Fmc Corporation Q3 2009 Earnings Call Transcript

Oct.29.09 | About: FMC Corporation (FMC)

Fmc Corp. (NYSE:FMC)

Q3 2009 Earnings Call

October 29, 2009 11:00 AM ET

Executives

Brennen Arndt - Investor Relations

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

William Kim Foster - Senior Vice President and Chief Financial Officer

Analysts

Frank Mitsch - BB&T Capital Markets

Kevin Mccarthy - Banc of America/Merrill Lynch

Dmitry Silversteyn - Longbow Research

Douglas Chudy - Keybanc Capital Markets

Arun Viswanathan - UBS

Operator

Good morning. And welcome to Third Quarter 2009 Earnings Release Conference Call for FMC Corporation. The phone lines have been placed on a listen-only mode throughout the conference. After the speaker's presentation, there will be a question and answer session period. (Operator Instructions). Thank you. I will now turn the call over to Mr. Brennen Arndt. Arndt, you may begin your conference sir.

Brennen Arndt

Thank you. And welcome everyone to FMCs Third Quarter 2009 Conference Call and Webcast. I want to apologize for the delay in beginning the call. We're about 10 minutes behind. For that again, I apologize. Will Walter, our Chairman, President and Chief Executive Officer will begin the call with the review of our third quarter performance. Will then turn the call over to Kim Foster, Senior Vice President and Chief Financial Officer for in-depth review of the performance and prospects for our global agriculture product segment as melting steel is overseas today as well as a report on our company's financial position.

Will then provide our outlook for the balance 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 2008 Form 10-K and our most recent Form10-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, we will refer to certain non-GAAP financial terms.

On the FMC website available at fmc.com, you will find definition of these terms under the heading and title grocery of financial terms. We have also provided our 2009 outlook statement and the reconsolidation to GAAP of the non-GAAP figures that we will use today.

Its now pleasure to turn the call over to go Will Walter.

William G. Walter

Thanks Brennen and good morning everyone. As you saw in our earnings press release, our third quarter results were consistent with our expectations. We realize strong performance in our business the sure end markets less sensitive to the broader economy. Particularly, agricultural products and BioPolymer.

And our business is serving end markets more sensitive to the economy. Though volumes were lower than a year ago, demand each improvement sequential basis relative to second quarter with further improvement expected in the fourth. Summarizing, our third quarter results, sales of $713.3 million were 13% lower than last year's third quarter. Earnings before restructuring in other income and charges of $0.89 per diluted share were 21% lower than the year ago quarter.

In end products, sales of $268 million increased 2% or segment earnings of 59.2 million increased 34% versus the year ago quarter as a result of improved market conditions in Brazil and lower raw material costs.

In Specialty chemicals, sales of a $182 million were down 3% or earnings of $40.9 million increased 14% versus the year ago quarter as strong commercial performance in BioPolymer was partially offset by lower lithium volumes. Industrials chemicals sales of $254 million declined 29% and earnings of $20.7 million were 69% lower than the year ago quarter as a result of lower volume across the segment and reduced phosphate selling prices.

On a GAAP basis, we reported net income of $28 million or $0.38 per diluted share. GAAP earnings in the current quarter included net charge of $37.3 million after-tax or $0.51 per diluted share versus a net charge of $5.6 million after-tax or $0.08 per diluted share in the prior year quarter.

A significant portion of the current quarter charge reflects the resolution of our regulatory matter in our Industrial Chemical segment. With that reconciliation, our non-GAAP earnings were $0.89 per diluted share in the current quarter, a 21% decrease versus the $1.13 per diluted share in the third quarter of 2008.

Let me take a more detailed look at the performance of each of our operating segments in the quarter. First in specialty chemicals, revenues of a $192 million were 3% lower than the prior year quarter. Strong commercial performance and the benefit of acquisitions and BioPolymer were more than offset by lower lithium volumes.

Segment earnings of $40.9 million however increased 14% versus the prior year as revenue gains and BioPolymer were only partially offset by lower lithium volumes. In our lithium business, while volumes and revenues were lower than the prior year quarter due to reduced demand across number of end markets, they did improve sequentially over the second quarter of this year.

Lithium earnings were lower than a year ago due to the revenue decline, partially offset by the favorable outcome of the tax dispute in Argentina. In BioPolymer, third quarter revenues increased as result of strong commercial performance in food ingredients and pharmaceutical markets. And to a lesser extent, the inclusion of the ISP acquisition which closed in the third quarter of 2008.

