FMC Earnings Call Nuggets: Lighter Lithium Guidance and Strong Q1 Expectations

FMC Corporation (NYSE:FMC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Lighter Lithium Guidance

John McNulty – Credit Suisse: Just a couple of questions. So, on the Lithium guidance in particular for the first quarter it seems lighter than I would expected for the business to be flat year-over-year considering all the weather issues you had last year. So, I guess two questions around that. First, does it include the charge that you talked about or is that ex-charge? And if it’s ex-charge then what’s happening, because it does seem like your volumes at least in the commodity side were really almost non-existent last year and so the idea that they are going to be flat with that this quarter seems a little bit low?

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Pierre Brondeau – Chairman, President and CEO: John, first, the numbers we are talked about are ex-charge and I want to refer back to my last points. Where we are in Lithium today, and you know it’s been a struggle. Yes, we had the weather issue at the beginning of the year, but I think most importantly, we now realize that the process, the manufacturing process itself was clearly damaged during the expansion. And the damage was significant to a point that we do have to really find the manufacturing process. We are implementing those changes which are requiring, changing equipment and process and start on the plant at times. So, we’re going to have a full quarter from a manufacturing standpoint in Argentina which is at the beginning of a process because from the brines what we are doing, releasing the chloride and carbonate and then the other derivatives. So, that’s where we are, second quarter we will see real improvement, still challenging and I think it’s in the second half of the year with the process change we do have in place right now. I mean we have remedies; we have engineering firms and our own enduring staff working on it. It’s going to take into the third quarter to see the full production rate.

John McNulty – Credit Suisse: Then on the North Carolina change, the restructuring around that? I thought your North Carolina plant was largely an upgrading facility where you start, where you were producing some pretty high end products. So, I guess what changes are happening there. I know you are changing your product mix at all, or is it just kind of streamlining of the process in North Carolina?

Pierre Brondeau – Chairman, President and CEO: Careful on those things we are doing. We had a plant and you know we’ve been in the past highly focused on pushing product out of the door. We believe that we have significant ways today to improve our process to improve our control and streamline the plan. So what we are doing is without losing in term of capacity we are implementing changes which are fairly significant to plant which will allow us to reduce staffing and cost.

John McNulty – Credit Suisse: Then just on the soda ash side and your confidence that pricing starts to come back in the export markets particularly in Asia or tied to Asia in the second quarter, have you started to see some of the Chinese producers dial back their capacity or shut the facilities down temporarily or is that something that you, you are just hoping for or expecting on the comp?

Edward Flynn – President Industrial Chemicals Group: There have been some, which always happens at this time in the year closures because of the Chinese New Year and then what happens is some of those plants don’t come back up after the Chinese New Year. The other sign that they are seeing is that it is being reported that the Chinese will not quote quarterly pricing which as you would know, that they are not going to quote quarterly pricing that’s because they think pricing is at the bottom and they expect it to come back up, so we are kind of looking at what their competitor behavior is.

Strong Q1 Expectations

Eugene Fedotoff – Longbow Research: First on Ag segment. Your first quarter expectations are pretty strong despite difficult year-over-year comp in the segment. Just wondering if results are going to be or operating profit is going to be driven by volume growth there or margin expansion mostly.

Pierre Brondeau – Chairman, President and CEO: I think Eugene and I’ll ask Mark to make additional comment. But if you look in the fourth quarter, the very strong performance is first due to a very positive mix. First we had a very strong pre-season demand in North America. We also had a very strong demand for product which are addressing the glyphosate and corn rootworm trait resistance. Those products have been developing very quickly and are very new technology and also we’ve seen strong sales of bifenthrin. So you put those together, the volume of course were higher, but we had a 20% increase in sales, but really we had a very positive mix. Mark, you want to add anything?

Mark Douglas – President Agricultural Products Group: I wouldn’t add anything on the fourth quarter. Was the question related to first quarter or fourth quarter?

Eugene Fedotoff – Longbow Research: First quarter.

Mark Douglas – President Agricultural Products Group: Eugene, when you look at what we’ve got going forward we’ve indicated a 20% growth. That is all predicated on volume. We have early season demand in North America that we believe is going to be strong and we’re looking for strong finish to the Latin American season, so, it’s predominantly volume driven.

Eugene Fedotoff – Longbow Research: Also just a follow-up on the Ag, last year I know you had some raining conditions in Europe and drought last year. What was the negative impact I guess from those conditions and do you expect normal seasonal this year and what would be the positive or easier comp year-over-year if you see a normal season in North America and Latin America this year?

Mark Douglas – President Agricultural Products Group: In North America because of our products are sold early season and there was significant insect pressure in the third quarter, we had a very good year in North America. Predicting the weather as you know is very difficult, but if we have a normal season, we should be looking at in North American, high single-digits growth in terms of our participation in the market. In Europe acreage will be pretty flat. I would expect the market to be much flatter in Asia with much lower growth.

Pierre Brondeau – Chairman, President and CEO: I think one of the situation we very often experience with the strength of Latin America business is for us as Mark said, we were not very much impacted directly North America. But in addition, drought conditions at time would keep commodity price high creating increase in planting acreage in other region of the world like Latin America and was the case as you saw the increase in soybean planting, so it also created a very positive performance for us in Latin America. So, all in all, by the nature of our product, and the strength in Latin America, were not impacted negatively by the weather condition in the world.

Eugene Fedotoff – Longbow Research: Switching gears, wanted to follow-up on discussion on lithium discussion, Pierre you mentioned that you expect lithium business with that operating under full capacity in the third quarter, just wanted to follow-up on that, is that going to be including the expansion you had the 30% expansion in capacity or that’s going to be just fee expansion…

Pierre Brondeau – Chairman, President and CEO: You were breaking, I’m sorry. The question was recovery of the lithium business when you said second half of the year?

Eugene Fedotoff – Longbow Research: I believe you mentioned that you expect the business to reach on to full operating capacity in the third quarter. Do you mean, full operating capacity including the 30% expansion that you had or that’s going to be excluding that expansion.

Pierre Brondeau – Chairman, President and CEO: We are still right now changing the process conditions we have. We believe we will get as we want to keep on ramping up. So a lot of fixing of the process according to protocol we have defined is going to take place in the first two quarters of the year. We believe we will be successful and that’s when we will see significant ramp up on manufacturing so we believe we will get past pre-expansion capacity to go to or capacity closer to what was expected, post-expansion. But it’s going to be happening ramping up during the second half of the year. Will we get to that point, in the third quarter or beginning of the fourth? We don’t know yet. We have to wait another I would say 60 days to see how the two step process improvement we are putting is progressing. But our objective is and remains to reach capacity which are post-expansion capacity.

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