Compass Minerals International Inc (CMP) 2005 Q1 法說會逐字稿

At this time I would like to welcome everyone to the Compass Minerals first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to Ms. Peggy Landon, Director of Investor Relations.

Good morning, everyone. With me here today are Mike Ducey, our President and CEO, and Rod Underdown, our Vice President and Chief Financial Officer. Before we begin I'll read our Safe Harbor statement to you.

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 current expectations and involve risks and uncertainties that could cause the Company's actual results to differ materially. The differences could be caused by a number of factors including those factors identified in Compass Minerals International's annual report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2005.

The company will not update and forward-looking statements made today to reflect future events of developments. Also you can find reconciliations of non-GAAP financial information in our earnings release and in the Investor Relations section of our website at Compassminerals.com. Now it's my pleasure to introduce Mike Ducey.

Good morning, thank you for joining us. As we reported in our press release last evening, we broke another sales record this quarter and had our 12th consecutive quarter of year-over-year revenue growth. Our revenue of 267.4 million was an increase of 7% against the tough comparative period. And net income, excluding our $5.4 million nonrecurring tax expense this quarter which Rod will discuss in more detail later, was $28 million or $0.87 per share. This is a $2.3 million decline from the first quarter of last year which is primarily due to increases in shipping and handling costs and an increase in our effective book tax rate.

Our adjusted EBITDA was up slightly year-over-year to $68.5 million. We also analyzed results for the full winter season because our deicing commitments are made on a seasonal basis. For the 2004/2005 winter season, which we measure from April of 2004 through March of 2005, our gross sales increased 12% to $712 million. Our net income, excluding special items, for the last 12 months was 40.6 million versus 32.5 million for the 12 months ended March 2004. And our LTM adjusted EBITDA was 171.7 million compared to 156.9 million for the prior period.

Of the 712 million of LTM sales, we estimate that approximately 25 to 35 million was due to more severe than normal weather and about $4 to $6 million of our LTM adjusted EBITDA was due to the above-average weather. This season our customers with above-average weather were concentrated around the Great Lakes on both sides of the border, and more of the severe weather occurred in March 2005 quarter than in the December 2004 quarter.

Our sales increases weren't entirely due to snow, although we had pricing gains across all of our businesses, we expanded our highway deicing customer base for the second year in a row slightly and our sulfate of potash business continued to make excellent volume gains. These improvements boosted our normal winter cash flow and earnings to -- compared to a year ago. Unfortunately rising transportation cost took a bite out of our gains.

For the last six months we've been saying that we expected transportation increases to absorb about half of the 5% price increase we got in our highway deicing contracts this season. In fact, shipping and handling cost as a percentage of sales increased about 2%. We believe that the higher shipping and handling cost will continue through 2005 because of the higher fuel prices.

Early in the first quarter we announced price increases in our general trade product line to help offset our transportation cost increases. These increases will be integrated as contracts come up for renewal this year. The price improvements we had in our SOP business over the last 12 months have helped maintain strong margins in that business. Our most recent price increase in SOP took place in January. We are being proactive about managing our transportation cost. We've implemented an automated truck management system, we're in a pilot multi-shipper carrier efficiency project and we have several initiatives under way to mitigate the continuing rises in rail cost. But that said, we're just like every manufacturer in North America, we're feeling the pinch of higher fuel costs.

Our hedging program has limited volatility in our natural gas cost, so our natural gas cost increased only about $1 million in the quarter. We're also seeing increases in the cost of material such as pallets, steel, poly bags, but I think our managers have done an admirable job of managing around these increases. As a matter of fact, our production cost as a percentage of sales declined for the quarter. Part of that is due to increased production volumes and part of it is due to our operational excellence programs.

We will also continue to use discretionary capital spending on cost containment and energy conservation improvements. We and our joint venture partner also began construction on Minosus' new waste facility at the beginning of February and so far we are still on target for a third-quarter completion date. We've hired some employees and have begun marketing the disposal services. We're in negotiation with prospective customers, but won't be able to discuss revenue until we're further into that process. Minosus should approximately breakeven in 2005 due to the startup cost.

