Compass Minerals International Inc (CMP) 2009 Q1 法說會逐字稿

Good morning, my name is Mollie and I will be your conference operator today. 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 session. (Operator Instructions). Thank you. Miss Landon, you may begin your conference.

Thank you, Mollie, and good morning, everyone. Thank you all for joining us today for a discussion of our first-quarter results. Before I turn the call over to Angelo Brisimitzakis, our President and CEO, and Rod Underdown, our CFO, 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, April 28, 2009, 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 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 in the Investor Relations section of our website at CompassMinerals.com. Now I'll turn the call over to Angelo.

Great, Peggy. Thank you, everyone, for joining us this morning. This was a remarkable quarter with strong results despite many conflicting influences. It began with such strong winter weather in North America and the UK that it looked like with might have our second in a row banner winter. But a repeat wasn't in the cards. The UK did have its strongest winter in 20 years, but that region represents less than 10% of our total salt sales on a normalized basis.

In North America we had a substantial decline in highway deicing sales volumes because winter weather events slowed significantly beginning in mid-February in our key service regions, which are on both the Canadian/US sides of the Great Lakes and through the Mississippi and Ohio River valleys, and because the prior year winter snowfall remained strong the entire winter giving us a tough comparison period. Additionally, first-quarter demand for bagged deicing products fell significantly short of the extraordinary demand of last year.

When all of these results are consolidated we have to characterize the first quarter of 2009 as a milder than normal first quarter in our served market in spite of pockets of positive weather influences.

In addition, we had sales volume declines in some of our salt product applications that have exposure to the economy. For example, we sell rock salt, similar to the highway deicing salt, year-round to the chloralkali industry for the manufacture of PVC. Though this customer base represents a small portion of our overall highway volume and generally has lower prices and margins, we've seen a significant decline in sales to those cyclical manufacturers.

Our first-quarter consumer and industrial sales volumes also reflect a modest decline in some other nonseasonal applications which may be related to the economy, but on balance those end uses are generally as recession resistant as our highway deicing franchise.

Another factor that affected our first-quarter results was the year-over-year change in exchange rates which substantially reduced the translation of our UK and Canadian average selling prices, sales and earnings into US dollars. Despite the significant impact of foreign exchange, our average selling prices improved 5% on highway deicing salt and 13% on consumer and industrial products year over year.

Adding this improvement together with lower transportation costs, our Salt segment posted its highest first-quarter operating earnings in our history. We believe that that's a noteworthy achievement in the context of mild weather, some economy driven salt demand declines and the tough comparison to the outstanding 2008 quarter.

The drivers of the positive step change in the per ton profitability of our Salt segment have been higher pricing and moderating freight costs along with our ability to control costs at our advantaged facilities.

Our Specialty Fertilizer segment sales volume posted a sharp year-over-year sales volume decline similar to that seen by other producers in the broader potash industry. The factors depressing our sales volume are similar to the factors depressing the overall potash market.

First, we believe that in the short term there have been some -- there has been enough inventory in the distribution channel to take care of much of the existing grower demand. We also believe that some growers are cutting costs by skipping their potash application this year.

Most plants can survive a season without potash, but there is often a negative impact on the following year crop. For example, sulfate of potash applied to almond trees this year will help establish the nuts that are harvested in 2010. So the decision to skip an application can have long-term negative implications, but some growers are making that short-term decision nonetheless.

We also believe that a portion of the market is sitting on the sidelines hoping for SOP prices to dramatically decline the way that phosphorus- and nitrogen-based nutrient prices have recently declined. But clearly those blenders and growers don't fully understand the differences in source materials and industry structure among the major NP- and K-based fertilizers.

And lastly, we have to assume that the credit market and liquidity concerns play a role in customer sentiment as well. However, despite the significant decline in demand our pricing remained very strong and even rose above our fourth-quarter 2008 average price by more than $45 a ton. Our Specialty Fertilizer operating earnings of $26.8 million were the highest we've ever achieved for that segment in a first-quarter period.

Looking ahead, first on specialty potash, we expect the second quarter to be a continuation of the demand trend that took hold in the fourth quarter of 2008. Overall, we expect 2009 to be a below normal sales volume year, though we do expect some strengthening during the second half of the year.

Despite expecting lower SOP sales volumes in 2009, we anticipate attractive pricing and continuing strong profitability for our Specialty Fertilizer segment through year end, ultimately setting us up well for what we believe will be a robust demand rebound during 2010.