Partially offsetting revenue gains was on favorable currency translation and our decision earlier this year to selectively drop lower margin volumes in both food ingredients and pharmaceutical recipients to support our pricing initiatives and optimize our production capacity. BioPolymer earnings improved significantly over the prior year driven by the revenue gains, improved mix and benefit of last year acquisitions.

Moving onto Industrial Chemicals, sales of $254 million declined 29% from a year ago quarter, reflecting lower volumes across the segment and reduced phosphate selling prices. Majority of the year-over-year sales decline was attributable to Foret which delivered exceptionally strong performance in the third quarter of 2008.

Segment earnings of $20.7million was 69% lower as reduced volumes and lower phosphate prices, more than offset selling price improvements in other product lines and lower energy and raw material costs. Versus our prior outlook, earnings were impacted by an unplanned operational outage at our Green River soda ash facility. The effects of the outage fortunately were confined to the third quarter.

In soda ash, higher domestic selling prices continue to benefit earnings in the quarter while export prices declined sequentially as ANSAC successfully regained market share.

Year-to-date, we've realized an overall soda ash price level that is approximately $10 per ton higher in the comparable in 2008. During the quarter, Chinese exporters continue to sell at or below their delivered costs. However, Chinese prices appear to have now stabilized as our cash cost hit bottom. In fact, market prices for some of the Chinese key inputs have begun the move upward and most notably, coke.

Soda ash volumes well below the year ago level were also up sequentially in the third quarter driven by higher export sales. ANSAC has now successfully implemented their shape share gain strategy and we expect their fourth quarter 2009 sales to approach the 2008 four year run rate. As a result, we continue to believe that U.S. Soda ash industry will enter 2010 with assets running at or very near full utilization.

Moving to North American peroxygens, industries trends experienced in the first half continued into the third quarter. As price increases have held and volumes continued to improve sequentially quarter-to-quarter.

Nevertheless versus the prior year quarter, higher selling price benefits were more than offset by volume decline impacts, particularly in the pulp and paper market. We continue to make good progress during the quarter in expanding especially peroxygens business. We again saw market to volume improvement in specialty applications serving solar and water treatment, through ball side and a septic packaging markets.

Moving on to Foret, our wholly owned European subsidiary, revenue declined significantly as a result of lower volumes, reduced phosphate selling prices and unfavorable currency translation.

Foret results were sequentially higher but significantly lower than the prior year quarter, due to the revenue decline which was unfortunately only partially offset by lower energy and raw material cost particularly phosphate rock.

Our lithium peroxide volumes in Foret in the quarter remained below the prior year level but improved sequentially relative to second quarter. Pricing margins did improve. In phosphates, prices and volumes across the product line were lower than the peak in the third quarter of 2008 as a result of lower demand, product reformulation and product substitution, both prices and volumes for phosphate appear now to be half or very near bottom. Meanwhile, Foret's margin and comparative positions in phosphates are improving as phosphate, rock and other input prices have declined to a level below those a year ago.

Moving onto corporate items; corporate expenses was $10.3 million down from 12.5 million a year ago. Interest expense net was 6.2 million as compared to $7.5 million in the prior year quarter. On September 30, gross consolidated debt was $613.6 million and our debt net of cash was $553.7 million.

For the quarter, depreciation and amortization was 32.3 million and our CapEx was $35 million. With the discussion line products, I'll now turn the call over to Kim Foster. Kim?

William Kim Foster

Thanks Will and greetings to everyone. Today, I'll begin with the review of ag products 2009 third quarter and year-to-date financial performance. In additional share perspective on the recent trends and the crop protection market, provide an update on FMCs ag product strategy and highlight some of the opportunities we foresee taking advantage to sustain our profitable growth.

First, our third quarter financial performance. Third quarter sales of 268 million were up 2% compared with the prior year quarter. We realized sales increases in Brazil and our non-crop businesses which were partially offset by lower sales in Europe and the North America crop markets.

In Latin America which is primarily Brazil, sales increased 7% reflecting a positive start to the 2009-2010 season, an improvement in market conditions compared with the first half of 2009 and growth in planted acres for a number of our key crops.

And our non-crop business sales increased significantly reflecting the successful integration of this CB product line acquisition, made in the first quarter of this year.

In Europe, sales declined 9% due to less favorable market conditions, reflecting extremely dry conditions in most of Europe which coupled with weak price pressures. In addition, unfavorable currency impacts contributed to the lower sales in the quarter.