Before I conclude my remarks I want to take a minute to give you my thoughts on the upcoming highway deicing bidding season. As a reminder, the bidding season begins now and peaks in late summer and concludes in early October. So we're at the very early beginnings of the season. Obviously transportation costs are going to be a primary focus for us as we begin to develop our bid strategy.

Inventories are about average in our market and just a few pockets of below average inventories, but keep in mind that our customers don't hold the highway deicing inventory, the producers do. We retain the inventory so inventory levels are more of a guide to our production plan than a bellwether in the next season's sales. At the next earnings call we should be able to give you an update on the results from the first half of the bidding season for the upcoming winter. With that I'll turn the call over to Rod Underdown, our CFO.

Thank you, Mike. Our gross sales increased by $16.9 million to $267.4 million this quarter. When we exclude shipping and handling costs our product sales increased $5.4 million over the first quarter of 2004 to $181.5 million. Gross wholesales increased 13.9 million to 242.6 million and our salt product sales increased to 160.7 million from last year's salt product sales of $158 million.

We sold more than 4.8 million tons of highway deicing salt in the quarter which is a Company record. Our year-over-year gains in highway deicing salt sales were partially offset by a slightly milder winter in the UK, reduced industrial salt sales in the UK, and lower consumer deicing sales because of the timing of the winter season compared to last year. Foreign exchange rates also increased our first-quarter salt sales by 6.9 million.

SOP gross sales increased 14% to $24.8 million over the first quarter of last year. There were a number of factors that contributed to the gain including the price improvements that we announced, volume gains and a product mix shift towards our premium SOP products. Shipping and handling costs were more stable at our SOP segment since our rail contract out of our Ogden facility extends through the middle of 2006.

Our gross margin was 27.4% for this quarter which is compressed from our 2004 first-quarter margin by 1.3% primarily because of the increases in shipping and handling cost. Our SG&A expenses increased by $1.6 million over last year. This was due to audit fees related to Sarbanes-Oxley compliance, some staff additions, variable compensation and the effect of foreign exchange rates on our UK and Canadian SG&A cost.

Interest expense of $15.7 million is a $300,000 increase over the prior year which is due to higher accreted interest on our discount notes. Even though our pretax income was almost identical to the prior year, our income tax expense for 2005 was higher for two reasons. First, our UK subsidiary repatriated funds to our North American operations through a partial loan repayment resulting in a foreign exchange gain for tax purposes which gave us a $5.4 million charge to income tax expense. The foreign exchange gain does not appear in our current income statement because it was recorded directly to stockholders equity in previous years.

For U.S. tax purposes the repatriation needed to be completed in our tax year that ended in the first quarter. We completed the repatriation in such a way as to preserve our ability to repatriate our accumulated foreign earnings in a tax efficient manner under the American Jobs Creations Act. We've been assessing the most efficient means of repatriating foreign earnings in the future including whether we can benefit from the provisions of the American Jobs Creations Act.

Once the Treasury Department finalizes its regulations and interpretations related to the fact, we will assess whether there are any additional tax efficient means of repatriating foreign earnings in the current tax year. If we determine that attractive options are available to us they would likely result in an additional tax liability and additional income tax expense. We have until February 2006 to complete a qualifying repatriation strategy.

Our income tax expense was also higher this quarter because, as I mentioned in previous earnings calls, our effective tax rate will be slightly higher than the rate experienced in 2004. We continue to expect our cash taxes to more than double for 2005 when compared to 2004 primarily due to improved profitability.

Net income for the quarter was $22.6 million or $0.70 a share. Excluding the $5.4 million non-recurring tax item our net income was $28 million which is $0.87 per share. The primary reason for the year-over-year decline from $0.94 per share is the increase in our effective book tax rate.

Our EBITDA increased modestly year-over-year from 67.6 million in 2004 to 68.3 million in 2005. And adjusted EBITDA was slightly higher increasing from 68.1 million in the first quarter of '04 to $68.5 million in this year's quarter. Our cash flow from operations was $90.6 million compared to $101.7 million last year. The decline was primarily the result of an increase in our Canadian cash taxes and the timing of the winter season snowfall.