Our expansion plan continues on schedule out at the Great Salt Lake in Utah. We still expect to have 100,000 additional tons of lower cost pond-based SOP capacity available annually starting in 2011, though we may not actually bring any additional output online in 2009 depending on demand. And our KCl-based Specialty Fertilizer tons will continue to contribute to our segment profitability. We expect to purchase our full contractual allotment of KCl tons in 2009.

Turning now to our Salt segment, 2009 should mark a return to normal in that the market supply/demand will still be snug, but not significantly underserved as it was this past year. Although the first quarter was milder than normal for us, the full winter season was still more severe than normal and therefore we ended the first quarter with modestly lower than normal rock salt inventories, but more than at the end of 2008 when our inventories were extremely depleted.

This is very positive because it should help ensure that we can fully serve communities in our sales regions this coming winter. It should also make North America, especially in our Midwest service area, far less attractive to importers who opportunistically entered the market last year at unsustainable extraordinarily high prices to supply unserved and underserved communities.

While the current economic climate has resulted in tight government budgets, we expect total North American bid commitments to again be in the normal range which would be an increase from our somewhat constrained bid commitments in 2008. Public safety is a priority of every government, plus navigable roads help ensure that commerce continues and tax revenues are generated.

In our lengthy experience governments have not significantly altered their highway deicing buying patterns in prior economic downturns. We do expect reduced sales to the lower-margin chemical customers to continue through 2009, which may be evident in our second- and third-quarter highway deicing sales volume, but shouldn't be material to our overall 2009 results. In fact, we may be able to divert that product to our higher-margin deicing application so that we can more fully serve our primary rock salt deicing customers.

For the consumer and industrial business we are excited about our recent $3.6 million acquisition of Cutler-Magner, a well-known and well respected brand. This acquisition will increase our distribution of packaged deicing, water conditioning and agricultural mineral products in our core upper Midwest region and it should provide us with another depot on the Great Lakes. Though we are somewhat uncertain whether the modest demand decline in some consumer and industrial applications will continue, we expect overall consumer and industrial sales to be about normal.

Since our IPO more than five years ago Compass Minerals has consistently communicated that the Company is highly resistant to economic cycles. Salt is a necessary product with few if any substitutes in most of its diverse applications. And since its cost tends to be small relative to its uses, salt typically isn't a purchase that customers forgo in difficult economic times. Thus we are continuing to aggressively expand our advantaged mine at Goderich Ontario which is already the world's largest rock salt mine.

And while there's no question that our sulfate of potash business is in a low global demand cycle, its earnings remain strong and the fundamentals of the business still are compelling. So compelling in fact that we continue to expand our advantaged asset at the Great Salt Lake to enable us to produce more lower cost all-natural pond-based sulfate of potash to meet growers' long-term needs both domestically and abroad.

We believe that the essential nature of our products, our diverse customer and application base, our low cost structure, our advantaged assets and our leading market position will continue to give us an attractive balance of strength and growth that will serve our shareholders well throughout 2009 and beyond. Now I'll turn the call over to Rod who will discuss more details on the quarter.

Good morning. As Angelo pointed out, the difference between the weather impact on our results in the first quarter of 2008 and the first quarter of 2009 was fairly dramatic. While our first-quarter 2008 sales had a $40 million to $45 million benefit from severe weather, we estimate milder winter weather unfavorably impacted our 2009 first-quarter sales by about $10 million to $12 million.

This more than $50 million swing in year-over-year first-quarter weather effects combined with an almost $30 million impact from the translation of foreign-based sales into US dollars and significantly lower SOP volumes were partially offset by pricing improvements in all of our business units. This resulted in a 19% sales decline.

Shipping and handling costs declined 31% from the 2008 quarter, mostly due to lower shipping volumes, but also reflecting the benefit of lower fuel costs which particularly benefited our highway deicing shipments. The modest decline in per ton shipping cost combined with lower per-unit production cost and strong pricing increased our gross margin percentage to 37%, up from 26% in the 2008 quarter.

Similarly, our operating earnings margin was up 10 percentage points to 31% this quarter compared to 21% in the prior year, and that includes a $4.6 million unfavorable exchange effect on operating earnings and a $1.8 million increase in SG&A. The operating earnings improvement of over $16 million occurred in spite of an almost $20 million unfavorable swing in year-over-year winter weather impacts.

As to the foreign exchange impact, for the past two quarters combined, the unfavorable operating earnings impact of translating our foreign operations into US dollars at rates that differed from those which existed in the prior year was about $10 million.

However, should the strong US dollar remain for the rest of 2009, there is an upside to Compass Minerals over the next couple of quarters. Since the majority of our US deicing sales volumes are imported from Canada, our product cost of sales per ton of rock salt would be less expensive in US dollar terms for the upcoming winter season.

