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Executives

Brennen Arndt – Investor Relations

Pierre Brondeau – President and Chief Executive Officer

Michael Wilson – Vice President and General Manager, Industrial Chemicals Group

Kim Foster – Senior Vice President and Chief Financial Officer

Milton Steele – Vice President and General Manager, Agricultural Products

Ted Butz – Vice President and General Manager, Specialty Chemicals Group

Analysts

Alex Uframoff – Bank of America

Frank Mitsch - BB&T Capital Markets

Peter Butler – Glen Hill

Dmitry Silversteyn - Longbow Research

Douglas Chudy - Keybanc Capital Markets

Arun Viswanathan - UBS

FMC Corporation (FMC) Q4 2009 Earnings Call February 5, 2010 11:00 AM ET

Operator

Good morning. And welcome to the fourth quarter 2009 earnings release conference call for FMC Corporation. The phone lines will be placed on a listen-only mode throughout the conference. After the speaker's presentation, there will be a question and answer period. (Operator Instructions).

I will now turn the call over to Mr. Brennen Arndt.

Brennen Arndt

Welcome everyone to FMCs fourth quarter 2009 conference call and webcast. Pierre Brrondeau, President and Chief Executive Officer, will begin the call with a review of our third quarter performance. Pierre will then turn the call over to Michael Wilson, Vice President and General Manager of our Industrial Chemicals Group for an in-depth review of the performance and prospects for our soda ash, peroxygens, for Foret businesses that comprise industrial chemicals. Following Michael, Kim Foster, Senior Vice President and Chief Financial Officer, will report on our financial position, and then Pierre will provide our outlook for 2010.

We'll complete the call by taking your questions. Joining Pierre, Kim, and Michael today for the Q&A session will be Milton Steele, Vice President and General Manager, Agricultural Products, and Ted Butz, Vice President and General Manager of our Specialty Chemicals Group.

I’ll remind you today that our discussion will include certain statements that are forward-looking and subject to various risks and uncertainties, concerning specific factors that are summarized in FMC's 2008 Form 10-K, our most recent Form10-Quarter, and other SEC filings. This information represents our best judgment based on today's information. Actual results may vary based on these risks and uncertainties.

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

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

Pierre Brondeau

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

In our businesses serving end markets more sensitive to the economies, though volumes were lower than a year ago, demand continued to improve on a sequential basis relative to the third quarter with further improvement expected in 2010. Let me first summarize our fourth quarter results.

Sales of $722 million were 2% lower than last year's fourth quarter, while earnings before restructuring and other income and charges of $0.94 per diluted share were 8% lower than the year-ago quarter. In agricultural products, sales of $269 million increased 12% and segment earnings of $46.8 million increased 39% versus the year-ago quarter, driven mainly by sales gain in Latin America.

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

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

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

Let me now take a more detailed look at the performance of each of our operating segments in the quarter. First agricultural, fourth quarter sales of $269 million increased 12% compared with the prior year quarter. In Latin America, for this business, sales increased significantly reflecting slowly improving market conditions and growth from new products. Market conditions improved compared with the first half of 2009 driven by growth in planted acres for a number of key crops and a positive start to the 2009-2010 crop season.

Crop production businesses in Asia and Europe also realized sales gain reflecting favorable currency impact and increased contribution from growth initiatives. In our North American crop business, sales were lower than a year ago as unfavorable weather conditions resulted in fewer late season treatments.

Segment earnings of $46.8 million increased 39% versus the year ago quarter as a result of the sales growth, lower manufacturing cost, the recovery of certain indirect taxes in

Brazil, and favorable currency impact.

Now moving on to specialty chemicals — revenues of $194 million were 2% higher than the prior year quarter. The results of strong commercial performance in biopolymer partially offset by lower volumes in lithium primaries.

Segment earnings of $40.1 million increased 14% versus the prior year, driven by sales gain and favorable mix in biopolymer, partially mitigated by lower lithium performance. In biopolymer, volume and selling prices increased revenues in both pharmaceutical and food ingredients market. Gains in food ingredients were especially strong, led by growth in the new beverage application and growth in emerging markets. Biopolymer earnings improved significantly over prior year driven by strong commercial performance and added by lower operating cost.

