Compass Minerals International Inc (CMP) 2011 Q1 法說會逐字稿

Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals first-quarter 2011 earnings conference calls. 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). We ask that you please limit your questions to one question and one follow-up question. (Operator Instructions).

I would now like to turn the call over to Peggy Landon, Director of Investor Relations and Corporate Communications. Thank you. Ms. Landon, you may begin your conference.

Thank you, Lisa. Good morning, everyone. Thank you all for joining me and Angelo Brisimitzakis, our CEO, and Rod Underdown, our CFO, in our conference call this morning.

Before I turn the call over to Angelo and Rod, let me remind you that today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's expectations as of today's date, April 28, 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 discussed 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, everyone. Thanks for joining us today.

Through variations in weather, economic conditions, and market dynamics, Compass Minerals remains strong, resilient, and has continued to create tangible value for shareholders. The $171 million of operating cash flow we generated this quarter, which is the highest of any quarter in our history, demonstrates that Compass Minerals is quite a remarkable franchise.

During 2011, we're returning more cash back to investors through the quarterly dividend, which was raised 15% in March. And yet, we're also creating long-term value by investing in projects that generate sustainable profitable growth, like our Phase 1 expansion of SOP capacity at the Great Salt Lake, and our first-quarter acquisition of Saskatchewan-based Big Quill Resources.

And of course, we recently completed our largest single project at the Goderich Mine, where we invested approximately $70 million to upgrade underground material handling rock salt equipment, expand and improve above-ground storage and loading capabilities, and increase product hoisting capacity, in order to take this already-advantaged mine's annual capacity to 9 million tons, as market demand warrants.

You may have also seen a recent press release outlining our investment program at our Lyons, Kansas salt evaporation plant. This is our largest mechanical evaporation facility, and it produces a wide variety of consumer and industrial products for our US customers. We're making these investments to improve our overall efficiency and long-term productivity at this key site. And we expanded our R&D center there to support developments in new, value-added products, as well as product and process improvements for all of our varied commercial applications worldwide.

All of these strategic investments help us to leverage our best and advantaged production assets. And we've been able to make these investments without incremental borrowings, because we continue to run the business to generate substantial cash flows. We were able to unlock the record quarterly cash flow from operations through sales increases in both of our operating segments, and by quicker seasonal deicing salt inventory usage this year than in the first quarter of 2010.

Our highway deicing sales were up 10% over the first quarter of last year, because the winter weather was more severe in many parts of our North American service region, and our consumer industrial sales were up 9%, largely due to increased sales of packaged deicing products. If you saw the Snow Events data we published earlier this month, you know that many of our markets had above-average snowfall. And you may have been surprised by the fact that our highway deicing sales were simply average.

First, it's important to remember that the 11 cities we list in the Snow Events data are not equally important to us. And although we collect the snowfall data from the same official weather services sites each quarter, the data is not necessarily representative of the actual snowfall our customers receive. That was particularly true in Canada and parts of the upper Midwest this season.

However, this quarter was also unique in that we simply didn't have enough rock salt available to meet heavy demand in certain regions at certain times. In fact, we estimated that we missed out on sales opportunities of at least 200,000 tons of highway deicing salt, because we didn't have excess inventory to capitalize on above-normal weather opportunities in those regions.

The strong weather this winter depleted our deicing stockpiles below what we consider normal and significantly below prior years' levels. And we believe it also exhausted a large part of our customers and, potentially, our competitors' stockpile as well. This should create a more favorable supply and demand balance as we enter the highway deicing bid season for the upcoming 2011/2012 winter.

The highway deicing inventory we sold this quarter was the carryover, higher-cost inventory we produced in 2010, as we discussed in our last conference call. Rod will talk more about that in a moment. Higher diesel fuel costs, which are reflected in our shipping and handling costs, also had a significant impact on our first-quarter earnings.

Looking ahead to the rest of the year, rising fuel prices will be something we try to factor into our upcoming bids and we'll closely monitor throughout the bid season. When we bid for highway deicing contracts later this spring and summer, our bid price will include our best estimate of the cost of delivery. However, in an environment of rising and uncertain diesel prices, there is obviously a risk that costs will increase more than we anticipate, which would result in lower than expected salt margins in the upcoming 2011/2012 winter. Of course, it could also go the opposite way and benefit CMP.

