FMC Corporation Q4 2008 Earnings Call Transcript

Feb. 5.09 | About: FMC Corporation (FMC)

FMC Corporation (NYSE:FMC)

Q4 2008 Earnings Call

February 05, 2009 11:00 AM ET

Executives

Brennen Arndt - Investor Relations

William G. Walter - Chairman, President and Chief Executive Officer

D. Michael Wilson - Vice President and General Manager, Industrial Chemicals

W. Kim Foster - Senior Vice President and Chief Financial Officer

Analysts

Kevin McCarthy - Banc of America Securities

Mike Judd - Greenwich Consultants

Frank Mitsch - BB&T Capital Markets

Rosemarie Morbelli - Ingalls & Snyder

Robert Felice - Gabelli & Company

Dmitry Silversteyn - Longbow Research

Paul Christopherson - Gilford Securities

Operator

Good morning, and welcome to the Fourth Quarter 2008 Earnings Release Conference Call for FMC Corporation. All lines are 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, you may begin.

Brennen Arndt

Thank you, and welcome everyone to FMC's fourth quarter 2008 conference call and webcast. Bill Walter, our Chairman, President and Chief Executive Officer will begin the call by reviewing our fourth quarter performance. Bill will then turn the call over to Michael Wilson, Vice President and General Manager with our Industrial Chemicals Group, who will provide us an in-depth review of the performance and outlook for Industrial Chemicals.

Following Michael, Kim Foster, Senior Vice President and Chief Financial Officer will report on our financial position. Bill Walter will then provide our company's outlook for the first quarter and the full year of 2009 and we'll complete the call by taking your questions.

A reminder that our discussion today will include certain statements that are forward-looking and subject to various risks and uncertainties concerning specific factors that are summarized in FMC's 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 and actual results may vary based on these risk 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 the definition of these terms under the heading entitled glossary of financial terms. We have also provided our 2009 outlook statement and a reconciliation to GAAP of the non-GAAP figures that we'll use today.

It's now my pleasure to turn the call over to Bill Walter.

William G. Walter

Thanks Brennen, and good morning everyone. As you saw in our earnings release, we had a strong fourth quarter, completing our fifth straight year of record sales and earnings.

Summarizing our fourth quarter results, I would say that they came in largely as we expected, specifically sales were $737.7 million, an increase of 9% versus the fourth quarter of 2007. Earnings before restructuring and other income and charges of $1.02 per diluted share, an increase of $0.73 versus the fourth quarter last year.

Our fourth quarter results were aided by a favorable catch up in our year-to-date book tax rate. Excluding this, we earned $0.95 in the quarter.

In Ag product sales of 240.8 million increased 5% and earnings of $33.6 million also increased 5% versus year ago driven by higher sales in both Latin America and North America.

In Specialty Chemicals, sales of $190.3 million were 18% higher and earnings of $35.1 million increased 3% versus the year ago quarter. Higher selling prices in biopolymer, the full quarter inclusion of the ISP acquisition and volume growth and lithium primaries drove the top line gains.

Industrial chemical sales of $308 million or 8% higher and earnings of $53.3 million increased 85% versus the year ago quarter, driven primarily by higher selling prices across the segment.

Our record fourth quarter results were achieved despite a higher raw material cost and to a lesser extent higher energy cost versus the prior year combined raw material and energy cost unfavorably impacted earnings by $0.43 per share in the current quarter.

Currency translation, however, had only a minor impact in the quarter, negatively affecting earnings by $0.01. On a GAAP basis, we reported net income of $46.3 million or $0.63 per diluted share. GAAP earnings in the current quarter included net charge of $20.1 million after-tax or $0.39 per share versus a net charge of $4.3 million after-tax or $0.06 per share in the prior year quarter.

With that reconciliation, our non-GAAP earnings were $1.02 per diluted share in the fourth quarter of '08, an increase of 73% versus the same quarter a year ago.

With that as a summary, let me now take a more detail look at the performance of each of operating segments in the quarter.

First, in Ag products. Fourth quarter sales of $240 million, as I said were up 5% compared with the prior year quarter driven by sales increases in both Latin and North America. In Latin America, which for us is primarily Brazil, the increase reflected the success of several new product introductions and the implementation of price increases.

In North America, sales also benefited from new product introductions, a strong California rice market as well as a favorable shift of certain sales from the third quarter of '08.

Segment earnings in the quarter of $33.6 million increased 5% reflecting both the sales growth and favorable product mix shift in the Americas, mostly offset by higher raw material and distribution cost.

As expected and as discussed in our third quarter conference call, manufacturing related cost on our agricultural products segment were $15 million higher this quarter compared with the same quarter last year. This includes a $4 million of one-time sourcing cost due to an explosion in the key suppliers plan.

Moving to Specialty Chemicals, revenue of $190 million increased 18% over the prior year quarter.

Strong commercial performance and biopolymer, the full quarter inclusion of ISP acquisition and volume growth lithium primaries, were the primary drivers of our top line growth.

Segment earnings of $35.1 million increased only 3% over the prior year as the higher sales in this segment were largely offset by higher raw material and energy costs primarily in biopolymer, as well as export taxes in Argentina and lithium, taxes which were put in place in December 2007.

Biopolymer achieved strong top-line growth; higher sales were realized across all the biopolymer businesses but were particularly strong in food and personal care. Biopolymer earnings also increased, driven by the sales gains and improved product mix, continued productivity improvements and reduced selling expenses.

However higher raw material costs particularly for seaweed and wood pulp and higher energy costs partially offset the sales gains.

The integrations of ISP and Co Living acquisitions continued on track in the fourth quarter. The acquisitions had a favorable impact on our sales growth, and we're slightly accretive to earnings in the first four quarter within biopolymer.

In lithium, increased volumes and primary compounds and specialty organics were the main drivers of top-line growth. However, earnings declined modestly compared to year ago as the sales gains were more than offset by high raw material costs and the export taxes in Argentina that I just mentioned.

Moving to corporate items, corporate expense was $12.3 million down from $12.8 million a year ago. Interest expense net was $7.4 million as compared to $7.9 million in the prior year quarter.