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

Moving now to corporate items — corporate expense was $12.2 million as compared to $12.3 million a year ago. Interest expense, net was $7.3 million versus $7.4 million in the prior year quarter. On December 31, 2009, gross consolidated debt was $643.9 million, and debt net of cash was $567.3 million. For the quarter, depreciation and amortization was $33.7 million, and capital expenditures were $54.4 million.

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

Michael Wilson

It’s a pleasure to be with you today to highlight our industrial chemicals segment, review our fourth quarter 2009 performance, and provide our outlook for 2010. Three businesses comprise our industrial chemicals segment—our alkali chemical division or soda ash business, North American Peroxygens which is comprised predominantly of hydrogen peroxide but also includes several specialty Peroxygens and Feret, our wholly owned Spanish subsidiary which manufactures Peroxygens and phosphates as well as lesser quantities of other inorganic ingredients for powder detergents.

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

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

Segment earnings of $32.7 million declined 39% as the result of the lower selling prices and the impact of lower volumes, partially offset by favorable raw material costs, particularly phosphate rock and energy costs. While segment earnings compared unfavorably to the year ago period, earnings improved sequentially for the second consecutive quarter, up 58% from third quarter on the strength of improving volumes and lower raw material costs.

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

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

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

As a result of the significant decline in demand in the first half of last year, utilization rates across the industries in which we participate generally reached low points during the middle of the year. Consequently, market pricing in some of our markets declined with demand, notably soda ash exports and phosphates.

To some extent, annual pricing contracts insulated us from the full impact of market price declines in 2009. Sequential demand recovery that we experienced in the second half raised utilization rates across our businesses. Though utilization rates rose, the key determinate for 2010 pricing was whether utilization rose to a sufficient level to return pricing leverage to producers by the time of annual negotiations.

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

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

Overall, we expect aggregate net price headwinds of approximately $65 million for this segment from 2010. Conversely, raw material, energy, and other input costs will be tailwinds for industrial chemicals. Feret will be the biggest beneficiary, particularly in phosphate rock as well as for caustic soda and energy. Our soda ash business will also benefit from lower energy costs. In total, across the segment, raw material, energy, and other input costs are expected to provide a tailwind of approximately $40 million in 2010.

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

For both 2009 and 2010, flat glass demand is the primary driver of the demand change due to the impacts of the recession and the forecasted recovery on automobile production, housing, and commercial construction. Recall that globally glass in all forms—flat, container, and fiber—accounts for approximately 50% of soda ash demand. Demand growth, however, is not expected to be uniform across the globe. We expect domestic demand defined as the US and Canada to grow approximately 3% in 2010 following a decline of 13% in 2009.

The recovery in domestic demand will also be driven by increased flat glass demand as US housing starts and auto sales are forecasted to rebound off of very low bases recorded in 2009. Overall, we expect flat glass demand domestically to improve by approximately 10% while year over year demand in container glass, which was less affected by the recession, was forecasted to be flat. We’re also projecting a 5% improvement in non-glass applications, chemical and detergent uses for example, which will grow with improving industrial production and detergent mix changes favoring powder respectively.

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

Chinese synthetic cost producers will face further cost challenges as global economies recover and their input cost for energy, coke, ammonia, and salt increase. They also face increasing environmental pressures, tightening lending and credit practices, and the continued reevaluation of the Yuan. We further expect rising ocean freight rates will make some export markets less accessible. As a result, we forecast Chinese exports to be flat year over year at approximately 2.3 million metric tons.

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

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

With this as a backdrop to the global environment, let me comment on pricing for 2010. In North America, soda ash price increases varied by customer, depending upon contract provisions, timing, and competitive dynamics. Overall, we realized a small net price increase. As mentioned earlier, the vast majority of our domestic business remains on an annual contract basis. Therefore, I see little risk or opportunity for pricing changes as the year progresses.

ANSAC’s contracting for 2010 has been more challenging given export pricing levels in 2009. As we reported in our third quarter call, ANSAC successfully regained market share last year, albeit at lower prices. Consequently, we’ll begin 2010 with lower export prices than in 2009. With that said, ANSAC’s 2010 contracts contain a higher proportion of quarterly price commitments relative to prior years. While not imbedded in our outlook, we believe ANSAC could achieve some price improvement as we progress throughout the year.