And our North American crop business, sales fell 15% due to week price pressures compared with the heavy FA infestations experienced last year. As expected, segment earnings in the quarter of 59 million increased 15 million or 34%, driven by improving market conditions in Brazil, lower raw cost, primarily chemical and immediate, the recovery of certain indirect taxes in Brazil and the favorable currency comparisons versus prior year quarter.

Turning to our year-to-date performance, sales declined approximately 4% to 782 million due mostly to the first half performance in Brazil. Earnings, however of 242 million improved 15%, reflecting higher selling prices in many regions, new product introduction for our innovation pipeline at significantly lower raw material costs. Given that this years industry dynamics including poor weather and past conditions in major markets, low commodity prices and a very difficult first half in Brazil, we've had a truly exceptional year-to-date performance.

Looking to the fourth quarter, we believe that fourth quarter earnings will improve approximately 35 to 40% due to continued rebound of Brazil, lower raw material cost, further manufacturing productivity improvements and the absence of one-time cost associated with the 2008 incident at a suppliers plant in West Virginia.

Based on our outlook for the fourth quarter, we look to our sixth consecutive record full year EBIT performance in 2009. Undoubtedly, 2009 has been a challenging year for the global chemical crop protection market.

It been very different from 2008 when the global market grew by approximately 20% to $40 billion. In 2009, severe competitive conditions in the global herbicide market, a depressed global economy coupled with tight credit markets, poor weather conditions in many geographies, a lack of significant disease or insect pressure in certain key markets and increased regulatory pressures all contributed to a perfect storm for our industry.

I hope you'll agree that FMC's ag products is managed to weather the storm better than most and this is certainly a function of our strategy and our focus. Now let me provide an overview of our industry and the trends that are impacting our businesses.

As Milton mentioned during last year's third quarter call, the crop protection industry will continue to benefit from favorable long-term macro trend declined which should provide opportunities for growth. The first of these positive trends facing our industry is demographics, the world's population is growing at approximately 1.7% per year while planted acreage is static or declining in many countries.

Therefore, we expect higher demand for food to be produced on a relatively fixed amount of available land. Second, there is an increase in demand for protein which is been driven by rise in global per capita income in the world's most populated regions. And third, we'll continue to see growth in bio fuels, which competes with food, fiber and feed for land and other resources.

Given the long-term outlook for energy cost, bio fuels should remain politically as well as economically attractive. As such, we expect increasing demand for bio fuels from relatively scarce agricultural resources to continue for many years to come.

As a case in point the U.S. ethanol industry appears to be quickly reviving from the challenges faced last year and we expect Brazil ethanol market which if produced from sugarcane to be buoyant as we head into 2010. Record sugar prices should further support sugarcane growth in Brazil.

Together, these three trends are likely to drive strong ag commodity prices and simultaneously, the demand for products and technologies that increased form productivity and yields.

Well, we may not reach the record commodity prices at mid-2008 June, current ad commodity prices still remained significantly above the 10 year average. Naturally, we expect the markets we serve to be cyclical but the long-term trend is clear. Strong and increasing demand by global farmers for products and technologies that enable yield increases.

Additionally, while demand is high for crop protection products, they are forces in our industry that requires us to stay agile and focused. These forces include first ongoing consolidation and vigorous competition in the ag camp industry. Second, product competition from ag Biotech. Since 1996 this technology has grown into an approximately $9 billion market.

Third, a demand in regulatory environment is increasing the cost, introduce new products and keep existing products registered. This year was no exception as we experienced regulatory challenges to maintain our corporate end registration in U.S and by centering registration in Europe. We do not foresee any material financial impact or irregulatory challenge in 2009 or 2010. However, these are highly relative examples of increasing challenges and higher cost on our regulatory front.

Fourth, last year, Melvin spoke about the significant cost increases that FMC's ag products had to offset in order to grow its 2008 EBIT. What a difference a year makes? This year, we experience the opposite effect as oil prices declined and depressed global economic conditions contributed to a deflationary environment regarding raw material cost.

In another words, there can be significant volatility to our business, therefore the availability to rapidly adapt unexpected and challenging circumstances as a key success factor in this industry. So far, FMCs ag products business is adapt to better than most in this challenging environment.

Through the first three quarter of 2009, we recovered a significant portion of last years raw material cost increases although, we did not recover, we have offset with higher selling prices which we implemented towards the end of 2008 and during the first part of this year.

In summary, a comparative challenging and dynamic industry but one which we believe has opportunities for businesses and is well suited

our strategy. Given this industry context, let me now provide an overview of our business and strategy.