On December 31, 2008 gross consolidated debt was $623.6 million and debt net of cash was $571.2 million. For the quarter, depreciation and amortization was $29.9 million and capital expenditures were $48.9 million.

That's it for agricultural products, Specialty Chemicals and corporate and now for a discussion of our industrial chemical segment, I'll turn the call over to Michael Wilson. Michael?

D. Michael Wilson

Thank you Bill, and good morning everyone. It's a pleasure to be with you today to highlight our industrial chemical segment to review our fourth quarter and full year 2008 performance and provide you with our outlook for 2009.

Three businesses comprise our industrial chemical segment. Our alkaline chemicals division or soda ash business, North American peroxygens, which consist predominantly of hydrogen peroxide but also include 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 on the call are already familiar with our businesses. I am going to forego a detailed overview of each business and move straight to our fourth quarter and full year 2008 performance. I'll then discuss our 2009 outlook for this segment touching on the key issues and opportunities that each of the three businesses have before them.

If you need additional background information on any of the ICG businesses, please contact Brennen after call. For the fourth quarter 2008, revenue in industrial chemicals was $308 million, an increase of 8% from prior year quarter driven by higher selling prices across the segment particular in soda ash and phosphates.

Segment earnings of $53.3 million increased 85%, as a result of the broad based price gains and improved co-generation performance in Foret. Higher raw material costs mostly for phosphate rock and volume weakness in hydrogen peroxide and phosphates partially offset the gains.

Demand for hydrogen peroxide for pulp bleaching weakened late the quarter with many pulp mills initiating extended down time due to high pulp inventories. Global market pulp inventories peak to 50 day supply November up from 29 days a year earlier.

Phosphate volume slipped to a lesser degree due to weaker demand associated with the slowing global economy and detergent formulation driven by the high costs of phosphates.

In contrast, our soda ash prices and volumes remained firm throughout the quarter. With this fourth quarter performance, Industrial Chemical segment delivered an exceptionally strong 2008, specifically segment revenue grew to $1.3 billion in 2008 an increase of 19% versus 2007. Significantly, higher selling prices across the segment led by soda ash and phosphates and modest volume gains accounted for the increase.

Segment earnings of $201.4 million more than doubled versus $92.5 million in 2007.

Higher sales in every business improved co-generation operations of Foret and currency translation primarily the euro was the main drivers.

Our full year results were largely inline with our expectations at the outside of 2008 for soda ash and peroxygens. Foret's performance significantly exceeded expectations tighter than anticipated market conditions for phosphates through the first three quarters of the year trade a rapidly rising price environment from phosphate derivatives which benefited Foret.

The tight market conditions were driven by strong fertilizer demand, we've seen weaken considerably in the fourth quarter. Globally fertilizer demand consumes approximately 90% of the production of C molecule.

With that summary of 2008 results, let me now shift to our 2009 outlook for the industrial chemical segment. As you would expect the biggest levers on profitability for these businesses were once again the selling prices, volumes and input costs. As many of you also know the vast majority of our business tends to be on annual contract rather than spot basis.

Contract negotiations for the majority of our business particularly for soda ash, North American hydrogen peroxide and sodium tripolyphosphate have been completed. As a result, we expect to realize significant price improvement in the segment in 2009 despite the headwind of a slowing global economy. We will see the most significant price gains in our domestic and export soda ash businesses though Foret and peroxygens who also realized gains.

Overall, we expect aggregate net price benefits to contribute approximately $75 million to earnings from this segment in 2009. Unfortunately, it will not flow to the bottom-line. In contrast to a robust 2008, we are experiencing reduced demand in some end markets as a result of global economic conditions, primarily in pulp and paper and flat glass.

We also anticipate somewhat lower demand in phosphate based powder detergents, due to the reformulation efforts of detergent producers who are focused on providing consumers lower price alternatives in a weak economy.

Overall, we expect aggregate net volume impacts of approximately $35 million are partially offset the pricing benefits.

Finally, higher raw material energy and other input cost, as well as price driven soda ash royalty payments in total are expected to be approximately $50 million higher in 2009.

Higher raw materials account for the majority of the cost increase, while phosphate rock alone accounts for approximately half the increase.

Let me review each business in more details starting with soda ash. As we begin 2009 the global soda ash market remains healthy. The challenging global economic conditions are expected to reduce growth rates to some extent in nearly all regions.

In absolute terms, global soda ash demand is expected to increase by an estimated 1 million metric tons or approximately 2%.

For comparison, we estimate 2008 global soda ash demand grew by 2.2 million metric tons or nearly 5%. We expect domestic demand in 2009 to be essentially level to 2008 with softness in flat glass in the construction and automotive sectors being offset by demand from caustic conversion opportunities.

As long as caustic prices are above $400 per ton, the economic favor soda ash, caustic prices today on average are more than twice this high and are projected to remain above the $400 per ton threshold for quite some time.

Caustic users who have the facilities to use caustic or soda ash have been denied the opportunity to use soda ash as a functional substitute due to soda ash market tightness over the last few years.

Soda ash demand for detergents and glass containers should remain relatively stable in 2009. Container glass has proven historically to be rescission or resistant. Well, soda ash is a beneficiary of some detergent reformulation efforts.

Regarding the export markets, given the low cost position of U.S. producers and that we will be able to sell the available capacity of U.S. producers, thus maintaining the high utilization rates of recent years.

ANSAC primary competitors Chinese synthetic soda ash producers have faced a number of cost challenges in the last two years that have impacted their competitive position. We've seen a step change increases in synthetic production costs due to escalating coke, salt, coal and electricity costs.

In mid 2007, Chinese export have loss the 13% export V80 rebate, they had historically received. This tax rebate on soda ash has not been reinstituted as it has for some other basic materials.

And Chinese soda ash producers have also faced increasing environmental pressures, tightening credit and lending practices and the continuing revaluation of the yen, which has appreciated almost 20% versus U.S. dollar.

The growth rate of Chinese domestic demand has softened in the last few months. Similar to other regions, a portion of their clients been due to slower economic growth and a portion due to inventory reductions throughout the supply chain. As you'd expect in over supplied market, Chinese domestic prices are falling to the cash costs for the high cost producers.