Nevertheless, the earnings impact of the forecasted export price decline is expected to be more than offset by higher volumes and lower raw material, energy, and other costs such that our soda ash business will once again deliver earnings growth in 2010. Let me note as I do each year that I own 87.5% of the earnings stream of our soda ash business. The balance is owned by our two Japanese partners.

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

Moving now to North American Peroxygens — The largest component of this business is hydrogen peroxide. While hydrogen peroxide is consumed in a wide variety of applications, the single largest use is as a bleaching agent for pulp and paper which accounts for about two-thirds of North Amercan demand. In 2009, hydrogen peroxide demand for pulp and paper applications fell 18% versus 2008. The demand decline was particularly acute in the first half of 2009 due to de-stocking associated with the high level of global market pulp inventories at the end of 2008. The pulp and paper segment decline drove an overall North American hydrogen peroxide demand reduction of 15%.

Peroxide demand in the pulp and paper market is expected to increase approximately 4% in 2010 driven primarily by recovery in market pulp and bleached paperboard, while non-pulp markets are expected to grow 3%. Market pulp demand improved significantly in the second half of 2009 driven by increased demand from China. Global pulp inventories are currently low, and demand is expected to benefit from a stronger economy in 2010.

North American market pulp mills are forecasted to operated\ at approximately 95% capacity utilization in 2010 with total pulp reduction approximately 10% below the 2006 to 2008 levels due to capacity closures.

Paper grade mix and brightness are forecasted to be favorable to peroxide demand in 2010. Commodity pulp market hydrogen peroxide demand will be augmented by continued growth in specialty applications. Non-pulp hydrogen peroxide markets in total are expected to gain at a 3% rate in 2010 driven by growth in environmental, electronics, and water treatment applications.

Semiconductor production in US is expected to continue the recovery started in the second half of 2009 with year to year demand up 10%. North American hydrogen peroxide industry capacity utilization, though improving, is forecasted to remain significantly underutilized at approximately 80% of name plate in 2010. As a result, average hydrogen peroxide prices are forecasted to decline modestly in 2010 from 2009 contract levels.

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

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

Our efforts to diversify our market exposure in peroxygens to lessen our dependence on commodity hydrogen peroxide remain on track. Overall, since inception of the strategy in 2007, specialties have grown to account for more than 40% of divisional revenue. Despite the progress in product line and market mix diversification, North American peroxygens earnings remain dependent for now on the performance of the commodity hydrogen peroxide segment. Division earnings will be level to slightly down in 2010 as the price declines in commodity hydrogen peroxide are offset by volume in specialty mix benefit.

Turning to our European hydrogen peroxide business, in Western Europe, hydrogen peroxide demand experienced a decline of 15% in 2009 also due to weakness in the pulp and paper segment. For 2010, we expect a similar demand pattern to emerge in Europe as in North America, but demand will be somewhat weaker due to the strength of the Euro which limits European pulp producers’ participation in the global market pulp segment.

Overall, we’re forecasting demand to be flat to down 2% versus 2009. Also similar to North America, we expect weakness in Western European hydrogen peroxide pricing given an expected 86% capacity utilization rate. Feret’s phosphorus chemicals products, its other major business, are used in a range of applications including detergent, feed, and industrial uses. Demand growth for phosphorous chemicals in these applications tends to mirror GDP.

The major product in phosphorous chemicals line is sodium tripolyphosphate or STPP, a key builder for powder detergents. Throughout most of 2009 STPP and other phosphate selling prices sell faster than raw material costs, significantly reducing phosphate’s margins.

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

In light of that detailed outlook for the businesses that comprise industrial chemicals, let me summarize our aggregate view for the segment for the year ahead. We expect full year 2010 revenue to be level to prior year as stronger volumes across the group are offset by reduced selling prices. We expect full year 2010 earnings to be up 5-15% the prior year as volume growth and favorable raw material and energy costs are partially offset by lower selling prices. For the first quarter, we expect to have earnings to be level to up 10% as higher volumes and low raw material and energy cost are partially offset by reduced selling prices.