Capital expenditures were 4.2 million in the quarter which is just slightly above our $3.9 million capital investment in the first quarter of 2004. Debt stood at 568.2 million at the end of the quarter. We made another $10 million voluntary principal repayment on our term loan and paid the full $11 million that was outstanding on our revolving credit facility at the end of the year. We continue to monitor refinancing opportunities on our high yield debt, though nothing looks compelling at this time. Debt net of cash was $501.2 million at the end of the quarter, a reduction of $72.2 million from December 31, 2004.

Now I'll turn the call back over to Mike for a few final remarks before we open up the call for questions.

Thank you, Rod. To summarize, we have continued to grow our customer base in just about every market in which we compete and, because field inventory levels are low, production volume should be strong through the middle of 2005. Our price increases have been keeping pace with the increasing fuel and energy cost, but not enough to expand margins. However, we typically found in the past that when these cost factors ease our price continues to remain firm so it creates a value enhancing opportunity for Compass.

During the quarter our cash flow remained strong and we paid down debt by $21 million. Also, a couple months ago the Board increased our dividend by 10%. Increasing the dividend reflects our assessment that our normal winter revenues, margins and EBITDA have increased from a year ago. We feel really good about the direction of our business. Our vision is to create value for our investors and our customers and we're tightly executing against that vision. Our focus continues to be on maximizing the cash flow, paying a handsome dividend, and prudently reinvesting in the business for growth.

Now we'll open the call for questions. Operator?

(OPERATOR INSTRUCTIONS) Michael Judd, Greenwich Consultants.

A question on the SOP business. It looks like in the first quarter the average sales prices up around $4 a ton, right? What I'm curious really -- is were some of those price increases that you announced for early in January -- was there a timing lag? Should we expect to see higher prices in the second quarter and, if so, by how much?

Secondly, also in the SOP business, realizing of course that the first quarter is probably somewhat seasonally weak, but what type of volume increases would you anticipate in the second quarter on a year-over-year basis?

And lastly again, also on the SOP business, we've been seeing a number of announcements for new capacity in commodity potash. I realize that you guys are SOP, not MOP. But I'm just kind of curious as to what impact you think that's ultimately going to have on SOP prices maybe a year or so down the road once those plants come on?

We'll get to each of those. I'll handle the price question. You had mentioned that our price was up about $4 and I want to make sure everybody is looking at it properly. Because we have a different mix quarter-over-quarter between our export and our domestic volumes and our domestic volumes do have generally a higher price associated with them. We think it's best to look at the improvements on a year-over-year basis rather than a quarter-over-quarter basis. So although the price is up $4 or $5 from the fourth quarter, it's up about $15 versus last year's first quarter and that is reflective of the price improvements that we've achieved in the marketplace.

I think if you look at last year's prices and look at the variance in this year's first-quarter quarter-over-quarter, at least at this point you could assume a fairly consistent increment year-over-year in what we expect in '05 versus what we experienced in 2004. I'll let Mike cover your volume and capacity question.

From a capacity standpoint and volume at Ogden, we're currently running around a 385,000 tons I guess sales pace. Our capacity is 450,000 tons. Part of the constraint that you have on capacity, Michael, is not just the 450,000 tons of SOP capacity, it's also the evaporation season and so one and so forth which also can either enhance or limit. We've been having a lot of rain everywhere in the west particularly in the Utah area. So it's not real favorable for a growth pattern on maximizing the capacity of the plant. So I would say the 385,000 ton rate this year would probably be a good rate for us and probably for the next 12 months or so.

As far as the potash capacity increases in MOP that have been announced -- while there is not a direct tie to MOP and SOP prices there is some correlation between the two. As we went through our five-year plan and forecasted out we see the MOP prices starting to drop about 24 to 36 months out. Part of our program has always been to try to maximize the differential in pricing between the MOP and SOP product line. In Europe, for example, SOP maintains about a 1.6 times premium over the MOP price. Historically here in the U.S. it's been about 1.3.

So we view the opportunity even if the price starts to drop on MOP, with our agronomic and our marketing programs that we've but in place our goal is to capture that additional 0.3 premium on a global basis here in North America. So while it may be a threat we don't see it as as big a threat as it would've been several years ago. Does that answer your question, Michael?

Ed Lane (ph) Rodriguez, Goldman Sachs.

