Compass Minerals International Inc (CMP) 2010 Q3 法說會逐字稿

Good morning. My name is Wes and I will be your conference operator today. At this time I would like to welcome everyone to the Compass Minerals third-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. I will now turn the conference over to Ms. Peggy Landon. Please go ahead, ma'am.

Thank you, Wes. Good morning, everyone, and thanks for joining us this morning. With me here today are Angelo Brisimitzakis, our President and CEO, and Rod Underdown, our CFO.

Before I turn the call over to them let me remind you that today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's expectations as of today's date, October 27, 2010, 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 the Compass Minerals most recent Forms 10-K and 10-Q.

The Company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments. You can find reconciliations of any non-GAAP financial information that we discussed today in our earnings release which is available on the Investor Relations section of our website at CompassMinerals.com.

Now I will turn the call over to Angelo.

Thanks, Peggy. Good morning, everyone. Thanks for joining our call this morning.

Those of you who know Compass Minerals well have probably already discerned that our third-quarter results reflect a continuation of several of the factors that influenced our second-quarter results. That is, our salt earnings were largely driven by the lingering, though short-term, effects of lower deicing salt production following the extremely mild weather in our key North American markets last winter and our Specialty Fertilizer segment is continuing its progress towards more normal sales and sustainable earnings.

And as with our second-quarter results, our third-quarter sales volumes are normally much lower than the winter quarter's so variations from the norm have a magnified effect on sales and earnings. For example, we sold about 147,000 fewer tons of highway deicing salt this quarter than in the prior-year quarter and our consumer and industrial business sold about 32,000 fewer tons which was almost entirely a difference in deicing salt sales.

We wouldn't typically think of these volumes as very much salt but in a non-winter period these differences have a much larger percentage impact than in the winter period. In our earnings release we explain that the year-over-year highway consumer and professional deicing sales decline was principally due to our customers having carryover inventory from last winter because the weather was so mild in our North American service areas.

So if you think about a highway department that has been storing some leftover salt since the spring, they naturally would need less rock salt than usual to fill up their storage barns for the first snowstorms of the winter. This typical early fill period, as it is called, generally occurs from September through early November. In a normal winter year the snowstorms that require our highway deicing salt applications generally begin in late November and a typical highway deicing storage barn holds enough rock salt for one or two snow events.

So if they have a normal winter in our key North American markets we expect that our customers will use up their carryover supply in late November and early December and then begin to order more normally. If that happens over the entire winter season, we should have higher 2010/2011 seasonal salt sales and earnings than we had over the 2009/2010 winter season because many of our key North American regions just didn't get much snow last season.

Another way of looking at this is that a return to normal winter weather would more than make up for the soft preseason sales because preseason or early fill sales are low volume compared to weather-induced, in-season sales. The lower-than-normal preseason demand was the key driver behind the market-wide 3% decline in highway deicing bid requests in our North American service area this bid season. We don't consider the 3% market contraction to be permanent and if we have a normal winter, we would expect bid requests to return to at least previous levels next summer.

Our overall bid price has been flat just as we reported last quarter. We see this result as the logical outcome of salt producers chasing fewer bid tons.

We expect a similar reorder pattern as I outlined for highway business to occur in our consumer and industrial business as well. Once our customers use up deicing inventories they have been storing over the summer, our consumer and professional deicing sales volume should reflect winter weather demand. The key difference is that it's more difficult to know when the consumer deicing orders will occur because there is no certain way for us to know how much product is stored in warehouses and stock rooms across North America.

What is not immediately evident by our results is that our salt sales, excluding North American deicing products, told a very different story. In the UK we have seen robust preseason demand for deicing salt because the UK has experienced severe winter weather each of the past two years and the highway deicing customers there have been unable to fully serve demand for two winters in a row.

And our chlor-alkali customers ordered rock salt this quarter at levels that we would consider normal compared to depressed levels we saw a year ago. We believe this will continue in 2011 as chlor-alkali demand has been robust enough to encourage several of our customers to invest in plant expansions. It's an encouraging sign has these are our year-round customers for our North American highway deicing business, albeit it at lower prices and margin than our typical deicing customers.

In our consumer and industrial business non-deicing sales volumes were essentially even with year-ago demand across all the other applications such as agriculture and water conditioning. Plus, we talked last quarter about how lower deicing salt production had increased our per ton production costs. Well, due to inventory management considerations we had planned to curtail highway and bagged deicing production this year.

