Compass Minerals International Inc (CMP) 2010 Q4 法說會逐字稿

Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals fourth-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). I would now like to turn the conference over to Ms. Peggy Landon, Director of Investor Relations and Corporate Communications. Ma'am, you may begin your conference.

Thank you, Nicole. Good morning, everyone and thanks for joining us. 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, February 9, 2011 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 Forms 10-K and 10-Q. The company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments.

You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release, which is available in the Investor Relations section of our website at compassminerals.com. Now I'll turn the call over to Angelo.

Thanks, Peggy. Good morning. Thank you all for joining us today. As you read in our release, our fourth-quarter and full-year 2010 results can really be summed up by saying salt sales rebounded from the mild weather in the fourth quarter of 2009 and SOP sales increased nicely due to more normal demand returning. Yet earnings were lower due to short-term per-unit cost pressures driven by reduced production volumes. Despite these headwinds, our underlying strength was demonstrated by our 2010 posting of the second-highest cash flow from operations we have ever achieved at $241.2 million, or $7.36 per share, compared with $3.65 per share in 2009 and $7.66 per share in our record 2008 year. When you peel the onion back a little bit beyond these headline stats, there is a lot to get excited about in the not-too-distant future.

First, I will spend a few minutes on our fourth-quarter results. Highway deicing sales volumes were up versus the 2009 quarter, reflecting a strong start to the season in the U.K. and a decent start, despite a few challenges, in our North American markets.

If you look at the North American markets we serve as a whole, there were more snow events this year than last year in the fourth quarter. However, as we told you in October, our North American deicing sales got off to a slow start this season because of lower pre-season deliveries. A lot of our customers had some carryover inventory from the mild 2009-2010 winter, particularly around our core Great Lakes service region, so many of our first deliveries to these customers occurred later than normal this season, which effectively shortened the fourth-quarter selling period. Even with this challenge, highway deicing volumes improved yearoveryear as snow days picked up in mid-December and have continued pretty steadily since then. So, on balance, while there are some regional snow differences such as no impactful snow events the entire fourth quarter in the city of Toronto, yet Minneapolis had a disproportionately high number of snow days, it was about average for us this quarter overall.

During the quarter, we reported an average selling price increase of about 8 percent for highway deicing products, while our C&I products posted an average decline of 6 percent, netting to about 1percent up for all of our salt products. Both of these product groups' sales were separately impacted by customer and product mix shifts that obscured the relatively flat underlying prices when compared to the prior year.

In our consumer and industrial business, prices were lower on average, principally due to lower sales of packaged products, including packaged deicing, where carryover inventory was greater than usual. These lower packaged sales were offset by higher bulk sales volumes as a pickup in the general economic activity drove modestly higher demand for a whole host of end uses. One of the real strengths of our consumer and industrial business is that overall demand is generally insulated from economic cycles because of the wide variety of products that business unit produces and sells. The greatest variability we see in our consumer and industrial business comes from fluctuations in weather-driven demand from our high-value bag deicing products.

Our highway prices were positively influenced by customer mix, including some modest shipments of salt from North America to the U.K. at about the same per-unit margins as our other deicing business, but at higher selling prices to counter the increased cost of freight.

In summary, despite these mix impacts in the fourth quarter, we continue to expect underlying highway deicing average prices to be approximately the same in the first quarter of 2011 as the first quarter of 2010.

Of course, the sales picture is really just part of the story in salt since the per-unit cost increases continue to impact our results. And there is no question that we had more than our share of production obstacles in 2010, including in the fourth quarter.

Most of the cost increase on sales of salt-segment inventory occurred earlier in 2010, and I know most of you are familiar with those drivers. They included our intentional reduction of production in the fourth quarter of 2010 to right-size our inventories following the mild 2009-2010 winter. In the second quarter, there was an unfortunate 10-week strike at our Cote Blanche mine, which further reduced production. In the third quarter, we had an extended production interruption at our Goderich mine caused by a delay in the final tie-in of a key element of our Phase II mine expansion. Then in the fourth quarter, we had some unplanned downtime for repair and maintenance activities at both of our North American rock salt mines. As a result, our rock salt production declined andcrossed the threshold that caused fixed-cost absorption to have a material impact on our per-unit costs. On the C&I side, we also had the continuing $3 million-per-quarter cost increase on the sourced potassium chloride we use in certain consumer water conditioning products. This combination of factors left our average salt costs more than $4 per ton higher than were recorded in the prior-year quarter.