To put this in context, Chinese domestic prices are fallen by more than a $100 per metric ton in an industry with more than 20 million metric tons of capacity.

The loss of what would equate to 2 billion worth value on an annualized basis has triggered expected capacity rationalization. There have been a significant number of production curtailments and higher costs facilities coupled with the deferral from cancellation of new capacity.

During this period Chinese exports have also declined. In the past, exports particularly increased as domestic demand soften. We believe, this change in behavior is a result of step change increase in their production cost, as well as the increase in private ownership versus historically 100% state owned enterprises.

At the same time, regional pricing in Asia has also moved toward the Chinese delivered cash cost and appears to the plateau at this level. This has created a contract price flow in Asia at attractive margins for U.S. producers.

In Latin America, ANSAC other key export regions growth in 2008 was restricted by supply limitations. In 2009, we expect demand to be essentially flat year-over-year. Against this domestic and export backdrop, our pricing actions for 2009 contract season were once again successful.

In North America, soda ash price increases varied by customer depending upon contract provisions, timing and the amount of increase previously accepted. In some cases, our opportunity was limited by competitive caps. Nevertheless, we realized an average increase that was inline with our expectations.

ANSAC's contract negotiations for 2009 were even more successful. Their favorable results are attributable to the supply demand conditions in Asia resulting from the Chinese situation I just described and our advantage cost position in Latin America.

The cost, both domestic and export volumes, we expect to realize an average net soda ash price increase in the mid teens for short-term. Soda ash volumes should be on par with 2008 level while the business will see some higher cost related to raw materials, energy, and higher price driven royalty payments.

As a result, our soda ash business will once again deliver significant earnings growth in 2009. Let me note, however, as I do each year that we own 85, 87.5% of the earnings of our soda ash business. The balance is owned by our two Japanese partners.

Finally a comment on our capacity plans, as planned we brought on an additional 100,000 tons of soda ash capacity during the course of 2008. We also remained committed to restarting the balances of our capacity at ranger by 2012. We will only do so if export market conditions warrant additional supply. Until then we'll keep the project spending on hold with the expansion shall be ready.

Moving now to North American peroxygens. The largest component of this business is hydrogen peroxide. While hydrogen peroxide is consumed at 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 hydrogen peroxide demand.

In the fourth quarter, paper demand declined approximately 20% and pulp shipments were down an excess of 10%. We expect early 2009 North American hydrogen peroxide demand to be impacted by these end market conditions, until the destocking of global market pulp inventories is completed.

Pulp market demand weakness will be partially offset by continued growth in specialty peroxygens applications. Our effort to diversify our market exposure in peroxygens to lessen our dependence on the pulp market remains on track. We made significant progress in this regard during the course of 2008 and we remain excited about the potential of emerging opportunities, particularly, in environmental and sterile applications. Specialty applications now constitute approximately 30% of peroxygens revenues.

Overall, our expectation in 2009 is for a market volume decline of approximately 5% in peroxygens with demand gradually improving after a weak first quarter driven by improving pulp market fundamentals and further growth in specialty applications.

Despite current demand softness and contract negotiations we were successful in passing through modest price increases across our peroxygens businesses, increases which will partially mitigate the impact of lower demand.

Overall, North American peroxygens earnings are forecast to be marginally lower versus 2008 with price gains more than offset by weaker volumes and higher raw material costs.

Turning to our European hydrogen peroxide business, in Western Europe hydrogen peroxide demand also saw a sharp downturn in the fourth quarter due to weakness in the pulp and paper sector. Year-over-year, fourth quarter demand fell more than 12%.

For 2009, we expect a similar demand pattern to emerge for hydrogen peroxide in Europe as in North America. A weak first quarter compared with the fourth quarter 2008 followed by gradually improving fundamentals.

Overall, we're forecasting a demand decline of approximately 1 to 3% in 2009. Also similar to North America, successful contracting effort should result in marginally higher hydrogen peroxide selling prices in 2009. Coupled with a decline in natural gas cost, we expect to see approximately flat earnings year-to-year in our European hydrogen peroxide business.

Foret phosphorus chemicals products as other major business are used in a range of applications including detergent, seed and industrial uses. Demand growth for phosphorus chemicals in these applications tends to mere GDP.

The major product in the phosphorus chemicals line is sodium tripolyphosphate or STPP, a key builder for powder detergents. Selling prices for STPP rose dramatically through the third quarter of 2008. The major driver was the cost of the primary raw material phosphate rock. Phosphate rock prices rose ten-fold from around $50 per metric ton to a peak of over $500 per metric ton from the first quarter through the third quarter of 2008.

The escalation in phosphate rock prices was driven by tight supply condition, due to strong global demand for fertilizers and the Moroccan government's resolve to get higher value for key natural resource for which they control 50% of global exports. In this rising price environment, Foret moved to largely, quarterly and spot pricing commitments with its customers in 2008, like a part year from its historical annual contracting approach.

Consequently, Foret was well positioned in very successful recovered the raw material cost increases in the form of higher pricing.

Historically, Chinese producers have been key competitors in the industries price sale despite their independence from western rocks sources, Chinese export prices of STPP escalated with rest of the market from most of 2008.

Similar to soda ash Chinese exporters of STPP lost their export rebased status in mid 2007. In addition, Chinese producers entered production related issues in the first half of 2008 related to poor weather and the massive earthquake in the Sichuan province, a key phosphates producing region.

Now the fourth quarter of 2008, however, with global phosphates demand having softened significantly and their production issues behind them, Chinese export prices of STPP began to drops deeply pressuring global spot prices. This development has made a challenging for Foret to achieve its price gains in 2009 sufficient offset input cost that on average are expected be significantly higher in 2009 and 2008 despite recent declines in rock prices.

In addition, economic weakness and detergent reformulation precipitated by the higher cost of phosphates are expected to drive volume losses year-over-year. Therefore in comparison to its very strong performance in 2008, Foret will experience the substantial decline in earnings in 2009 with higher selling prices across its product lines will be more than offset by lower volumes and higher raw material cost.