We experienced a somewhat extended production interruption at our Goderich mine in the third quarter caused by a delay in the final tie-in of the new hoist, which was one of the key steps in our phase-two mine expansion. Looking ahead, the decline in preseason sales has continued to affect our October sales because these early-fill deliveries typically occur from September through early November. However, I want to emphasize that the decline in early-fill orders this season and the increase in per unit cost are short-term matters related to the very mild weather last season and not ongoing changes.

Looking into 2011, a normal weather winter should essentially reset the systems providing a return to more normal bid requests and more typical per unit production costs. Plus we have virtually completed the expansion of our mine in Goderich, Ontario, so we will have the capability to produce extra tons in 2011 and beyond when market demand warrants.

Turning to our specialty fertilizer business, demand for sulfate of potash continues to rebound. In fact, our third-quarter sales volumes more than doubled our 2009 third-quarter sales. Sulfate of potash sales aren't driven by any single crop or a group of crops so this rebound isn't directly tied to grain stocks or prices the way that commodity MOP sales are.

We are seeing increased demand throughout our customer base but the greatest increase has come from our international customers. This quarter nearly 40% of our SOP sales were to international customers compared to 33% of third-quarter 2009 sales. Year-to-date our international sales have accounted for 35% of SOP sales compared to 26% of SOP sales by this time last year.

We believe that there are at least two reasons for the rapidly increasing international demand. The first is that our international customers were the first to stop buying SOP back in late 2008. Since international growers typically apply nutrients at lower rates than US growers, science would suggest that their soil is the most potash-depleted which would compel them to resume potash application sooner but we believe another factor may also be at play.

We have consistently said that we expect the long-term growth in SOP demand to come from nations where standards of living, and therefore diets, are improving. Since we have seen significant demand growth in areas like South America, this trend is probably also influencing our results.

The first phase of our SOP capacity expansion is almost complete. Though, as we have installed and started up some of the new equipment over the last several weeks it has taken a little longer than expected. We still anticipate having the full plant portion of the operation running at the rates we expected through this portion of the expansion by year-end.

Because this operation is largely fixed cost in nature, the reduced production volumes during this ramp-up phase will increase our unit cost for the fourth quarter of 2010 compared to our prior guidance. I have asked Rod to elaborate on that.

Beginning in 2011 we will have the capacity to produce a total of approximately 350,000 tons of SOP from our low-cost evaporation ponds at the Great Salt Lake assuming normal solar evaporation weather. And in October we announced our Phase II plans to install barrier walls around our solar evaporation pond complex at the Great Salt Lake, which will ultimately allow us to increase our ability to produce SOP from naturally occurring brines by 60%.

We believe this second phase of our SOP capacity expansion will further reduce our unit costs and sustainably propel our specialty potash business forward. By 2015 this new technology application should enable us to produce an additional 200,000 tons of low cost pond-based SOP without changing our solar evaporation footprint. The tons will be added incrementally with about 50,000 additional tons available as soon as 2012.

The expansion will cost about $160 million or about $730 per ton and we are excited about the returns this project can deliver. We also continue to pursue the third phase of our SOP capacity expansion which involves building new solar evaporation ponds at the Great Salt Lake. This is a project that we will implement over time adding acreage as we need it.

We expect SOP demand to continue to rebound as it has year-to-date. We announced a $20 per ton price increase that will take effect on shipments beginning November 1 and just today we announced an additional $35 per ton SOP price increase effective December 1. This should help us improve our average selling price regardless of the proportion of domestic to international sales.

Now I will hand the call over to Rod to discuss some of the details of our third-quarter results. Rod?

Great. Thanks, Angelo. Our third-quarter operating earnings fell $12 million and adjusted EBITDA declined $10.7 million from last year's results as lower year-over-year SOP prices, lower highway and consumer deicing salt early fill sales, and higher salt unit production cost headwinds were only partially offset by higher rock salt sales to chlor-alkali chemical customers and improving year-over-year specialty fertilizer sales volumes, which were driven by robust international demand.

In addition, the product and customer mix effects just mentioned also have implication to our reported statistics. For example, in both our salt product lines the impact of lower deicing sales as a relative percentage of last year's total are either entirely or almost all of the reason for the decline in the average reported sales price.