Fuel prices tend to affect the entire deicing industry in the same way, which, in the past, has supported appropriate price increases to recoup those costs. So we believe that the overall industry dynamics for the upcoming highway deicing bid season are more positive than last winter season, because we believe the highway deicing salt inventories are likely to be well below last season throughout the regions in North America we serve. And we will attempt to more than recover higher potential fuel price increases.

Assuming existing fuel price, our expectation for moderating per-unit salt production costs, and the achievement of just the long-term average highway deicing salt price increases, we should expand our salt segment operating margins for the remainder of 2011.

Our specialty fertilizer sales were also up, with a 6% increase year-over-year. This increase came from the successful integration of our newly acquired Big Quill Resources facility in Wynyard, Saskatchewan, as well as price improvements on the SOP we produce in Utah. Big Quill Resources produces high-value, high-purity sulfate of potash, much of which is packaged, so it carries a higher average selling price, but is also somewhat more expensive to produce than the SOP we produce from lower-cost solar ponds in Utah.

So this acquisition will modestly affect the reported statistics of our specialty fertilizer segment when compared to prior quarters that included only our Utah site. But the per-unit margin impact is essentially neutral, because Big Quill Resources EBITDA margins are similar to our Great Salt Lake Minerals Utah plant margins.

First-quarter SOP sales volumes were lower than in the first quarter of last year when, you may recall, we had robust demand from international customers who had been out of the market for an extended period. As we proceed through 2011, we continue to expect SOP demand recovery towards normal volumes or about 400,000 tons for the year. We continue to operate the Phase 1 expanded Ogden facility with a portion of the plant at lower than designed rates, which has resulted in higher per-unit costs for the past six months.

Our remaining challenges are not especially complex, and are expected to be resolved in the near-term, so that the full benefit from this investment can be finally realized in both SOP output and unit costs. As with our salt segment, we expect our specialty fertilizer operating margins to expand throughout 2011, as our price increases are fully implemented during the year, and as our Utah plant reliably produces SOP at increased rates.

Throughout 2011 and beyond, we will remain focused on our strategic expansion at our advantaged, multi-mineral Great Salt Lake facility, as we optimize Phase 1 and proceed with the Phase 2 pond ceiling and also the SOP plant expansion work, and as we work towards earning permits for our longer-term Phase 3 growth initiatives.

We plan to invest approximately $40 million this year on completing Phase 1, and continuing Phase 2 of our yield improvement and capacity expansions in Ogden. The Phase 2 investment during 2011 involves using patented technology to seal the perimeter of our solar ponds, to improve the recovery of nationally-occurring SOP from the concentrated lake brine. Once the perimeter has been sealed, we'll further expand the processing plant to accommodate the additional SOP harvest.

These investments will give us an ability to produce approximately 570,000 tons of solar pond-based SOP in 2015, completely freeing us from relying on our source potassium chloride feedstock for our 2009 investment in excess inventory to meet market demands.

So, to summarize then, before I hand the call over to Rod, we believe that, outside of the risk of unanticipated spikes in fuel costs, Compass Minerals is approaching the threshold of a very positive operating environment. Sulfate of potash demand continues to return to pre-2009 levels, but demand growth continues to be uneven and the timing of sales is less predictable than it was prior to 2009.

We have new, higher-value specialty SOP products from Big Quill Resources that can somewhat reduce the volatility of our SOP sales. When our Phase I SOP capacity expansion at the Great Salt Lake is reliably operating at designed rates, we will lower our production costs; and our announced SOP price increases are gaining traction, which should help expand our specialty fertilizer margins.

On the salt side, we have completely sold our 2010 carryover rock salt inventory, so our per-unit salt costs should be lower for the remainder of the year, which will greatly assist in expanding salt operating earnings well above 2010/2011 winter levels. And we believe that our North American Highway and packaged deicing customers have much lower inventories than at this time last year -- all of which should set up for a better highway deicing bid season, and a better highway and packaged deicing restocking season than we had in 2010.

Now Rod will talk you through some of our financial results in further detail.

Thanks, Angelo. So I'll spend the next few minutes providing a few more details on the first quarter, and further discussing our latest thoughts on the outlook for the business, before opening the call up for questions.