I quick question on the transportation cost. How much are you hedging now for the rest of the year given that you expect costs to grow up? And also, what was the impact of the milder winter in the UK to the fact that the winter season was less severe than expected?

When you're talking about hedging are you talking about natural gas hedging?

Natural gas, yes.

Of course, as we try to hedge out over a 36 month period at a time, last year we did not see the full impact of the rise in natural gas prices because of the hedging program we had. This year we're seeing, as I mentioned earlier, about a $1 million increase in the quarter and we would expect that to remain about at that same pace. So natural gas prices in total will impact us for the remainder of the year by about $3 million. But as I mentioned, we put in a pricing increase for our general trade business in January which, by the way, is the largest user of natural gas which should more than recoverage that price push on natural gas plus transportation for our general trade business.

I'll let Rod answer the second part of your question.

As it relates to the UK winter, it was just slightly milder than last year. It was only off by about 2% on volume. So it was a minor change, it wasn't dramatic. We did have a different customer mix over there, so our average pricing in the UK was lower than it was last year. But overall the winter season was right about average and slightly below last year.

The other issue you had with the UK, though, even more than volume and mix was the fact that the winter season came in about a two-week period of time. There was absolutely January was the mildest winter on record in the UK and we didn't get to really any kind of winter season until about the third week in February and we sold almost all the volume in about a 14- to 16-day period of time. And in the UK we're having the same problem we're having here which is availability of lories, as they call them, or trucks, as we call them. And we had to pay a lot of premium pricing in order to deliver the product we needed by the customer. Not only did we experience a slight decline in volume, our logistics cost in the UK was significantly more than it was from the prior year.

David Begleiter, Deutsche Bank.

Mike, do you expect any further imports on the East Coast next year? I gather given some of the high freight costs, the Chilean's and Moroccans have not been able to access the East Coast for the last couple of years.

Yes, that's correct. We see that remaining fairly constant at the moment. That benefited the North American producers by about 1.5 million tons this year, all that pretty much on the East Coast. Any of the East Coast producers that have mines in New England had a very, very robust winter season. As you all know, the northeast market was -- or snowfall was very good. They also got probably higher than the average 5% price increase in the New England market. So as a result, anybody who was a producer in that region really struggled to keep up with that demand which benefited us because that basically turned those producers back towards the east rather than coming into the eastern part of the Compass market. So we benefited from that.

As we mentioned, we had a record first-quarter production and also a record first-quarter production at our Goderich mine. Actually on an annual basis we've produced over 7 million tons at the Goderich mine over the last winter season. So it's benefiting everybody, particularly producers there, but it's been benefiting us too. And we see that at least remaining constant as long as commodity ocean rates remain where they are and the dollar remains as week as it is.

Peter Park, Park West.

I just wanted to get a sense of how to think about the shipping and handling cost per ton as we go throughout the year. You said we'd experience that same difficulty throughout the entire year, but should I think of it as flat on a per ton basis with the first quarter or should I model it more as increases over the prior year on a quarter-by-quarter basis? Thanks.

I think you have to analyze it from the basic four modes of transportation that we use. Let's break it down; it's probably the most -- the largest which would be the river barge transportation up the river. That's where we're seeing -- we probably did not see the greatest increase last year, but we are facing some larger increases I believe for the deicing season this year. Barges, they're being scrapped so there's a pretty significant decline in availability of barges. The barge companies have been very unprofitable for the last few years. So we're seeing reduced supply and a lot of pressure on barge rates and availability for the upcoming season.

We're doing some things to help offset that. We're putting some capital in at the mine at Cote Blanche to do above ground storage which we have not had in the past. This will let us be in a better position to load barges on a consistent basis rather than having to take production ups and downs. So we're doing some things to mitigate availability at our margins in the rock salt business -- we don't want to miss a sale. And we'll work on getting the cost down. We're working with all of our barge suppliers on that. We have contracts on our ships across the Great Lakes through this year which basically mitigate any increases pretty much to fuel surcharges. And by the way, fuel surcharges are also having an impact on the barges.