We are focused comparative in the $40 billion global agricultural chemical crop protection market. Over the last 12 months, our sales totaled just over 1 billion which is approximately 53% in a insecticides, 42% herbicides and a remaining 5% predominantly fungicides. During the same period, our EBIT totaled 275 million compared with 243 million for the 12 month period ending September 30th, 2008, an increase of approximately 13%.

In 2009, we expect to achieve our six consecutive year record profits. What appears that a majority of our competitors will struggle to show modest earnings growth. It's important to note that we've we achieved this record financial results so that any major acquisitions of or without being a major player in glaiforsay (ph) or the Brazil serving fungicides markets, two of the highest growth chemical, crop protection chemical product groups over the past few years.

FMC's ag products compete globally and enjoy relatively strong niche positions in agriculture and non-agricultural markets in North and South America Europe and Asia.

Our success in growing our profits and strengthening our competitive positions is related to the number of factors which includes a virtual manufacturing operation with a variable structure of approximately 95%. We are globally cost competitive and fairly immune to large swings in volume.

Investments in internal and external innovation that result in a fairly constant, a consistent stream of new products opportunities for our business. The focus on life cycle management and accessing new products and premix partners to expand or to extend our offerings in focus markets and leveraging our strategic alliances for example our EU and Eastern European market access alliances.

Focusing on key customers, markets, crops and products. Given our relative size focus has been and remaining the key element of our strategy. And finally, developing a superb organization is empowered and structured to execute on these initiatives with agility and speed.

So where is our future growth going to come from the strategies that have helped us achieve profitable growth over the past five years will continue to drive EBIT growth. So, let me expand on these strategies and how they relate to future profit growth.

First, our global supply chain. We're now sourcing most of our products from a low cost virtual manufacturing operation. In addition, we continuously find opportunities for productivity improvements but for our own molecules and recently for our partner's products. This year for example, we achieved a very significant cost breakthrough for our partner's chemistry that we has result in a significant new profit growth opportunities for us.

Result, we've also identified approximately 20 to 40 million of additional productivity enhancing and our cost reduction opportunities that we expect to realize over the next three to five years.

Second, we redirected our R&D spending from discovering a new active ingredients to focusing on shorter term innovation opportunities. We're now focusing on developing technology platforms that will enable us to differentiate existing and specifically off pattern chemistries. We have a robust innovation pipeline with more than 100 potential technologies identified and several of these are now in a proof of concept and early development stages. We expect to apply for registration of 46 new products using these technologies within that next 12 months.

We're sure not all the technologies all the technologies identified will make it to full commercialization, over confident and inherent non-innovation efforts are commercial opportunities that has the potential to generate 100 to 250 million in new sales within the next four to five years.

Another source growth is acquisitions. Earlier this year, we're successful of making two acquisitions. One on non-crop product line and associated technologies and the other in agriculture fungicide, Benelux. We spend approximately 34 million on these two acquisitions and projected they together generate approximately 12 million of EBITDA by 2012.

We'll continue to look for similar bolt on acquisitions that are consistent with our focus and our strategy. In fact, given our expectation of further consolidation within the industry, we expect that there will be several of these types of acquisitions in the years to come.

The third element of growth lies in expanding our existing product lines to offer full solutions in our focus markets including launching of core formulations and three mixes. None of these combinations are complementary to biotech crops. As we continue to develop these skills, we expect the potential growth opportunities will expand for us. But currently, we have more than 100 new product combinations in development across our global organization and have the potential to generate up to another 300 million in new sales within the next five years.

As testimony to our success and innovation, approximately 20% of 2009's gross profit will be on earned on products that were introduced in the past three years. The fourth key element our future growth is alliances. This entails finding and realizing a number of strategic opportunities and that increasing ad products long-term profitability and strengthening our strategic positions in key market.

We're currently pursuing a number of alliances, all of were trained at aggressively growing our share and our target markets. Additionally, based on a projected industry dynamics I described earlier, we believe that there should be a number of acquisition and our alliance opportunities over the foreseeable future.

And finally, the fifth element of our growth revolves around our organization. It's vital that we continue to invest people development and that we maintain and even enhance the speed with which we realize new growth opportunities.

Accordingly, we have and we'll continue to devote significant resources to insuring organizational effectiveness and competitiveness. This year was no exception despite adverse economic and market conditions, we implemented a wide variety of people and organizational development programs and in several instances, we restructured to enhance our customer intimacy in key markets.