Shifting our attention to 2011, we now have a very different situation developing. It has recently snowed nicely throughout our service area and demand is above normal so far this quarter. Just last week, the "Blizzard of 2011" left winter precipitation throughout our primary North American service area and total snow days prior to that in January had also been above average. It could stop snowing tomorrow as you know, so don't take this as guidance for our first-quarter deicing results. However, this quarter is certainly starting off better for us than last year.

Given the recent weather condition, we see the potential for our deicing customers to deplete their inventories should even normal winter return for the remainder of the winter. That includes highway, as well as consumer and industrial deicing customers. If that happens, it would put us in a positive position to have a more typical highway deicing bid season this summer and see normal pre-season demand for both highway deicing and consumer and industrial deicing products. During the second quarter of 2011, our per-unit salt costs should begin to moderate after we have fully depleted our 2010 rock salt inventory this winter.

For 2011, we expect our salt production levels to return to normal, so our per-unit costs should return much closer to 2009 levels, except, of course, for the ongoing impact of the higher cost for sourced potassium chloride.

So, in short, we expect our salt segment performance to return close to 2009 levels during 2011. The greatest risk we see on the horizon is the potential for rising fuel prices to increase our transportation costs, but if that happens, we will work hard to recover those higher costs from our customers during the summer bidding process.

Looking now at the performance of our specialty fertilizer segment, we clearly saw a healthy market recovery during the fourth quarter. Volumes more than doubled to the highest level we have seen in 10 quarters. The rebound was particularly strong from our domestic growers this quarter, which aided in our average selling price improvement to $530 per ton, which is lower than the year-ago price but represents solid growth from the 2010 low of $506 per ton in the third quarter. During the fourth quarter, we announced three SOP price increases totaling $80 per ton. So far, we have had good traction with these announcements, so we expect further price improvement during 2011.

Our per-unit production cost expectations in this segment were also unfavorably impacted by production volume issues. We continue to have less SOP production than expected because of delays in the full implementation of some of the new equipment we purchased and installed for our Phase I expansion. So, as with the salt segment, fixed cost absorption increased per-unit costs. These higher per-unit costs will prevail until we sell the last of our 2010 inventory this spring and until we work through the final commissioning issues surrounding the Phase I expansion of our Ogden, Utah, plant. Our January production has been better as our operations adjust to this new equipment.

Looking ahead to 2011, we are very excited about our recent acquisition of Big Quill Resources based in Wynyard, Saskatchewan. This acquisition should provide meaningful earnings boosts to our specialty fertilizer segment and a modest, immediate benefit to Compass Minerals' overall earnings. Big Quill opens up new markets for us, such as fertigation and timed-released agriculture applications, as well as specialty applications that can take advantage of the physical properties of SOP produced at this new site. And it will strengthen our packaged SOP business because much of Big Quill's product is packaged. Big Quill also brings to us key personnel with complementary skill sets. We believe that when all of our SOP folks work together, both at our 40-year-old Ogden site and at the Big Quill Wynyard location, all will become more efficient.

Because so much of Big Quill's product is bagged, their average selling price is higher than the prices of SOP produced from our Great Salt Lake Minerals subsidiary, but Big Quill's costs also reflect the higher packaging costs. In the end, Big Quill's products generate roughly the same EBITDA margin dollars per ton as Great Salt Lake Minerals' products.

We expect SOP demand to return to more-normal levels in 2011, which should be around 400,000 tons per year. This rebound reflects the needs that all crops have for the essential potassium nutrient and the important benefits that sulfate of potash provides to specialty crops.

We expect SOP prices to improve during 2011 as our announced fourth-quarter increases continue to take hold.

Sometime during the second quarter, after we have worked through the remaining 2010 inventory, we expect our reported SOP product costs to drop by approximately $10 per ton when compared to 2010 costs, which is net of the Big Quill higher per-unit cost.

Throughout 2011, we will remain focused on our strategic expansion at our advantaged multi-mineral Great Salt Lake facility as we optimize Phase I, proceed with the Phase II pond sealing and SOP plant redesign engineering and as we work towards earning permits for our longer-term Phase III growth initiative.

I think we will look back at 2010 as a transition year where our investments in expansions for long-term growth ran into some short-term operating challenges. But through it all, we maintained our strategic focus on delivering investments with significant implication for future value creation.

We generated real value for our shareholders in 2010 with a total shareholder return of 36percent, and we continued to illustrate that our mix of essential products and advantaged assets can deliver shareholder value through a variety of economic, weather and business fluctuations.