I want to emphasize again that while our average reported salt sales price was 4% lower than last year, prices to our customers did not decline on an end use basis. For years we have mentioned routinely that rock salt sold for chemical chlor-alkali use is lower priced and swings in deicing volumes, especially during the second and third quarters, can impact the average reported price as it has this quarter.

Customer mix also played a role in our reported sales price in the Specialty Fertilizer segment. Historically, our third quarter has been the calendar quarter with the largest percent of international shipments because our international mix is somewhat skewed by Southern Hemisphere or Tropics region customers.

We had expected that the first-quarter 2010 international surge would have reduced some of those normal sales in the third quarter of this year. However, international demand has remained robust. Because there can be a large price spread between our domestic and international customers, a change in that regional mix impacts our average reported price.

As for production costs we have previously discussed our efforts to reduce deicing salt production to right-size inventories for the upcoming winter season in both highway and consumer businesses. In addition to this, we had a second-quarter work stoppage at our Cote Blanche mine and a delay in the installation of the new hoist at the Goderich mine in the third quarter, which also caused production declines.

The combined effects of these production curtailments and higher sourced potassium chloride costs of approximately $3 million per quarter for some of our packaged water conditioning products are expected to add about $4 per ton sold until we sell through our 2010-produced inventories, which should be around the first quarter of 2011. With normal weather and current fuel rates, salt operating margin percentages for the upcoming winter are expected to approach, but not equal, 2009/2010 winter season levels and yet be well above 2008/2009 winter season levels.

Despite lower preseason sales and higher per-unit salt costs, we expect- if our customers have normal winter weather this season- that the upcoming winter season salt sales and earnings will be above the mild weather suppressed results from the amounts reported for this past 2009/2010 winter season.

Our SOP cost of goods sold in the third quarter were about the same as the first two quarters this year as some in-period costs modestly impacted third quarter cost of goods sold. More recently in October, after the end of the quarter, the tie-in of some of the new phase 1 expansion production equipment has taken longer than expected, as Angelo mentioned. This has resulted in lower expected SOP production volumes for calendar year 2010 and we now expect our fourth-quarter 2010 per-unit cost of goods sold to be similar to the first three quarters of 2010. And that cost will carry into early 2011 until we sell through that 2010-produced volumes.

Our expectation for per-unit cost for 2011 SOP production remains intact. When we move to more production volumes of SOP from solar ponds with improving plant yields together these should result in at least a $25 per ton decline in costs for 2011 SOP production compared to 2010 SOP production costs.

When looking at the big picture on SOP, we have been talking about the potash demand rebound and prices stabilizing at a level of profitability which is expected to be a step change from the 2008 -- from the pre-2008 run up. And in fact, this is the first quarter in the last five quarters where EBITDA was above the prior-year period, and we are set up for a nice Q4 year-over-year improvement in SOP earnings. This, combined with the benefits expected from our recently announced Phase II expansion, have us excited about the future prospects here.

Finally, interest expense dropped to $5.3 million from the third quarter from $6 million in the prior-year period due to lower rates on our long-term debt. Just this month in early October we entered into a new revolving credit facility which expires in five years and we amended the term loan portion of our credit agreement, which included an extension of the maturities to early 2016 on a large portion of our term loan. A special pretax charge of approximately $2 million will be recorded in the fourth quarter related to this transaction.

We are pleased with these changes to our capital structure as it gives us greater financial flexibility. We do expect interest to be about $6 million in the fourth quarter or around $22.5 million for the full year. Looking ahead at current market rates and borrowing levels, we would expect full-year 2011 interest expense to decline to approximately $20 million to $21 million.

Our effective tax rate fell to 26% this quarter as we have now lowered our expectation for the full-year 2010 income tax expense to be about 28% for 2010. We expect our 2011 effective tax rate to be around 30%.

Depreciation and amortization totaled $12 million in the quarter and we project it to increase to around $15 million in the fourth quarter of 2010 and continue at at least that quarterly pace throughout 2010 as some of the assets from the large investment projects are placed in service.

Cash flow from operations for the nine months ended September 30, 2010, increased $100 million over the prior-year period as we have began liquidating a portion of our SOP inventory in 2010 while in the prior-year period we were building inventories. Cash on hand at the end of September was $68.9 million, and there was no balance on our bank revolver.