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

Kim Foster

Let me start by saying that our earnings before restructuring and other changes in the quarter of $68.9 million or $0.94 of earnings per share included taxes at 26.6% for the quarter. Our earlier guidance for the quarter and the full year assumed a tax rate of 32%; however, our full year tax rate came in at 30.8% instead. The full catch-up adjustment was taken in the fourth quarter. This change in tax rate favorably impacted earnings per share by $0.07 in the quarter.

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

Free cash flow for 2009 was approximately $100 million. As a remainder, free cash flow is after acquisitions but before cash return to shareholders. For 2010, free cash flow is projected to be approximately $200 million. The free cash flow is higher than 2009 primarily due to higher earnings, lower capital spending, better working capital performance, and the absence of acquisition spending.

While our projections do not include funds for acquisitions, we will continue to pursue acquisition opportunities in 2010. Our current stock repurchase program has a remaining authorization of $190 million, and as I do each quarter, I’ll remind you that our repurchase program does not include a specific timetable or price target and may be suspended at any time, and our guidance for 2010 assumes that we do not repurchase any shares.

The fourth quarter brought several improvements to our capital structure and liquidity profile. After being upgraded to BBB+/Baa1 by Standard & Poor’s and Moody’s, we completed a $300 million 10-year senior notes offering and a coupon of 5.2%. We believe that our bond pricing had one of the tightest spreads of any BBB chemical issuer for any maturity during the year.

Proceeds from our offering paid down outstanding borrowings on our domestic credit facility and also the European credit facility that comes due at the end of this year. At year end, we had available funds under our committed credit facilities of $762 million, cash on hand of $77 million. Debt maturing in the next 5 years is less than $200 million.

Although we are not required to make a contribution to our US defined benefit plan during 2020, to reduce future volatility, we anticipate voluntarily contributing approximately $80 million this year which is included in our free cash flow estimate.

Each quarter prior to the conference call, we post the FMC outlook statement on our website. The bottom portion of the statement addresses corporate and other financial items. Let me make a few explanatory comments to address a few of these disclosures. Interest expense is expected to increase to $42 million due to the recently completed bond offering. Capital spending of $125 million is projected to be below depreciation and amortization of $135 million. We expect this relationship to continue for the next several years.

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

To summarize, despite the challenging market conditions we all experienced in 2009 and the uncertainties still ahead of us, we exited 2009 with a stronger balance sheet and liquidity profile than we entered the year. Consequently, we will continue to look for opportunities to grow the company through a combination of internal and external investments. However, we will retain a strong balance sheet and maintain a solid liquidity position. We will continue to error on the side of financial prudence.

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

Pierre R. Brondeau

Regarding our outlook for the year 2010, we expect earnings before restructuring and other income and charges of $4.35 to $4.75 per diluted share. The midpoint of this range implies growth of 10% above last year. For the first quarter of 2010, we expect earnings before restructuring and other income and charges of $1.20 to $1.35 per diluted share. The midpoint of this range implies growth of 5% above last year’s record quarter.

In agricultural products, we look for first quarter earnings to be up in the mid single digit driven by improved by market conditions in Brazil and the timing of shipment in Europe, partially offset by increased spending on growth initiatives. In specialty chemicals, we expect earnings to be up 5-10% driven by higher volume and improved operating efficiencies across this segment.

As Michael mentioned, in industrial chemicals earnings are expected to be level to up 10% versus a year ago quarter as higher volumes and reduced phosphate rock costs are partially offset by reduced selling prices.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Alex Uframoff – Bank of America.

Alex Uframoff – Bank of America

In the short time that you have had the opportunity to take a look at FMC’s portfolio, what areas would you like to strengthen or potentially deemphasize?

Pierre R. Brondeau

I have spent now a full month with the company, but certainly I have had the time to appreciate a very rich portfolio in terms of opportunities, and it goes without saying that from a growth standpoint, we do have a very attractive biopolymer business in food and pharmaceutical and agriculture business. Both of those activities are certainly places which will be a very high priority for growth. I must say also that our lithium business if you look in the intermediate to long term, it’s certainly a very interesting place to be. I would not talk about deemphasizing any part of the portfolio because the parts which are not today growth drivers, we do have a very strong position. For example, in soda ash and certainly with the cycle moving up in the years to come, it will be a very important business for us in terms of cash generation.