In summary, we have an aggressive growth strategy for FMC's ag products business. We recognized that not only opportunities we pursue were materialize and undoubtedly, there will be bumps and detours along the way.

However, when we consider all the upsides versus the downsides, we're confident that FMC's ag products have many years of profitable growth in front of it. Now, let me move from ag to discussing FMC's overall financial position. I'll review our balance sheet, liquidity profile and cash flow forecast, update you on our share repurchase program and provide more detail on some of the non-operating items on our income statement that will include each quarter and our outlook statement.

As Bill said, our net debt at the end of September was 554 million in the middle of our target for net debt of between 500 and 600 million. Our liquidity profile remains strong. As of September 30th, 2009 we had available funds under committee credit agreements of 481 million in cash on hand of 60 million. In addition, we've no significant maturities until late 2010.

We're currently finalizing plans to address upcoming maturities including our 220 million euro facility which comes during December, 2010. As a part of this efforts, we recently completed a review of Standards and Poors. It was satisfying to see the confidence in our company expressed by SMP and an announcement on October 22, raisings FMC's is corporate credit leading to BBB plus, from BBB flat.

We believe that our credit rating and the strength of the capital markets will make an FMC's bond issue particularly well received. Although, this will have a minimum impact on in the fourth quarter, turning out our maturities with increased 2010 interest expense.

We expect free cash flow this year to be approximately 60 million, down 5 million from last quarter's guidance.

Regarding our share repurchase program, in the third quarter, we repurchased approximately 387,000 shares and across the 20 million. As we begin the fourth quarter, we had a 190 million remaining under our existing share repurchased authorization. As I do each quarter, I'll remind you that our repurchase program does not included specific timetable or a price target and they be suspended at any time. And our 2009 guidance, it seems as we do not repurchase any additional shares.

Each quarter prior in a conference call, we post the FMC outlook statement on our website. The bottom portions of the statement addresses corporate and another financial item. Let me make a few explanatory comments to address the few of these closures.

2009 capital spending is projected to be a $150 million which is above our projected depreciation and amortization of a 125 million. In 2010, we expect that capital spending will drop closer to our D&A expense.

Other income and expenses projected to be an expense of $30 million for 2009. There were two components of this charge LIFO and pension expense that are likely to be very different in 2010 versus 2009. First as I mentioned, during last quarter's conference call LIFO expenses up significantly in 2009, reflecting the increase in manufacturing cost that we experienced in late 2008 and earlier this year. As manufacturing input cost have been falling this year, we expect to see much of this expense reversed in 2010. LIFO was a non-cash charge other than it's effect it has on our taxes.

Second, our pension expense could increase significant in 2010 versus 2009. The amortization of the 2008 asset losses will increase in 2010. And pension expense next year could also increase from a potential reduction in interest rate

For year end in 2009 compared the year in 2008. Average diluted shares outstanding for 2009 should be 73 million down from an average of 76 million in 2008 due to share repurchase program.

To summarize our view, we remain in a strong financial position with full flexibility to execute our strategies. We will continue to look for opportunities to go to companies to a the combination of internal and external investments. However, we will preserve our strong balance sheet and maintain our solid liquidity profile.

With that, I will now turn back to you Bill.

William G. Walter

Thanks Kim. Regarding our outlook for the full year 2009, we have nailed our expectations for earnings before restructuring in other income in charge for $4.05 to $4.50 per diluted share. The mid point is range is unchanged from that given at our last conference call, but the fourth quarter restructuring and other incoming charges of $0.85 to $0.95 per diluted share. As compared to last years fourth quarter, as Kim mentioned ag products, we look for our fourth quarter earnings to be up 35 to 40%, driven by improved market conditions in Brazil, lower raw material costs and further manufacturing productivity improvements. In Specialty Chemicals, we expect earnings to be up approximately 20% driven by continued strong performance by power.

And in Industrial Chemicals, we expect earnings to decline 30 to 40% as reduced selling prices in phosphates and modestly lower volumes across the segment, more than offset favorable raw material cost.

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

Frank Mitsch - BB&T Capital Markets

Good morning gentlemen. Bill your guidance for Industrial Chemicals are down 30, 40% for fourth quarter implies a nice increase from third quarter results. How would you apportion the increase looking at the three major areas of the industrial chemical ash, Foret and peroxygens?

William Walter

Good morning Frank. Clearly, the soda ash business is going to be stronger sequentially. ANSAC has success we regained the market shares that they lost. Will operate in the fourth quarter completely sold out. Domestic pricing continues to remain firm.