We have invested $77 million in capital projects so far in 2010 and we now expect full-year capital expenditures to be modestly above $100 million, which includes $10 million this year for our recently announced phase two SOP capacity expansion project. In 2011 our capital investment is expected to be very similar to 2010's. Our 2011 capital investment program will include around $50 million related to our phase two project at the Great Salt Lake in addition to our maintenance CapEx and other smaller investments in our current operations that provide immediate efficiency returns.

So with that we would be pleased to open up the call for questions and I will turn it back to the operator. Wes?

(Operator Instructions) Robert Koort, Goldman Sachs.

Good morning.

Wes, we are not hearing anything on this end.

Mr. Koort, your line is open.

I am sorry; I obviously was having a challenge with my mute. Rod, you said something earlier about pricing your customers I think was flat delivered cost versus pricing. Maybe we saw it in the P&L. Is that a function of the transportation?

No, I was -- the transportation was down just a little. I was referring to our gross selling price. I think the point we were trying to make is that the average price reported was influenced by a mix. The reality is that in both our highway deicing as well as our consumer and industrial businesses deicing products, on average, are higher than the other products that we sell in those sub-salt segments.

And with lower percentages of deicing sales in both of those that was either entirely all or almost all of the average price decline on the quarter.

Got it, okay. And then would the same issue around the weak winter last year keeping your customers from having to replenish, would that apply to the consumer businesses as well or has that got a different dynamic?

No, it's similar. The timing of consumer and industrial deicing is a little -- it is different across the winter from our highway deicing and highway deicing is pretty much an order to snow event. So if it snows there are orders and they are constantly replenishing.

In consumer it's a little different. As you might know, in retail they bring product in to their channel and then towards the end of the winter, even February snow events are less likely to create demand than they are earlier in the season. So there is a little bit of timing difference just because retailers are looking to put fertilizer and other things on the shelves by March.

But the same carryover situation applies, which is modest but nonetheless ends up showing up in a low-volume quarter like our second and third quarters tend to be.

And have you seen any elasticity of demand in the water softening market with the economy being weaker or has that been pretty steady Eddie?

Yes, this is Angelo. I think the water conditioning sub-segment of our consumer and industrial is probably one of the places where the economy could have an impact. I think I have said before that if a house is foreclosed or if a person can't pay their mortgage, they are probably not running the water conditioner.

Now having said that, when we strip out deicing and we look at our volume in C&I year-over-year it's about flat. But remember last year was also a bit down so I think whatever economy effect was in our last year results continued in this year's results. So probably, yes, there is some modest impact in water conditioning demand from the economy.

I would just add to that that I think we have said in the past that the biggest economic impact to salt, while he have said it's recession resistant, isn't recession proof, has been our chemical business that we sell to rock salt. That seems to have come back strong in 2010 compared to the decline that we saw in 2009.

Okay. And a last question; I appreciate your time. Do you guys use a considerable amount of natural gas in your evaporative salt plants and have you seen a benefit there or is it also not a big cost issue?

It's Angelo again. Yes, we do use a fair amount of natural gas and we have a well-established hedging program where we looked out over three years and layer in parts of our requirements over time. We are enjoying the trending down of natural gas, particularly the portion that is spot in nature where we haven't locked it in.

So yes, it has been a good buying market but we really don't chase the bottom and we really try to avoid the spikes that go upward. So our price isn't necessarily the current spot price; our price is that blended price of our hedging program over many years.

Angelo, would that blend be half and half, 70/30?

Yes, typically we have in the past tried to be about 70% to 80% hedged when the year starts, so it would be a richer mix on the hedge. (multiple speakers)

Thanks, guys.

In the current year, that is right.

Excellent. Wes, I think we are ready for the next question.

Joel Jackson, BMO Capital Markets.

Thanks for taking my question. Good morning, I had a couple of questions.

Just following up on some commentary about salt pricing, it would seem from your historical data that your Q3 highway deicing volumes were pretty average for like a typical Q3 or the average the last -- since you have been a public company, is that about right?

Well, I think if you go in history, in the Q3 of 2008 it was around $40 but prior to that --.

But (multiple speakers) for the volume.

Oh, I am sorry; I thought you meant pricing. Yes, on the volumes I think it is fairly typical of a third-quarter. Last year did have higher early fill than we had seen in the past.