Our earnings have grown at a compound rate of 25 percent from 2003 through 2010, and our cash flow from operations has grown at a compound rate of 20percent. Our balance sheet is strong with a debt-to-EBITDA ratio of 1.7 times compared to 4.6 times in 2003, and our debt rating has improved to BB+ today, up three notches from 2003. And our stock has appreciated almost sixfold from our 2003 IPO price of $13 per share to our 2010 closing price of about $89 per share.

We will continue to focus on generating tangible shareholder value as we proceed through 2011 and beyond. Now I'll turn the call over to Rod, our CFO.

Thanks, Angelo. As Angelo has touched on the broad issues that impacted our segment results for the quarter and the year, I will quickly recap the fourth quarter and discuss a few of the non-operating details and outlook items.

Increases in demand for both our salt and specialty fertilizer products drove revenues higher by 14 percent when compared to the prior-year quarter. The increase was most pronounced in our SOP products where demand throughout 2009 was lower, consistent with the broader fertilizer slowdown. The demand sharply rebounded during 2010, albeit at lower, but attractive, prices and demand for our specialty fertilizer products seemed to accelerate through the fourth quarter. Salt sales volumes were mostly impacted by more-normal weather in our service territories when compared to the mild 2009, though regional variations were present.

Even with these sales increases, our operating earnings in the fourth quarter declined $13 million, or 14 percent on a year-over-year basis. Because of the sales volume rebound in specialty fertilizers, operating earnings grew 42 percent or $5.3 million in that specialty fertilizer segment. However, the more than $4 per ton increase in per-unit salt costs, which were principally related to production declines at our North American salt mines earlier in the year, continued to impact us in the fourth quarter. This cost headwind resulted in a fourth-quarter salt segment operating earnings decline of about $16 million when compared to last year's fourth quarter.

As Angelo previously mentioned, because we will be selling 2010-produced salt early in 2011, we are expecting one more quarter of this cost impact before returning to more-normal cost levels, similar to 2009, on the expectation of significantly higher rock salt production volumes during 2011. Of course, that would bode well for a return, during 2011, to the kinds of operating earnings percentages we experienced in 2009 before the recent, mostly short-term, per-unit production cost increase impacted our 2010 results.

We also would like to remind you how we calculate an estimate of the impact on our results from severe or mild winter weather following each winter quarter. For the fourth quarter of 2010, we judge the winter weather impact to be approximately neutral to our results.

The mild winter of the prior 2009-2010 season, however, did have a lingering effect on our results this quarter in certain regions and products. For example, in our consumer and professional packaged deicing product lines, some customers had inventory remaining from the previous season which reduced pre-season orders in the fourth quarter of 2010. Similarly, we saw lower pre-season sales volumes in our North American highway deicing products due to modest customer carryover inventory that was offset by strong regional sales in the U.K. on severe winter weather there.

This North American carryover inventory impacted our assessment of fourth-quarter winter weather effects for the current season. As we analyze many years of data we have on the North American highway deicing rock salt sales, we find that, over the long term, sales volumes approximate the purchase commitments awarded by our customers. So our customers have demonstrated that they know what a normal winter is in their community and seek bid commitments for that amount. The typical minimum and maximum provisions in the contract allow them to accommodate variations from normal. So our assessment of normal starts with bid award volumes as we have been awarded for the winter season. Since, for this season, our customers knew how much carryover inventory they had, their individual bid commitments were based on usage for a normal winter, including their inventories, and therefore considered a later beginning to their winter purchases. Thus, we expected more of our 2010-2011 winter salt sales volumes to occur in the March quarter and less in the December quarter than we would expect in other years. We have estimated this shift to be a little more than 300,000 tons in the current winter season.

After factoring in all of these variations, we estimated the revenue and earnings impact of winter weather to be about average in the fourth quarter of 2010.

In our specialty fertilizer segment, we expect price realizations and, to some extent, our recent acquisition of SOP producer and marketer, Big Quill, to provide momentum to our first-quarter specialty fertilizer segment earnings trends.

Now turning to the elements of our income statement, other elements. Net earnings were $61 million, or $1.83 per share. Net earnings, excluding special items for the quarter, were $56.8 million compared to $62.5 million in the fourth quarter of last year. This equates to $1.70 of earnings per share in the fourth quarter compared to $1.88 per share last year. This 2010 quarterly result included about $0.03-per-share impact of higher SG&A costs related to acquisitions and approximately $0.06-per-share impact on non-operating foreign exchange losses, which is about $0.05 more per share than in the prior-year quarter.

