Compass Minerals International Inc (CMP) 2014 Q2 法說會逐字稿

Good day, and welcome to the Compass Minerals second-quarter earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Theresa Womble, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Aaron. With me today are Fran Malecha, CEO of Compass Minerals; and Rod Underdown, our Chief Financial Officer.

Before I turn the call over to them, let me remind you that today's discussions 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, July 28, 2014, 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.

With that, I will turn the call over to Fran.

Thank you, Theresa, and welcome to everybody on the call. We're here today to talk about our second-quarter results and outlook for the remainder of the year. I'll begin by saying these results were driven by some short-term softness in the salt business, but the second-quarter results aren't really indicative to the underlying health of the business. The more important development in the quarter was our North American bid season activity, which is laying the foundation for a strong highway deicing environment for the upcoming winter season. And our newly expanded and renamed plant nutrition business continues to perform well amidst broader fertilizer turbulence.

This morning I'll touch on some of the high-level factors influencing our results and outlook, as well as discuss our ongoing strategies to drive growth and improve performance.

Turning first to our salt segment, we underperformed on our volume expectations for highway deicing. The primary factor here was that we expected our North American highway deicing customers, who had not yet reached the maximum purchase allowance under their 2014-2014 contracts, to take these tons in the quarter in order to take advantage of this past season's prices.

Not all of these orders materialized, and instead we understand these customers are waiting for the next fiscal year to begin to make these purchases, so the timing of these sales has been delayed into the third quarter.

The other primary factor limiting our quarterly salt results was our average reported selling price, which was lower in both salt business versus the prior year. And in both cases, shifts in salt and sales mix to lower-priced product categories caused a decline. We sold a higher percentage of lower-priced tons to chemical producers this quarter in our highway deicing business. And in the consumer and industrial business, we sold more lower-priced bulk salt to re-packagers which is destined for local deicing distribution this fall.

The combination of lower sales volumes and lower prices reduced salt operating earnings versus the 2013 second quarter. But, again, these results aren't indicative of market conditions. Despite the year-over-year decline in second-quarter salt earnings, we have strong, positive momentum entering the second half of 2014 (technical difficulty) result in expanded operating margins for the salt segment. The North American highway deicing bid season is proving to be just the reset needed to restore the industry market fundamentals following two mild winters.

Customer carryover inventories were fully depleted as a result of last winter's weather, particularly in the comparison to the prior two years, when many customers carried significantly higher inventories out of the winter. And producer inventories were low, exiting the winter. While we expect that all producers are stepping up production, demand appears to be outstripping supply.

Not surprisingly, these dynamics are producing favorable bid season results for Compass Minerals. With bidding three-fourths complete, our average awarded highway bid price is up more than 20% from last season, and bid volume requested by our customers has increased above historical levels, again following two years of abnormally low requests due to customer carryover inventories.

We also believe that the extreme winter of 2013-2014 depleted inventories of packaged deicing products throughout North America. This is expected to result in increased sales volumes for our consumer and industrial salt business, especially in terms of pre-winter orders in the third quarter as retailers begin to stock up. Thus, we expect our salt segment, assuming normal winter weather, will sell between 6 million to 6.5 million tons of salt in the second half of 2014. And we expect that our weighted average selling price for all salt products will climb at least 12% higher than last year's results.

Due to such strong customer demand and bid requests, we have been and will continue to run at full capacity, which will yield operating efficiencies for the salt segment. We have also decided to source some offshore salt at a higher cost than our own production. These additional tons will allow us to meet customers' winter demands while marginally increasing total salt costs.

With these puts and takes, we expect our operating margin percentage to improve each of the next two quarters. We estimate operating margin for the second half of 2014 to be in the range of 24% to 26% compared to 21.5% for the second half of 2013.

Now turning to our plant nutrition business, we had another steady quarter of sales volumes and stable prices. Healthy demand for our specialty sulfate of potash products continued in our key North American markets, and we closed our purchase of Wolf Trax on April 1, which added to our results as well. Greater availability of our SOP products when compared to the last year's production-driven shortfalls, as well as the addition of our Wolf Trax product sales, pushed sales volumes up to nearly 100,000 tons compared to almost 70,000 tons in the second quarter of 2013.