I don't know if you can give a little more color on if you look at highway deicing salt, consumer deicing salt, and then sort of C&I non-deicing salt, if you can kind of give some color on how pricing was in the quarter on a year-over-year basis?

Yes, and I tried to address that, Joel, in my remarks. I wanted to make sure that everybody knew that the average reported price was not indicative of an end-use price. When we look at the mix effect of our reported price, the difference in end uses -- and so in highway deicing, for example, that would be the difference in the amount of salt sold into the chlor-alkali segment, chemicals segment, at lower prices relative to the deicing end use -- that that is entirely made up of the mix and the relative percentage there, not price declines.

And it's a very similar story on the C&I front where our average deicing product in the consumer area is above the average price in our other products. Now within all of those end uses there are a variety of price points. For example, on rock deicing in consumer that is a relatively low price compared to our blends and our magnesium chloride products in consumer deicing.

I wanted to switch topics and talk about sort of longer-term SOP demand. Obviously the Company is making a very large investment to increase your pond-based capacity by a fair bit over the next four or five years. Maybe you could talk about if we sort of say what your peak SOP demand is, the Company will be adding about 150,000 tons of additional pond-based capacity over the peak demand a couple of years ago on an annualized basis.

Maybe you could talk about -- I think before you have given some guidance that the Company believes that the incremental demand will come from the Western Hemisphere. I was hoping you could provide color on do you see the incremental SOP demand coming from increased penetration in the same regions and markets you are serving or potential targeting new crops that potentially don't use -- maybe just use MOP and don't use chloride-free fertilizers. And then sort of what your thoughts about all of this would be on what the future spread over MOP, sort of impacts on that?

Yes, this is Angelo. A good kind of broad question; there is data that says SOP historically has grown on a worldwide basis somewhere between 3% and 4% per year on a base of something approaching 7 million tons per year. So if you do nothing, just the natural growth rate of SOP, it would add 200,000 to 300,000 tons per year of demand. So our increment that you correctly stated was about 150,000 tons net at the end of Phase II is a drop in the bucket in just one year and we are actually phasing it in over four years.

In addition, the expectation is, and this comes from our own market research but also from some of the reputable trade journals, there is -- the forecast for the next 10 years the SOP growth rate is expected to be not that typical 3% or 4% but 5%, 6%, or 7% depending on who you look at. So that creates an even broader market for us to participate in.

Right now we have a very small percentage of the SOP market; even at 400,000 tons a year on a 7 million ton market we have a very small penetration. So we see very good growth in the underlying current SOP market but let's remember that there is a 60 million or 70 million ton MOP market that is looking for the potassium molecule also.

And we think within MOP applications there are some applications that are better served by SOP. So our marketing and technical efforts are also focused on convincing more and more growers that they are better off paying $150 per ton approximately premium for SOP versus MOP because it will result in a higher quality, better yield outcome.

Those are long-term projects that normally require a lot of agronomy and a lot of testing, so our growth rate -- we are very comfortable in our ability to, number one, get back to 400,000 tons which was our typical run rate before this pullback in the market place, but to 550,000 tons within the next five years.

Okay. Thanks, guys.

Thank you.

Mark Gulley, Soleil Securities.

Good morning, guys. I have got three questions. First of all, on SOP pricing as the slide shows in the slide deck you have announced price increases close together which total up to be $55 per short ton in the US. But as I recall, as I believe some of the larger MOP competitors may have increased their prices by $75 a ton and you would have seen that increase before you announced this latest one.

So I guess I am asking, one, is my premise correct that you are coming in underneath the MOP price increase? And if that is correct, why?

Clearly, MOP pricing is a good reference point for our analysis and our discussion here. We sell as a value-added product MOP so clearly, as I like to put it, we follow in the wake of MOP but our competition is somewhat indirect as opposed to direct. MOP pricing is driven heavily by row crops, corn and wheat, and there are some unique things going on in wheat in terms of the droughts and the fires that raise wheat prices or corn yields that are down, which has given MOP a kind of a window of opportunity to push through or at least announce some very significant price increases.

Our crops are not corn, they are not wheat, and the typical almond producer has not seen the kind of price inflation that the typical wheat grower has seen. The other fact is that we are more of a specialty product and our customer pricing does not react as quickly. Remember, we were the only ones who got above $1,000 per ton sustainably. Although there were announcements by the MOP guys of very high prices, we actually got them.