We reported two special items during the fourth quarter in our release. One special item was a $5.9 million benefit from the release of tax reserves related to settling tax uncertainties with taxing authorities. Additionally, we incurred pre-tax costs of $2.5 million as a special item related to amending and extending the maturity of a large portion of our long-term debt. These two special items together provided a net benefit to our fourth-quarter and full-year earnings of $4.3 million, or $0.13 per share.

Interest expense totaled $6.2 million on the quarter and $22.7 million for the year. We expect interest expense in 2011 to be a little less than $6 million per quarter. As I just mentioned, early in the fourth quarter, we entered into a new revolving credit facility, which expires in five years, and we extend the maturity on a large portion of our term loans to early 2016. The remainder mature in December 2012.

Income tax expense for the fourth quarter was $9.9 million, reflecting the impacts of the one-time $5.9 million non-cash income tax special item benefit already mentioned, as well as the impact of lower earnings in the quarter. We expect our tax rate for 2011 to approximate 30 percent and cash taxes to be similar to 2010 at around $60 million.

Depreciation in 2011 is expected to increase due to our completion of several capital projects late in 2010. We expect depreciation to total about $65 million for 2011.

Cash flow from operations in 2010 was $241 million, more than double that of 2009. Much of the change from the prior year can be attributed to reductions in SOP inventory after intentionally building an approximately 200,000 ton inventory bridge in 2009. Our year-end 2010 SOP inventories total more than 100,000 tons. The level of cash flow generated in 2010 was similar to the record level generated in 2008.

Capital expenditures in 2010 reached $112 million as we essentially completed our Goderich mine expansion, approached completion of the SOP Phase I expansion at the Great Salt Lake and even initiated our Phase II pond yield improvement project at the Great Salt Lake late in 2010. We expect capital spending for 2011 to be around 2010 levels with $50 million to $60 million going toward maintenance of business needs and the remainder principally funding the early stages of our Phase II SOP expansion project and other small payback investment opportunities.

There was no balance on our bank revolver at the end of the year. Our outstanding debt at the end of the period was $482.5 million. Year-end cash on hand was $91 million, the highest level ever recorded at the end of December by the company, so net debt at the end of the period was down -- was $396 million, down from $477 million at the end of 2009. We used $56 million of our year-end cash to fund our acquisition of Big Quill Resources in January 2011.

And so with that, I will turn the call back over to the operator to begin the Q&A session. Nicole?

(Operator Instructions). Joel Jackson, BMO Capital Markets.

Hi, good morning. Thanks for taking my questions. A couple questions. I wonder if you could speak generally about -- well, in terms of your highway deicing contract portfolio relative to sort of your bid volumes. What percentage are you there in terms of shipments so far this winter, if you get my question?

If you look at our typical year, the majority of our sales -- the biggest quarter is very typically the first quarter of the year. December-quarter sales are usually between 40 percent and 45percent of our total sales with the March quarter ending up slightly higher than that, between 50 percent and 55 percent. So overall, we are close to those percentages. I think possibly just a little lower given the fact that our customers really needed less pre-season inventory in the December quarter this year. Of course, regionally, it can vary fairly dramatically and we have certainly seen some locations take almost their full allotment of their contract. But on average, I think we are a little behind where we would normally be. That is more a function of customer inventory than it is snow events.

So you haven't reached any of the 120 percents yet in terms of spot sales to some of your contracts or got past your contracts?

Clearly, there is very little of that through the end of December -- none of that through the end of December.

Oh, sorry. I meant through like February now.

With recent ones, I think there are incidents, especially along some of the Ohio River where we have seen a succession of snow events and some of those customers have reached their maximum. I think given our inventory position, our ability to capitalize on a lot of spot market sales, while there will be some regional opportunity for that, it will be somewhat limited this year.

And the other question I wanted to ask was talking about the Canadian markets. What percentage of the Canadian market is on multi-year contracts and what percentage of those contracts do you think will be up for this summer in terms of a two- or three- or four-year contract period?

Yes, this is Angelo. I mean we really have a somewhat different market in Canada versus the U.S. where, in the U.S., the vast majority of what we do with governments are annual cycles. In Canada, we have a whole mix. We have some that are annual, we have some that are bi-annual, we have some that are actually three years. We really don't get into what the ratio is, but we have a long history of supplying all of those customers and whether they are one, two or three years, we really don't see the fact that something might be renewing or not renewing being a major factor in our ability to continue to serve those customers.

