OVERLAND PARK Oct 28, 2015 (Thomson StreetEvents) -- Edited Transcript of Compass Minerals International Inc earnings conference call or presentation Wednesday, October 28, 2015 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Theresa Womble Compass Minerals - Director IR * Fran Malecha Compass Minerals - President, CEO * Matthew Foulston Compass Minerals - CFO ================================================================================ Conference Call Participants ================================================================================ * Chris Parkinson Credit Suisse - Analyst * Ivan Marcuse KeyBanc Capital Markets - Analyst * Joel Jackson BMO Capital Markets - Analyst * Garrett Nelson BB&T Capital Markets - Analyst * Ryan Berney Goldman Sachs - Analyst * David Begleiter Deutsche Bank - Analyst * Chris Shaw Monness, Crespi, Hardt & Co. - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, everyone, and welcome to today's Compass Minerals third-quarter earnings conference. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Ms. Theresa Womble. Please go ahead, ma'am. -------------------------------------------------------------------------------- Theresa Womble, Compass Minerals - Director IR [2] -------------------------------------------------------------------------------- Thank you, Alan. Today, our CEO, Fran Malecha, and our CFO, Matthew Foulston, will review our third-quarter results and rest-of-year outlook. Before I turn the call over to them, let me remind you that today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's expectations as of today's date, October 28, 2015, and involve risks and uncertainties that could cause the Company's actual results to differ materially. The differences could be caused by a variety of factors, including those identified in Compass Minerals' most recent Forms 10-K and 10-Q. The Company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments. You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release, which is available on the investor relations section of the Compass Minerals website. I'll turn the call over to Fran now. -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [3] -------------------------------------------------------------------------------- Thank you, Theresa, and good morning to all of you joining us today. All in all, this was a good quarter for us. As you've seen in our press release, our total sales were slightly down versus prior year, while our operating earnings were slightly higher. We delivered these results in the face of weakness in the broader agricultural market, which depressed our plant nutrition sales volumes in some of our core North American markets. Despite the softness in the plant nutrition segment, we continue to prove our ability to perform well and post strong results because of the unique combination of our assets and the actions we have undertaken to improve our position within the markets we serve. While Matthew will discuss the specifics of our salt segment results shortly, I'd like to touch on some of the factors that contributed to our strong margin performance in this business. This is a very important area to emphasize because, as many of you know, we are projecting a price decline this year for our highway deicing salt products sold in North America. This headline number, though, only tells part of the story regarding the health of this business. Let's start with a quick review of our North American highway deicing bid season. Compass Minerals won 10% more commitments than last year, which followed a severe winter. We believe that this increase puts us back on par with where our market participation was prior to the 2011 Goderich tornado, and operationally, this increase provides us with better asset utilization in our rock salt mines. Pricing on these contracts is down, on average, about 7%. This compares to being up 25% last year. We are very pleased with the contracts we've won. We have increased commitments in the specific geographies that we expect will yield strong profitability for us and support our efforts to maximize the margin on every ton of salt we sell. Other efforts in this area include optimizing our customer mix and rationalizing consumer and industrial product lines. These changes are well underway and are already having a benefit on our operational efficiency, both in our production plants and throughout our distribution system. Success in these areas, as well as lower fuel costs and the impact of last winter's deicing price lift, has resulted in continuing -- continued operating-margin expansion throughout the year and a 53% improvement year to date in salt operating earnings per ton. We expect our margin optimization actions to continue driving margin expansion throughout the end of the year. In fact, we are increasing our guidance on second-half salt operating margin by three percentage points. Turning to plant nutrition, we had a challenging quarter due to weakness through the ag market, which has slowed sales for almost all inputs. Specifically in markets where SOP is often blended with other macronutrients, there has been hesitation by growers to make purchases. As a result, our plant nutrition shipments were below plan in prior year. We've held steady on our average selling price, however, because of the continued value that SOP provides to growers of specialty crops. Additionally, the economics of the crops we serve are good, particularly when compared to current pricing trend for the major commodity crops. Market pricing for most of the crops we serve has been healthy in 2015. It's helpful to put our results in context with what has happened in the commodity fertilizer space. If you look at MOP, for example, you'll see that demand in North America through the second quarter dropped 26%. We see nothing in the market that suggests a major rebound in the third quarter, which means the trend is likely continuing. Prices for MOP are still seeking a bottom and are down 