With that outlook to the primary levels of group profitability, let me summarize our overall view for Industrial Chemical segment for 2009. We expect full year 2009 earnings to be flat to down 10% with higher selling prices across the segment are more than offset by lower volume higher raw material and other input cost. We expect demand in the first quarter to be particularly weak due to on going destocking. First quarter 2009 segment earnings therefore are expected to be down 10 to 20%.

From a year-to-year comparison standpoint, we should realize the benefit from declines in phosphate rock prices beginning at some point in the third quarter of the year. With this benefit coupled with the expectation of improving demand in the second half of the year, we expect to deliver sequentially stronger earnings as we move throughout the year.

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

W. Kim Foster

Thanks Michael and good morning everyone. This morning, I'll review our net debt and liquidity positions in addition I'll address FMC's approach to managing debt and liquidity in these uncertain times.

Our net debt at the end of December was $571 million, as I've said over the past several years, we are targeting net debt between $500 and $600 million.

We ended 2008 at the higher end of the range for two primary reasons. First, and as I foreshadowed during our third quarter conference call, should FMC stock remain depressed during the fourth quarter of 2008, we would increase our share repurchases.

Accordingly, for the fourth quarter, we repurchased $1.6 million shares at an average price of approximately $38 per share representing a value of approximately 60 million, taking advantage of the depressed stock price to accelerate our share repurchase program.

For the full year 2008, we repurchased $3.5 million shares at an average price of approximately of $53 per share and an aggregate value of approximately $185 million. At the end of 2008, we have approximately $220 million remaining under our recently authorized share buyback program.

As I do each quarter, I'll remind you that our share repurchase program does not include a specific timetable or price target and maybe suspended at any time. And our guidance for 2009 assumes that we do not repurchase any shares.

The second reason for the higher debt levels was slightly higher inventories in capital spending during the fourth quarter than we anticipated.

The higher inventories were a result of late quarter softening of demand for some of our products and higher capital was partially a result of go forward between 2008 and 2009.

Well our net debt levels are slightly higher at the end of 2008 and 2007. So as our EBITDA, in fact our leverage ratio which compares net debt to last 12 months EBITDA is 0.9 for 2008 unchanged from 2007.

So as you can see, we've maintained our very strong credit statistics. Our liquidity profile is similarly strong. At the beginning of 2009, we have available funds under our committed credit agreements of 395 million and cash on hand of 52 million.

In addition, we have no significant maturities until late 2010. As we all know 2008 was a difficult year for investors. The 2008 investment performance in our U.S. defined benefit pension plan was significantly below our historical returns.

And will require higher levels of funding over the next few years. Under the Pension Protection Act, we are not required to make a minimum funding level -- minimum level of funding during 2009, however in order to reduce future funding volatility we anticipate contributing 75 million to our U.S. pension plan.

After accounting for higher pension funding levels, we still expect a free cash flow in 2009 in excess of 200 million. Despite the market uncertainties, we entered 2009 with the financial strength to execute our strategies. Specifically 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 strong liquidity position.

We will air on the side of financial prudence. With that, I will now turn the call back to you, Bill.

William G. Walter

Thanks Kim. Looking ahead, we're confident delivering another year of stronger performance, specifically regarding our outlook for the full year 2009, we expect earnings before restructuring and other income and charges of $4.60 to $5 per diluted share.

And for the first quarter 2009, we expect earnings on the same basis, to be between $1.15 and $1.30 per diluted share. By segment, in industrial products we look through the first quarter earnings growth of 5% to 10% driven by higher sales and continued global supply chain productivity improvements, partially offset by spending on growth initiatives.

I am sorry that was an Ag my apologizes, and in Specialty Chemicals, we expect earnings flat to up 5% driven by strong commercial performance in biopolymer and the inclusion the ISP and Co Living acquisitions, partially offset by higher raw material costs. And Industrial Chemicals, as Michael has just said, we expect earnings to be down 10% to 20% as the higher prices are more than offset by lower volumes and higher raw material and other input costs.

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

Question-and-Answer Session

Operator

(Operator Instructions). Your first quarter comes from the line of Kevin McCarthy from Banc of America.

Kevin McCarthy - Banc of America Securities

Yes, good morning. Would you elaborate on the soda ash price realizations in the U.S. versus international markets and just wondering specifically in Asia if you're able to achieve increases there and how far into 2009 you might have visibility on the pricing? Thanks.

D. Michael Wilson

Hi Kevin, this is Michael Wilson, I guess in the past, I really don't want to delineate between domestic and ANSAC pricing. Typically we've just given the overall number for competitive and commercial reason. Having said that, clearly the export pricing move was much higher substantially more than what we realized domestically to provide a bit of color. If you think about the export markets, and think of that regionally we saw the highest increases in Latin America particularly because, Latin American pricing is due to prior contracts had lagged the rest of world regionally.

And then ultimately, Asian prices were impacted by the slowdown in the economy in the fourth quarter and then also the situation in China with capacity there and falling prices that I talked about in my prepared remarks.

Kevin McCarthy - Banc of America Securities

Follow-up there briefly on the volume side, I think you mentioned that you would anticipate some increases derived from traditional users of caustic soda. What is the magnitude of volume you think you can pick up there in another words when you say volume might be flat in '09 what it would underlying and how much could pick up to offset?

D. Michael Wilson

Well, domestically the market volume opportunities is about 250,000 tons in terms of just how much of that we'll get -- we'll have to see as we proceed, its something that we're actively working on. There'll also be opportunities outside the U.S.

Kevin McCarthy - Banc of America Securities

Okay. And then finally with regard to costs I think you mentioned for the segment I believe you anticipated 50 million of incremental costs half of which is phosphate rock, what is in the other half. What's source of input costs are inflating on your at this point and how much might royalties be up that sort of thing?

D. Michael Wilson

Without getting to a lot of specifics, the other input costs are energy which are in some cases are higher. We also have raw material costs in other businesses for example the Foret business in addition to phosphate rock by soda ash and also by caustic soda.

We buy other commodity products for our specialty peroxygens volume. So, we have supply costs that impact us in soda ash, and then of course I did mention the royalty payments that are function of higher prices.

Kevin McCarthy - Banc of America Securities

Thank you very much. I'll get back in the queue.