Okay. Are those contracts like reasonably over time, they are spaced out in terms of when the multi-years get renewed?

Yes.

Okay, great. One more question I wanted to ask, sorry, was on the SOP side. Just wanted to know what your production volume will be at Great Salt Lake for 2011. Do you think you can get to 350,000 or -- you talk about how you are almost done with completion of Phase I or what do you think your capacity will be in 2011?

In fact, if you look at our investor presentation, which we have updated just yesterday, you will see a graph that will show the progression of our production capability at the Great Salt Lake on SOP. I believe for 2011, that number is around 350,000 tons of SOP from the Great Salt Lake.

So I did see that. So full production for this year, you should produce 350,000 in the 12 months 2011?

That is our goal.

Great. Thanks a lot, guys.

Mark Gulley, Soleil Securities.

Hey, good morning, guys. I have got a couple questions. First of all, with respect to SOP pricing, one of your North American competitors appears to have enjoyed a fairly large increase in their fourth quarter compared to the third as compared to you, particularly when you adjusted for K2O content. I know you have a price increase going forward, carryover into the first quarter of this year, but can you comment on your ability to kind of match price increases from similar SOP type products?

Yes, and I think you kind of hit it first when you say similar. There is really -- none of the potash guys are identical. There are big differences between the MOP producers. As far as SOP production is concerned, we are the only ones in the United States. And then the other products like K nitrate or potassium, magnesium sulfate, K mag, which is a kind of a different molecule -- I think you get -- I mean it is helpful to look at it on a total K content, but actually when you get beyond the K is really where the value gets created, whether it is chloride-intolerant crops or magnesium-deficient crops or nitrogen-based. I think we are very happy with our trends on SOP pricing.

The other factor that is large is the balance between domestic sales and international sales. I mean there is no secret that the international price has been lower than the domestic price. However, we have pushed the domestic a lot harder, not because of just that difference, but our netbacks are higher because our transportation component is larger on the international shipments.

So I think, in general, we are happy with where we ended the fourth quarter on price. We have $80 on the table that we are implementing and we have good success. There is probably a little bit of pre-buying in the fourth quarter to avoid the full impacts of our three price increase announcements, but we don't think that was a lot. And we are very optimistic that we will see healthy volumes in 2011, closer to normal at better prices. And as we produce those 350,000 tons at Ogden that I just recently referenced with Joel, we should have improving margins in our SOP business.

Let me segue to that. 400,000 tons has been your goal for some time and yet you add about 10 percent to that with the Big Quill acquisition. So am I missing something with respect to the fact you have not increased your production goal with that acquisition?

We have increased our production goal. I think the 400,000 tons has been kind of a target of our normal sales demand. Our production capability now is around 350,000 tons. We have abandoned purchases of KCl, so that secondary route that we had, which allowed us to produce additional SOP from sourced KCl or sourced MOP, is not available to us. So in essence, we have a production capability at this moment which is less than our normal sales levels. And that is why we built a large amount of inventory in prior periods and we kind of called it a bridge, to kind of bridge us to the full implementation of our Phase I and Phase II projects. So we really need to constrain ourselves somewhat. The best way for us to do that is by managing the price spread between MOP and SOP. So we will do that and we will optimize the margin dollars generated from our specialty fertilizers in 2011 and we will need to do that until our capacity to produce exceeds our ability to sell, which will be a couple years from now as Phase II is fully implemented.

Jeff Zekauskas, JPMorgan.

Good morning. I just wanted to start off with a couple of questions of clarification. So your tonnage in road salt was 3,284, your 10-year average was 3,436, so it was down about 4percent. So why is it? Can you say again why this is a normal winter quarter if you are down 4percent from your average?

I'm sorry to interrupt you, Jeff. Did you want to follow it up with another question and then we can answer both?

No, no. That is just fine or is there a different way that you calculate the average?

Yes, well, thanks for the question. It's a great question and I tried to address it maybe somewhat awkwardly in my comments. As I mentioned, our assessment of "normal" this winter factored in that customers, really in the bidding season, requested less pre-season orders. And so while that doesn't affect what they expect to use on an entire winter basis, it does affect the relative mix of sales volumes that we would have in the fourth quarter and in the first quarter. And so that mix that we -- that shift that we estimated at somewhere north of 300,000 tons is factored into our assessment of whether the fourth quarter was average or not.

