Compass Minerals International Inc (CMP) 2006 Q2 法說會逐字稿

Good afternoon. My name is Marvin and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals second-quarter 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 session. (OPERATOR INSTRUCTIONS).

I would know like to turn the conference over to Ms. Peggy Landon, Director of Investor Relations. Please go ahead, ma'am.

Thank you, operator, and thank you all for joining us this morning, or this afternoon it is this time, isn't it?

With me here I have Angelo Brisimitzakis, our President and CEO, and Rod Underdown, our Vice President and Chief Financial Officer.

Before we begin, I will read our Safe Harbor statement to you. Today's discussion may contain forward-looking statements within 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 identified in Compass Minerals' most recent Form 10-K. The Company will not update any forward-looking statements made today to reflect future events or developments. You can find reconciliations with any non-GAAP financial information in our earnings released, which is available in the investor relations section of our Web site at CompassMinerals.com.

Before we begin this afternoon, I would like to take just a moment to introduce Angelo Brisimitzakis, our new President and CEO. As I'm sure most of you recall, Mike Ducey announced last fall that he was intending to retire and the Board began a search, which led to finding Angelo, and we're so glad that they did. Angelo, before joining us, was with Great Lakes Chemical Corporation's Flame Retardants and Performance Products division. An interesting point is that the market structure of that business was very similar to the markets in which we compete, very competitive, and it also used a mechanical evaporation process that is very similar to the process that we use for salt. Prior to being with Great Lakes, Angelo spent 15 years with GE. So as I said, we are very pleased that Angelo chose to join us here and we are all enjoying working with him and I would like to now turn this over to Angelo.

Great. Well, thanks, Peggy, and thank you all for joining us today.

As Peggy said, I've been with the Company now for about 2.5 months, and I am really delighted to be here. When I was first contacted about joining Compass Minerals, there were a number of things about the business that really appealed to me. First, it's a fundamentally strong business model with an excellent leadership team. There are significant barriers to entry in both the salt and specialty fertilizer segments. The business is pretty much resistant to economic cycles, and there is stronger growth than I think we get credit for with a CAGR around 7% since 2001, after you exclude the effects of weather, logistics, and our 2003 SOP acquisition.

Our highway deicing products have the low-cost position. Our general trade business has significant flexibility and access to attractive consumer markets, and our sulfate of potash specialty fertilizer business has had a very strong history of growth over the last couple of years. So like I said, it's a very strong business that's very easy to get excited about.

People ask me, since I've been here, what direction I will take the Company. If I had to say, I don't want to take the Company to far away from where it is today. The characteristics that I just listed make this already a great company, and I think they make Compass Minerals an investment that's pretty hard to beat. However, I do think that we have many more opportunities for profitable growth, and I want to find ways to develop it.

We talked about one of those opportunities just last week, the expansion of our Goderich, Ontario mine. The reason for this investment is quite simple. Rock salt has been in tight supply in the Great Lakes region for the past few years, so we're taking advantage of the strength of our mine, which is already the largest salt mine in the world, with significant cost advantages. We will expand our production capacity by about 750,000 tons to capture market growth and better service our customers. These actions should generate both growth and earnings improvements for us. About a third of these incremental tons will be available in the last half of 2007 with the remainder of our capacity available for the 2008-2009 winter season. I want to keep looking for more opportunities like that. Of course, all of these opportunities will not be of that magnitude but will use the same philosophy of making sure that we're taking full advantage of our assets.

There have been another growth initiatives underway for some time now, such as internal investments in capacity, productivity, and operational excellence. Next month, we will begin harvesting additional SOP from our 2005 expansion of the ponds at the Great Salt Lake, and that additional product will be available for sale in 2007. So far, it has been a very hot, dry summer in Ogden, Utah, which bodes well for our product harvest.

The expansion of our magnesium chloride capacity will be completed soon and we will have additional specialty consumer deicing product available for sale this coming winter season.

And, we will keep looking for acquisition opportunities, though as I know Mike has said in the past, there aren't a lot of acquisition candidates that have the same margins that we generate, and we don't want to dilute the business.

My point is that growth is important to Compass Minerals, and I intend to continue to pursue profitable growth opportunities.