Alex Uframoff – Bank of America

On soda ash, on ANSAC contract, what portion of those contracts is quarterly now? You mentioned that it’s a high portion than previously, but maybe you can give us an idea of what kind of upside is potentially there if prices start to move up.

Dr. Pierre R. Brondeau

As Michael said we do have on the domestic pricing, those are mostly as you know annual contracts, so we do expect very little change on the pricing situation on the domestic side. It’s very different for ANSAC and export where we do have a much larger and a significant part of the contract which are on a quarterly basis, so if you look at the way we have given the guidance, it has been very hard for us to predict when the market will tighten enough to see the export pricing going up, so we have a forecast which is reasonable and not contemplating any major change, but certainly we do expect the overall pricing on export to go up in the quarters to come. The question for us is only the timing and that’s why we decided to remain conservative, but certainly quarterly contract on export are a big part, and we could see change in our numbers because of that.

Operator

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

Frank Mitsch – BB&T Capital Markets

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

Pierre R. Brondeau

If I look at the lithium business, certainly with the growth in demand for battery, it will be a business in the market which will be a growth opportunity for FMC, but if I were to compare the lithium business to some of the other businesses we have, like food and pharmaceutical or ag, I would say that if you look at the 24-month or 36-month periods, those are the businesses that have more growth opportunities than the lithium business. I think lithium is going to be a platform where we are expecting strengthening. We’re going to be looking at strengthening our capacity position there, but I would see major change in the current growth maybe in the 3- to 5-year time range.

Frank Mitsch – BB&T Capital Markets

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

Pierre R. Brondeau

Yes, there is, and we are looking into it.

Frank Mitsch – BB&T Capital Markets

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

Ted Butz

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

Frank Mitsch – BB&T Capital Markets

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

Ted Butz

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

Frank Mitsch – BB&T Capital Markets

It sounds like it’s a minority part of your lithium business?

Ted Butz

Yes.

Operator

The next question comes from the line of Peter Butler with Glen Hill.

Peter Butler – Glen Hill

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

Pierre R. Brondeau

It’s a very interesting question because I have been thinking about that since I joined FMC. If I look at Rohm and Haas 10 years ago when we started to deal with the electronic materials platform, we were looking for a growth platform or participation into market where they would be growth opportunities outside of our chain. I believe we have a different situation here at FMC, and to some extent, maybe I’m going to regret those words, but a situation which is better and easier in term of creating growth for our company. FMC has already two-thirds of its portfolio in places where you do have opportunities for customer intimacy, technology differentiation, growth opportunity, and also mergers and acquisition, so I do expect that we have here the management team able to do as good of a job as Rohm and Haas did from a growth standpoint, expect that I do believe today we will not need to go and look for another leg to our business structure. We will do that within the context of what we have with high focus on agricultural, the biopolymer business whether it’s for food or whether it’s for pharmaceutical or related the market or even lithium-related markets.

Operator

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

Dmitry Silversteyn – Longbow Research

I am not sure if I heard correctly on the hydrogen peroxide pricing. Did you say that it’s going to be slightly up in 2010 versus 2009 or slightly down?

Dr. Pierre R. Brondeau

Slightly down.

Dmitry Silversteyn – Longbow Research

If I remember how this business developed, you got some pricing at the beginning of 2009 and contracts, and you’ve given some up through the year because of the weak volumes. Have you had to give up anymore pricing or are you basically just looking at lower pricing in 2010 versus where you started out in 2009, similar to the export market and soda ash?

Pierre R. Brondeau

Yes, the latter Dmitry.

Dmitry Silversteyn – Longbow Research

So the pricing is stable right now with the utilization to 80% on year over year comps at least in the first half of the year or is that going to be lower?

Pierre R. Brondeau

That’s correct.

Dmitry Silversteyn – Longbow Research

Switching to soda ash, I understand that we finished the fourth quarter and we’re in the first quarter on pricing versus the international marketing pricing, it’s going to be down, but if I remember correctly as you got into the second quarter, ANSAC was pretty aggressive on pricing to try to get back the market share they had lost in the first quarter, so would pricing be more or less flattish by the time we get into the second quarter and we can actually look for some price increases, if nothing else changes just from the trajectory of pricing in 2009 by the second half of 2010?