Back to our results, interest expense declined 38% to $7.5 million from $12 million in the prior year quarter, primarily reflecting over $90 million of debt reduction since March 31 of last year. We currently expect our 2009 full-year interest to be approximately $10 million lower than in 2008 because of our debt reduction activities and lower market rates on our floating rate debt.

As a reminder, our outstanding debt includes a little less than $400 million of bank debt that doesn't mature until December 2012 other than a 1% annual amortization payment. Our currently outstanding bank debt carries an attractive average spread of approximately 165 basis points over LIBOR and we have $150 million of LIBOR rate on our bank debt swapped out at approximately 4.75% and the remainder is floating at market rates.

In addition to this $400 million of bank financing we have about $90 million of bonds with 12% interest rates that mature in June of 2013. We also maintain a $125 million revolving credit facility which had no borrowings outstanding at March 31, 2009.

Our effective income tax rate was 30% this quarter, this is consistent with our expected effective tax rate for the full year.

Our net earnings were up 25% over the 2008 quarter to $61.6 million or $1.85 per diluted share. And I went to point out that our earnings per share computation includes about 700,000 previously issued stock options and restricted stock units which have dividend participation rates. Those outstanding options and units are no longer shown as outstanding in a GAAP presentation format, but are effectively considered outstanding under the earnings per share computation.

Cash flows from operations remain robust at $112 million, though lower than the prior year as a result of lower seasonal working capital declines versus the prior year comparison, including higher cash taxes and a larger inventory build as we plan for a longer demand bounce back in SOP. Additionally, with more normal salt inventory levels on hand than we had last year, and our recently completed Phase I capacity expansion at Goderich, we plan to fully serve the North American market for this upcoming winter season.

Our robust operating cash flows contributed greatly to a $117 million cash balance at the end of March, a $15 million increase versus the prior year quarter's end balance. Due to the seasonality of our deicing business, our cash balance at March 31 is typically the highest quarter-end balance of the year. We embark on a deicing inventory build in the second and third quarters to be ready to serve our customers for the upcoming winter. Our liquidity, which factors in available borrowings under our credit facility in addition to cash on hand, is at a quarter-end record of $233 million.

As we look to the remainder of 2009, we have a couple of ambitious but long-term strategic investments under way at the Goderich rock salt mine and Great Salt Lake operations that you heard Angelo talking about. These projects add what we expect to be needed capacity through expansion and yield improvements. With these priorities we continue to expect our capital spending investments to be higher than normal at approximately $100 million this year with more than half of that devoted to strategic expansion and efficiency projects.

As a result of these key long-term growth initiatives combined with the still evolving timing of the potash market recovery, we will strategically manage our cash and capital structure to ensure that we continue to deliver the dependable balance of strength and growth that we believe are the hallmarks of Compass Minerals. And now we'll open up the call for questions. Mollie?

(Operator Instructions). Mark Gulley, Soleil Securities.

Good morning, guys. You've already talked about the fact that the SOP price was up; I wonder if you can elaborate as to why? And then more importantly, it looks to me like your cost of sales per ton was down sequentially. I want to know why that is and, more importantly, is that level sustainable for the balance of the year, again SOP cost of sales per ton?

Yes, this is Angelo. I'll start and maybe, Rod, you can finish it on the cost of sales discussion. I think as we indicated last quarter, Mark, all of 2008 was a process of ours to try to unwind some contracts that in the past used to have annual price protection. We had one straggler still in the fourth quarter that flipped in the first quarter and was able to go to the new price.

So we picked up a modest price pop in the first quarter as that last contract flipped over. So now we're basically at a position where all our SOP agreements have price protection of no longer than 90 days. So we have a good opportunity, if and when the opportunity were to arise, of changing prices on a shorter term basis than what was challenging us during 2008. Rod, on the cost of sales?

Yes, Mark, on SOP cost of sales, one thing to consider there is that our sales in the first quarter of 2009 were entirely based on product produced in 2008. And if you look at our cost in the first quarter of 2009 it's very consistent with the full-year 2008 average. So as that inventory that we enter 2009 with is sold off we would expect some higher cost as our 2009 KCl price and cost ends up getting priced into the remaining sales for 2009. And that should be fairly modest, $50-$60 a ton but not -- but it should be higher in the last three quarters of the year.

$50-$60 a ton, Rod, refers to what?

That would be the impact of the '09 cost rather than the carry-in cost from 2008 production.

Does that refer to KCl or does that refer to your SOP cost per ton?

That's the SOP cost per ton.