Increases in demand for deicing salt and higher prices for our specialty fertilizer products drove revenues higher by 9% when compared to the prior-year. Salt sales volumes were mostly impacted by more normal deicing sales in our service territories, when compared with the weather-depressed results of the first quarter of last year. And, as Angelo explained, inventory constraints limited our ability to fully sell into areas where snow events were above normal and, therefore, created exceptional demand.

In addition, sales in the UK returned to a more normal level after several winter quarters of extremely heavy winter weather. Those lower sales volumes in the UK muted the impact of the North American sales volume increases over the prior-year quarter.

Salt segment average prices, and shipping and handling costs, both increased over the prior-year. Foreign exchange rate did play a role in raising both of those amounts and net of about $0.75 per salt ton. The increase in oil-based fuel costs, however, unfavorably impacted our average net mine returns by over $1.00 per salt ton sold.

Higher specialty fertilizer sales resulted from improved prices, reflecting higher market prices for potash worldwide, and the inclusion of Big Quill Resources' higher value, high-purity products, and our results for the first time, which modestly increased our average reported price. Average selling prices in the quarter were also improved by a better mix of domestic/international sales when compared to last year's first quarter, when we saw unusually high international orders.

We realized an average of $583 per SOP ton sold for the first quarter this year, compared to $514 in last year's first quarter, and $530 in the previous quarter. Per-unit shipping and handling costs on our SOP sales were also higher this quarter than in the 2010 quarter, partially because of increased rail rates and higher diesel fuel costs, similar to our salt business.

Additionally, we sold a small amount of SOP to some international customers at delivered prices for the first time, which increased our average sales price in per-unit shipping and handling costs by a few dollars per ton. Typically, we sell SOP destined for international locations at a US port. So, we expect our SOP shipping and handling costs per ton to be lower for the rest of 2011 at approximately $75 per ton.

While specialty fertilizers selling prices improved, sales volumes were down about 7% compared to first-quarter of 2010. As previously mentioned, some of this decline related to the international demand that was unusually high in the first quarter of 2010, and that had followed a year of extremely low worldwide sales in 2009. In addition, this year, cooler and wetter-than-typical weather conditions existed in our key North American markets, which delayed the start of our customers' specialty fertilizer application, and that modestly reduced our sales tons.

For the first quarter, our consolidated operating earnings declined 9% or $8 million on a year-over-year basis. At the business segment level, it's a mixed picture. Our sole operating earnings declined 10% versus the prior-year. This decline is mostly attributable to the short-term impact of the high-cost inventory we carried over from 2010, as we discussed throughout the last half of last year.

These 2010 salt production cost issues are behind us now, because during the first quarter, we sold the remaining rock salt we had produced in 2010. We expect to have more typical rock salt production at our North American mines in 2011, so we expect that our per-unit salt costs should moderate as we progress through the year.

Our specialty fertilizer segment generated operating earnings of $19.3 million, a 14% increase when compared to the first quarter of last year. The operating margin of our specialty fertilizer business expanded to almost 35% in the quarter from just over 32% in the first quarter of 2010, as a direct result of the improved selling prices we realized this quarter. Partially offsetting this price increase was our first-quarter per-unit cost of goods sold, which were impacted by the inclusion of Big Quill Resources, whose higher purity products carry higher per-unit production costs.

We expect overall per-unit costs to remain near current levels for the balance of the year. And with an expectation of continued year-over-year market price improvements, we do expect to see our specialty fertilizer operating margins expand further, especially later in 2011. Over the long-term, we continue to expect further margin improvements, as we leverage our largely fixed-cost manufacturing assets at the Great Salt Lake through the ramp-up of our Phase I plant expansion later in 2011, and then further through the longer-term implementation of Phase II capacity expansion project there.

Looking forward to the second quarter, we expect to see our average reported specialty fertilizer price to be flat with the first quarter price, since we expect sequential increase in our international sales mix, which has a lower average gross selling price. We expect second-quarter specialty fertilizer sales volumes to be about 90,000 ton, as the potash recovery continues, albeit at an uneven pace. Sales volumes in the second quarter of last year totaled 80,000 tons.