But on a per ton basis, because they're carrying so many tons, it's not as great an impact as talking about trucks and rail. Trucks, we have seen some mitigation of the availability of drugs in the last 90 days. I think that's pretty much an indication that they maybe the economy in general is softening. We're having a much easier time finding trucks than we had also. We're getting a lot more competition so I think there is a good chance on the trucking side if things remain the way it is economically that we might be able, through competition, to offset some of the fuel price surcharges that we're looking at.

Rail, for everybody outside of us -- we're on Union Pacific and Union Pacific is probably the most notable inconsistent performer from a service standpoint of anything. The nice thing we have there is we do have a contract with the Union Pacific which basically has benefited our SOP business. We don't see any increased charges on rail because of that. We're just fighting the availability, but we're going things around that to help offset that, too. We're looking at outsourcing our shipping and handling and our rail yard services at Ogden.

So we've got lots of things that we're working on to help mitigate. But I think if you look at it on a per cost -- per ton basis you're going to see increases this year probably pretty much similar to what we've seen in the last two or three quarters.

When we started talking about higher credit (ph) rates at the end of last year, about six months ago, I think what we anticipated is about what happened in the first quarter. We had talked about 5% price increases and about half of that being eaten up in higher transportation costs. That's about what we saw in the first quarter where our transportation costs were up 2%, our net sales were up 3% -- our sales net -- shipping and handling costs were up 3%.

So I think it was about what we expected. I don't think we -- we don't believe that it's going to get worse than it was in the first quarter. So I think if you look at the first-quarter increases, that's about what you can expect for the rest of the year.

David Silver, JP Morgan.

A couple of questions. I'll get this one out of the way first. So I hope it doesn't sound like I've just watched the Weather Channel and came on the call. But I know up around the Great Lakes area there's been some very heavy snowfall during April; Cleveland for instance. And I'm just wondering if that might be an unusual event that could lead to a better second quarter than we might normally see?

Not really. The issue you have is once the roadways warm up, and these are events that are happening on a flash basis. They're coming in pretty much after some warm weather. The highway road surface temperatures have warmed up. So while you're seeing a lot of snow accumulate on the ground that has a lot colder temperature than blacktop which retains heat, it's not going to have a huge impact on the second quarter. It may take some salt that's currently in the sheds out of the way, but I wouldn't expect a big bump from anything that you're seeing in today's weather Channel.

Thanks a lot. A couple of questions on cost. I guess with Minosus you've indicated that I guess there's a little bit of capital and you said there's some employee costs. Are they showing up in the salt division, are they in SG&A? Where do we see those showing up in the income statement if at all? And can you give us a broad brush of either the cash outlay or the expense that you might expect for fiscal 2005?

Because the Minosus joint venture is a 50-50 owned venture we account for that on the equity method and our 50% share of earnings and losses shows up in the other income line on the income statement.

Okay.

Through the first quarter that venture was almost breakeven so there was very, very little impact. As the document business and the income that that generated offset some of the startup costs associated with the waste business. Now from an investment standpoint, we are investing a little over $2 million during 2005 mostly in the first and second quarters to put in our 50% (technical difficulty) waste reception facilities at the mine. That cash outflow is part of our increase in other assets. That's where that shows up on the balance sheet.

Okay. And Rod, I had one other follow-up for you on the tax issue. So you indicated book tax will be higher this year. Can you give us an estimate of the split between -- Well, I guess I'm trying to get at what kind of cash tax rate should we be using if we are using a 32% book rate? You mentioned it's going up this year? What guidance might you have on the cash tax rate?

Sure. Last year we paid about $10 million in cash taxes, and this year we expect that to more than double. Our cash tax rate is a little lower than our book tax rate, but we will be pretty close. I think if you use around the 30% rate for our cash taxes, 30 to 31%, that is a pretty good rate at this point.

If I could just indulge you for one more question, this might be a question about Goderich. That is your big facility. It has been ramping up production over several years, I believe, and at a 7 million ton rate that is well in excess of its nameplate the last time I looked at it. From your perspective, is there some additional investment? Should we be expecting some creeping inefficiencies as you push the limits of that facility? How should we think about your overall production cost base in terms of what you're trying to do, what you have to do at Goderich?

The limitations that you basically have at the Goderich facility is basically the air flow down the shafts. It's not really a bottleneck around the lifting capacity right now. We can lift probably more than 7.1 million tons, but we are in a position that there is not a lot of excess capacity at the Goderich facility. So we are studying a lot of different options around that capacity limitation at Goderich. We see ourselves continuing to focus on the OE there.