Operator

Your next question comes from the line of Mike Judd from Greenwich Consultants.

Mike Judd - Greenwich Consultants

Yes, good morning. Couple question on starting off with your other income expense estimate for the full year 2009 of 18 million expenses I think that the uptick and that is mostly pension related and also some foreign exchange?

W. Kim Foster

That's correct.

Mike Judd - Greenwich Consultants

Okay. And then from the -- on the cash flow side, would you anticipate making any voluntary pension contributions?

W. Kim Foster

Yes Mike, this is Kim again. We -- as I mentioned in my prepared remarks we are -- making voluntary pension contribution to the U.S. plan of approximately $75 million in 2009.

Mike Judd - Greenwich Consultants

Okay. And then in terms of the share buyback, so the last couple of quarter they've been something around 60ish million each quarter. Are you -- do you anticipate that level throughout the year or do you -- what do you anticipate?

{C: W. Kim Foster:} Mike, I'm assuming you mean in the year 2009?

Mike Judd - Greenwich Consultants

Yes.

W. Kim Foster

And as I mentioned in my prepared remarks, we see the purchases in both of third quarter and fourth quarter as an acceleration of our stock buyback program, so I would not expect those to continue with that level.

Mike Judd - Greenwich Consultants

Okay, so the first quarter and second quarter level were more around 25 million per quarter, this had more reasonable expectation?

{C: W. Kim Foster:} Mike, this is Kim again. As I mentioned, we're not giving specific guidance on that, but when you think of my comment of an acceleration and you could also anticipate that it would at that level or slightly less.

Mike Judd - Greenwich Consultants

Okay, and then I think you mentioned that you'd be spending around $170 million on CapEx. Can you provide us a little bit of breakdown on where that capital is being spent, please?

Unidentified Analyst

Yes. As I think most of you know that we sold our Princeton research facility, a couple of years ago and we have been leasing that facility. We are in the process of actually spending some capital and we expect to relocate our Princeton R&D employees to a nearby sight in 2009, so we're spending some capital associated with that.

In addition, and this is associated with the recent acquisitions in the biopolymer business and our alginate product line, as we recently announced we're going to go through some restructuring which will -- over the long haul should eventually improve the profitability of that business and there'll be some capital spending associated with that.

Mike Judd - Greenwich Consultants

Thank you.

Operator

Your next question comes from Frank Mitsch from BB&T Capital Markets.

Frank Mitsch - BB&T Capital Markets

All right, terrific. Good morning, and nice result, guys. Just on the CapEx side, anything with respect to potential investments in the lithium side of the business?

William Walter

Frank, Bill. I remember the wager that we had.

Frank Mitsch - BB&T Capital Markets

You know, I wasn't going to go there.

William Walter

No. We have not pulled the triggered on lithium expansion yet, Frank and then -- given the current market uncertainty and the softness in the primary end of the business, it's not clear to be exactly when we will be pulling that trigger either.

Frank Mitsch - BB&T Capital Markets

And I just staying with the topic there was a article in Times this week about Bolivia becoming -- possibly becoming a big lithium exporter. How do your lithium folks feel about Bolivia impacting the market in '09, 2010, 2011?

William Walter

Well, first of all, Frank, a little history, we decided to invest in Argentina we pursued the Bolivian reserve and it is of a quality that is slightly better than what we have in Argentina. But we could never see at with the Bolivian government and if you go back almost 20 years ago when we were doing that, the Bolivian government is probably a little friendlier and a little more stabled than what is in place today.

Given that, my view is it is highly unlikely, I emphasize the highly, that there will be any investment in Bolivia in the next three to five years. And even if there is, even if I am wrong on that, it's going to take them a good three to five years to develop the reserve, the infrastructure and have product on the market in any meaningful way.

Frank Mitsch - BB&T Capital Markets

All right, terrific. I appreciate it. And Mike, in discussing the pricing you've mentioned export or ANSAC pricing probably being higher than the domestic price realizations for 2009, and we have news that I guess at year's end one of the members of ANSAC will be leaving. Can you talk about your expectation for the change in the competitive dynamics with one less member of ANSAC, is that an area that we should be concerned about?

D. Michael Wilson

Yeah, Frank, I guess first of all for others on the call you're referring to SOLVAY departure from ANSAC, and the first thing I would emphasize is that really is a 2011 issue for the terms of ANSAC, there is a two year exit provision which SOLVAY will participate in and continue to be a member. So, certainly no issues before 2011. I think after 2011, I still don't think there will significant issues caused by that as you probably know SOLVAY is a global competitor today and from their other operations around the world, ANSAC competes with them today.

So no big changes on that front, at the same time, the remaining members of ANSAC all remain committed to staying in ANSAC, in fact have made a minimum five year commitment to ANSAC at this point.

Frank Mitsch - BB&T Capital Markets

All right, terrific. Thanks a lot guys.

Operator

Your next question comes from the line of Rosemarie Morbelli from Ingalls & Snyder.

Rosemarie Morbelli - Ingalls & Snyder

Good morning all. Could you give us a feel as to why you expect the demand on the pulp and paper side to improve after the first quarter of this year? What makes you think that there will be an improvement?

D. Michael Wilson

Rosemarie, this is Michael, and our outlook is really based upon the feedback that we get from our customers, and clearly there is still poor fundamentals for pulp and paper, particularly, in North America. I think we'll see some improvements simply because right now we have both the fundamentals as well as the destocking that's going on. So once we at least get through the destocking, we'll get to a base level of demand.

In terms of when that base level of demand will then improve that's a little bit more uncertain but best guess and probably the guess at this point is that that destocking won't be completed until at least the end of first quarter and probably till sometime in the second quarter.

Rosemarie Morbelli - Ingalls & Snyder

So, if it is not done until in sometime in the second quarter then I guess you would not expect any improvement until the third quarter, is that correct?

D. Michael Wilson

Well other than the fact that we won't have the destocking going on or as much of the destocking going on. So I think things will gradually improve, but you're right. I mean the overall outlook is not bright. And if we can get fundamental demand improvement beginning in the second half of the year that's probably a positive outlook at the moment.