So I think we are being a little bit deliberate here. We are being respectful of our customers and their applications. There is no doubt there is some positive pricing momentum on SOP and I am not saying our price march is over or it's not over, but we are being deliberate. We are taking it in phases. We are giving our customers some notice.

The other thing to remember is when you look at MOP prices the announcements don't always translate to immediate price realization. There seems to be a significant lag between when MOP price increases are announced and those prices actually show up in invoices. So I think it's a little bit more complicated by just taking the MOP pricing, adding $150 on a short-term basis. Over the long term we think that is the right formula.

That is very helpful. Second, with respect to expectations for normal winter weather next year, a lot of talk about La Nina affecting South America and perhaps it will persist long enough to affect North America. Are weather patterns something you have to actually think about in terms of production planning? How are you thinking about weather coming up for the next year?

Yes, it's Angelo again. We have just as many people, both inside the company and weather consultants that will tell you that you will get a strong winter from La Nina as those that will tell you that you will get a weak winter or those that will tell you it will be normal. So we expect normal, we plan for normal, we budget for normal but we -- with the expansion of our Goderich mine we have a lot more upside opportunity over the long term because we have that capability.

So we are not changing our behavior based on early indications of the La Nina affect this winter.

Then finally, maybe it's a string of bad luck but it seems like there have been some slips here in project execution at Salt Lake, and Goderich. Is there a pattern developing here? Are there some issues with respect to project execution or maybe it's just like I say a little bit of bad luck here recently?

These are complex projects and these are projects that were to be implemented over multiple year periods. We set aggressive goals and that, I think, is the expectation we have of ourselves and the expectation I think others have of us. I think it's the right thing to set aggressive expectations and, unfortunately, sometimes we fall a little bit short of those aggressive goals.

I think Compass Minerals is not the kind of company you look at in isolation in any one particular quarter. I think if you look at Compass Minerals over the six years we have been public, and particularly if you look at the new building blocks that we have put in place for the future, I think you will feel pretty good about it. And I think these little hiccups in the second and third quarter we won't be talking about them next year or into the future.

But I think you are right. There are definitely some self-inflicted headwinds that occurred in the third quarter.

Thanks, Angelo.

Thank you.

Edward Yang, Oppenheimer.

Hi, good morning. Rod, maybe just first a quick modeling question. After the refinancing what was the current portion of debt?

It's still only around $4 million.

Okay, so that hasn't changed.

No, that has not.

And just on volumes for salt, different moving parts in terms of inventory overhang and weather and so on. But assuming a normal winter and I think Angelo had mentioned I guess two snow events worth of inventory at the customer level, what do you think deicing salt volumes or total salt volumes should be for the fourth quarter, assuming a weather and some of these puts and takes?

I will start it by saying we have a hard enough time forecasting the whole winter and we kind of punt on that and we say it's going to be a normal. I just punted on the La Nina question because it's just as much influence one way or the other. So to give you any kind of accurate prediction on the fourth quarter which is kind of a subset of the winter I would just be kidding you.

I think the best indicator of our performance is kind of historical numbers and I think we have begun to put out some reference to historical volumes in the fourth quarter and the first quarter. And we will do that again at the end of the fourth quarter. But we really can't give any specific guidance on volumes within a winter quarter.

Okay, fair enough. Just on pricing then versus mix as well with the higher percentage coming from chlor-alkali, did I hear you correct in that you expect pricing to continue to be down year over year as it related to mix?

Well, I think if you look at last year in the fourth quarter, while chemical volumes were lower than normal, deicing was off relatively substantially. And with that mix our reported price last year was negatively influenced. So you would expect with flat pricing and normal winter we would be at least flat with last year's price just given the trends.

To clarify, Rod, when I look at the fourth-quarter 2009 prices for salt it looked like they were actually up year-over-year.

They were, right, but what you might -- within last year's price there was a combination of a greater mix of chemical in that. So all I am saying is that, all other things being equal, last year -- and the fourth quarter was negatively influenced by that just because of the substantial decline that we saw in the volumes related to highway deicing.

Okay, got you. And just finally I think you mentioned some chlor-alkali -- expansions among your chlor-alkali customers and was wondering if those were plant expansions, I hadn't heard of any of those, or just better operating rates.