In the salt segment, the second quarter is our slowest quarter, as deicing sales are at their seasonal lowest. But it is an important period, because it is when the bid season gets kicked off for the upcoming winter. While there isn't anything to report yet, I would point out a couple of matters to consider as we look specifically to the 2011 second quarter.

In 2010, the mild weather left a number of highway deicing customers below their minimum contractual volume deliveries per their contract commitments. So, last year, we asked our customers to honor those minimum commitments following the winter season, and sold at least 100,000 tons in the June quarter from those actions.

With this past winter weather being more widespread, we don't expect any of those kind of sales in the second quarter of 2011. And the higher river levels on the Midwest US river system we've recently seen have hampered salt deliveries, which might also impact highway deicing sales volumes in the second quarter. We don't expect any full-year impact from these high water levels, but it's possible that some sales volumes we expected in the second quarter will move later into 2011.

And, as we've discussed in the past, our quarterly product mix can have a meaningful impact on our average reported prices. Rock salt for highway deicing sells at higher prices than rock salt sold to chemical customers, and both of those uses are reported in our highway deicing subsegment statistics. Since we currently expect lower second-quarter sales volumes for highway use, we'd expect average reported second-quarter highway price to be modestly lower than last year. Again, this has nothing to do with the upcoming bid season, but instead, is a customer mix difference in the second quarter when compared to the prior year.

Now turning to other elements of our income statement, interest expense totaled $5.7 million in the quarter and we expect similar quarterly expenses for the rest of 2011. Other expense dropped by $3 million compared to the first quarter of 2010, largely due to non-operating foreign exchange losses. Income tax expense in the first quarter was $22 million, down $2.4 million from the 2010 quarter, reflecting the lower pretax earnings and a lower tax rate. We expect our tax rate for 2011 to be approximately 28% to 29%.

Net earnings for the quarter were $56.5 million compared to $58.9 million. This equates to $1.69 of per-share earnings in the current quarter compared to $1.77 per diluted share last year.

Depreciation as expected, increased in the first quarter of 2011 to $16 million from $12 million in the prior-year quarter, due to our completion of several capital projects late in 2010. On a segment level, depreciation for specially fertilizers increased $2.4 million, and the salt segment depreciation increased $1.8 million for the quarter. And we expect these depreciation rates to continue through the rest of 2011.

Cash flow from operations for the first quarter, which is also our seasonally highest quarter, was $170.8 million, an historic achievement for the Company. Much of the 24% year-over-year improvement resulted from higher sales, which more rapidly reduced our seasonal deicing product inventories. And, as you probably noticed, we recently increased our quarterly dividend by 15% over the prior-year quarter dividend rate, reflecting our ongoing commitment to return a portion of Compass Minerals' sustained cash flow increases directly to our investors.

Capital expenditures totaled $16.7 million, down from $24 million in the first quarter of 2010, when we were engaged in major capital projects at both our Goderich, Ontario mine and our facility at the Great Salt Lake. We continue to expect capital spending for the full year 2011 to be around 2010 levels, with $50 million to $60 million of that amount going towards maintenance of business needs.

There was no balance on our bank revolver at the end of the quarter and our outstanding long-term debt was $486 million. Cash on hand at the end of the quarter was $178 million. These results were achieved even after using $56 million in cash to fund our acquisition of Big Quill Resources in January 2011.

And so with that, I'll turn the call back to Lisa, our Operator, to begin the Q&A session. Lisa?

Yes, sir. (Operator Instructions). David Begleiter, Deutsche Bank.

Angelo, on highway deicing pricing for the upcoming season, how much pricing would you need to cover your expected increase in shipping and handling costs?

Yes, I mean, right now, we see about 1% to 2% pressure on our cost to recover the fuel component. So anything above that, all other things being equal, would be margin expansion.

And obviously, back in '08 when diesel spiked, you were able to get much higher pricing. Do you think we're going back to a more normal level of 3% to 5% pricing? What is normalized pricing, do you believe, in highway deicing?

Yes. It's a tough question because a lot has to do with the winter that proceeds the period and there's a specific supply demand that exists within the period. And then the fuel issue has a lot to do with the timing of the increase. And then the forward sentiment of inflation.