14% from the beginning of the year. Our SOP prices, in contrast, are down 1% year to date, while our volumes are off only 16%. This relative strength in the face of wider ag market weaknesses points out the attractive fundamentals of our specialty plant nutrition business in the markets we serve. We remain committed to this business as a growth vehicle for Compass Minerals because of these attractive fundamentals. We continue to build our position as the go-to source for specialty plant nutrition in North America. Our business is well positioned to benefit from megatrends relating to the need for yield enhancement in an era of global population growth, growing food demand, and declining arable land availability. Further, as our plant nutrition business grows, it will provide us further diversification to our earnings stream and greater leverage to global economic growth. Before we hear from Matthew, I'd like to wrap up with where we are as a Company in terms of delivering on our growth plan. We are on track to hit our $5 million, plus, EBITDA target by 2018, supported by the actions taken by our businesses to maximize the value of our essential mineral products in the marketplace. We are making progress on our capital spending plan with the investments that are necessary to ensure the longevity of our assets and to facilitate growth. You can see that 2016 will be a peak period of CapEx spending, and beginning in 2017, we expect to return to more normalized capital spending levels. We expect this will result in a significant increase in free cash flow. We will look to deploy this capital to build shareholder value by keeping with our disciplined approach to capital allocation. We will invest in organic growth. We'll make strategic acquisitions when appropriate and consider other options to return cash to shareholders. With that, I'll turn the call over to Matthew. -------------------------------------------------------------------------------- Matthew Foulston, Compass Minerals - CFO [4] -------------------------------------------------------------------------------- Thanks, Fran, and good morning, everyone. First, a quick review of our consolidated results. In terms of sales, operating earnings, and net earnings, we were more or less flat with prior-year results when we exclude the one-time benefit we reported last year. As a reminder, this special item was the final settlement of our insurance claim related to the 2011 tornado that struck our operations in Ontario, Canada. Expanding on Fran's comments, revenue of $233 million was 3% lower than third-quarter 2014 results. Operating income, however, increased 3% and operating margin expanded one percentage point. Strength in the salt segment underpinned the Company's performance this quarter. So let's start there. If you are following with our presentation online, our salt results can be found on slide eight. Salt segment operating earnings of $45 million were up over 31% from 2014 and set a record for third-quarter earnings, again excluding the tornado insurance benefit. While you may recall that price was the primary driver of record-setting earnings in the second quarter, during this quarter several factors combined to push salt earnings to another quarterly record, including increased sales volumes and lower costs. Sales volumes increased 7% due to highway deicing sales volumes, driven by strong demand in the UK and a good start to preseason order fulfillment in North America. The average selling price for highway deicing salt was lower by 3%, primarily driven by a greater mix of rock salt sold to chemical customers this quarter compared to the 2014 period. These lower-priced sales to chemical customers are reported in our highway deicing business because they are bulk rock salt sold directly from our mines. Our consumer and industrial average selling price was flat, although we did gain price in most product categories with an offset in sales mix. Continued execution of the segment's strategy to simplify the business, improved product mix, as well as better operating rates at our UK mine, drove significant year-over-year improvements in per-unit product costs. Salt segment logistics costs also improved by $3.00 a ton or approximately 12% from prior year, primarily due to lower fuel costs. These factors resulted in strong margin performance in the segment with an EBITDA margin of 31%, up from 26% last year. Turning to slide nine, you can see details of the plant nutrition segment's performance. Clearly, we felt the impact of a weaker ag market in our results. Segment revenue was down 20% on 22% lower sales volumes. The bright spot here continues to be stable SOP pricing, which at $720 per ton was 7% higher than last year and essentially unchanged from the second quarter. The average price for all plant nutrition, including our micronutrient products, was higher by 2%. As expected, earnings in this business remain pressured by higher production costs due to the greater use of source potassium feedstock to supplement last year's poor solar pond harvest. We are currently evaluating the harvest from this year's solar evaporation season. It's certainly better than last year. However, it is not at the level we expected. We do expect improved costs in 2016, but the magnitude of the improvement won't be fully known until we get further into the processing of the new harvest. Turning to slide 10, you can see an overview of our current outlook. The first column shows our present view on key metrics for the fourth quarter. The next column shows where we are versus our prior second-half guidance, when you factor in our achievements from the third quarter, and the last column outlines some of the drivers of our expectations. Fourth-quarter salt segment results will be influenced primarily by our bid season results and actual winter weather. An increase in our North American highway deicing commitments is expected to push total salt sales volumes in the fourth quarter above