So if I understand you, so in other words, if there was a shift of 300,000 tons then the tonnage would have been, I don't know, 3,584, but then you would have been up 4percent. So then did you have a better-than-normal quarter, only it turns out some tons were shifted?

Well, I think if you look at the 10-year average, that would have been growing over that 10-year time period, so we would expect "normal" to be something north of a 10-year average. So that just reflects kind of the normal 1 percent to 2 percent market growth that we see in highway deicing products.

So in the first quarter of 2011, you said, well, you know, it is looking like a better-than-normal quarter and so your 10-year average is 4,207, 4.2 million tons. So I take it "better than average" means that it looks like it is better than 4.2 million, but then you will get an extra 300,000 tons from the fourth-quarter move into the first quarter. So are you saying that right now it looks like it is better than 4.5 million tons?

Well, I think what we always indicate when we have our call in early February is we try and give an indication of whether January has looked severe or mild, remind everybody that February is just as important as January and March is a close third in terms of importance. And so while we have been excited about a relatively consistent number of snow events, especially in certain regions, there is a lot of winter left.

This is Angelo. Just kind of another comment. We ship in North America from I think it is about 95 depots. And if the snow events were to be spread evenly across those 95 depots and were all of those areas were to exceed normal weather events, there is certainly a very large upside. However, snow doesn't fall evenly across our service areas. If it were to be concentrated in one area and actually be light in another area, although the average may look good, we might have more demand than we have capability to serve out of one depot and we may end up with no demand at another.

So I think it is a little more complicated than the average numbers and that is why we always caution when you look at our 11 cities that we show or you look at our 10-year history that we provide, those should be directional indicators. Really I think you get into trouble when you try to put too much math to those directional indicators.

Despite all of that, we are not trying to completely throw cold water on everything. Your math is all in the right ZIP code. It is just sometimes you can't -- you can't convert it to an algebraic equation. Your math is all in the right ZIP code.

Well, if I can just try it one last time. I wasn't asking you to predict the future; I was just asking for a definitional clarification. So in other words, if you exclude the 300,000 tons that you think will be thrown forward into the first quarter, right now, are you still trending above that 4.2 million tons or is that 300,000 included in your trending above the 4.2 million tons in the first quarter?

We are trending above a normal result in the first quarter. And just like last year, we were trending below. Itcould have started snowing last year in February. It didn't. It could stop snowing this year in February. It hasn't. But yes, we are trending above our normal line, absolutely.

David Begleiter, Deutsche Bank.

Thank you, good morning. Angelo, I know it is early for 2011-2012, but given the strength you have seen in highway deicing in January, are you optimistic on getting some price increases for highway deicing next winter season?

Yes, I mean if you look at the long-term trends following a normal winter in a normal environment, this industry has delivered 3 percent to 4 percent pricing on average. We saw what happens when the supply-demand balance is weak, meaning supply is strong, demand weak following a mild winter, where essentially we had flat pricing coming into this season. But then the prior two years we saw what happens when demand is strong and supply is weak, and we had 20 percent price season-over-season followed by 8 percent, which is astronomical.

Should the current trends continue, I would expect customer inventory to be very low following this season. And I would expect supply inventory from producers to have -- to be depleted. So I know for ourselves, we would hope to sell everything we have on the ground. If that is the environment going into the summer bid season, and if fuel costs stay where they are today, one would expect a good, healthy environment for the seller in that -- from a dynamics point of view.

Just on the SOP-MOP price differential, can you talk about what your expectations are of that going forward? Could it actually expand going forward or do you think the historical level is the correct level?

Well, again, we have said kind of $150 per ton was the level that we are comfortable with. In the last five, six years, it has been well below that at times and it has been well above that at times. I mean it can really be kind of whatever we want it to be. And I am not being flippant about it, but tell me how much volume you want us to sell and we will set the differential. At a low enough spread, we could sell 2X our capacity without any problems. And if we go too high on the spread, we could cut our demand back in half.

So really since we are in a transition period in terms of getting our new capacity in place -- again, we have a multi-phased approach with three phases. We have completed one, we are beginning the second and we are still seeking permits on the third. And we have got this inventory to bridge us. We have to manage very carefully the demand and we are going to use the spread or the price to do that. But at all times, we are going to try to maximize the spread while achieving our targeted demands.