Yes, we mentioned that. We weren't trying to indicate that our chemical volumes would be up; many times chemical plants will be built with captive salt brine sources. But it's just indicative of a rebound in that area of the economy, the chemical production that has lead to higher volumes this year than last year.

Yes, they are running at pretty good rates. I think the chemical industry is kind of one of the recovery areas of the economy and we are seeing it in our chlor-alkali demand.

Okay, thank you.

Thank you.

Douglas Chudy, KeyBanc Capital Markets.

Morning. It sounds like the SOP price increase announcements are lagging what we are seeing on the MOP side; you discussed that a little bit. Considering most of your competitors use MOP as an input for their SOP product they are likely to sustain higher costs. Do you see this as a near-term opportunity to take some market share?

It's a good question but remember at present our production capability is actually less than it was just two years ago because we made the decision to exit the sourced route which relied on KCl. So we went from a production capacity of 450,000 tons, which 200,000 tons of which was KCl-sourced. We actually went down to 250,000 tons a year of pond-based and then expanded it 350,000.

So we are actually 100,000 tons behind in our production capability, so now would not be the time in a constrained production environment for us to be gaining share. However, we have announced Phase II and in a year or two those lines will be crossing and we will go from the current 350,000 pond-based to 550,000 or 570,000 which will give us an opportunity to grow in the areas that I mentioned.

Clearly, I think those that are dependent on KCl for their SOP are in a weaker position. In fact, I think there might be changes in production in the future from those players.

So we are happy where we are but we don't have the extra capacity today to gain share. Plus, I don't think we really need to gain share at all because the market is growing robustly, whether it's 5%, 6%, or 7% a year.

Okay, that is helpful. And I guess secondarily here, I understand kind of the temporary nature with the inventory build at the customer and I understand you are not giving guidance in terms of volumes, but you did expect more normalized buying patterns here in late November, early December.

Just to clarify, this sounds like the volume impact could once again hit the fourth quarter. Am I thinking about that correctly, if the orders don't start till late November, early December?

Yes, versus a normal year we would expect that there would be, and there has been, a continuing effect in October. But just keep in mind that last year was so mild that our other guidance has been that if it's just normal weather, and we factored in our expectations around what lower year-over-year volume would be in October, that we would expect higher sales and higher earnings in the salt segment in the fourth quarter or across the winter as we had last year.

Okay, thank you.

David Begleiter, Deutsche Bank.

Angelo, can you discuss -- you are having the new capacity in salt coming on next year. Can you discuss your strategy and how you expect to deploy that new capacity into next year, the bidding season?

Yes, I don't see really a difference in our long-term strategy at all. We have some very logical places that we have served for a long time. Those markets and regions tend to grow normally about 1%, 2% a year in demand and, because we have been the ones typically with the excess capacity, we have gotten a disproportionate amount of that modest market growth. That has kind of been the Compass Minerals story for a long time.

We were running out of room to continue to grow and thus we took advantage of a logical expansion opportunity at Goderich which now gives us an extended amount of time during which we will continue that slow and steady march. What it does do, which is different from the past, is it gives us a surge capacity during those abnormally harsh winters.

Where in the past we were happy to take the modest growth that the market provided but then when there was an upside we basically sat on the sidelines after our storage locations were depleted. Now we have the opportunity to build in additional safety stocks and have some surge spot opportunity and really take advantage of those one in five or so years where there is a particularly harsh winter.

Now 2011 is not going to be one of those years for us because we are in the process of bringing on our asset, but once you get past this coming winter I think there will be significant upside potential in Compass Minerals in a harsh winter that didn't exist in the past.

Very good. Angelo, just any further thoughts, I know it's quite early, highway deicing pricing for the next season given that even its three-year average, even with this year as flat, pricing is still above historical trend line?

Yes, and I appreciate you reminding us that prior to this flat year, which we all seem to be a little bit startled by, we had a 20% year and an 8% year where, if you took the three years, you got 28%. We have told you historically it has been around 3% to 4% a year; 28% over three years is far above that rate.

But you tell me what the winter is going to be, I will tell you what the bidding patterns will be and what to expect. If it's a harsh winter and it drives shortages, there is no reason why you wouldn't expect above normal price realization.

If it's a normal winter, I think everything will reset and there is really no reason to expect much difference from a normal pattern. And if there is another mild winter you are going to have the same producers with the same production chasing fewer tons or modestly fewer tons and you are going to have some price pressure.

