FMC Corp. Earnings Call Nuggets: Lithium Weather Impact, Soda Ash Business

On Tuesday, FMC Corporation (NYSE:FMC) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed

Lithium Weather Impact

Frank Mitsch – Wells Fargo Securities: Thank you for providing that pull forward on the Ag side. I was wondering if you could do something similar in terms of the lithium weather impact in Q1. Obviously specialties came in a little bit lighter than expected. Could you give us the order of magnitude of the negative impact due to weather for lithium in Q1?

A Closer Look: FMC Earnings Cheat Sheet>>

D. Michael Wilson – President, Specialty Chemicals Group: Frank, this is Michael Wilson. In terms of the weather impact in Q1, I would say it was probably $1 million to $2 million of EBIT.

Frank Mitsch – Wells Fargo Securities: So, not too significant. Sticking with that, you saw the headlines that the Argentine government is looking to take over YPF. What concerns, if any, do you have with respect to your position in that market?

Pierre Brondeau – Chairman, President and CEO: Right now, as you know, we do have agreements with the government in terms of how it operates and tax and cash repatriation, but clearly, we are taking a pose in looking at where we are going with our expansion. I think the way the business is operating today is fine, but as you know, we are going to be very quickly, even with the current expansion again, by the 100% capacity utilization. We are studying the situation in Argentina to make a final decision in the next few months about our future expansion. I think there is a lot of moving part today in Argentina and it is very hard for me to make a full commitment to the next step of expansion until we have a better picture of what is going on and we are talking with authorities over there in Argentina.

Frank Mitsch – Wells Fargo Securities: So, it is something that some time in the late summer or so forth we will have a better idea what FMC’s plans are there?

Pierre Brondeau – Chairman, President and CEO: Absolutely, Frank.

Frank Mitsch – Wells Fargo Securities: Then lastly you mentioned that you are expecting very positive growth on the soda ash business and pricing up year-over-year in that business, although you did mention a competitive threat to the export market. Can you talk a little bit more about that?

Pierre Brondeau – Chairman, President and CEO: Yes, I mean, if you look year-on-year we are going to have very solid and it is part of (indiscernible) and what we said very solid year-on-year pricing. Today, we have this and then looking forward to be prudent and that’s why despite a very strong first quarter you’ll see that we are keeping about the year number for Industrial Chemical in term of earnings growth at the same level. We are looking at a 20%, despite a stronger first quarter and we are expecting – we mentioned the fact that we had a very favorable export mix which should reestablish and be a little bit less favorable in the second quarter and we have seen some sign of price decrease in Asia around soda ash because of the reduction in demand versus what we are expecting. It is not big, but it is there and we just took the prudent approach to have a more conservative pricing from ANSAC in Asia, and only in Asia. The rest of the world stays about what we’re expecting.

Frank Mitsch – Wells Fargo Securities: Certainly, your results here in the first quarter certainly made your guidance for Q1 very prudent and conservative. So, I guess we’ll expect the same for the balance of the year. Thank you so much.

Soda Ash Business

Mike Harrison – First Analysis: I was just hoping to talk about the soda ash business a little bit. You had talked about seeing some increased royalty payments during 2012, and I was wondering if that had an impact in Q1 or maybe kind of what the timing is and can you remind us what the magnitude of that higher royalty impact would be?

Mark A. Douglas – President, Industrial Chemicals Group: We never actually gave an order of magnitude when we talked on the fourth quarter call in terms of what the royalties was. The rate has moved from 2% to 6% on any federal land that we mine. We don’t actually break that out, but yes, it did have an impact in Q1 and it will have an impact in the rest of the year on a quarterly basis as we go forward, but we did not break that out.

Mike Harrison – First Analysis: And the impact, compared to Q1, should be about the same as the year progresses?

Mark A. Douglas – President, Industrial Chemicals Group: It’s not easy to say, it’s not actually as simple as that, because as we mine, we go through different leases. So, it varies quarter to quarter, but we don’t actually break that out in terms of quarterly analysis.

Pierre Brondeau – Chairman, President and CEO: And we started to move into the new royalty, partially during part of last year. So, it’s not – I mean the impact was high in the first quarter, but it varies from quarter to quarter.

Mike Harrison – First Analysis: Then, in the BioPolymer business, you referred to improved mix in the food business and specifically noted daily beverages in the Asia. Are we going to continue to see within that business that your higher value products are going faster than other areas? Can you maybe just give us a little bit more color on how much higher the margins are in something like dairy beverages versus the average for the food business?

Pierre Brondeau – Chairman, President and CEO: I think more than talking about diary or other applications I would say that we have three product lines in our BioPolymer business carrageenan, alginate and MCC and by far the highest profit faster growth is our MCC product line, if you look that’s where all of our investment are going. So, I think this business will grow faster and faster when the MCC part of that business will get bigger because that’s a place which is commanding potentially high-single digit or double digit growth rate, where the other businesses are just low-single digit growth. So, MCC is really and you’re right, MCC has application in the diary market in Asia, very fast growth in Asia, double digit growth in Asia. It does applicational so in pharmaceutical protein beverage. So, it’s broad range of application but more specialty and more differentiated.

Mike Harrison – First Analysis: Last question I had is just maybe to elaborate a little further on lithium and the downtime. It sounds to me like you’re downtime because of the adverse weather you saw, the downtime and the startup of the capacity expansion is maybe taking a little bit longer than you would initially anticipated, you talked at first, about six weeks of downtime during the first quarter. Is that more or less where you are or maybe a little more color there?

Pierre Brondeau – Chairman, President and CEO: The downtime itself in term of time, was about the same. It was more difficult, we had issues in bringing several of the equipment we need because of the weather on the road, but the length of the downtime was about the same. The problem is the downtime combined with the weather created some issues to operate the plants, even the part which was working, when it was working at full capacity. We also had dilutions, very significant dilutions of the plants, which is forcing us to work with brand which is more diluted. So, we had – it’s much more a combination of two negative effects together which have created a situation where in the first quarter, the performance was low compared to significantly below what we had a year ago. We will still see that effect in the second quarter, because even if the tie-ins of the plant are gone, we’re going to be having diluted plants that we will be operating with a brand which is less concentrated, which will create less product from the plant and a high operating cost. Things are starting to get better in the third quarter. So, at third quarter, you will see sequential and year-on-year improvements in the EBIT, not yet at full capacity. I think we will have fully recovered from all of that and the lithium business will be at full performance in the fourth quarter. So, you will see sequential improvement from first quarter to the fourth quarter, with the start of the ramp up, the most visible start of the ramp up being in the third quarter.