prior-year results, assuming average winter weather. We also expect strong operating and EBITDA margin performance to continue as a result of our actions to optimize our sales mix and produce efficiently, as well as the tailwinds we are experiencing from fuel. We have reduced our expectations for plant nutrition sales volumes. This is balanced by some improvement in average selling price in this segment and better-than-expected production efficiency at Ogden. That being said, lower sales volumes are likely to pressure our operating-earnings margin. We also have a couple of updates on corporate items. Year to date, we have spent $154 million on capital expenditures. For the full year, we now expect to spend between $210 million and $230 million. We have additionally fine-tuned our tax rate assumptions. We now expect a full-year rate of around 28%, based on the jurisdictions of our projected earnings. In closing, let me provide a quick summary of our results before we begin our question-and-answer session. We had strong third-quarter results, with strength in the salt business offsetting softness in plant nutrition volumes. Record salt EBITDA was driven by higher volumes and lower production and logistics costs. Stable SOP pricing and a modest reduction in volumes year over year contrast with MOP, where both price and volume are down significantly. We remain focused on our capital investments and executing those projects on plan and on budget. Finally, and most importantly, we're narrowing our full-year EPS guidance range to $5.20 to $5.50 from the prior range of $5.10 to $5.60, leaving the midpoint unchanged. With that, I'll turn the call over to Alan the operator. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Chris Parkinson, Credit Suisse. -------------------------------------------------------------------------------- Chris Parkinson, Credit Suisse - Analyst [2] -------------------------------------------------------------------------------- Perfect. Thank you very much. You mentioned that crop economics in your core regions remain healthy, but there is still a reluctance for customers to be purchasing product. Can you just give us a little color? Is this a functionality of pricing in some ways or, rather, simple concerns over the broader ag complex? Just any insight there would be appreciated. -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [3] -------------------------------------------------------------------------------- This is Fran. The only comment I would make there is I think we do compete in some different markets. So if you look at California, for example, the crop pricing there is strong. And, you know, the chloride sensitivity is there in most of those crops. So we think that's mainly just a -- maybe the farmers are being a bit more conservative and there may be some weather timings in that as well. Other markets where there is maybe more substitutability, I think you are seeing the impact of all crop inputs dropping and producers either using less because of the crop economics or they are waiting for their harvest to complete before they make their decisions on input purchases for the upcoming season. -------------------------------------------------------------------------------- Chris Parkinson, Credit Suisse - Analyst [4] -------------------------------------------------------------------------------- That's very helpful. And then, just turning very quickly to salt, you mentioned in your prepared remarks that market share has returned to levels not seen over the last couple of years or so. Clearly, that's a positive. But could you just give us a little more context around your plan to manage bids in subsequent seasons? It seems like you've had a shift there over the last, let's say, year or so. Will this simply be a functionality of optimizing netbacks and potentially further growing market share? And it even seems like there may be some overlap between those two themes. So any, let's say, any color there just would be once again appreciated. -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [5] -------------------------------------------------------------------------------- I think the results of the bid season this past year was consistent with our strategy of getting back the market share that was lost going back four or five years, and this past year, given the pricing and some of the winter dynamics, enabled that to happen. And as you can see from the margin impact and how we manage the business that we felt it was the right time to do that. And we'll benefit from that going forward. So I wouldn't say there's any change in our approach. And every winter is different and every bid season is different, and we'll continue to manage that effectively going forward. The one comment I would add here is that we, with this market-share gain that we have picked up in the commitments, we think that really optimizes our production capacity. So we wouldn't be looking for further share gain as a driver because I think with those commitments in our mining capacity we are well positioned in the normal weather environment to run our mines and certainly get the benefit of that on the cost side of the margin component. -------------------------------------------------------------------------------- Chris Parkinson, Credit Suisse - Analyst [6] -------------------------------------------------------------------------------- That's great. Thank you very much. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Ivan Marcuse, KeyBanc Capital Markets. -------------------------------------------------------------------------------- Ivan Marcuse, KeyBanc Capital Markets - Analyst [8] -------------------------------------------------------------------------------- The first one is, I guess, a follow-on to the one that was just asked. How sticky historically has market share -- I know four or five years ago when you lost it, it was somewhat of a function that you just got hit by a tornado and you couldn't supply. So once you get this business, does it historically stick or is this business that you are going to have to fight or compete for every quarter or every year? -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [9] -------------------------------------------------------------------------------- Ivan, it's Fran. The one -- I guess the first comment I would make is it's a competitive marketplace, so we compete in all areas, but the commitments that we were able to get this past bid season are in the right places, from our perspective, and should help us retain that market share over the longer term. And then, we are going to continue to improve our cost position around our mines with the capital that we are putting in and we should start to see the benefit of that in 2017 and beyond, so we think that we are going to be well positioned to retain this share, knowing that there's some variability every year driven mainly by weather. -------------------------------------------------------------------------------- Ivan Marcuse, KeyBanc Capital Markets - Analyst [10] -------------------------------------------------------------------------------- Great, and then you talk about hitting your $500 million in EBITDA in 2018 and I know a function of that $500 million is expected or potential acquisitions over time. You've always talked about growing the ag or the plant nutrition business further. Now that you've had Wolf Trax and you've seen sort of the volatility that this industry continues to have, is this still, I guess, a segment or platform that you want to grow over time or would you consider -- I know there's limitations within salt -- maybe adding another leg within some mineral or something that would potentially be a growth, I guess, platform for you going forward? How are you looking at plant nutrition now, going forward, in terms of acquisitions? -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [11] -------------------------------------------------------------------------------- We still see it as a growth business for the Company. I think the long-term fundamentals are still there. They are solid and intact. You're going to have certainly some cycles and I think we are seeing that in the commodity complex in general, not just in ag, so we think this is still a good business for the Company to build on. We're making investments in expanding our SOP for the future and we'll continue to look at acquisitions in the specialty, more differentiated space, and we do see Wolf Trax performing better than the market, but it's not meeting our expectations because the entire market is down. So I think we've made one acquisition there and we would expect those opportunities to potentially come at better pricing here, given the current state of the ag sector. So I think our timing to grow that business should be pretty good and growing this business isn't mutually exclusive to other things that we might be looking at. So I wouldn't rule anything out as long as, I think as we've said in the past, it builds on our core competencies and the adjacencies would fit well with the current businesses we have, if we looked into another mineral. -------------------------------------------------------------------------------- Ivan Marcuse, KeyBanc Capital Markets - Analyst [12] -------------------------------------------------------------------------------- Great, and then my last question is on your guidance of the $5.20 to $5.50, assuming plant nutrition does what you need it to do, does the low end assume that's what you -- that's something you would make if it's just one of those fourth quarters where it doesn't snow, and then $5.50 is sort of a pretty strong winner, and then the midpoint is an average? Or how would you gauge -- how do you come into the low end versus the high end? -------------------------------------------------------------------------------- Matthew Foulston, Compass Minerals - CFO [13] -------------------------------------------------------------------------------- This is Matthew. I think when we put this together, we try and factor in most things. I think one of the things that it's really difficult to do without expanding this range incredibly wide is to really factor in a very weak winter. So, generally, we are thinking about a pretty average winter here, and I think we do view the biggest challenge ahead in the short term here as being the plant nutrition volumes and the range of outcomes there could be pretty wide. It depends how much of it is the September/October sort of timing difference that you can get year to year and how much of it is depressed demand. So I think of it primarily in terms of SOP demand. -------------------------------------------------------------------------------- Ivan Marcuse, KeyBanc Capital Markets - Analyst [14] -------------------------------------------------------------------------------- Great, thank you. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- (Operator Instructions). Joel Jackson, BMO Capital Markets. -------------------------------------------------------------------------------- Joel Jackson, BMO Capital Markets - Analyst [16] -------------------------------------------------------------------------------- Staying with SOP here, you had a fantastic quarter on your SOP prices and looking at the premiums relative to MOP. Of course, you talked about volumes were down. Can you talk about what's going on here in your own realized SOP pricing? You are achieving great numbers, but the volumes are down. So, I mean, is this a game where you've pushed out some of the lower-margin opportunities in the volume and focused on the higher-priced sales? And we should expect this premium over MOP to come down in your results over the next few quarters as things stabilize? -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [17] -------------------------------------------------------------------------------- I think we have done a nice job over the past