Now, I'd like to turn to our second-quarter activities. As you've read in our press release, we are more than 50% through the North American highway deicing bidding process for the 2006-2007 winter, and so far, we've improved our average pricing by approximately 10% over last year. However, I do want to caution you that there's still a great deal of bidding left, so our final average price may shift in the next few months. We do, however, remain optimistic about the outcome of the bidding season. The volumes of the bid have been about the same as the bid volumes of last year. As you know, our actual winter sale volumes will be a function of the weather. Our goal is to make up for the downtime due to the eight-week strike at our Goderich, Ontario mine to the extent that we are able.

We currently expect our third-quarter rock salt production to be greater than what it was in the third quarter of 2005, which would help our costs through more efficient utilization rates at our mines. Regardless of our ability to accelerate production, our year-over-year price improvement should improve our earnings. Speaking of the strike, I want to mention that the final terms of the labor agreement were similar to the increases we typically see in all of our labor agreements, and the Company continues to have the flexibility it needs to operate. I feel comfortable saying that all of our stakeholders should be satisfied with the outcome.

We estimate that the second-quarter unfavorable impact on product costs associated with lower production volumes at Goderich was approximately $3.5 million, compared to our planned production and spending had the strike not occurred. Again, because we expect higher production in the third quarter, much of this effect is expected to reverse.

At current fuel prices, the North American highway deicing price increase that we've achieved so far in the bid season should more than cover our increased shipping and handling costs, if those price increases continue for the remaining bid. That includes the significant increase in barge cost for the season, which affects about one-fourth of our highway deicing salt shipments.

Our UK highway deicing business experienced roughly an average winter season this past year, so we expect to see normal summer restocking in that market.

Our general trade product line price increase that we announced at the end of 2005 has helped us successfully manage through the impact of transportation and input increases on those products. The price increases are the largest we've seen in many years in this business, primarily due to the rate of these cost increases. Even in this environment, we believe that we've strengthened the business for the rest of 2006, excluding any weather effects. I think this speaks very well for the resiliency of these products. I also believe it speaks to the strong relationship we have with our customers. In fact, as many of you may have read, the True Value Company has named us the 2006 Vendor of the Year in the plumbing and heating category because of our support of True Value's water conditioning salt product line.

We also expect prior price increases on our specialty fertilizer segment to allow us to successfully manage through the effect of higher input costs on our SOP production. As you saw in our press release, specialty fertilizer volumes were down this quarter because of the additional heavy rain in our (indiscernible) California sales territory during the second quarter. We believe that there is sufficient global demand to allow us to make up for lost SOP volume in the last half of the year, and we expect our full-year volume to be similar to the volumes we've seen in the last two years.

I would summarize this quarter by saying the Company successfully managed through some tough challenges, and our results were pretty good. Our effort this quarter, along with the improvements we've made in our interest expense and tax structure, have laid the groundwork for strong third and fourth quarters that we are all looking forward to.

Now, I'm going to turn the call over to Rod so that he can discuss our second-quarter financial results with you.

Thank you, Angelo.

Compass Minerals had an 11% sales improvement this quarter when compared to the prior-year quarter, primarily due to price improvements in all of our product lines with the greatest sales growth coming from our general trade product line. Foreign exchange also increased sales by approximately $1.2 million.

In our press release, we mention that part of the year-over-year price increase in our highway deicing product line came from a product mix shift this quarter. That's because we continue to sell highway deicing salt out of the depot inventory during the strike at Goderich, but our lower-priced chemical salt sales declined because our management staff was mining that salt during the strike and couldn't produce at our normal volumes.

Shipping and handling costs increased 22% over the prior-year quarter on lower sales (inaudible). As we discussed, our barge costs have nearly doubled, which affects about 25% of our rock salt shipments. We are also seeing a substantial increase in rail costs and significant fuel surcharges from most of transportation providers. However, the price improvements we've implemented have been designed to counteract these measures, and we currently expect our full-year gross margin to be similar to the 27% gross margin we had in 2005, assuming we've normal winter weather in the fourth quarter.

Our private costs were about the same this quarter as in the prior-year quarter at 53% of sales. Now year-over-year, our natural gas input costs rose almost $2 million, but we're more than 80% hedged for our expected natural gas usage for the rest of 2006, and we expect about $1 million year-over-year increase in each of the next two quarters.

Now, even though our product costs were about the same percent of sales as in the prior year, our product cost was higher this year by 3 to $4 million due to the strike at our Goderich mine, which resulted in a lower mine utilization rate during the second quarter. We expect much of this strike-related inefficiency to be recovered during the rest of the year.