So, again, Alkali, Soda ash sequentially will be stronger. And probably will represent a majority but not all of the sequential improvement. Expectation is that hydrogen peroxide is going to be essentially flat or which then leaves for Foret and we should see improved performance in that business as volumes continually improve, the pricing seems to be at least stabilized and raw material input cost continue to improve.

Frank Mitsch - BB&T Capital Markets

So, it sounds like as you enter into the negotiation period for 2010 Soda ash pricing, do you think you're going to be entering into this stomach position of strength?

William Foster

Well, clearly, we are sold out. The industry we expect to operate in Q4, somewhere between 97 and 103% of affected capacity. And as you know Frank, is determined by the balance of the supply demand equation. And as we entered 2010 and as we are currently in contract negotiations, that equations is fully balanced if not tipped in favor of the producers.

And let me on the go on, somebody will ask a question where are we in the contract negotiations for 2010? And it's too early to tell. It's going to be a late fourth quarter, very early first quarter next year before we finalize everything. But I can say that those contracts we have settled today, all prices domestically are up.

Frank Mitsch - BB&T Capital Markets

Terrific. Thank you.

Operator

Your next question comes from the line of Kevin Mccarthy from Banc of America/Merrill Lynch.

Kevin Mccarthy - Banc of America/Merrill Lynch

Hi everyone. This is Alex here for Kevin. I was wondering if you could comment on pricing environment in a corporate action. Has there been any change since the second quarter?

William Walter

Alex, there hasn't. The industry and FMC I think you should know were successful in putting through price increases in late 2008-2009. And those prices at least for us had sustained themselves through the third quarter and I would expect the fourth quarter and into 2010.

Kevin Mccarthy - Banc of America/Merrill Lynch

Great. And the follow up on a Green River outage. Could you quantify the impact?

William Walter

Alex, we have not -- it's in the order of 3, 4, $5 million impact in the quarter.

Kevin Mccarthy - Banc of America/Merrill Lynch

Is it cost or loss sale? Did you loose any sales because of it or are you had enough inventory?

William Walter

We did not loose any sales, we did lose production. And then, there was in addition of the loss production that overhead options in the loss production. They we're some not in significant at a pocket cost of to remediate the issue that we have.

Kevin Mccarthy - Banc of America/Merrill Lynch

Okay, great. And then, quick on a LIFO expense. I assume higher other expense in third quarter. Also, LIFO similar to 2Q. What is the magnitude of LIFO that's spend reversal in 2010? Is it similar to 2Q, 3Q?

William Foster

This is Kim. I want to make sure you understood, you made a couple of comments. Is your question on what's going to happen to LIFO in 2010 versus 2009?

Kevin Mccarthy - Banc of America/Merrill Lynch

Right.

William Foster

They significantly reverse itself.

Kevin Mccarthy - Banc of America/Merrill Lynch

So, the amount would be in the 67 million per quarter range?

William Foster

No. That's what I was afraid you were getting off track. On a full year basis, the LIFO expense will reverse itself. We estimate what that LIFO expense is going to be and we booked a prorated portion of it each quarter.

Kevin Mccarthy - Banc of America/Merrill Lynch

Okay thank you,

William Walter

Yeah. Certainly provide a little more clarity of the guided $30 million of other expense for the full year are slightly more than half of that is LIFO. The balance is a whole bunch of other things largely mark-to-market on our shadow thrift plan. So if you think notionally of something in order of $15 million, $15 million plus charge in 2009, I think Kevin just said a significant portion at should reverse itself in 2010.

Kevin Mccarthy - Banc of America/Merrill Lynch

Got it. Thank you.

Operator

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

Dmitry Silversteyn - Longbow Research

Good morning gentleman. Just wanted to follow up on a couple of things that you've said in your prepared remarks. Number one, when you talked about settling the regulatory matter in Industrial Chemicals, can you talk a little bit more about that what is involved with that? Has that to do with Foret or other businesses? Hello?

William Walter

Hey, Bill. Yes, it was in Foret specifically. It was in our animal feed phosphates business 2009. The European Commission had initiated proceedings against FMC in that business based upon the assertions of the couple of other producers. We're cooperating with the commission and investigation. And in the quarter, we recorded a $21 million charge reflecting our best estimate of the expenses likely to be incurred in resolution of this matter.