So I don't think we have the same scenario today that we had then, but what we do have is a better supply/demand balance from a seller's point of view than we did last season. And we have higher inflation and expectation of costs on fuel this season than last season. But the bidding season hasn't really begun. I mean, there have been some small bids but none of the major commitments.

What we've said typically is 3% to 4% price has been the long-term average season-over-season price increase. And that's with a more stable fuel environment. So those are the factors. We have a more unstable fuel environment but a more normal bidding pattern. But none of that has played out yet, so I think it'd be unwise to go beyond that.

And Rod, just one more question for you. Just on SOP pricing, if you back out the international component in Q2, what would the US pricing be up versus Q1?

You know, Dave, I don't have that with me right now. There would be an increase in the price, but I don't have the exact number. But regionally, both would be increased in the second quarter. The expectation of flat pricing is purely a customer mix matter.

Joel Jackson, BMO Capital Markets.

Thank you.

So you had a pretty good reduction in per-unit salt production cost sequentially, as you talked about. Can you get a little more color on the magnitude of the reductions you would expect in per-unit salt production costs for next winter?

Yes, sure. I think when you look sequentially, you have to be mindful of the fact that our cost for producing a ton of salt for our highway deicing products is different than for our consumer and industrial products. That relates to both the fact that they're evaporated, they're higher purity, they're packaged on C&I, and so there are different cost points between those two businesses.

So looking sequentially can sometimes be hard to reconcile. But just -- so we tend to talk about our costs as a year-over-year because those mix issues are typically less important on a year-over-year basis than they are on a sequential basis.

But I would say since our production issues in 2010 were weighted towards the last half of the year, while we expect our costs to drop in 2011, I think our expectation of year-over-year cost differences would be a little less significantly different or improved in the second and third quarter, but would get close to 2009-type levels by the time we get to the fourth quarter.

So we really expect that our production is going to approach normal, and the full benefit of that you would see by the time we get to the end of the year and approach the winter.

Okay. Following up on that a little bit, when would Goderich expect to order the needed shovels and other mining equipment to take advantage of the most recent expansion there?

Yes. This is Angelo again. I mean, the capacity is there today, but why deploy people and maybe not shovels, but trucks and loaders, when your view of the market doesn't require it? I mean, we added essentially a capability equal to somebody else's entire mine. So we don't need all of it. So we want to deploy what we think we need.

And then, obviously, we'd like to keep a little extra and put it at our 95 depots for the upside winter. So I think the next nine months, we'll run Goderich harder than we've ever ran it and produce more tons than we've ever produced. But there's no need to produce it all. And we'll continue to turn it up or turn it down based on weather. But we don't even know yet what the bid sizes are for the major states that we're going to be bidding on.

You remember last year, those bids came in about 3% lower season-over-season. So again, we don't know if they'll be -- if they'll come back to where they were or they'll go higher or lower. So right now, we're not expecting to use all of the asset, but we're expecting to use more of it than we used last year or that we've ever used.

So on that, what would you expect, relative to 2009, would be the cost increments on your current -- on your production this year, knowing that you're carrying the extra capacity but not really producing at it? Do you understand my question? (multiple speakers) It's like, would there be a cost increment per unit for this year's salt production on carrying the extra capacity, but that you're not really mining?

Yes, I mean, there certainly is some of our asset, the infrastructure that could carry more tons. And so there's an element of that, but I think the better way to think about it is that we believe that by the time we get to the fourth quarter, that our costs will absolutely be much more similar to 2009 than anything that we experienced in 2010. So I would think about it in that way, Joel, and not are there some assets that aren't fully utilized that where there's a fixed-cost absorption impact on.

Okay. Thank you very much.

Edward Yang, Oppenheimer.

Angelo, you mentioned in answering the first question, that you need about 1% to 2% salt price increase to recover the fuel component. Being into that a little bit further, are you assuming fuel costs stay flat from here? Or what's your assumption on fuel cost increases from the first-quarter average?

Yes, I mean, that's a tough one. And if I knew that answer, I'd probably be doing something else and making a lot of money. But I think we look at today's fuel costs and kind of the projection through the short and medium-term that they'll stay about where they are. If you look at most of the experts on fuel, they're -- I mean, the medium to long-term projections is that crude oil comes back down.