Pierre R. Brondeau

Let me try to frame that. When ANSAC made some price move to regain market share and reestablish its position, we believe that a point in maybe the fourth quarter would be the bottom of the pricing, and we believe that we are today entering the first quarter for export at a price which is slightly lower than the fourth quarter of 2009, so this is a little bit different maybe from the last call we had three months. At this point, we are not expecting further deterioration. The big question for us is with all of the things which are involved in defining the pricing for exports, what will be the cost for the Chinese producers, how much product will they be pushing into the non-domestic market. We know at some point that price is going to turn around for exports. What we are not capable of saying today, and that’s why I say that our forecasting remains conservative. We’re not able to say if it will be in Q2, in Q3, or in Q4, but certainly it should be looking up from the first quarter. The question is timing.

Dmitry Silversteyn – Longbow Research

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

Michael Wilson

First of all regarding Latin America from a demand standpoint, we’re seeing demand forecasting it to grow by about 3% next year, similar to what we see in North America. Prices in Latin America are certainly comparatively stronger than they are in Asia, but again I think that we are in a stable position now as Pierre has indicated. I think across all of industrial chemicals, we really saw the bottom in terms of pricing occur sometime in the third and fourth quarter. Our pricing is now reset, in some cases annual contracts and some quarterly, but from here it’s a matter of when we start to see price improvement, and we’re optimistic we’re going to see that before the year ends.

Dmitry Silversteyn – Longbow Research

Staying with industrial chemicals on the Feret business, if I remember correctly, the first quarter or maybe even second quarter of 2009 because of the high cost inventory of phosphate rock and the dropping pricing of finished product phosphates, you had some pretty negative LIFO adjustments that I think caused the business to lose money in the first quarter. Assuming that you’re making money right now, can you give us an idea of how much of a profit swing that business can see in the first half of the year?

Pierre R. Brondeau

We are not going to be going to the details of earnings at this level. Yes, this business in 2010 will represent a part of the earnings improvement of the industrial chemical business but only a part. It’s certainly a business where we still have opportunities for further improvement.

Dmitry Silversteyn – Longbow Research

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

Michael Wilson

We still do have two cogeneration plants within Feret. We at one time had a total of four. So we’ve divested two of those; however, going forward, we’ve moved ourselves away from a market price, selling price within those cogens and we’re now on an indexed price, so I would expect the volatility to be greatly reduced going forward.

Dmitry Silversteyn – Longbow Research

You talked about the US contract pricing for soda ash being slightly up year over year. Can you bracket that a little bit more? Is it a buck, is it 10 bucks? Just give us some idea of what you mean by slightly.

Pierre R. Brondeau

For domestic market, it’s low single digit. We consider much closer to flat pricing in the domestic market than earlier, so it’s flat to slightly up, and slightly meaning slightly, so just single digit.

Dmitry Silversteyn – Longbow Research

On the crop protection business, you mentioned several times both in the prepared remarks and in the text of the press release about growth initiatives that are going to detract a little bit from the profit improvement in 2010. Can you give us little bit more granularity on what those growth initiatives are and what the potential of these initiatives are and how far down the road that potential can be realized?

Pierre R. Brondeau

I’ll ask Milton to comment on that, but we made a decision to increase our R&D budget in the agricultural space by close to $10 million because we do believe we have opportunities there.

Milton Steele

Dmitry, over the last several years, we have been investing in both organic and inorganic growth for our product lines. We have been accessing third party products to develop proprietary premixes. We have been expanding labels. We made two acquisitions last year in the ag space, and quite frankly we have opportunities to expand our product lines across the globe—Latin America, Europe, Asia, and North America, and so that’s the reason we’re spending this money just to take advantage of the opportunities we see.

Dmitry Silversteyn – Longbow Research

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

Milton Steele

You could put it that way. Yes.

Operator

The next question comes from the line of Douglas Chudy with Keybanc Capital Markets

Douglas Chudy – Keybanc Capital Markets

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

Pierre R. Brondeau

Yes. Across the board if you look at our biopolymer business whether it’s our food or pharmaceutical, we do have products which do benefit from first of all a very strong raw material position with access to raw materials allowing us to have a differentiated position in the market place in terms of performance, so we do have a product line which is allowing us to deliver significant growth. I think the growth of our business last year was in the high single digit for those businesses, mostly actually driven by the food side of the equation.