Dmitry Silversteyn - Longbow Research

Okay. Very good. Secondly, you talked about walking away from some of the lower margin business in the BioPolymers in both food ingredients and pharma, can you give us an idea what the magnitude of that volume impact was? And whether or not, we're done with those or you're still going through the weeding out process?

William Walter

Let me answer the second half of the question first. Yeah, I think we are done with the weeding out process. The effect in the quarter was in the order of magnitude of 4 to 5% volume decline.

Dmitry Silversteyn - Longbow Research

Okay. So 4 to 5% of the volume decline was attributed to this voluntary give up?

William Walter

No. Volume decline 4 to 5% in BioPolymer, in the quarter as a result of our actions to shed low margin business.

Dmitry Silversteyn - Longbow Research

Okay, all right. And you're done with it, great. And then secondly or lastly I should say, the Soda ash outage that you experienced, was that just a kind of a maintenance shut down that didn't come up, come to back up as scheduled or what was involved? And then, to follow up on that, can you update us on your plans for Granger?

William Walter

Yes. Dmitry, it was not a planed outage. It was a catastrophic failure of one of our mine in place, in aerial hoist, not a man hoist. So nobody was hurt in the incidence. There was a catastrophic failure, we were basically limited on our hoisting capacity for almost a month.

We now have that fixed back and in operation. And so, the affect of it will be limited to the third quarter of 2009. With respect to Granger, Granger remains down as we speak. It will continue to remain down in order to improve the environment for the price increases. And we will be brought back online when we and our judgment believe that demand wants it and pricing is not at risk.

Dmitry Silversteyn - Longbow Research

Okay. That sounds good. And then, one final question. Can you remind us when the Argentine export tax anniversary as far as the impact could have on the profitability in lithium business?

William Walter

It already has. I can't remember Dmitry exactly. But yeah, fourth quarter of '08, it anniversary itself.

Dmitry Silversteyn - Longbow Research

Okay. So this whole year was counting against apples-to-apples?

William Walter

Correct.

Dmitry Silversteyn - Longbow Research

Okay. 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 question, do you feel the ag business now reached a new plateau in terms of operating margin potential here in 2009?

William Foster

I think so Doug. The business in 2008 was impacted by a significant and sudden run up in raw material costs largely, reflecting the price of oil. That has, that one up is largely received at this point. Second, as a result of that run up in cost last year, we've put through a number of price increases which I commented early have sustain themselves. So, yeah. Long wanted to answer to your question. Yeah, given potential changes in mix as we go forward product and geographic mix, I think it is at a new plateau.

Douglas Chudy - Keybanc Capital Markets

Okay. Thanks. And switching gears at the hearing, you taken, you've undertaken number of additional restructure actions this year. Can you comment on what you see is the potential costs savings, costs savings benefit coming from these actions.

William Walter

Doug, I wish I could. I don't have that in my memory bank. And I'm looking around the table. What I see dozen people looking at their shoe laces. So, I'm not getting much help from them either. Suffice it to say that each of those restructuring decisions has a very positive economic return to it with a payouts or paybacks in a couple of years. But I can't answer your question directly.

Douglas Chudy - Keybanc Capital Markets

Okay. Is it any fair to say that you should see from benefit beginning in 2010? In terms of your cost structure from actions that you've already undertaken?

William Walter

Certainly.

Douglas Chudy - Keybanc Capital Markets

Okay. And then, just finally quickly on lithium. Any sign or concerns that lithium pricing pressure could flow through your downstream products following? The price production by a customer, by a competitor in the carbon Uthiumhydroxide?

William Walter

Doug, very unlikely. The announcement that SQM affected looking lithium carbonate, lithium hydroxide, only the first two molecules in the value chain and those products, Sulfur, $5 a kilo.

As you move down the value chain, first of all, the call for concentration of carbonate in those downstream products is significantly less. And those downstream products was sold for $50 to $500 to $5000 a kilo. And so any movement on the initial molecule should not, and at least historically has not followed its way through the value chain.

Douglas Chudy - Keybanc Capital Markets

Thanks for taking my questions.

Operator

Your next question is from Arun Viswanathan from UBS.

Arun Viswanathan - UBS

Hi you guys, thanks for taking my question. Got a question on the soda ash business. How much lower or how much higher difference does you kind of estimate the Chinese cash cost production are at this point?

William Walter

How much lower than in your..

Arun Viswanathan - UBS

So what's the difference sequential in cash cost production between your and them? And with what tell you what important?