Rosemarie Morbelli - Ingalls & Snyder

Okay. And then if I may, your inventories are higher than they were at the end of last year, I am guessing that you have a lot of raw material cost increase in there. Do you have in this environment, do you have any goal of destocking yourself the way many of your customers are doing?

{C: W. Kim Foster:} Rosemarie, this is Kim. The higher inventories as I mentioned in my prepared remarks were because there were some demands slowdown in some of product lines they were slightly higher than we anticipated. We will adjust that inventory back to the historic levels in 2009 and we'll certainly be watchful if any potential further deterioration in volumes, as Michael talked about. But other than that we don't anticipate any significant destocking.

Rosemarie Morbelli - Ingalls & Snyder

So you don't even in these rather different environment, you don't think that you should take them down to lower than historical level. Am I understanding that properly?

W. Kim Foster

Rosemarie, I think that's right because as you could tell from the other prepared remarks that we have. We don't see in our businesses a significant drop off in demand, and to the extent that, that outlook could change we would revise, we take another look at that but overall we still expect a reasonable demand outlook for 2009.

Rosemarie Morbelli - Ingalls & Snyder

Okay. Thanks.

Operator

Your next question comes from the line of Robert Felice from Gabelli.

Robert Felice - Gabelli & Company

Hey guys. Congrats on a very nice finish to the year. Couple of questions, I guess first, could you give us some clarity to the magnitude of the decline in earnings we should expect from Foret in 2009. I'm just trying to gain a better sense of clarity as to how each of the businesses within industrial chemicals will perform?

William Walter

Let me answer that, Rob. If you waved through everything that Michael said, I think you can conclude that most if not all of the segment decline is in Foret.

Robert Felice - Gabelli & Company

Okay. So, if I'm correct in 2008 that business rebounded by probably somewhere in the neighborhood of $20 million and it sounds like its going to decline by a substantial amount more than that. Is that the proper assumption?

William Walter

No, there is errors in your math. Let me -- I'm just going to repeat what I said. I think if you waved through Michael's commentary, you can conclude that the entire decline in the segment in '09 versus '08 is majority if not all is in Foret. It's your $20 million number.

Robert Felice - Gabelli & Company

Okay, okay. And then you'd mentioned that export prices were higher than -- the increase was higher than domestic prices. Can you give us some sense as to the average price increase?

D. Michael Wilson

Yeah, Robert I said it's in the mid-teens.

Robert Felice - Gabelli & Company

Mid-teens, okay. And then I guess flipping to specialty, you're projecting a 5% to 10% earnings increase in that business which is by all means respectable especially in this environment. But I am a bit surprise, it's not a little bit higher given the magnitude of cost deflation your likely seeing on wood pulp and seaweed and also given the acquisitions, so could you dive a little bit into the areas where perhaps you're seeing some weakness of the magnitude of that weakness and just to help us to build up a better picture of how you get to that 5% to 10%?

William Walter

Yeah I think the disconnect -- to the extent there is one Rob between our guidance where your head sounds like it is, is on raw material costs. We in fact expect to see year-over-year higher bulk seaweed and pulp costs. While we have seen a decline in (ph) seaweed in the fourth quarter of '08 prices on average in '09 will remain above the average in '08.

We've seen cost escalation in other seaweed varieties, and on the pulp side we buy highly specialty grade of pulp with limited suppliers globally Foret, and that's those specialty pulps have not prices -- have not been affected as a commodity pulps have. So again let me repeat that why you're not seeing what you might expect to see is the disconnect between your assumption in raw material costs and what we believe is actually going to happen.

Robert Felice - Gabelli & Company

Okay, that's helpful. And then I guess lastly on Ag, do you have some sense as to whether or not the price increases your putting through in North America are sticking at this point or is it too early?

William Walter

Too early to tell Rob, but as I think I said in I said during the fourth quarter conference -- third quarter conference call. The first step in successfully implementing those price increases is to get them into the distributor price list and that's largely happened, but there is still is some uncertainty as to whether or not its going to work its way through retail and aboard here once the season starts.

Robert Felice - Gabelli & Company

And to what extent this realization of best price increase is baked into your guidance?

William Walter

We have assumed that we will be successful maybe not a 100% but we will be successful in passing through some price increases.

Robert Felice - Gabelli & Company

Great. Thanks for taking my questions.

Operator

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

[Technical Difficulty]

... they had to do with the profitability expectations for 2009?

William Walter

Dmitry, let me interrupt you, somehow, you were cut off.

Dmitry Silversteyn - Longbow Research

All I said was good morning, and said lot of my question have been answered, obviously, they centered around the profitability of various divisions. But I just want to come back on the Foret portion of business, and given that this seems to be the culprit for your pessimistic outlook for profitability of the industrial segment.

Phosphate prices, you talked about they starting to come down in the fourth quarter managed to come down further as we talked in the first quarter, as the fertilizer demand collapsed. You're going to start the year off slow and obviously still have a high year-over-year pricing in phosphate rock. Do you anticipate at any point in 2009 where your raw material for Foret, for phosphate business is going to actually become a contributor to earnings rather than contractor?

William Walter

Yes, Dmitry. I think that crossover point is going to happen sometime in the third quarter.

Dmitry Silversteyn - Longbow Research

Okay. And then the second question I had on the price realization in soda ash you talked about basically getting which we thought you were going to get the master clean (ph) getting significantly more enhanced but not it was only, I say only tongue and cheek, but it was only mid-teens dollars per ton.

I'm just trying to understand your ANSAC business is, is that for the Asian plant so, and then my understanding is that there was a significant decline in freight rates. So, does that $15 which maybe something, and I'm using 15 as just a mid-point of our mid-teens, whatever $15, $16.

Does that include or is that net of the give back you had to do on the freight and how does that work out or is that really apples-to-apples comparison or has there been some rolling of transportation surcharges or energy surcharges that are now part of the contract in this $15 above that?

D. Michael Wilson

Dmitry, this is Michael. Let me just backup and give you a little bit more color. I said that for domestic prices they were generally inline with our expectations. I would say we were little bit surprised that the level of competitive caps that were out there when we actually settled contracts domestically. But it was pretty close to the number.