Okay. And then on volumes, do you deem 400,000 tons a year to be normal? And if so, Angelo, could you be a little bit more -- perhaps a little bit more precise as to how far below whatever normal is you expect to be -- SOP volumes to be this year?

I wish I could answer the second part with any kind of clarity. 400,000 tons is about the average we've experienced over the last couple of years. I would say 400,000 tons a year of SOP sales is about average for us. You can look at the last two quarters and project that forward and I would say that would be the worst case. We are expecting some pickup in the second half of 2009 on SOP demand, but for the year, based on the tailwind that we had coming out of 2008, we think the year is going to be down.

So something better than the run rate that we see over the last two quarters, but something less than the normal 400,000 tons is where we think we're going to end up. But I wish I had a more precise answer, there's just a very complex series of events and a very complex sentiment and psychology out there in the economy and in the ag industry and in potash in general.

There are also some very significant negotiations occurring in MOP on a worldwide basis that will influence the sentiment and psychology and we're still waiting on those to finalize, although we have no influence on those. So sorry I can't give you a better answer, but something less than normal in the second half, something better than the previous six-month run rate.

Thank you.

Amy Zhang, Goldman Sachs.

Good morning, thanks for taking my question. The first question is maybe you have mentioned this in your prepared remark, but can you just give us a little bit more color on the SOP capacity additions? Given that the ongoing demand has been pretty weak and that we don't expect any significant -- the volume to swing back anytime soon.

Yes, that's a good question. Just to remind everyone, our capacity additions are both activities in our plant on the yield and productivity and activities out on our ponds which combined will give us 100,000 tons approximately of lower-cost solar-based SOP capacity. So that whole mix discussion where we're growing our lower-cost-based product versus our sourced KCl-based product overall is an advantage to us. That's the first point.

The second point is that those capacity expansions don't occur overnight, they're actually being phased in over a three-year period because changes that we make out in the ponds in a three-year solar evaporation cycle that isn't easily influenced takes a while to work its way through the system. So we don't just start it and stop it.

And then the third point I would stress is that the demand reduction that we've seen and the industry has seen over the last six months is not a sustainable reduction. Science and just agricultural principals tell you that a farmer or grower cannot forever mine the soil. So the potash that they're taking out of the soil over the last six months and maybe throughout 2009 will need to be replaced in 2010 and beyond.

So unless people will be eating less food, unless the population will decline -- neither we believe are going to occur -- that potassium and the specialty potash that we produce will still have to go into the market, it will still have to go into the field. And we think 2010 will be a robust demand year, we think SOP will return to its 3% to 4% long-term growth rates and therefore we believe that that 100,000 additional lower cost ton-based tons will be needed over the long-term.

And then let me just also remind everyone that Compass Minerals has always been a company that focused on the long-term. We don't manage our business necessarily for quarter-to-quarter results, although we do push to maximize those results but in the context of implementing a long-term strategy that has been successful over the five years that we've been a public company.

So I strongly believe that following through on that strategic investment on the Great Salt Lake will maximize the results, the long-term results for our shareholders with very little impact on our short-term results.

And then my second question is that you guys have been doing a great job in implementing aggressive pricing on the SOP front. I'm just wondering how much room is left for you guys to push further price hikes for that business or are you guys just expecting pricing on SOP to stabilize the current level as the year progresses?

Those are tough questions, Amy. But let me first acknowledge that the MOP market does serve -- as humbling as this may sound for an SOP producer, the price of MOP does serve as a foundation for SOP. Again, if growers could use MOP they would, they would not use SOP if they could.

So there is some overlap there, so we can't get too out of whack with MOP prices. So we're following closely what's going on in the MOP industry and I refer you to others' comments there. But the industry is waiting for the price in China and the price in India to settle hopefully sometime during the second quarter. And that will set the foundation above which SOP will be priced because a large percentage, if not the majority of SOP that's produced, is produced from sourced MOP. So SOP must sell for a premium for that part of the production.

What is the maximum gap we can achieve? I'm not sure because the gap continues to increase and of course we're very pleased to get more and more value for SOP. We'll monitor the gap, we'll monitor our sales of SOP in relationship to the industry sales of MOP. And I would just point out that our decline over these last six months has not been materially different than the declines that the major MOP producers have experienced.

So I don't think we're losing any share to MOP producers with this large price increase that we've experienced. Do I see opportunity to increase price further? I think right now that that's doubtful, I think we're at a record price right now. And of course we'd be very happy if it stayed there. We have, as you can see, terrific margins at the current prices. But we're also prepared to adjust appropriately if and when and where the MOP price settles to continue to maintain our premium to MOP which we're convinced will still provide us very attractive prices for SOP.