So, I mean, we're clearly at least in a bubble period. And we're thinking where we are today is likely to be similar to where it will be during the next year that this winter plays out. However, we ship about half of our stuff and absorb about half of our freight cost before the winter even starts, positioning the salt to our depots. And then when winter starts, we incur the other half of our fuel consumption, delivering it finally to the customer.

So our exposure really is over a 12-month period. But again, we set the price in the spring and summer, and then we either benefit or take the risk during the winter.

So, I mean, the answer is, we're looking at diesel at around today's levels through the period. We don't think it's going to go up indefinitely. We think it will moderate at some point. 2% price should cover it. And then anything above the 2% is an opportunity for margin expansion. And then couple that with what Rod just talked about, which is the cost side of the equation. We're clearly at a potential turning point.

The third, fourth quarters feel better than perhaps the second quarter, where we have very low deicing volume, we have more of the chemical stuff, which has lower selling price. So I'd probably feel better in the second half than I do in the second quarter. But I think the trends are pointing in the right direction.

Having said that, we haven't really bid very much yet. And we could be pleasantly surprised if it repeats some of the trends of a couple of seasons ago, or we could be disappointed if the 2% fuel inflation doesn't get fully reflected in bids.

And Rod, I think, mentioned that fuel cost impacted your salt costs by about $1 per ton. So is that -- the $1 impact in the quarter, the first quarter, was $4.9 million -- is that correct?

Yes, that was -- that sounds like the right number. Just as an order of magnitude, we generally think of a $10 change in crude oil and the way that ends up flowing through diesel prices to be something a little less than $1 per ton. So call it $0.75. So that can give you a kind of an order of magnitude of how to think about where prices are today, and how to think about how that might impact our shipping and handling costs in the future.

So if I add that fuel cost impact back to the first quarter salt earnings, I get -- I'd still have your margins down sequentially. And in the fourth quarter, you had the same issue with the high cost inventory as well. So going back to, I guess, the margin question -- and I've asked this in prior calls as well -- what do you think is kind of a reasonable margin for salt? Because it has been quite volatile over the last couple of years or so.

Is it the 2009 level, which was very high, in the high 20s? Or is it something more in the mid to low 20s, you believe?

Well, there are a lot of things that can happen between now and next winter, but given what we've mentioned about fuel and how we expect that to play out, and just the expectation that we would always have this time a year, which is for a normal kind of price increase; and, given where we believe we're headed on production costs, which, as you know, were significantly impacted our last 12-month results, we would expect to be much closer to 2009 margin percentages or operating earnings percentages than -- in 2011 -- through the 2011/2012 winter than we saw in 2010.

Most of that -- almost all of that margin compression, not all of it, but most all of it, is purely attributable to our own production costs matters, not -- as you know, prices haven't declined and the fuel cost has been a moderate impact on that total margin percentage. So, hopefully, that can give you some color on where we believe we're headed back to.

Okay. Thank you very much.

Mark Gulley, Soleil Securities.

A couple of things. One, with respect to the spread between MOP and SOP, if I look at your chart, try to measure that, it looks like it's a little bit more than you have said in the past. I could come up with [$185] per short ton. Am I reading that right? And has your spread of SOP over MOP expanded a bit here recently?

I mean, we had a -- this is Angelo -- I mean, we had a good mix of domestic sales, which gives us a higher selling price and therefore a better spread. I think if we were to split out international versus international and domestic versus domestic, which we don't do, but you would see a more typical spread.

But also, we've got to remember that -- and we have a presentation associated with this earnings release that I would refer you to -- if we're selling 400,000 tons approximately and not producing 400,000 tons, then we're kind of depleting our built-up inventory. So we're really being quite selective in what we sell, where we sell.

We really need to get through, obviously, the Phase I and Phase II expansions -- and Phase II will take us in total to about 570,000 tons -- to be able to grow volume. We are in a somewhat constrained volume environment until we fully implement at least the first two phases of our multi-phase expansion plan.

So I think the more important measure for us is to sell approximately the capacity we have at the highest possible price at that time. And if we were unconstrained, maybe there would be a different model that would really capitalize on volume. But right now, we're constrained on volume, so we're going to pick and choose to get the highest margins on the limited times we have to sell.