With respect to ANSAC pricing, particularly in Asia, our expectations did change from where they were, say, September timeframe to where we ended up at the end of the year. Because of what happened to demand in China and with prices in China and export prices out of China. So from that standpoint there was some disappoint as we progressed through the contracts season.

Specifically, with respect to your comment on freight rates, spot freight rates did come down from their peak. They're actually now bouncing back up a little bit. But from an ANSAC standpoint, they really have a portfolio of layered contracts on freight.

So you can't really follow ANSAC's freight cost by looking at the spot market and I think for 2009 you really aren't going to see much benefit of that. Probably we'll begin to benefit if freight rates stay low in 2010.

Dmitry Silversteyn - Longbow Research

Okay, okay.

William Walter

Dmitry, let me add to that the $15, the mid-teens number that Michael quoted, is a net, net, net back to the producers and so it is comparable year-over-year and incorporates and reflects any increases or decreases in freight charges, fuel surcharges or anything else.

Dmitry Silversteyn - Longbow Research

Okay, okay. Second question, again on the profitability of the soda ash business, with the price increases you've gotten, there some volume weakness I'm assuming that operating at a 100% utilization rates they were some manufacturing inefficiencies that you're probably glad to get rid off with slightly softer volume.

Is the volume decline that you're expecting in that business, a big contributor to your cautious profitability guidance or do you expect that the soda ash business to actually still be profitable on a year-over-year basis even with lower volumes and higher input cost?

D. Michael Wilson

Now Dmitry as I said, soda ash will be a significant contributor to earnings -- I mean increase in earnings, in 2009, and from the volume perspective, we really don't see a big change in volume in that business year-over-year.

Dmitry Silversteyn - Longbow Research

Okay. So you're going to stay at fairly for utilization rates here?

D. Michael Wilson

Yes, that's our expectation.

Dmitry Silversteyn - Longbow Research

Okay. And so in your prepared remarks, then in your press release when you talked about volume challenges in business that mainly had to do with Foret?

D. Michael Wilson

Peroxide, hydrogen peroxide and in particular pulp and paper and also in Foret.

Dmitry Silversteyn - Longbow Research

Okay. All right, great. And then the final question on the lithium business, you talked about fairly stable demand in biopolymers and then some pressure on profits from the seaweed and wood pulp pricing. Have you started to see declines in the pace of growth of the lithium business because of the recession and the lower electronic spending in rechargeable batteries spending therefore?

William Walter

Clearly, Dmitry, we've seen it in two areas; one is in the batteries, rechargeable batteries demand growth there is going from 15%, 20% a year to flat and in fact in December certain and markets is actually went negative but we think that's entirely inventory destocking.

The other place we have seen that is in the industrial oriented end used markets for lithium, air-conditioning, polymers there we've actually have seen year-over-year declines in volume.

D. Michael Wilson

Okay. So your lithium expectations for next year or for the current year 2009 are significantly more subdue then the performance that you saw with last couple of years just in terms of volumes, I'm not talking about pricing?

Dmitry Silversteyn - Longbow Research

Correct. And what is the pricing expectations you talk about primarily lithium market being somewhat soft and pricing there being soft, how is your Specialty business doing? Are you getting any pressures from customers to start dropping prices with this decline in demand?

D. Michael Wilson

You're seeing it the primary compounds in lithium but to date the industry at least is been able to successfully resist those pressures. I mean when we talk about declining or softening demand. Its also its really relatively to the high levels of growth that we have seen so and than second SQM is a producer with all the spare capacity unused capacity and they continue to be very, very disciplined in bringing that capacity to market, as such that at least to date we have seen no erosion in primarily pricing and don't expect to see and as we go through 2009.

Dmitry Silversteyn - Longbow Research

Okay, Okay. That's helpful thank you.

Operator

Your next question comes from Ethan Steinberg from Freeze Associates (ph).

Unidentified Analyst

Hi, guys I might have missed it sorry but I just want to get a sense what it because it looked that you liked in prices at a good level for soda ash or ANSAC. What is the what is this spot market today, for domestic international relative to contract pricing?

D. Michael Wilson

Its not something that I guess we really disclosed in terms of John, for all practical purposes there is spot market domestically as you recall that we sell 90% plus of our soda ash North America under our annual contracts the remaining 10% goes to distribution, distribution continues to pay prices for soda ash.

And similarly in the export market (ph) contracts for quarterly semi-annual and annual and multi on a multi year basis, and with as a result very little spot pricing. Cutting through all of that, typically says that the spot pricing today where there is any, is a contract pricing or at list price.

Unidentified Analyst

Okay. Thanks and the other questions got answered appreciated.

Operator

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

Kevin McCarthy - Banc of America Securities

Yes, thank you. In the agricultural segment you mentioned that you had $4 million of cost escalation related to sourcing. When would you expect that, that cost inflation to rebate (ph)

D. Michael Wilson

It has already Kevin we had a supplier that had of major upset in a facility and it was down last four month of '08 but is now back on line.

Kevin McCarthy - Banc of America Securities

Okay so that helps sequentially 1Q versus 4Q than its sounds like?

D. Michael Wilson

Correct.

Kevin McCarthy - Banc of America Securities

Okay and then a broader question bill just wondering if you would comment on your appetite for both on acquisition in this environment?

William Walter

We continue to be interested and look at several different properties I would have to say for same time Kevin would probably a little more cautious little more conservative and our and how we would the value them

But we're still. We're still interested and continue to look both in the Specialty Chemicals group as well as in Ag. If you ask me are you going to do anything in 09 that's tough question to answer. Let me just say I would like to.

Kevin McCarthy - Banc of America Securities

Fair enough. And in specialties you issued a press release early recently outlining some plans to combine operations In Norway in the United Kingdom following ISP alginates steel, what are the expected savings from doing that ?

William Walter

Yeah, I am not sure we disclosed that. I am looking around the table for somebody to say yes or no and if we haven't there is a good reason why we haven't and therefore and I am going to right now. My expectation is that whatever savings accrued from that consolidation realignment will not P&L till 2010.

Kevin McCarthy - Banc of America Securities

Okay, that's helpful. And then last one for Kim if I may I heard the pension cash injection number, did you also mention an expense number of 09 versus 08 related to pension?