We had a benefit to product costs of $1 million from the final proceeds of the business interruption insurance claim that we first discussed last quarter. This contributed $0.02 to our EPS this quarter. When you add the proceeds of $4.1 million that we collected in the first quarter, the insurance proceeds totaled 5.1 million or approximately $0.10 per share, tax effected, for the year-to-date.

Our interest expense declined by $2.2 million or 14%, compared to the 2005 quarter. This is due to the permanent benefit of refinancing our 10% notes in December, 2005, and that was partially offset by an $800,000 increase in accreted interest on our discount notes. We continue to expect that our full-year [intra] savings will be approximately $8 million lower when compared to 2005, even after the higher accreted interest and the prior-year interest that was allocated to discontinued operations.

There was a total of $2 million principal amount of the 10% notes that were not tendered last December, and we called those remaining notes for a 105% of the principal amount per the terms of the call provision. We expect to pay for that call here in August out of existing cash on hand.

Our tax benefit this quarter was $2.2 million and continues to reflect the benefit of the tax planning we discussed last quarter. Now, this quarter, we also had a benefit of $600,000 in the tax line for a true-up of accruals from foreign taxes when our tax returns were filed during this quarter. In the second quarter of last year, we had a benefit of $4.8 million from a release of a tax reserve and other tax adjustments.

Our loss for the quarter was $2.1 million or $0.07 a share, compared to a GAAP loss of $200,000 or $0.01 per share from continuing operations in 2005. Excluding the special tax item in 2005, our second-quarter loss from continuing operations was $5 million or $0.16 per share.

Our EBITDA improved $1.8 million or 10% year-over-year and adjusted EBITDA, which excludes other income and expense, declined $600,000 or 3%.

Our cash flow from operations declined from 103.4 million for the six months ended June 30, 2005 to 95.4 million for the comparable period in 2006. This difference is primarily due to the higher per-ton inventory costs, which makes our seasonal working capital peaks and troughs a little more pronounced. Our expansion of the magnesium chloride plant and the new mill in the Goderich Mine increased capital expenditures year-to-date by 6.1 million over 2005 quarter. With the recently announced expansion of our Goderich Mine, we now expect our 2006 capital expenditures to be approximately $40 million for the full year.

Our debt has declined $38.3 million since December 31 because of the payoff of $31 million that was outstanding on our credit facility at year-end and payments totaling $21.7 million year-to-date on our term loan. That has been offset by some accreted interest on our discount notes. Debt, net of cash, was 519.5 million at June 30, bringing our net debt to trailing adjusted EBITDA ratio to 2.9 times.

Our cash balance was 58 million at the end of the current period, compared to 55.5 million for the same period in 2005. As Angelo said, we really feel like we've successfully managed through some tough challenges this quarter very well. We currently expect to see a strong improvement in our operating earnings next quarter when compared to the 2005 results. This expected improvement is due to the convergence of several factors. Our North American highway deicing product line will begin to see the impacts of the upcoming winter season's higher prices, which we expect to improve margins. Our rock salt mining operation should see improved capacity utilization and therefore more favorable costs than in the prior year, as we attempt to offset the production shortfall we experienced during the second-quarter strike. And, we will continue to see the benefits -- the significant benefits from our price improvements in our general trade salt product lines and our SOP business from our successful implementation of the previously announced price increases.

Our third-quarter and full-year 2006 focus will continue to be on the successful execution of our plans, including a focus on those items that I just mentioned, to generate a strong improvement in our third-quarter results. So, those are our final remarks and I will turn the call back over to Marvin for questions.

(OPERATOR INSTRUCTIONS). Robert Koort, Goldman Sachs.

This is Amy Zhang sitting in for Bob Koort for the call. The first question -- the 10% pricing (indiscernible) it sounds pretty good but I mean, how much not (indiscernible) do you guys expect to get, assuming in the second half of the bidding season you all still get a similar pricing as the first half of the bidding season?

Yes, well, I think it's a little early to make those kind of predictions. What I would say is that, if we continue to see the kind of price increases we had through the first half of the bid season, that we're definitely talking about something that would return our margins and margin percentages to something that would be more akin to what we had a couple years ago. So that's probably the best way for me to answer it at this point. I think it would definitely expand our margins, but it's hard to predict exactly what that number would be right now.

Yes, this is Angelo. I mean, we still have about half of the bid season in front of us, so I wouldn't want to count our chickens kind of before they hatch here, so I think Rod's comments are right on. We are optimistic. Obviously, there's some tightness in the marketplace in the Great Lakes region, which I think tied into our expansion. So we're kind of pleased on how it's coming together but there's still a more to do before we can really answer that question definitively, Amy.