couple of seasons of extracting more value for the SOP. And some of that's been due to the geographies that we are selling it into, the crop mix that might be in those geographies, and so on. So I think we feel the progress that we've made and the value that SOP is delivering to growers continues to be there. And the approach that we are taking here is to -- it's hard to predict what's going on from a volume standpoint, in all cases. But we were just unwilling to see price as kind of the driver of that and that will continue to play out. But we feel like the pricing and the approach that we've taken here is solid, so I think to Matthew's point, there's some concern on the volume in the fourth quarter, but certainly we don't think that's price-related. It may be as MOP continues to decline, if that does continue, where producers can substitute or might be more willing to substitute, they may do that and that could be hurting our volume somewhat. But in our core markets, the core crops, we just feel like the pricing that we are at today should be sustainable. -------------------------------------------------------------------------------- Joel Jackson, BMO Capital Markets - Analyst [18] -------------------------------------------------------------------------------- That was helpful. Can you remind us where we are for the ramp-up of the augmented additional SOP production in 2016 and 2017, where we should see volume growth or at least production growth? -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [19] -------------------------------------------------------------------------------- Today, I think our total production capacity at Ogden is about -- just under 400,000 tons, and with the expansion, we'll be going to 550,000 tons and that will come online in 2017. Then we'll see that capacity and the sales build up to that capacity over time, so I don't anticipate it's all going to happen when it comes online and we're working hard to build that. But certainly, we would expect to see the full benefit of that capacity in the out years beyond 2017. -------------------------------------------------------------------------------- Joel Jackson, BMO Capital Markets - Analyst [20] -------------------------------------------------------------------------------- That was helpful. Final question, you've alluded to some of the margin expansion in salt. Can you help us understand netbacks in salt? You talk about lower freight prices -- freight costs, excuse me. But salt price has come down. I mean, if you are seeing a 7% contraction on new -- on awarded volumes and highway deicing this winter, but looking at freight costs, would we expect netbacks to be flattish or netbacks to be down 5%? Just looking, again, at the freight costs and some of the optimization you have had on the cost side. -------------------------------------------------------------------------------- Matthew Foulston, Compass Minerals - CFO [21] -------------------------------------------------------------------------------- Joe, it's Matthew here. I think when you think about our margin performance in salt and you look at where it's been this quarter versus the same period a year ago, and then where we think it's going to be going into the fourth quarter, you've got a number of different things at play here. First of all, volume is up, as Fran mentioned in his remarks, and that just helps overall fixed-cost absorption and it's good for the business. But the other thing that Fran talked about is the way we went into the bid season and this intense effort to optimize profitability, and we found a lot of opportunity that was close to the mine with good margins and good netbacks. So we do expect to see continued year-over-year improvement in freight as we go into the fourth quarter. -------------------------------------------------------------------------------- Joel Jackson, BMO Capital Markets - Analyst [22] -------------------------------------------------------------------------------- Okay, thank you very much. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- (Operator Instructions). Garrett Nelson, BB&T Capital Markets. -------------------------------------------------------------------------------- Garrett Nelson, BB&T Capital Markets - Analyst [24] -------------------------------------------------------------------------------- I was a little surprised to see that you are expecting higher plant nutrition price realizations in Q4 when there's been some softness recently in the North American agricultural market, as you cited. What's behind that? -------------------------------------------------------------------------------- Matthew Foulston, Compass Minerals - CFO [25] -------------------------------------------------------------------------------- Essentially -- this is Matthew, Garrett. What's really behind that is basically flat SOP pricing, but this is the season where Wolf Trax has a disproportionate impact and disproportionate volumes, so you just see that drive the average composite number up. -------------------------------------------------------------------------------- Garrett Nelson, BB&T Capital Markets - Analyst [26] -------------------------------------------------------------------------------- Okay. And then on CapEx, you lowered your 2015 CapEx guidance again. Does that just represent the push of some CapEx from this year into next year or has the absolute cost of your organic-growth expansion come in somewhat below what you were initially budgeting? -------------------------------------------------------------------------------- Matthew Foulston, Compass Minerals - CFO [27] -------------------------------------------------------------------------------- The biggest factor driving our CapEx down is actually foreign exchange and the weakness in the Canadian dollar. When we went into the year, we were planning somewhere around $0.90 and it's been around $0.75 recently, and that's had about a $20 million reduction in our full-year CapEx spending. And depending on where FX goes next year, that also could drag down projected spending for next year and result in that cumulative what we referred to as $0.5 billion being somewhat lower. And I think, as I said on the last call, there are big chunks and lumps in this spending and it can fall either side of the year. So, I would say FX is by far and away the bigger driver, and then there's just a little bit of timing. -------------------------------------------------------------------------------- Garrett Nelson, BB&T Capital Markets - Analyst [28] -------------------------------------------------------------------------------- Okay, great. That's all I had. Thanks. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Bob Koort, Goldman Sachs. -------------------------------------------------------------------------------- Ryan Berney, Goldman Sachs - Analyst [30] -------------------------------------------------------------------------------- This is Ryan Berney on for Bob. I had a question on the salt side. So leaving the transport piece alone for a minute, it seems to me that your guidance for the fourth quarter on the pure production side for salt seems to be indicating that it may come down, pushing as high as 20% or even more on a year-over-year basis. So I was wondering. I mean, you've mentioned a couple of things, the UK mine. You've talked about having a little bit more fixed-cost leverage with the better volumes. Can you give me a sense for -- or maybe as much as you can parse out the various pieces there that are kind of driving how much -- that magnitude, and then maybe comment a little bit on what you see as the sustainability of that kind of cost level going into next year? -------------------------------------------------------------------------------- Matthew Foulston, Compass Minerals - CFO [31] -------------------------------------------------------------------------------- This is Matthew. Let me talk about the last three months, if I can, to give you some flavor as to what was driving our improvements there. If you think of it from an EBITDA perspective, we were up about -- a little over 30%. I would say the two biggest drivers here are shipping and handling and COGS, and then the volume piece was certainly less significant. And the other factor is we didn't have any material impact from imported salt this year and we don't expect any impact as we go into Q4. -------------------------------------------------------------------------------- Ryan Berney, Goldman Sachs - Analyst [32] -------------------------------------------------------------------------------- Got you. And then, so looking into next year, again kind of leaving the transport side a little bit separately, is this kind of a level that we can expect to be more sustained? I'm just kind of watching the -- throughout the year, it looks like your pure production costs on a per-ton basis has fallen pretty dramatically. So I'm just trying to wonder whether this is a new cost set base or what we should be thinking about as far as how that changes next year. -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [33] -------------------------------------------------------------------------------- Yes, I think you've got to be careful thinking about taking Q4 and then extrapolating it through the year, because if you look at our seasonality and you go back three or four years, you see that Q4 typically is a very strong quarter. So I think we will have -- you know, we ought to look to similar kind of seasonality. But at the same time, we had a rough first quarter this year with some of the challenges we had at Cote Blanche with the hoist issue, and we are obviously benefiting from all the facilities running excellently right now and some nice high volumes in the UK. So I would look at it over the year and not just jump too much off Q4. -------------------------------------------------------------------------------- Ryan Berney, Goldman Sachs - Analyst [34] -------------------------------------------------------------------------------- Got you. Thanks. And then, I have one more last one, if you'll permit me. On the plant nutrition side, in your negotiation with your purchasers, do you sense that it's more of a -- speaking to the 3Q volumes, is it more of a delay in terms of farmer decisions, as in they are not really certain how the market is going to play out, just based on your impression, or is it just an unwillingness to accept the price side? -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [35] -------------------------------------------------------------------------------- I think, as I mentioned earlier, it might be different in some of the different geographies that we are selling SOP into. But I think it's probably a little bit more of uncertainty, given all crop input pricing and the profitability of the majority of these major crops and then spilling over, I think, across the entire ag sector. But we aren't expecting kind of a sharp rebound in the fourth quarter, either. So we are being cautious in our guidance and I think we'll just have to see as farmers finish their harvest season here what their attitude is coming out of that into the fourth quarter. And maybe some of that volume spills over into the spring. It's just hard for us -- and into the new year. So it's just hard for us to kind of pin that down exactly. -------------------------------------------------------------------------------- Ryan Berney, Goldman Sachs - Analyst [36] -------------------------------------------------------------------------------- Great. Thank you very much. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- (Operator Instructions). David Begleiter, Deutsche Bank. -------------------------------------------------------------------------------- David Begleiter, Deutsche Bank - Analyst [38] -------------------------------------------------------------------------------- Thank you. Good morning. Fran, on highway deicing pricing, you told us back in Q2 that 80% was done at minus 6%. Does that mean the last tranche of highway deicing pricing was down -- was done down at closer to down 10%? -------------------------------------------------------------------------------- Matthew Foulston, Compass Minerals - CFO [39] -------------------------------------------------------------------------------- When we said around 6% and we talk of around 7%, we were giving you rounded numbers. So I think it's very difficult to take a full percent times the 20% that was still out there waiting and extrapolate that there was any kind of collapse in the tail end. It's really more of a subject of rounding those numbers. -------------------------------------------------------------------------------- David Begleiter, Deutsche Bank - Analyst [40] -------------------------------------------------------------------------------- Understood. And on your fuel costs, have you done any hedging into 2016 for your fuel costs? -------------------------------------------------------------------------------- Matthew Foulston, Compass Minerals - CFO [41] -------------------------------------------------------------------------------- We haven't at this point. On the natural gas side, we do, but not on the fuel side yet. -------------------------------------------------------------------------------- David Begleiter, Deutsche Bank - Analyst [42] -------------------------------------------------------------------------------- Fair enough. And Fran, this question was asked a little bit earlier in a different way, but looking at 2018 target, has the path to that $500 million changed in your view in terms of maybe stronger salt and weaker plant nutrition, or can you comment on that? -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [43] -------------------------------------------------------------------------------- We don't see a significant shift in our plans, I think, from kind of the path that we laid out in our investor presentation when we kind of got the path to $500 million. So the timing of that between the years might change a bit and I think you are seeing the strength in the salt right now as we are going through a softer cycle in the plant nutrition, but strategically, with the investments that we've made in both businesses to improve costs or expand capacity in SOP, we expect both businesses to carry their weight and deliver on our expectations. -------------------------------------------------------------------------------- David Begleiter, Deutsche Bank - Analyst [44] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- (Operator Instructions). Chris Shaw, Monness, Crespi. -------------------------------------------------------------------------------- Chris Shaw, Monness, Crespi, Hardt & Co. - Analyst [46] -------------------------------------------------------------------------------- With the increased volumes in salt for this season, I'm just curious. Geographically, I guess you suggested some of them are closer to the mine, but did you guys benefit from, I guess, the last winter's strong snow season in the East Coast? Have your volumes -- I guess I'm asking have your volumes moved east at all and is that something sustainable, do you think? -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [47] -------------------------------------------------------------------------------- Our volumes haven't moved east. I think you have it right. The volume pick-up was closer to our mines, better positioned from a freight standpoint. And that stronger winter out east certainly kept those -- the mines and that market fully occupied. So I think that's why we believe that these volumes are sustainable and we'll just see as we get through winter into next year's pricing how that goes. -------------------------------------------------------------------------------- Chris Shaw, Monness, Crespi, Hardt & Co. - Analyst [48] -------------------------------------------------------------------------------- And then, switching to SOP, could you remind me in the, I guess, the markets, I guess ex-California, the ones that were weak this quarter on demand, what are the key crops that SOP is being sold into there? -------------------------------------------------------------------------------- Fran Malecha, Compass Minerals - President, CEO [49] -------------------------------------------------------------------------------- We sell SOP in a number of different crops. Some of those that might be a little more sensitive to substitutability would not be the fruits and nuts and the produce crops. It would be more of the crops like potatoes and tomatoes and some of those types of crops. The other crop that's significant in some of these markets is also alfalfa and some of the more turf products. So I think that's where we are seeing a bit more reticence on the SOP side. -------------------------------------------------------------------------------- Chris Shaw, Monness, Crespi, Hardt & Co. - Analyst [50] -------------------------------------------------------------------------------- Okay, that's all I had. Thank you. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- It looks like we have no further questions at this time. So I'd like to turn it back over to Ms. Theresa Womble for any additional or closing remarks. -------------------------------------------------------------------------------- Theresa Womble, Compass Minerals - Director IR [52] -------------------------------------------------------------------------------- Thank you, Alan. We appreciate your interest in Compass Minerals. Please feel free to contact the investor relations department with any follow-up questions you may have. Contact information may be found on our investor relations website. Have a great day and go Royals. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- That does conclude today's call. We thank everyone again for their participation.
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