And secondly, I had a bookkeeping item. What was the impact on sales of the Big Quill acquisition, so we can back that out for volume to get to the organic volume increase?

Yes, I mean, you know, Mark, it's an almost 40,000-ton facility and there isn't a lot of seasonality to that business. So you can think of it as a normal quarter for Big Quill would be 8,000, 9,000, up to 10,000 tons. It should be roughly 10% of our total SOP business in any particular quarter.

And then lastly, a more longer-term thing -- you talked about enhancing production facilities. You have a salt evaporation facility in Unity, Saskatchewan where there's also potash. Any possibilities for enhancing that facility to do solution mining of potash in addition to solution mining of just good old salt?

Yes, I think everybody at Saskatchewan kind of asked themselves that question, because there seems to be so many folks throwing the oar into the water. We're not an MOP producer. In fact, the remnant of MOP that we used to source for the Great Salt Lake facility, we've worked hard to get out of, and now we're 100% solar pond-based.

So we'll leave MOP to the big boys and we'll focus on our specialty potash, which is another Saskatchewan facility four hours away from Unity, but still in Saskatchewan, and Wynyard. So, no, our Unity facility is a solid evap plant and we have no plans to produce MOP there.

Thank you.

And the last question comes from Jonathon Luft, Eagle Capital.

Hi, Angelo and Rod. Thank you for taking my question. (multiple speakers) A couple of questions I had for you. The first is, can you provide perhaps a data point on what the higher inventory costs actually meant to the bottom line this quarter, so we can normalize it for the quarters going forward?

Yes, sure. I think, you know, as we have talked over the last year, our salt costs were roughly impacted $4 per ton by three or four different items that we enumerated in the past. You might have noticed that our per-unit cost this quarter was only about $2.50 higher than the prior-year cost. That was partially due to the fact that one of the 2010 cost impacts had really started affecting us in the first quarter of last year. And that was roughly $1 per ton. So you can think of that per-unit cost impact in the first quarter of this year of roughly $3 per ton of salt sold.

That's really helpful. Thank you. And then do you think -- since you mentioned that you missed out on roughly 200,000 tons of salt sold, do you think you need to add more storage depots around the country and in your region?

Yes, this is Angelo. You know, we have been adding. I think if you go back just a couple of years, we had around 70. We have 95 now. And in all fairness, we had the depot capability; we just didn't move enough salt to the depots.

So I don't want to attribute the -- that missed opportunity this winter on depots. It really was, as Rod pointed out, kind of a rock salt production issue. And there were several factors. Obviously, we had a 10-week strike last year that affected our key Louisiana mine. And then we had a major installation at our Goderich mine, which the main shaft, which was -- and hoist, which was expanded, was down for a longer period of time for installation than we had originally planned. And those two constraints limited the amount of salt we could push to those depots.

So I think we're in good shape with depots. We always look for better ones and more appropriate. I mean, they are really a strategic asset, because as you correctly point out, as you control the depots, you control the ability to deliver product to the customer. I mean, very much Compass Minerals is very much leveraged on supply chain. And so I think the depot is important.

But we're good on depots. We've just got to get the salt there for this upcoming winter.

Great. And that's a great answer. Really helps me understand that. And then my last question is, I've just been reading a lot about California and the California crop and planting being much better this year, because they've actually been getting some rain over there. Are you seeing any benefit -- I know you sell a lot of SOP into California. Are you seeing a pickup there?

This is a kind of a funny job because we can talk about weather in both our salt and our SOP segment. And just like we say too much salt can overwhelm us, too little hurts us -- it's the same thing on the SOP side when it comes to rain. There were periods in California not too far away where we didn't have enough rain and planting was down.

I mean, this year, actually, there's improvement in the rain and we see some of our guys on the West Coast tell us that, in some crops in some areas, it was actually too much and it delayed some of the plantings. I don't think they're huge factors for this year, but I would not ascribe what's going on on the West Coast as upside. I think it's just a more typical -- a little less rain, a little more rain environment.

All right. Well, you guys are setting up for a great year and really excited for you. So thank you so much for taking my questions.

And thank you for those questions. And then thank you, everyone, for a good Q&A and we'll talk to you next quarter.

That does conclude today's Compass Minerals first-quarter 2011 earnings call. You may now disconnect.