{C: W. Kim Foster:} Kevin this is Kim. No, I didn't, but there was a question earlier about one of the line items in our P&L other income deductions up slightly and one of the contributing factors was the pension expense and that will be up slightly.

Kevin McCarthy - Banc of America Securities

Okay. So for 09 versus 08 a small increase there?

{C: W. Kim Foster:} That's correct.

Kevin McCarthy - Banc of America Securities

That correct, okay. Thank you very much.

Operator

And next question comes from the line of Bob Gilbert from (ph) Asset Management.

Unidentified Analyst

Okay we just made a passed noon so obviously good afternoon. Just want one follow up on the raw material energy situation; you're still sounds like higher Your still paying sounds like higher prices across the company for raw materials and for energy despite the fact that obviously we all see oil down to $40 and natural gas, down to about 440,

Am I correct in assuming that this is just an opportunity that is ahead of you, that it's going to take some time for the benefit of lower oil and natural gas prices to flow through your income statement and perhaps 2010, where you start to see that and I know you mentioned phosphate rock will start, start to see some benefit from lower prices there in the second half.

But aside from that is there (ph) opportunity as we look out to next year and I got to know the Crystal balls little bit sludgy right now in early 09, but just any thought as we look to in the future as to the opportunities to benefit from lower in footprint energy costs?

William Walter

Yeah Rob given the direction and trajectory of that we across most of our purchases I would expect that we are going see some benefit certainly in 2010 and potentially late in 2009 as we as the existing contracts and insisting hedging policies that we follow roll off.

Unidentified Analyst

And specifically on natural gas, are you paying higher prices in 09 versus 08 because of the hedging policy?

William Walter

Natural gas costs are to be essentially flat year-to-year.

Unidentified Analyst

Okay although obviously the spot price is much lower so didn't that would I imagine your locking that in now and will be locking in price for the 2010 year as we go through 09. So you start to see some incremental benefit there?

William Walter

Correct.

Unidentified Analyst

Okay. Great that's all I needed thanks.

Operator

Next question comes from the line of Mike Judd from Greenwich Consultant.

Mike Judd - Greenwich Consultants

Yeah just going to beep this share buyback question out here (ph) if you don't mind but I am just noticing that in your corporate and other financial item in terms of poor cash your shares outstanding approximately $78 million and that's pretty much where we ended the year, but I would assume that estimate should actually be a lower number if you are in fact going to be in the market purchasing shares, that's a reasonable assumption right?

{C: W. Kim Foster:} Mike this is Kim, the guidance we provided for 09 is $74 million shares outstanding for diluted share calculation and off course it has come down during 08 the shares that are actually reported in a denominator the earnings per share calculation are an average so as you buy it back you do average down.

Mike Judd - Greenwich Consultants

Okay I see what you are saying but ...will you acknowledge for ending the year the December quarter 78 sorry at 74 so and ...where to basically come up with down earnings in industrial you essentially had almost up kind of a lower...share count in order to assume that as far you know?

William Walter

Mike this Bill, I am not sure I followed all of that. Let me restate what I think Kim has said. Whenever we give guidance we assume no further share repurchases.

Mike Judd - Greenwich Consultants

Okay that's fair enough thanks a lot.

Operator

The next question comes from Paul Christopherson from Gilford Securities.

Paul Christopherson - Gilford Securities

Thank you, (ph) on the past you have ventured expectations of the market for lithium in automobile batteries will take several years to develop, do you have an update on that based on either the passage of time or the stimulus barrel (ph) or price of oil or the auto car company's situation, could you update us on when that market you see developing now?

William Walter

Yeah, Paul, I really don't have an update on my view and anybody who claims that they are know how rapidly lithium batteries are going to find their way in automobiles worldwide, they're probably exaggerating their own knowledge.

So, no, I don't have an update on it, Paul, I think the fundamental issue and I've said this is all along is going to be consumer acceptance. There are two issues with automobiles with lithium battery and one is cost and it is going to be significantly more expensive at least initially than internal combustion engines. And second is the issue of safety. Lithium, you should know, can be energetic (ph) in certain circumstance.

And while both the battery and automobile industries have made great progress in reducing that risk, there is still a risk there.

Paul Christopherson - Gilford Securities

Thank you, Bill.

Operator

Your last question comes from the line of Eugene (ph) Fox from Cardinal Capital Management.

Unidentified Analyst

Just a couple of housekeeping questions, Kim. Tax rate you have assumed for 2009?

W. Kim Foster

32%.

Unidentified Analyst

Okay. Cash flow that you are assuming from discontinued operation or use?

W. Kim Foster

Approximately 40 million.

Unidentified Analyst

And CapEx beyond 2009, do you expected it to come down?

W. Kim Foster

Yes.

Unidentified Analyst

If you could give some additional colors to sort of what -- might be?

W. Kim Foster

I was just trying to be precise, but I mentioned in my prepared remarks also that, I mean I said in earlier that there were two items in 2009 that won't repeat themselves and going forward one was the Preston Land of relocation and the other one was the restructuring associated with the housing the acquisition we didn't about following that business.

Unidentified Analyst

Any idea ballpark, Kim, dollars for those?

W. Kim Foster

Yes. You change the sum of those to or probably in the order of 40 to $50 million in '08 or in '09.

Unidentified Analyst

Great. Thank you, gentlemen, excellent quarter.

Operator

Mr. Walter, I'll turn the call back over to you for any closing remarks.

William Walter

Thank you, operator. At this point what more can I say, to characterize the global economic situations challenging in the near-term outlook as uncertain is certainly in understatement.

I think we are entering into a new territory here. And despite what I just said a I remain confident about the future of the company not just longer term on this current crisis past but in 2009 as well.

I think our global footprint, the end market diversity, our end market diversity with ... it's a tended low correlation to GDP cycles, the product alignment we have with several sector growth transit going on globally, a solid balance sheet, a conservative liquidity profile, strong cash flow all combined make me feel pretty confident and comfortable regarding our outlook for 2009.

With that, let me thank all of you for joining us today and thank you for your continued interest in FMC.

Operator

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

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