Okay. Then, have you guys seen any new market share gains in this first half of the bidding season?

Yes, I think that, as we had mentioned in the release, because of the strike, we're going to have less tons available for the upcoming winter season, but with prices where they are net of shipping and handling costs, should that continue, that would again mean margin expansion.

Okay. Then a second question -- what was the underlying tax rate of the second quarter '06, excluding all the benefit, the tax benefit you mentioned early in the call?

Yes, you know, we did have a one-time issue in there for just truing up our provision based on our filed returns. So if you look at the year-to-date provision without that 600,000 in there, I think you end up right somewhere around 22, 23%. So we're still comfortable saying that for a -- you know, on a full-year basis, we're still going to be in that mid-20% range. You know, it could and probably will vary based on the mix of the earnings between our various taxing jurisdictions, but it's going to be in that mid-20% range.

Okay. Then my final question is do you expect the current rock salt capacity expansion in North America to make any meaningful contribution to this year's volume growth in your salt business?

Yes, this is Angelo. Yes, I mean the impact is really -- it's really going to be more of a next-year even for us. This year, I think Rod had mentioned that the volumes are going to be slightly suppressed, due to the strike. So the capacity availability is more a next year event.

Mike Judd, [Branch Jergen].

Congratulations on a good quarter. You know, I'm just looking at the exact wording here. Compass Minerals has achieved price improvements of approximately 10%. Did you include that they are just really more to sort of comment on how things have looked in the second quarter, or do you mean to imply by that that we should expect those types of price increases on a year-over-year basis in the third and fourth quarters?

Yes, Mike, that's more of a forward-looking comment there. That was not meant to imply that we had a 10% price improvement in the second quarter. We were referring to the bid season. All of the contractual arrangements with our customers all have different contract years, but generally, we think of the bid season as starting in July -- the effects of the bid season as starting with third-quarter sales, and wrapping around all the way through the following winter season. So the 10% is meant to be a focus on the upcoming winter season.

Most of that -- Angelo -- most of that will be a fourth quarter/first quarter event.

Okay, so what you mean to imply by that is if I look at the numbers that you guys have supplied us with in the past, you know, what you are implying is highway deicing salt prices slightly above $30 in the first quarter and in the high 30s in the fourth quarter. Is that kind of a reasonable way of looking at things?

Yes, I believe so. If you look at last year, it was at $27.76 in the -- (multiple speakers) -- quarter so above 30 and last year's fourth quarter, it was 35, so in the high 30s would be the right way to think about it.

Okay. Then on the SOP side, could you also talk a little bit about -- I'm not sure if you made any comments about prices, in terms -- I mean, at this point, the season is over I guess, right?

Yes, you know, I think my comments from last quarter probably -- definitely still stand there. What we had talked about last quarter was that we had the 2005 price increases and then we had a February '06 price increase, and our pricing differential year-over-year last quarter in SOP was over $40; it was like $45 a ton. I think, at the time, we stated that differential would probably narrow the rest of the year. So this quarter, it's $32 a ton. Absent any other pricing announcements, you know, in the marketplace, then we would expect that year-over-year differential to gradually narrow through the fourth quarter.

Okay, so when you're saying gradually narrow and basically you're looking at about, as you said, about a $33, $32 differential. Is that something like on the order of a couple of dollars per ton per quarter, or is it something more significant than that?

Well, you know, I think it's a little more than that, but you know, there will still be, by the time we get to the fourth quarter, a pretty substantial year-over-year price change because it was a $20 announcement in February, and the majority of that went through.

So maybe give up half of it through the rest of the year?

That's not a bad assumption, yes.

Okay. Let's see, then on the volume side, I guess, you know, you indicated down slightly for the full year. But I guess what that implies, though, is it really could actually be up year-over-year in the second half of the year, right, in highway deicing salt?

You know, you might remember, Mike, that last year's fourth quarter was significantly above average.

Yes, it was a pretty strong quarter.

It was a very strong quarter. So I think our remarks are meant to really indicate that, in a normal weather season, we will bid on just a little less business over the entire season for this upcoming winter, than we would have in the past. I don't want to overstate that; that isn't a huge amount, but because of the strike that we had, we really do have less tons available. That's contributing to some of the tightness in the market, and I think we're seeing some of the results on the price side.