And my last question is can you just give us a little bit of an update on your salt inventory levels given the very mild winter weather in the past two months? And also, what's the pricing strategy both on the deicing and the general trade salt businesses given you guys pushed prices pretty aggressively last year and also the transportation cost has been falling pretty dramatically over this past several months or quarters.

Yes, the inventory balance on salt, we believe, is returning to a more typical normal level. After 2008 if you recall, coming out of the '07/'08 winter at this time last year, there was a severe depletion of inventory we believe in the industry, certainly at Compass Minerals. So there were actually shortages of rock salt and several communities -- many communities in North America -- experienced shortages of salt or were underserved which was an invitation to some imports and resulted in some very, very high unsustainable pricing.

We think the way the winter ended coupled with our expand production capacity is returning our inventory levels to more normal levels at the end of this last season, although we're still right I believe slightly below normal inventory levels. So we're sitting slightly below normal inventory levels as of this point in salt, but much healthier levels than after the '08 -- '07/'08 winter which should set us up for a more typical bidding season.

As far as where the price will end in those bids, we really have no idea because each county, each state, each municipality, each government is a sealed bid and the low-priced guy will get it and we're just too early in the process to give you any kind of color. We still believe in the value of rock salt in the market. We still believe that governments will require rock salt to meet their public safety demands and the early results of our bidding have been encouraging, but it's too early to comment or to generalize since we have most of the bidding season still ahead of us.

Perfect, thank you so much.

Jason Miner, Deutsche Bank.

Good morning. Just to return to the question on sourced KCl. I know it's something we've touched on in the past, but now we're coming up on lapping some pretty record MOP prices. To the degree you're comfortable doing it, could you just touch again on how and when those contract prices for your sourced KCl might reset?

Yes. A challenging question because we've never really been, for competitive reasons, complete in our discussion of those agreements. But I think what we've said is they've been long-term, the agreement has been market favorable, and there's been a lag of at least a year in our pricing mechanism. So right now we have complete transparency on the 2009 KCl price that we'll pay and that was based on a period in '08, or approximately a period in '08 that had very low MOP pricing.

So we're enjoying that advantage in '09. And we know what that is and we like that cost and we're going to maximize those purchases. And when you get into 2010, there's still some of that period that has to play out during 2009 that will set the 2010 price. We see the reports in the first quarter on MOP prices; we see some of the trends that have been building. And again, we don't know what's going to happen in the second half of the year.

However, just based on what we see and what we believe, we think there will still be traction in 2010 on our KCl route. But let me remind everyone, we're under no commitment to buy. So these purchases that we make, we're only going to make them if we're convinced we will sell SOP above the cost of those purchases plus conversion. We think they're very favorable for 2009, and we know they will be very favorable, or we expect them to remain favorable through the course of the year.

And we're also expecting them to be favorable in 2010, but we're going to wait for the year to play out and unless something unforeseen occurs we expect that route to still be available to us favorably in 2010. When you get beyond that it does get quite cloudy and it will depend on where SOP prices end up and MOP prices end up and what the gap is between those. But at least for 2009 and most likely for 2010, we should be in a good position to continue to favorably source KCl to produce SOP.

Okay, that's helpful. Thank you. And just to touch on that mix. I was a little surprised to hear you say that you'll buy your full allocation of KCl. I think we're at half or lower run rate to the historical levels of SOP tonnage and I had always thought perhaps your evaporated capacity was half of that production capacity. So I'm just scratching my head. If you could help -- does it not make more sense given that it's lower cost if you produce evaporated and cut back on sourced? Or where am I thinking about it wrong? Thanks.

Yes, again our production model at the Great Salt Lake is very complicated in the sense that we have a capacity that's derived from KCl sourced material, which is our high-cost capacity, but still very, very favorable during 2009 because of that lag element in our sourcing agreement. The way to look at it there is just think about the KCl price last year versus this year. There has been a significant jump in the price year on year, but we're enjoying '08 pricing, not 2009 pricing.

The second element is that our ponds kind of run and we do maximize that because that is our lower-cost production. But both pond and KCl-based product needs to go through a production facility that has been somewhat constrained over the years and has been sold out historically. So to miss the opportunity to acquire that very low cost KCl and to run it through a constrained plant would mean that when the market rebounded in 2010, which we fully expect it to do, we would be unable to catch up or satisfy that demand.