So it is a very fine line that we are trying to walk, but we think we can walk that line in 2011 at about 400,000 tons of total demand with a good spread and improving pricing. The wild card is what is going to happen with MOP prices going forward. Should that environment change, then, of course, the other specialty potashes, SOP being the major one, will have to change accordingly.

Douglas Chudy, KeyBanc Capital Markets.

Hi, good morning. I guess first question, in the salt business here for the past two winters, we have been hearing about rock salt shortages in the U.K. due to harsh weather. I think you mentioned that you actually even shipped a little bit of salt over there this past quarter. Just wondered, do you have any ability to increase your production capacity at the U.K. mine?

Yes, we actually -- we do and we did. We have actually shipped product from North America to the U.K. two seasons in a row because they have been beset by just near-historic winter weather. However, those shipments are very costly to us and very costly to the customer in the U.K. So last year, we invested in some new continuous mining equipment and have installed that equipment and have greatly improved our productivity. In the U.K., we are very pleased with that.

So we are producing more salt and again, the weather in the U.K. tends to be a bit fickle in the sense that they don't really have a huge amount of snow events. Most of the demand is driven by frost, overnight frost, because of the high moisture that exists. And then the occasional snowstorm is what puts them over the top.

So it is not a business -- it has much higher variability in weather than North America does. But when it is on the positive side, it really surges. So we intend to help the government build safety stocks both at our facility and at their remote storage locations. We have stronger production, more reliable production capability and of course, the mine has been around for 165 years. I think we know how to operate it quite well. So I think we are going to put a priority on serving the U.K. customer, but I don't think it would be fair to count on the two historic winters that they have just experienced to continue indefinitely. There is probably a mild one in there somewhere.

Okay, thanks. And then I guess secondly here, you have noted throughout 2010 you incurred higher potassium chloride expenses, about $3 million a quarter. How should we think about this in 2011? Do you expect another step-up here on the expense side?

We do expect another step-up, but when you factor in what we expect to be able to recover in terms of prices, we really don't expect a big margin effect one way or the other. Whether the price increase holds and we are able to sell the full amount of volumes or there is a cutback in some of the demand because of higher prices,we would expect not much of an impact -- maybe even slightly positive into 2011 compared to 2010.

And that was strictly a salt segment comment. Of course, there is a collateral benefit to higher KCl prices because KCl is -- what KCl is to water conditioning for our salt segment, it is MOP to fertilizers, to SOP on our specialty fertilizer segment. So rising KCl input costs suggest a very strong MOP market, which, again, as we just discussed, add $150 to that number and you end up with our SOP price.

So on balance, I think we would rather have a strengthening KCl market that we have to work hard to maintain our margins on salt, recognizing that small-volume in specialty application, knowing that that is creating a great foundation for our specialty fertilizer and our SOP business to profitably grow from.

Robert Koort, Goldman Sachs.

Hi. I am sorry. This is actually Luisa Hermann in for Bob this morning. I am not sure if you already touched on this and I apologize in advance, but I guess in thinking about the upcoming spring demand, should we be concerned that the strong fall application might have pulled from the upcoming spring season?

And then also I know you touched on high transportation costs and the potential to pass through those higher costs in the upcoming bid season. What is your thought on how much higher transportation costs could be year-over-year and also sequentially?

Yes, I will take it first. I don't think the very strong fall application, or sales, is going to affect a lot of the spring demand, but I do think some customers probably bought ahead to avoid the price increases. I think kind of the bigger factors are probably around weather and whether there will be the right weather, enough rain, not enough rain at the right time. We see the depletion that occurred over the last couple of years in soil finally catching up. I mean the science of agronomy is finally catching up to the market realities. And I think growers recognize the value of potash and are going to continue to apply.

As far as the transportation side, you tell me what is going to happen in the Middle East, you tell me what is going to happen with crude oil and I could then extrapolate to diesel and the bidding season. The challenge we have is what kind of clarity will we have on transportation costs at the time we are bidding. We will be bidding in the second and third quarters, in essence. If the spike in crude were to occur prior to that or at that period, we will be able to capture that from our customers because it will be transparent. Our risk is that we have relatively stable fuel dynamics during the bid season and then come the fall and winter, the spike occurs, in which case our prices have already been fixed. So I think we have shown a pretty good ability to capture cost when it has been obvious to us and available during the bidding season. However, there have been years like -- I believe Hurricane Katrina back a few years happened after the bid season occurred. And in most cases, that is a risk that the seller bears.