That is how you get to an average of 3% to 4%. You don't get there by having 20% followed by 8% followed by numbers well above 3% to 4%. You need a zero every once in awhile to get to the average and we got one of those.

Understood. Thank you very, very much.

Jeff Zekauskas, JPMorgan.

Good morning. A couple of questions. So last year's winter season, was that roughly 15% below normal?

Yes, I would have to look at some of the data to give you an exact percentage so I don't want to answer off-the-cuff, but it sounds like it's in the right ZIP code, Jeff.

Right. So when you say that if you had a normal winter this year you would earn more than you did last year, what you are saying is that if your volumes were order of magnitude 15% higher than last year your operating -- you would have up operating profits in salt? Is that correct? Is that a correct rendition of what you said?

Yes, that is pretty close, yes.

Okay. Now it's also the case, though, that the customers have more inventory than normal, all things being equal. So even if it were a normal winter wouldn't it be the case that the volume growth would not really be 15% because the customers were sitting on too much inventory. So even in a normal winter you would have a below normal volume take?

Yes, I think -- this is Angelo again. I think you've got to put into context what that storage barn can hold when we say one or two snow events. And, again, it's not every customer in every location that is filled to the max.

We think, this is kind of rough, that it's 5% or less inventory hangover right now and we saw a 3% decline in bid volume so that kind of holds. So if your premise is right, where there is a 15% increase in volume because of normal and there is 3% to 5% inventory overhang you are still positive volume growth to get to a normal winter, which Rod has said that positive volume growth would give us improved operating earnings.

So you would have an improved operating earnings even with a normal winter adjusted for the inventories that your customers hold?

Right, Jeff, and one thing to remember is that when our customers are holding inventory they are using -- considering that inventory when they ask for their bids for the upcoming winter. So the bids already factor in what the customers know they have. We haven't told them how much they need; they are telling us how much they want and they are factoring that in.

So when we talk about our bids and the normal winter demand, what that would mean for us, that already factors in the adjustment that the customers have told us through their bid volume request that they need.

Okay. And then lastly, you increased your salt capacity over time so what constitutes a normal winter for you has changed because your capacity has changed. And I guess when I do a back of the envelope normal winter for you I think it's about 8.4 million tons of deicing salt. Is that what you think or do you think something else?

Well, let me start with the first part of your question. Just because we have the capability to produce more rock salt in Goderich doesn't mean that our normal winter, by definition, has increased. It means that our potential for a larger normal winter has increased.

We still have the same very capable competitors who are as protective of their customers and their regions and segments as we are of ours. So, again, as I said in a prior question, where we have gained has been by getting a disproportionate amount of weather-driven growth or just natural growth. So those are the two opportunities for us to win is to get a disproportionate amount of the growth as it develops and to be opportunistic during those harsh winters.

Our mine expansion was not put in place to just go in there and displace a whole bunch of competitors in a whole bunch of cities. That has not been the plan and it has not been the way we have historically grown. So just because we have the mine capability doesn't mean we have to put the people in place and the equipment in place to hoist all that salt. We can leave it under Lake Huron for another million years as it has been before. It's not going anywhere.

All right. Well, then am I right or wrong that 8.4 million tons is a normal winter tonnage for you or is that not right?

Well, Jeff, just from -- while we haven't ever stated that specifically, you can see from the past that we have -- the largest year we have had has been over 12 million tons; the lowest has been 8 million. Now both of those years would include -- 8.2 million. So 12.2 million to 8.2 million. Both of those years would include roughly a couple million tons of chemical end use, 2 million to 2.5 million tons.

So if you are stripping that out the midpoint of those two would get you somewhere very close to the number that you are talking about.

Okay. Thank you very much.

We have reached the allotted time for Q&A for today's conference call. I will turn the conference back to Mr. Angelo Brisimitzakis for any closing remarks.

Thank you, Wes. Despite some of the short-term challenges we faced in the third quarter Compass Minerals is strong and well positioned to maintain its industry-leading position in both salt and specialty potash. We are looking to Mother Nature to give us more normal weather this winter and we are prepared to profitably grow our specialty fertilizer business as the need for potash nutrients continues to increase around the world.

Thank you all for joining us today. Please plan to join us again in February. Goodbye.

Ladies and gentlemen, that concludes the Compass Minerals third-quarter earnings conference call. We appreciate your time. You may now disconnect.