong management job at Rohm and Haas. So should we look to the Rohm and Haas story as a playbook for the new FMC or do you see any chance of major departures from what you’ve been doing?

Pierre R. Brondeau

Actually, Peter, great to hear your voice. It’s a very, very interesting question because I’ve been thinking about that since I joined FMC. If I look at Rohm and Haas 10 years ago when we started to build the electronic materials platform, we were looking for a growth platform or participation into markets where there would be growth opportunities outside of our acrylic chain.

I believe we have a different situation here. FMC and to some extent maybe I’m going to regret those words, but a situation which is better and easier in term of creating growth for the company.

FMC has already two thirds of its portfolio in places where you do have opportunity for customer intimacy, technology differentiation, growth opportunity and also emergent acquisitions.

So I do expect that we will be here, the management team able to do as good of a job as Rohm and Haas did from a growth standpoint, except that I do believe today we will not need to go look for another leg to our business structure. We will do that within the context of what we have with the high focus on agricultural, the biopolymer business, whether it’s for food or whether it’s for pharmaceutical or related market or even lithium-related markets.

Peter Butler - Glenhill Investments

Yes. Sounds good. Looking forward to seeing you in action here.

Pierre R. Brondeau

Thank you, Peter.

Operator

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

Dmitry Silversteyn - Longbow Research

Good morning, Pierre. Congratulations on the coming in on such a strong quarter relative to expectations and good to hear your voice. Welcome aboard. Couple of questions if I may. I didn’t really -- I’m not really sure that I heard correctly on the hydrogen peroxide pricing. Did you say that it’s going to be slightly up in 2010 versus 2009 or slightly down?

Pierre R. Brondeau

Slightly down.

Dmitry Silversteyn - Longbow Research

Okay. And so kind of if I remember how this business develops, you got some pricing at the beginning of 2009 on contract and then you were giving some up through the year because of the weak volumes.

Have you had to give up any more pricing or you’re basically just looking at lower pricing in 2010 versus where you started out 2009, similar to the export market in soda ash?

Pierre R. Brondeau

Yeah. The latter, Dmitry. The latter.

Dmitry Silversteyn - Longbow Research

Okay. So the pricing is stable right now at with utilization of 80%. It’s just on year-over-year comps at least in the first half of the year, they are going to be lower?

Pierre R. Brondeau

That’s correct.

Dmitry Silversteyn - Longbow Research

Okay. Excuse me, then switching to the soda ash. I understand that, where we finished the fourth quarter and where we are in the first quarter in pricing versus international market pricing, it’s going to be down. But if I remember correctly, as you got into the second quarter, ANSAC was pretty aggressive on pricing to try to get back the market share they lost in the first quarter.

So would pricing be more or less flattish by the time we get into the second quarter and we could actually look for some price increases, if nothing else changes. Just from the trajectory of pricing in 2009 by the second half of 2010?

Pierre R. Brondeau

Let me try to frame that. You know, when ANSAC made some price move to regain market share and reestablish its position, we believe a point that maybe fourth quarter would be the bottom of the price chain. And we believe that we are today entering the first quarter for export at a pricing which is slightly lower than the fourth quarter 2009. So this is a little bit different maybe from the last call we had three months ago.

At this point, we are not expecting further deterioration. The big question for us is with all of the things which are involved in defining the pricing for exports, how much -- what will be the cost for the Chinese producers, how much product will they be pushing into non-domestic markets?

We know, at some point, the price is going to turn around for exports. What we are not capable to say today and that’s where I say the forecasting remains conservative. We’re not able to say if it will be in Q2, in Q3 or in Q4. But suddenly it should be looking up from the first quarter. The question is timing.

Dmitry Silversteyn - Longbow Research

Okay. You’ve spent a lot of time talking about the, I’m sorry, the Asian pricing for soda ash. Can you give us an idea of what pricing dynamics and demand dynamics are like in Latin America?

D. Michael Wilson

Dmitry, this is Michael Wilson. First of all, regarding Latin America from a demand standpoint, we’re seeing demand forecasting it to grow by about 3% next year. Similar to what we see in North America.

Prices in Latin America are certainly comparatively stronger than they are in Asia, but again, I think that we’re at a stable position now, as Pierre has indicated. I think across all of Industrial Chemicals, we really saw the bottom in terms of pricing occur some time in the third and fourth quarter.

Our pricing has now reset, in some cases, annual contracts and some quarterly. But from here, it’s a matter of when we start to see price improvement and we’re optimistic we’re going to see that before the year ends.