So, you know, year-over-year, I think you have to -- for the second half, I do think you have to look at that fourth quarter, maybe go back and look and see what we said about how severe that winter was in December. You know, we wouldn't be able to plan on that kind of volume absent abnormal winter.

Would it be unreasonable, if you're making a guesstimate, and anybody can on the weather but for volumes to be, say, down 15% year-over-year in the fourth quarter, just if you end up having just more like a normal fourth quarter? Does that seem reasonable or unreasonable to you?

Yes, well, I think our fourth quarter was more than 15% above average last year.

Okay, great. Thanks a lot for the help.

(OPERATOR INSTRUCTIONS). Jason [Minor], Deutsche Bank.

Good afternoon, guys. Congratulations on a good quarter.

Just quickly on the interest, I had thought you guys were looking at a 10% annual benefit from the refinancing. I think you were saying 8. I sort of do this math, I'm looking at a run-rate around 10% benefit. Am I missing something?

Yes, I'm sorry if you heard "percent". I meant to say -- (multiple speakers).

I'm sorry, million dollars -- $10 million per year? $8 million per year?

Yes, $8 million per year. Now, you know, there's a couple of things that you have to factor into that. We allocated last year about $2.5 million of interest to discontinued operations, so when you look at full-year interest expense, that interest is setting in discontinued operations from last year. Then our accreted interest is going to be about $2.5 million higher than it was last year.

Okay, that's helpful.

So that $8 million is net of both of those things. Really the interest savings from the refinancing is more like 12, but it's netted against both of those other two items.

I got you, thanks. Remind me, on the SOP expansion, is that going to get about 5% or so increase in available capacity in '07? I think that's what you had said the last time we talked about it, maybe in Q4.

Yes, this is Angelo. It's about 5% is what we've targeted here, and as I said in my comments, the harvest is setting up to be pretty good, arid weather. It's real interesting in this business. You're looking at snow and ice on one end; you're looking and droughts on the other end. I think give me a couple of more months and I will figure out all of the weather -- (multiple speakers) -- (LAUGHTER) weather drivers, but yes, dry weather helps us there and we seem to be getting it in Utah.

Good. Just let us know when you have your weather forecast done. Then one other quick question -- what are you guys going to do to drive up Goderich production over the second half? I mean, it sounds like you are constrained in this year's sales from the strike, but you are saying that higher volume in the second half is going to drive a recovery to some degree. I'm just getting a little confused there. Are - (technical difficulty) -- inventory cost to some degree or what's going to go on there?

It's Angelo now. I think from an operational side, I believe last year in the third quarter, we didn't operate at full production capacity. I believe we had a shutdown. So the team has developed a production plan, at least for the third quarter, that allows them to produce more than what we produced last year in the third quarter. So that incremental capacity will be utilized and allocated to market.

Okay, so will that actually cause there to be more in-season bidding and sales this year than we've seen in the past?

No, I don't to think it will affect in-season bidding at all.

Okay, so about the same sort of split we've seen before?

Yes.

(OPERATOR INSTRUCTIONS). (indiscernible), Credit Suisse.

Angelo, I just had a question. I don't know if I heard you properly but did you say that for the Goderich expansion, it would be one-third in the latter half of '07 and then the remainder in '08 and '09?

Yes, I did.

Okay. Now, what's driving that? Is it you don't want to affect the market too much, or is it actually the time required for that type of expansion?

As you can imagine, this is the largest salt mine in the world; it's a massive facility. In fact I will be going there tomorrow to spend some time with the team. It's just kind of the long leadtime items, the engineering around the expansion, the actual creating the new face and the activities that we're going to have associated with it. It's going to put us past this season, and we will capture part of the next year, late '07, and then the balance in the '08/'09 season.

Okay. In terms of incremental, the ability to run a little bit harder, how much -- do you have any sense of quantifying how much the fixed costs might be reduced by that expansion?

Well, running harder in the third quarter is really a separate event from the expansion. That's more to go after the approximately $3.5 million of loss absorption in the second quarter, to try to recover that in the second half of the year. The additional production from the expansion is really there kind of for two reasons. One is the market has an underlying growth rate based on our customers and municipalities in the Great Lakes area just buying more year after year. That's Factor A. But probably the biggest factor is weather. As Rod talked about a little bit before, we can see swings of 10 to 20%, both plus and minus, in any given season, based on having a severely positive or severely negative weather outlook. I just believe it's our responsibility to our customer base to have added capacity available to meet their needs.