So instead we've moderated our production and have eliminated some of the higher cost over time in premium pay production. So we've allowed our production to slow down just more naturally, but we've taken advantage of our depleted inventory situation that we had in '08 to rebuild those stocks both at our forwardly deployed distribution centers, but also at the Great Salt Lake and we are waiting for that rebound -- that inevitable rebound to occur.

So it is a balance -- it is a balancing act and, remember, the principals are kind of our long-term strategies versus short-term maximization. And we believe it makes most sense to take advantage of those favorable agreements now that we have them and to run that through the SOP and to store the SOP for the inevitable bounce back that we think will certainly occur by 2010.

Okay, got it. Last question. Are there any other pond-based SOP expansions going on amongst competitors globally that you guys are aware of?

In the markets that we participate in, which is mostly North America and South America and some of the Pacific Rim ex China, we're not aware of any. There is some discussion, and it's always hard to understand what's going on within China for the domestic Chinese market, which again we don't participate in. So there might be some activity there on pond-based SOP. But in the markets that we serve we don't see any significant or material changes in pond-based production capacity other than the addition that we're pursuing.

Okay, thanks very much.

Jeff Zekauskas, JPMorgan.

Good morning. Just a couple of questions. When I look at Potash Corp.'s results in the first quarter, their price per ton was down about $100 from $740 to $640 in North America. And so the -- where as yours was up. And I think the gap between your price and their price is now $400 a ton. So how are you doing that? Isn't that much wider than the historical amount? And why should that be a sustainable number regardless of the outcome of the Chinese negotiation?

Yes, and when we first saw the banner result from our friends at Potash Corp. we were a little taken back by the average selling price. But if you dig a little deeper into it and I would refer you to their call for details, they did a highlight a mix issue between industrial sales and ag sales. And I believe there was a strong ag or strong industrial component in that average price.

So our sales are just about 100% ag related, theirs had a very strong industrial component. So I think you have a bit of apples and oranges when you compare their average price for MOP and our average price for SOP. However, you are correct if you take the average or what we think might be the average clearing price for ag MOP and compare it to our SOP, we have stretched the gap. We have stretched the premium. And we're very proud of that. Because again, we think there's a lot of value in SOP that historically has not been captured by Compass Minerals.

So we're going to keep on pressing it until we're convinced that there's some erosion of demand back to MOP. And since the sales volumes of the MOP producers have declined similarly to the sales volumes of our SOP, we don't think there's been a shift in demand. However, we have to remain vigilant and if and when we think the gap is at its maximum we're going to back off because again, we're playing this to maximize the premium but also to sustain the historic volume growth which has been attractive in that 3% to 4% per year on SOP.

So we're kind of in uncharted waters, but we're still comfortable that the balance between SOP and MOP, or at least the ag-based MOP, is still correct.

That's a very clear answer. Have you begun to back off on the price this quarter so far or have you not?

When we've looked at what's happened in nitrogen-based fertilizers or phosphorus-based fertilizers, we've not or I've not seen any real relationship between the amount of product they sell and the price they sell it at. Meaning they drop their prices early and they really did not get a huge bump in demand. So having learned from that, it doesn't really make sense for us or we're not convinced that any price reduction in SOP would materially increase the demand of SOP.

So therefore why should we drop our prices? We believe the value is correct. We believe the value is appropriate based on what we believe is the current MOP price in ag markets, particularly the domestic US ag market. And again, I think the whole potash industry is waiting for those large negotiations to settle out before making any real adjustments on price.

So we're somewhat in the wake of the MOP producers, comfortable selling at the premium we're selling to MOP and really convinced that any price decline in SOP would not result in a material increase in SOP demand.

Okay, just a couple of small things more, just switching over to salt. When you contract with your customers to ship them salt, you contract during the summer or the early fall, do you also factor in at that time your estimate of the cost of shipping? That is have you built shipping costs into the bid at which you sell or is it that settled separately and later?

Yes, it's a good question. There's a mixed answer there. Last year we embarked on a process to try to pass as much of the shipping risk or the fuel risk in our consumer and industrial business to the customer. Historically that was a risk we took. And since we're not in the shipping business it was a risk that we felt was more appropriate with the customer. So we had a fuel surcharge mechanism that I think generally and successfully implemented on the majority of our C&I customers during the last season or during the last year.

Those tend to be smaller customers and numerous customers and those were individual one-on-one negotiations with a buyer and the buyer was willing to accommodate us and obviously each pricing discussion is a unique event. So a lot of hard work by our sales team, but effectively executed.

On the highway deicing side, however, which is where we're dealing with governments and states and counties and very rigid and detailed buying conditions, and basically a public tender, we don't have the discretion to just go in there and pass that risk on to the customer as much as we would like to.