Dmitry Silversteyn - Longbow Research

Okay, okay. That’s helpful. Staying with Industrial Chemicals on the Foret business. If I remember correctly, the first quarter maybe in the second quarter of 2009, because of the high cost inventory of phosphate rock and the dropping pricing of finished product phosphates, you had some pretty negative LIFO adjustments that I think caused the business to lose money in the first quarter.

Assuming that you are making money right now. Can you give us an idea of how much of a profit swing that business can see in the first half of the year?

Pierre R. Brondeau

We’re not really going to the details of earning at this level, yes? This business in 2010 will represent a part of the earnings improvement of the Industrial Chemical business but only a part. And certainly a business where we still have opportunities for further improvements.

Dmitry Silversteyn - Longbow Research

Okay. And you talked about absence of co-generation electricity revenues from the sale of the plant that you announced in 2009. Do you co-generate any electricity at all or is that business now gone and we don’t have to worry about the vagaries of Spanish natural gas and electricity regulatory market environment?

D. Michael Wilson

Dmitry, this is Michael Wilson again. We still do have two co-generation plants within Foret. We at one time had a total of four. So we’ve divested two of those. However, going forward, we’ve moved ourselves away from a market price -- selling price within those co-gens and we’re now on an indexed price. So I would expect the volatility to be greatly reduced going forward.

Dmitry Silversteyn - Longbow Research

Okay. Very good. You talked about U.S. pricing -- contract pricing for soda ash being slightly up year-over-year. Can you care to bracket that a little bit more, is it $1, is it $10, I mean, just give us some an idea of what you mean by slightly?

Pierre R. Brondeau

For domestic market, it’s really low single digit. We consider much closer to flat pricing in the domestic market than we have. So it’s flat to slightly up and slightly being meaning slightly, so just single digits.

Dmitry Silversteyn - Longbow Research

Excellent. Okay. And then, final question on the crop protection business. You mentioned several times both in the prepared remarks and the text of the press release about growth initiatives that are going to detract a little bit from the profit improvement in 2010.

Can you give us a little bit more granularity on what those growth initiatives are and what the potential of these initiatives are and how far down the road that potential can be realized?

Pierre R. Brondeau

Yes. I’ll ask Milton to comment on that, but we made a decision to increase our R&D budget in the ag space by about close to $10 million, so because we do believe we have opportunity. Milton?

Milton Steele

Hello, Dmitry. Milton here. Dmitry, over the last several years, we’ve been investing in both organic and inorganic growth for our product lines. We’ve been accessing third party products to develop proprietary pre-mixes. We’ve been expanding labels. We’ve made two acquisitions last year in the ag space.

And quite frankly, we have opportunities to expand our product lines across the globe. Latin America, Europe, Asia and North America and so that’s the reason we are spending this money. Just to take advantage of the opportunities we see.

Dmitry Silversteyn - Longbow Research

Okay. So this is just a question of maybe doing what you’re doing but maybe at a little bit faster pace?

Milton Steele

You could put it that way, yeah.

Dmitry Silversteyn - Longbow Research

Okay. All right. Thank you very much.

Operator

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

Douglas Chudy - KeyBanc Capital Markets

Good morning. First off, you’ve noted strong growth potential for the biopolymer business. Can you provide a little more color on which areas you see the greatest opportunities in terms of products or markets?

Pierre R. Brondeau

Yes. I mean, across the board, if you look at our biopolymers business whether its our food or pharmaceutical, we do have product -- whether its in (inaudible) which do benefit a first of all, very strong raw material position with access to raw materials allowing us to have a differentiated position in the marketplace in terms of performance.

So we do have a product line which is allowing us to deliver significant growth. I think the growth of our business last year was in the high single digits for those business and mostly actually driven by the food side of the equation.

Douglas Chudy - KeyBanc Capital Markets

Okay. And secondly, the earnings for Industrial Chemicals has been fairly volatile over the last couple of years. What do you view as normalized earnings potential for the segment maybe in terms of operating income?

Pierre R. Brondeau

It’s a difficult question but I do believe today that we do have reached the bottom of the cycle. So certainly from this point on, if you look at our guidance which is our performance last year, up 5% to 15%. I would expect for the years to come as we raise the cycle a few years of the same type of earnings growth to be repeated.

Douglas Chudy - KeyBanc Capital Markets

Okay. Thank you. And just last, quickly, any change in the M&A strategy? I think in the past there had been talk on growing the ag and the biopolymer businesses. Has anything changed there?