We think there is still lots of opportunities to reduce costs, so we don't see creeping up against capacity limitations as necessarily being a limiter of what we can do from a lead to reduce the cost of production at the facility. Actually, I kind of like being in the position where you are running max out, trying to figure out how to drive cost lower. It is a nice position to be in. Yes, we strategically are in a whole review process around what to do for growth at the Goderich Mine.

Okay. And then last question -- I'm sorry to catch so much of your time here. But on a year-over-year basis, 1Q versus 1Q, any sense what the increase in your Canadian costs were due to the weak U.S. dollar on a reported basis?

On a year-over-year basis, we really -- we are flat; on an annual basis we're roughly flat on the Canadian dollar. On a year-over-year basis, in the first quarter it's a favorable item for us because we sell more product in Canada and the translation effect that we get is actually a favorable affect. Because during 2004, earlier in the year we're transferring tons cross border from our Canadian operations or our U.S. operations. That was happening while the Canadian dollar was strengthening against the U.S. dollar. But there's less of that that happens in the first quarter. On an annual basis we think we're neutral to the Canadian dollar, but on a first-quarter basis it's a positive -- it was a number for us.

Thanks for clarifying that with the flow of revenues versus cost. Thanks a lot.

I'd like to respond to another question about second-quarter versus first-quarter performance for the Company. I think you ought to note, or we all should note, that the winter season in the first quarter this year happened a lot later than the winter season in '04. We had a very, very strong March, so when you look at our balance sheet and you see receivables and so on and so forth and use of funds, you're going to see that we use funds to support higher receivables, which means that that should benefit the cash flow for the second quarter versus the second quarter of '04. So while we may not be seeing a change or a dramatic change so to speak in EBITDA per se, I think you're going to see a very favorable second-quarter cash flow number versus the prior year.

Mike Segall, Regiment Capital Advisors.

Could you just remind us again how much of your general trade goes to the chlor-alkali industry?

The general trade business does not go to chlor-alkali. We supply the chlor-alkali business from our rock salt mines (multiple speakers) that comes out of the highway.

Sorry about that.

About 1.5 million tons goes -- a little in the UK but principally in North America which is the big market. About 1.5 million tons goes to the chlor-alkali industry.

Are you seeing any dislocation with the Georgia Gulf outage?

No, we'd don't supply them. And I believe they have their own brine source.

I think they're captive.

They're captive.

That's all I had, thanks.

Brian Frank (ph), Cumberland Associates.

What do you consider your sustainable capital expenditures today?

Our sustainable capital expenditures -- our budget this year is $27 million of which somewhere in the neighborhood of about 22 to 23 million is maintenance of business. That is what we budgeted for the year. We always budget based upon a restraint on capital discipline, but we're also facing the fact that we're going to be generating higher levels of free cash flow the prior year and this year.

We have on the table several cost reduction programs and also a couple growth projects that when we look at them from a return standpoint versus paying down bank debt and the fact that we could even pay down the bank debt and prudently reinvest that back in the business. So we're also contemplating the fact would it be wise to accelerate some of those cost reduction projects and use some of that cash in a prudent way to generate higher bottom-line cash flow of the business.

So while $27 million is a sustainable rate that we target, that's about 75% of appreciation, by the way. I think there comes a time when you're looking at better uses of cash that that might be -- our projects, hurdle rates of 25% after-tax returns -- it might be prudent for shareholders to reinvest that back in the business to drive EBITDA.

Just a quick other question. You've mentioned in the past some small add-on acquisitions. Is there any activity there you're thinking about at this point?

No, nothing that's real hot. No.

Thank you.

David Begleiter, Deutsche Bank.

Just want to follow-up on pricing. Mike, any relationship historically between pricing in one year and pricing the year thereafter? I.e., is it tougher to get price increases off of a good year, i.e. in '04? And could we expect a similar -- given that, is 5% possible in '05 as well given how much you got in '04?