Now some states, some of the smaller states have actually granted us fuel surcharge capabilities where our price will change during the season based on changes in fuel, but I think it's fair to say that the majority of our highway deicing, that risk on fuel is borne by us and therefore we factor in what we believe is the environment for fuel during the winter, we factor that in to the spring and summer negotiations. So there is a risk there.

And obviously we're at a pretty low point right now in fuel cost and that will have some impact on the bidding sentiment. But I think we have to just go back a year when we were at the other side of that equation when we were looking at a $150 approximately cost per barrel of crude oil and were bidding in that environment and got some record price increases of about 20% over the last season.

So it's a little different this season, the psychology will be a little different both based on supply/demand balances and fuel. But we think the market is returning to a more normal pattern with normal weather, more normal inventory and a more normal bidding cycle.

So if I can try -- just as a last question -- if I could just try to summarize what you've said. Given that shipping costs are -- have moved lower and energy costs have moved lower and we seem to be in more normal inventory conditions, is it fair to say that prices in salt for 2010 on average should be flat to down? Or you can't really tell at this juncture?

We're very early in the cycle, we don't give guidance on selling prices as all of it is public tender and still ahead of us. But I think it is also fair to say that if you look at the pricing historically, I'm not sure there have been many periods where the actual season-on-season price has actually gone down, and this is over 25 years of analysis.

So this has kind of been an industry that until last year didn't go up a lot in price, although last year our prices went up 20%. But has gotten a 3%-4% year-over-year price increase over a long period of time and during very few periods has ever given any of it back. So it's still early, we're still optimistic, we still think it's going to be more normal. But I really can't give you any specific guidance on where we think the price is going to end up. However, we'll probably have a more in-season update during our second-quarter call.

Okay, good. Thank you very much.

David Silver, UBS Securities.

Hi, guys. Well, all the good questions have been asked, so you'll just have to suffer through this. First question would be on SOP. Angelo, I've heard you talk about almonds, apples and oranges so far. If you're growing one of those products and you're a traditional SOP customer, you mentioned the alternative being maybe using MOP and you haven't seen usage siphoned off to that market. But I guess in the broad scope of things there are some alternatives.

So there's the KMS product that is produced in New Mexico for instance. There could be imported SOP or imported NOP I guess, potassium nitrate. So from your folks in the field, are you implying that you haven't seen customers shying away from the $1000 a ton pricing on SOP in favor of other alternative specialty products?

Is, I think that's correct. We've not seen -- again, the demand has been quite low, so the population of customers that we're looking at and their buying patterns over the last six months haven't been normal and haven't been robust. But if you look at those purchases and you try to understand their consumption and you try to understand the consumption downstream at the grower level, we mostly sell to distributors and blenders, we haven't seen a lot of inter-material substitution.

We haven't seen it between SOP and MOP, we haven't seen it between SOP and K-Mag, we haven't seen it between SOP and potassium nitrate, we just haven't seen it. In fact, we've seen announcements of a potassium nitrate producer in Israel shutting down because they can't get MOP. Let me also recall that the K-Mag product has lower potash content than SOP. It also doesn't provide the sulfur micronutrient that our product provides.

And of course the MOP has a chloride in it which is destructive to these perennial crops like grapes or almonds, where the root system is critical. And so there is a difficulty and it's science there, it's not speculation. And also there are varying degrees of minerals that are in the field already and perhaps farmers in North America that have been robust in their application of potassium over the last couple years can mine the soil a little longer than someone in the developing world who's too trying to catch up.

But we haven't seen a lot of inter-material competition and I think all of the potassium nutrients are down. And as long as we're not down more than they're down, I feel comfortable being there even at these extremely high prices that we've enjoyed more recently.

Okay. Thank you for that. A question about salt and in particular your bidding strategy for this season. So the first phase of your Goderich expansion has been completed and I guess you have on an annual basis something like three 750,000 tons of additional product capability and then you've also mentioned your year-over-year inventories are somewhat higher even though they're still somewhat below normal.

So heading into this bidding season, I guess you do have some additional product availability relative to a year ago. I guess you've talked about your strategy in the past as being one where you were going to utilize -- you might be utilizing that extra Goderich capability to bid for additional business. And I may have missed it, but I didn't hear you discuss that strategy in terms of the context of this bidding season. Can you just update us on how you expect to deploy that additional Goderich product in the market?

Yes. I don't think we ever said that the Goderich strategy was going to be deployed to bid on additional business or to gain share. I think what we said was that the Goderich expansion should allow us to continue to enjoy a disproportionate amount of the market growth that the industry provides, which typically has been 1% to 2% a year. And to also allow us to serve opportunistically those severe winters where the industry is constrained but we have capacity to serve and pick up that upside.