Pierre R. Brondeau

No. I think we will not change our strategy. We’ll continue to look for good acquisitions. We will do that in a very selective way but it is true that M&A will be an integral part of the strategy at this stage. Our focus would be on the food, pharmaceutical, biopolymer business and on the ag business. That’s where we’re going to be looking for opportunities.

Douglas Chudy - KeyBanc Capital Markets

Thank you very much.

Operator

Your last question comes from the line of Arun Viswanathan from UBS.

Arun Viswanathan - UBS

Hey, guys. Thanks for taking my question. Congratulations, Pierre. Well and good to hear your voice as well. I guess, just a couple questions. So, I guess, along with what you said on soda ash and Industrial Chemicals up 5% to 15%. Do you have any target longer term growth rates for Agricultural Chemicals and Specialty Chemicals?

Pierre R. Brondeau

Yes. I mean, I think that the ag business today, we do expect the business for the years to come to grow in the 5% to 10% annual growth rate and we tend to be a little bit more aggressive for our biopolymers business in terms of growth opportunities.

I do expect also that past this year where we do have to increase our spending for technology, we’ll continue to demonstrate an ability to leverage topline growth in the ag business in a very interesting way.

Arun Viswanathan - UBS

So the 5% to 10% figure that’s a sales growth number?

Pierre R. Brondeau

We couldn’t hear you.

Arun Viswanathan - UBS

I’m sorry. You said the 5% to 10% longer term growth for ag is sales and then you expect greater operating growth?

Pierre R. Brondeau

Yeah. 5% to 10% for ag.

Arun Viswanathan - UBS

Topline or?

Pierre R. Brondeau

It’s topline growth, right.

Arun Viswanathan - UBS

Okay. Okay.

Pierre R. Brondeau

Sales growth.

Arun Viswanathan - UBS

Okay. And are you seeing properties potentially becoming more attractive in this part of the cycle or to reach those levels?

Pierre R. Brondeau

There is today, if you look at our food, pharma or agricultural, there is definitely companies which are from the strategic standpoint filling very well our strategy. The critical question for us and some of those could be becoming available.

The question for us is we do have a company which is financially very sound and we need to be extremely careful in the type of acquisition we do and what price we pay. And of course, like everybody, we would like those acquisitions to be accretive quickly. So yes, there is, but we’re going to be very selective on the targets.

Arun Viswanathan - UBS

Okay. And is there a certain time line or is there a certain pressure that you are feeling to act quickly? And if not, other than the pension, how will the cash be used that you generate?

Pierre R. Brondeau

There is no pressure on the time line. I think we have a strategy. We have an M&A road map and we will be at the same time very opportunistic. So price and opportunity will be very important in the timing and we do have businesses which have the critical mass which is required to keep on growing and play a key role.

So we do not have a pressure on the time line. The cash generation we’re going to be deciding as we go. We’re going to have a very balanced approach in term of cash usage. Balance between returning to shareholders and strategic acquisition but we will do that depending upon opportunities we see coming up.

So at this stage, what I would like to say and officially being my first quarter with FMC, I would not make any decision one way or another. But have a status quo situation and as we go depending upon M& A opportunities make decisions.

Arun Viswanathan - UBS

Right. Okay. Thanks.

Operator

At this time, Mr. Brondeau, would you like to give your closing comments?

Pierre R. Brondeau

Thank you very much. Well, thank you, everybody, for your time and your questions. What I would like to say in closing, is that our 2010 outlook presumes a continued global recovery, though tempered and uneven as it may be.

As a result, the impact on our business is hard to predict. Nonetheless, we expect strong performance from Agricultural Product and Specialty Chemicals based on demand recovery and the benefits of our growth initiative. The more uncertain area of our outlook is in soda ash export pricing. We have prudently chosen to be conservative regarding the potential for higher selling prices in the export market as the year develops.

Though we do not think that though we do think there is some upside in this regard, we do not control the timing of when increased demand tightens the supply-demand balance to enable higher pricing in the export market for soda ash.

As I told you, and you know I’ve joined FMC recently and I would like to share my views on our business and our capacity to grow. FMC’s financial position and the attractiveness of our business portfolio are two distinct strengths of the company. We have a well defined strategy for profitable growth.

My message is one of continuity. I strongly believe in the growth platform we have, especially agricultural products, biopolymer and lithium. We will drive growth in these businesses following the technology roadmap we have in place. We will combine that with a focus on taking full advantage of the premium growth opportunities in the world’s rapidly evolving economies and continue with very selective M&A as it was done in the past. Thank you very much.

Operator

Thank you. This concludes the FMC Corporation fourth quarter 2009 earnings release conference call. You may…