Douglas Chudy – Keybanc Capital Markets

Secondly, the earnings for industrial chemicals have been fairly volatile over the last couple of years. What do you view as normalized earnings potential for this segment, maybe in terms of operating income?

Pierre R. Brondeau

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

Douglas Chudy – Keybanc Capital Markets

Any change in the M&A strategy? I think in the past there had been talk on growing the ag and the biopolymer businesses, has anything changed there?

Dr. Pierre R. Brondeau

I think we will not change the strategy. We will continue to look for good acquisitions. We will do that in a very selective way, but it is true that M&A will be an integral part of the strategy. At this stage, our focus would be on the food and pharmaceutical biopolymer business and the ag business. That’s where we are going to be looking for opportunities.

Operator

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

Arun Viswanathan – UBS

Along with what you said on soda ash and industrial chemicals up 5 to 15%, do you have any target longer term growth rates for agriculture chemicals and specialty chemicals?

Pierre R. Brondeau

I think that the ag business today, we do expect the business for the years to grow at 5 to 10% annual growth rate, and we tend to be a little bit more aggressive for our biopolymer business in terms of growth opportunities. I do expect also that this past year where we had to increase our spending for technology, we’ll continue to demonstrate an ability to leverage topline growth in the ag business in a very interesting way.

Arun Viswanathan – UBS

So the 5 to 10% longer term growth for ag is sales, and then you can expect greater operating income growth?

Pierre R. Brondeau

Five to ten percent for ag is topline growth.

Arun Viswanathan – UBS

Are you seeing properties potentially becoming more attractive in this part of the cycle to reach those levels?

Pierre R. Brondeau

If you look at our food or pharma or agriculture, there are definitely companies which are from a strategic standpoint fit very well with our strategy, and some of those could be become available. The question for us is we do have a company which is financially very sound, and we need to be extremely careful in the type of acquisition we do and what price we pay, and of course like everybody, we would like those acquisitions to be accretive quickly, so yes there is but we are going to be very selective on the targets.

Arun Viswanathan – UBS

Is there is a certain timeline or is there certain kind of pressure that you’re feeling to act quickly, and if not, other than the pension, how will the cash be used that you generate?

Pierre R. Brondeau

There is no pressure on the timeline. I think we have a strategy. We have an M&A roadmap, and we will be at the same time very opportunistic, so surprise and opportunity will be very important in the timing, and we do have businesses which have the critical mass which is required to keep on growing and play a key role, so we do not have a pressure on the timeline. The cash generation, we’re going to be deciding as we go. We’re going to have a very balanced approach in terms of cash usage, balance between returning to shareholders and strategic acquisition, but we’ll do that depending upon opportunities we see coming up. At this stage what I would like to say and especially being my first quarter with FMC, I would not make any decision one way or another but have a status quo situation, and as we go depending upon M&A opportunities make decisions.

Operator

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

Pierre R. Brondeau

Thank you everybody for your time and your questions. What I would like to say in closing is that our 2010 outlook presumes a continued global recovery, both tempered and uneven as it may be. As a result, the impact on our business is hard to predict. Nonetheless, we expect strong performance from agriculture products and specialty chemicals based on demand recovery and the benefits of our growth initiatives. The more uncertain area of our outlook is in soda ash export pricing. We have prudently chosen to be conservative regarding the potential for higher selling prices in the export market as the year develops. Though we do think there is some upside in this regard, we do not control the timing of when increased demand tightens the supply-demand balance to enable higher pricing in the export market for soda ash. As I told you and you know I have joined FMC recently, and I would like to share my views on our business and our capacity to grow.

FMC’s financial position and the attractiveness of our business portfolio are two distinct strengths for the company. We have a well-defined strategy for profitable growth. My message is one of continuity. I strongly believe in the growth platform we have, especially agricultural products, biopolymer, and lithium. We will drive growth in these businesses following the technology roadmap we have in place. We will combine that with a focus on taking full advantage of the premium growth opportunities in the world’s rapidly developing economies and continue with very selective M&A as it was done in the past. Thank you very much.

Operator

This concludes the FMC Corporation fourth quarter 2009 earnings release conference call.

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