William Walter

Even with the recent easening of the input costs for the Chinese have experienced, the most globally cost effective cost competitive Chinese or soda ash producer still has cash cost reduction of well more than two times that of the average U.S. producer.

Arun Viswanathan - UBS

So, when does it actually become a problem? And do you see imports potentially threatening the environment again in anytime?

William Walter

I don't see certainly in my life time and I'd offer even yours that the Chinese will ever import material into this country. I mean just you start with the fundamental costs disadvantage at freight. Everything too and they just can't compete here.

Arun Viswanathan - UBS

Right. All right. I guess you guys you are saying you are competing in other regions. Would that be a problem in the future?

William Walter

Certainly. I mean it is problem today. It was the aggressive move by the Chinese in late fourth quarter 2008, early first quarter 2009 that caused the U.S industry to loose significant volume.

Arun Viswanathan - UBS

Okay. That has been since been headed away.

William Walter

That's correct. The U.S industry has successfully regained that share of the effect here by the Chinese now is going to be on pricing. And fortunately, their input costs seem to be rising as we speak which I believe is going to put some upward pressure on both export competitiveness. And therefore some upward opportunity or some opportunity for higher export prices by U.S. producers.

Arun Viswanathan - UBS

Okay, understood. Thanks. Another question on the peroxygens business. You're talking about may be some volume pressure because of pulp and paper difficulty in doing this, give us a little bit of detail on the end markets for that business and what else?

William Walter

Hydrogen peroxide in North America and Europe is primarily used as a bleaching agent in the pulp and paper industry. Approximately 60% to 65% of the hydrogen peroxide demand in both continents is driven by pulp and paper.

Any of you followed the pulp and paper industry, you know the troubles they're having this year. Year-to-date, hydrogen peroxide demand in the pulp and paper is down 20%, 25%. Fortunately, we have seen good growth in the non pulp and paper accounts. Our view is that pulp and paper market is going to improve slightly in 2010 but is still going to remain fairly depressed levels.

Arun Viswanathan - UBS

Okay, thanks.

Operator

There are no further questions at this time. Mr. Walter, do you have any closing remarks.

William Walter

Yeah. Thank you Operator. Let me try to summarize for everybody, our third quarter results, our guidance for the fourth quarter. And give you some early and clearly, my qualitative views on 2010.

While there were few puts and takes in the third quarter, the quarter essentially turned out as we had expected with earnings at the mid point of our prior guidance, Ag was right on, specialty was slightly above and Industrial was slightly down.

Q2 is forward as pretty much a continuation of Q3 but was in encouraging sequential developments. In all growing should be up again as concept 35 to 40%. In

Specialty, earnings are expected to grow 20% year-over-year. And Industrial while still down from a year ago will be sequentially stronger than the third quarter.

As we expect continued volume growth in almost all businesses, improved margins in our European phosphate business and the absence of the Q3 operating issues that I talked about early in the soda ash business.

Interestingly as look not day earnings per share but as segment earnings, Q3 segment earnings or Q4 segment earnings are projected to be flat with a year ago. Looking ahead to next year, qualitatively, in the absence of commodity crop price collapse and returned of the tight credit conditions that the world faced in fourth quarter of last year and first quarter of this year, ag earnings should be up next year, year-over-year. can ag repeat 2009's high teens earning growth?

Probably not but I'd expect very strong performance there. In Specialty, BioPolymer will continue its earnings growth trajectory almost regardless of what happens in the overall economy. And lithium, demand is already recovering with expectations that, that recovery will continue through 2010. the outlook in Industrial while less certain is are encouraging. As I said, the soda ash industry is sold out, export prices probably bottom down in Q3 and the early 2010 domestic contracts settlements, the price is up. The peroxygens businesses will be challenged to hold earnings flat year-over-year as improving demand will still lead the in U.S. and European hydrogen peroxide industry, operating below 90% of capacity utilization.

The upside there will be in the Specialty Applications for hydrogen peroxide, strong for sulphate demand and a growing Peracetic acid business. Finally, for up phosphates. Demand is improving. Phosphate rock costs should be favorable 2010 versus 2009.

And STTP selling prices in third quarter, we think stabilized. We do have a couple of head winds next year and Kim talked about it. Our pension costs will be up year-over-year. And assuming we do a bond offering later this year, our interest expense will increase next year as well.

Overall, I feel good about the third quarter performance, our outlook for Q4 and our prospects for 2010. With that, I thank you for joining us today and your continued confidence in the company. Thank you operator.

Operator

This concludes today's conference call, you may now disconnect.

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