And as the industry leader we felt that that was our responsibility to make sure that our served markets, that there was enough salt in place for public safety. And also I think it's good for the shareholders at Compass Minerals to have that capacity available if and when we needed it. I think in essence we're putting the equivalent of a new mine into Goderich.

Remember, our expansion at Goderich is equivalent or bigger than many of the mines we compete in. So it is a significant commitment but it is being phased in. The first phase is online and, based on the severely depleted inventory of last year and based on finishing this winter weaker than normal, we think we'll get our inventories back to normal and be able to participate in this upcoming winter, the 2009/2010 winter, on a more normal basis.

Let me also remind everyone that last season we were constrained. And therefore we had fewer commitments than we felt -- than normal because we didn't feel comfortable making more commitments or even making normal levels of commitments because at the end of many of those commitments are performance bonds and obligations to perform that we didn't feel comfortable.

We also backed away from what we call our non-tendered customer base and these are more the private contractors that are out there that might be buying our products for parking garages or malls or office complexes and we focused our production mainly on government entities because we felt that those municipalities and governments, again from a public safety point of view, were more critical.

We think we'll be able to reenter those non-tendered markets and continue to serve the government requirements as we have done historically and that will be enabled through this recent capacity expansion. So we're not ahead yet, but we'll probably get ahead as the subsequent phases of Goderich get implemented.

Okay, thanks for that. And then in terms of the customers, I know it's early in the bidding season, but can you speak to whether you anticipate lower bid volumes on average included in this year's contracts when coming off the less severe winter versus a year ago? And maybe another way of asking this is with some state and local budgets under pressure is there a direct or indirect ability for any stimulus dollars that trickle down to the local government level or state level? Can those dollars be used either directly or indirectly for salt purchases?

Yes, it's a very insightful question. I think coming out of the '07/'08 season and the severe shortage that many municipalities experienced in the first quarter of '08, I think there was perhaps an overreaction and we saw bid quantities up significantly going into the '08/'09 season. Again, I don't think any government or any purchasing guy wants to get caught short on, again, something that is as critical to public safety as salt.

This coming season we're still very early, but we really don't see a material change from the volumes that we saw last season. So it looks like the industry has consolidated, at least so far, the volumes, the additional volume that went into the bid packages from last season, but have not really extended them any further. And again, we're very happy at that level, that was nice growth from a commitment point of view.

And again, what we're trying to do is tighten the range of those bids. A lot of customers will guarantee 70% or 80% but then require us to provide 120% or even 130%. That's a very large range and that means we have to keep a lot of standby product available for them. We would feel much more comfortable if we could narrow those ranges down to maybe 90/110% or even a guaranteed quantity. But again, those are tough discussions with governments that take a long time to be affected. But we don't see a big change so far in bid volumes.

Okay and then one question for Rod. You talked about the capital structure and at the end of March 31 you have some cash -- a lot of good cash on the balance sheet now and you're still carrying, I guess, the $90 million of high coupon debt. So as CFO I imagine that you probably think about this every day. But can you update us on any opportunities that you see to refinance that tranche of high coupon debt and lower your overall interest expense further than I think what you guided to?

Good question, Dave, thanks for that. The high yield market has definitely improved over the last month or so compared to where it has been over the last 12 months. It's not as favorable obviously as it was 18 to 24 months ago in terms of new issuance rates that companies can get on issuance or on refi. But certainly that has improved.

I think what I tried to indicate in my remarks is that even though our liquidity is at an all-time high at the end of March, as we look into 2009 and going into 2010 we do have a couple of ambitious investment projects underway that are strategic to us and we expect that those are going to be needed and are important projects for Compass Minerals.

And as a result of that and with the still evolving potash market recovery and figuring out the timing of that, I think I would prefer to figure out where that's going to land and exactly where normal will return to before making any long-term capital structure changes.

Having said that, a pure refi at something that we view as attractive for a seven- or 10-year money versus the 12% that we're currently holding would be something that we would look at on an ongoing basis. But I think to expect debt reduction in this environment or early call of any of the additional remaining notes is not something that we're looking at right now.

And again, I think we've taken this high yield debt down; our leverage ratio is around 1.5 now. So we think we've worked it pretty hard. But keeping the liquidity high in this environment is probably a prudent thing to do.

Very good, thank you.

At this time we have reached our allotted time for questions. Thank you for attending today's Compass Minerals first-quarter earnings conference call. You may now disconnect.