Luisa, just to maybe put a little bit of quantification to what rising oil, which typically translates into rising diesel prices, has an effect on the company. If you look back in history, our average shipping and handling costs per ton in salt, when oil prices are in the $60 range, has been $17, $18 per ton. At the heat of the battle and the middle of 2008 when oil reached $120 to $150 a ton -- a barrel -- excuse me -- our shipping and handling costs were in the $21, $22, even almost $23 per ton. And those variations are almost exclusively accounted for by changes in diesel prices. And I can help you off-line if you want to just take a little bit of the history and we can walk through that. But those are kind of the broad parameters that we would expect.

Okay, thank you very much.

Daniel Rizzo, Sidoti & Co.

Hi, guys. Just one question. When it comes to your bid commitments, if, because of a strong winter or just strong uses of salt, if they exceed their bid commitments, do you just simply provide more salt at the same contract price or is there an escalation or is it at a discount?

We typically guarantee our price up to 20 percent beyond the targeted volume. If the targeted volume was 100, that price is valid up to 120percent of the targeted volume. Anything above that is what we would call more spot business and we don't have the obligation to supply. And if we choose to supply, it is at a newly negotiated price.

Now sometimes it makes sense to just provide the additional salt to a good customer at the contract price, and sometimes it makes sense to hold that customer to their max and reallocate any extra salt we have to someone else who is in need. So there is no hard and fast rule, but certainly if we had the salt on the ground, we would want to sell it somewhere.

All right, that's it. Thanks, guys.

Nathan Weiss, Unit Economics.

Good morning. Two questions. One, can you discuss the assets at Big Quill, and particularly expansion opportunities and kind of long-term possibilities there? I understand it is still early in the process. And two, can you also talk about the salt situation? There has been a lot of media coverage regarding shortages and lack of deliveries in Kentucky and Tennessee.

Yes, those are two excellent questions. We are extremely excited about Big Quill Resources. It is another specialty fertilizer, a specialty potash fertilizer producer, that also relies on a lake that is mineralated. In this case, the sulfate molecule is what is brought through the lake, and while they don't use solar evaporation per se as we do on the Great Salt Lake, they do have access to some advantaged potash raw materials, as well as a very interesting ion exchange technology that provides a higher-purity, unique SOP molecule that they have been very successful in putting it into even more specialty applications than our specialty fertilizer had typically gone into. So we see higher selling prices from Big Quill.

We also see a much higher percentage of packaged applications, which, again, suggests a more specialty approach versus our typical GSLM SOP customer, which is the bulk, either railcar or even bulk shipments by boat.

So I think it is a great marriage for us. There are some constraints on the expansion there. It is a small facility. There are some obvious synergies in logistics that we want to exploit, but we really want to develop that higher-end market that Big Quill Resources now provides us.

Okay.

On the salt side, remind me, Rod, what --.

He was wondering about some of the regional shortages.

Oh, yes. I mean it doesn't snow evenly across our service area. We wish it did. It would be a lot easier from a logistics point of view, a supply chain point of view.

The other thing that occurs is, because of the limited storage capability that our customers have, we actually resupply a lot of their depots -- their sheds and our depots during the winter. So we pre-position a chunk of salt before the first snow flies and then we resupply as long as the waterways and the roads allow us to.

So particularly in the markets you referenced, whether it is Tennessee, Kentucky, West Virginia, we are relying on barge shipments to flow continuously through the winter to resupply those depots as normal weather depletes them. There hasn't been normal weather there this year. It has been harsher and sooner and the storms have been coming quicker.

So really what is happening is the resupply salt is being outpaced by the severe winter weather. I know that has been rough on our customers. We have been kind of working with them to make sure that the assignment of product goes to the places in the greatest needs. There is resupplyment on the water, but barges move fairly slowly up the river and we intend to continue to resupply 24/7 and work with our customers to best address this event. Unfortunately, there is another storm that is coming through that area as we speak.

We have reached the allotted time for questions and answers. I will now turn the call back over to management for closing remarks.

Thank you, Nicole. In conclusion, I just want to remind everyone that Compass Minerals' strengths are essential products, our advantaged assets, our sustainable operations and our strategic focus on growth. These strengths enable us to deliver profitable growth and superior return to shareholders through varying economic environments and weather conditions.

I ask you to kind of please visit our expanded investor presentation on our website for further insight into our 2010 performance, our 2011 outlook and our overall value proposition. We look forward to, again, demonstrating our strength to you in 2011 and beyond. Thank you very much and have a nice day.

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