No, there's no direct correlation. Although I will say that great salt consuming years are pretty favorable for pricing in the coming year. Also the industry, we all are suffering I think from the same cost push type thing. So while it's way early to comment on what's happening out there, I just think there's a lot of cost that's pushing up the delivery of salt. There's not a great inventory hangover and I think that's good for the industry.

Ed Lane Rodriguez, Goldman Sachs.

I have two questions. The first one is more a strategic question. While Compass is probably limited in terms of potential acquisitions in North America, but when you look outside of North America are there any potential candidates out there? Because I know Akzo Nobel has some assets that they're trying to get rid of. Will any of these things be attractive to Compass?

First of all, let me clarify the vision for the Company that we have no vision to be the largest salt producer in the world. We have a vision to create the greatest cash flow generating company in the salt business. So therefore when we look at strategically from the standpoint of acquisitions in other countries we tend to focus around those industries that are very similar to us. Salt, by the way, is a very simple element that is mined and produced in great quantities around the world.

Some regions it's highly fragmented with not much probability in them. Other regions, take for an example Europe, have also gone through the same consolidation phase that the North American producers have. Yes, we are interested in looking at the Akzo Nobel business. We've expressed our interest through our financial advisers that when the book comes out we will take an active participating look to see if that business in any way, shape or form adds to the vision of our Company.

Okay.

David Silver, JP Morgan.

I have a quick question about SOP pricing and I apologize if I missed this. But when I look at the year-over-year price increase it's on the order of $23 to $24 a ton. And if I recall I think there were at least two $20 per ton price increases announced. So I guess I'm just trying to make sure I'm up to date, but has -- other than the January announced price increase, have all the announced price increases flowed through the market and would be reflected in your first-quarter results are might there be some lagging improvement that we might see?

I think overall most of the price increase announcements are through the market. There are a few contractual negotiations that we will be having later in the year where we would expect some further improvement. But mostly the price increases in this business are obtained as announced and there aren't a lot of contractual negotiations to have after the fact later in the year.

You have to be careful looking at the first-quarter numbers, too. There are basically three events that I think kind of skew the first-quarter numbers. The first is our highest net back region is the west, particularly the California market going into the very high value added nuts and fruits and the vineyards. Because of all of the rain that the California market has had they are way behind on ordering and consuming the SOP for this particular season. So I think we'll see -- as they dries out we'll see some benefit of that in the second quarter. So that's one impact from a mix standpoint that's different year-over-year.

The second is Idaho, which is a very big market for us for potatoes this year, they're in a drought. So they've cut back dramatically on their SOP consumption to date. As a result of that, the world demand for SOP has remained relatively strong. So we took the opportunity to move some of our product into the export market in the first quarter which generally is a lower net back for us than any of the two markets that I talked about earlier. So there's a mix dynamic that's going on in SOP that I think you'll see through the second quarter -- it'll pick up a little bit on the pricing side.

David, as you think about price for the rest of the year, I think I mentioned with an earlier caller, it's probably best to look year-over-year rather than sequential quarters because there is a different mix of export and domestic business in each quarter that tends to be more consistent. Although, as Mike mentioned, we probably had larger export in the first quarter than we would typically have as a percentage.

Okay. And then just a quick question. I don't know if you've covered this already, but the reduction in your industrial or general and trade volumes, was that the consumer ice melt topic that you mentioned or is there another source of that decline?

Basically this year -- if you look at the whole winter season for general trade it was probably -- what I mean by that, if you compare the fourth quarter, first quarter of prior year and the fourth quarter and first quarter of this year, from a consumer deicing season it was probably comparable which is better than an average winter. The only thing that happened this year versus a prior year is the winter season cut off pretty sharply come mid February where last year it continued all the way through March.

As they used up the product this year because it was later in the season versus the prior year they were already bringing in the fertilizer for the spring season, the mulches, all the other bulk bag product and they did not reorder at the same rate they reordered the year before. In the first quarter we saw a sharper drop-off on the general trade volume on consumer deicing, particularly the premium consumer deicing product going to the East Coast market.

Very good, thanks a lot.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. I will now turn the call back over to Mr. Ducey for closing remarks.

Once again, thank you all for joining us today. We look forward to sharing more about our expectations for Minosus and the highway deicing bid season results at our next earnings call. Thanks again. Bye.

This concludes today's conference call. You may now disconnect.