So you know, we're not going to run the plant hard unless market conditions warrant, but having that standby capacity available, should demand increase either through our commercial activities, through our customers buying more, or through severe weather events, I think make us a better supplier. Again our goal is to be the leading supplier in this segment, and I just believe that is our responsibility.

All right, great. Thanks a lot.

Mike Judd, [Branch Jergen].

You're not going to want to answer this question for sure, I know that. But if you do some back-of-the-envelope calculations here, basically building in some of the comments that you've made about the third quarter, it seems to me it sort of implies that EPS could be at least breakeven and may be slightly positive. I mean, that's a pretty stark contrast to prior third quarters where you would typically operate at a modest loss. Is that kind of where you are coming from with your comment about things being substantially better?

Well, yes, I mean I think there are several factors that have moved us forward in that direction. We are working towards -- historically, the second and third quarters for the Company have been losses. I think, if you would look at where we were this quarter and you take out the affect of the business interruption, but you also subtract or add back the effect of the strike, you know, you can probably see that we would have been pretty close to that in the second quarter. Now, the second quarter is usually a lower quarter for the Company than the third quarter is, so you have I think the combination of the improvements that have been made, combined with some of the pricing effects that we will start to see from the highway business, net of the higher transportation costs, and we're very optimistic about where we are headed for the third quarter.

All right, Angelo I can see why you took this job. You must be able to sleep pretty well at night.

Yes, except I have to watch the Weather Channel a lot and that wasn't one of my favorite channels before. Other than that, yes, it's a great job, a great company -- to not be tied as much or at all to economic activity and really focus on meeting customer needs, having capacity available, good commercial activities that as we are seeing translated now on price recovery. It's a great, great business model. The industry structure is also something you kind of read about in textbooks. I mean, it really is a good company and a good industry.

Mike, if I could just add, we've mentioned a couple of times on the financing and the tax structure, you know, both of those things have helped on -- I don't want to say a permanent basis, but they are a sustainable basis upon which we've now got our costs on both of those items.

All right. Just one last thing -- on the FX question, could you just remind me just sort of -- are there any ballpark or rules of thumbs that we should be thinking about in terms of the Canadian dollar versus U.S. dollar? Just so we can look at the other income?

Yes. Mike, we really have two exposures that hit our income statement. One is the dollar to the pound; one is the dollar to the Canadian dollar. Now, they are offsetting exposures in that when the dollar strengthens, you know, we've a gain on loss and -- a gain on one and a loss item on the other and vice versa.

But you know, as you know, the Canadian dollar and the pound don't always move in lockstep against the U.S. dollar. So we generally like a stronger dollar to the Canadian dollar and a weaker dollar to the pound -- is generally what our preference is there. The exposure in terms of calculating it on your side, it would be very difficult because it depends on many different factors in terms of how we have financed internally or paid off inter-company accounts and so the balance and therefore the amount of the gain or loss can vary even from quarter to quarter.

So, I'm taking a long time, Michael, to say it's going to be hard for you to calculate the impact of that.

Okay, thanks again.

(OPERATOR INSTRUCTIONS). Jason [Minor], Deutsche Bank.

Just one quick follow-up, guys -- and gal, sorry. I take it, from your comments on gross margins (indiscernible) but the 10% sort of forward-looking price increase, you are expecting in addition to fuel in transportation costs, that this is going to cover this additional unhedged $1 million increase in natural gas or so each quarter, going forward?

Well, remember, the natural gas is really more of an effect on our evaporated salt facilities, so that would primarily be an effect on the general trade business where that's the pure form of salt that is evaporated, and the energy choice generally across our company is natural gas to do that evaporation. So, the highway deicing price increase is really -- the inputs that are driving the costs there are more of the transportation costs, which would include the barge contract.

I see, so I'm mixing my costs but are the price increases you might get in general trade going to offset the higher natural gas costs?

Yes. The price increases in general trade, I think as Angelo mentioned in his results, have been higher really than just about any period in recent memory for the general trade business. So yes, they have been able to recover the costs there, plus.

Okay, thanks for the clarification.

There seems to be no further questions. Mr. Brisimitzakis, do you have any closing remarks?

I sure do. Thanks, Marvin. Once again, I'd just like to say how pleased I am with our second-quarter results. I think they reflect really the hard work of our employees and really the dedication to providing value to our customers, and we've got great customers.

So thank you all for your participation and interest in Compass Minerals. And I really look forward to our next call and to working with each of you. Thank you very much.

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