You'll notice that we haven't broken out Wolf Trax's results, and that's because we are managing the plant nutrition business as a single unit, and we expect to develop combined SOP micronutrient blends as we move forward into the future. We do know that the market is interested in our SOP price performance. For the quarter, our SOP-only price was essentially unchanged versus the prior-year price of $638 per ton.

Our costs ran higher this quarter when compared to the prior year, largely due to our decision to convert purchased potassium chloride into SOP in order to increase production at Ogden. We resumed this unique production route in the third quarter of 2013 when the economics became attractive. These additional tons are allowing us to build the North American market while we work to maximize our production capacity within our existing footprint and evaluate future expansion opportunities.

The integration of Wolf Trax micronutrient business has gone well, and we are excited about the growth opportunities and product development potential in combination with our SOP products.

We are in the process of rolling out our first macronutrient product, which is called Nu-Trax P+. This is a phosphorous nutrient that has been processed into our patented dry dispersible powder. It is combined with specific micronutrients that enhance the uptake and significantly reduce the amount of phosphorus that growers need to apply in order to achieve the same benefit.

Not only does the product provide cost-effectiveness for the grower, but it also reduces the environmental impact of phosphate use. As we said at our Investor Day, we believe this is a breakthrough product for the industry.

I know many of you listening are curious about our Ogden production rates and improvements there. We are producing more pond-only tons at the facility, but we have not yet installed the upgrades to the equipment that we believe will further enhance our yields there. These include enhancements to major pieces of equipment like our thickeners and SOP crystallizers and dryers.

Those projects are slated to begin in the back half of 2014. Keep in mind, though, that the improvements from these projects won't be immediately apparent, but we will provide updates as progress warrants.

Similar to our salt segment, we expect strong results from the plant nutrition segment for the rest of the year. We anticipate selling between 175,000 and 185,000 tons of plant nutrition products at an average selling price between $725 and $750 per ton. And from a profitability standpoint, we expect an operating margin uptick of 28% to 30% compared to the 20% margin during last year's second half, after excluding the fourth-quarter special item; and also higher than the 26% reported in the first half of this year.

And this brings me to our strategy that we outlined at our June Investor Day. It's a straightforward strategy to strengthen and improve the productivity from our existing assets, and sharpen our go-to-market strategies and our product offerings in order to grow sales and earnings.

The Ogden investments that I just mentioned are part of the capital budget that we established in support of our five-year sales and earning growth objectives. We are also in the early stages of re-lining our oldest shafts in Goderich. These investments are at the heart of strengthening and improving our operations at our two most unique advantaged production sites, and will be the primary focus of our capital spending for the next couple of years.

In addition, our capital plan includes standard maintenance of business spending and strategic payback projects, such as the investment in a new packaging and distribution site in Buffalo, New York, that is scheduled to be complete by the end of 2014.

Other investments are expected to include improving our on-site storage capabilities and depot network for our salt business, just to name a few. And we'll continue to look for attractive, external opportunities that meet our rigorous hurdle rates for return on investment and stay within our vision of being an essential minerals company.

As we move through this five-year period, we will provide periodic updates as to how we are progressing towards these goals.

And with that, I will turn the call over to Rod to discuss more financial specifics before beginning our Q&A session. Rod?

Sure. Thanks, Fran, and I'll begin today with a look at our salt segment results. A 3% increase in consumer and industrial sales was not enough to offset the 19% decline in highway deicing sales year-over-year. As a result, total salt segment sales were 7% lower than prior year; and as Fran just described, our quarterly results are certainly counterintuitive, just given the market dynamics that have developed.

So I'd like to discuss, in a granular way, the second-quarter results with a bit of detail. So, for our highway deicing salt products, both average selling prices and sales volumes declined when compared to last year. And sales volumes for the highway deicing products are a bit fickle in the second quarter of each year, as much of those sales typically depend on our customers' own internal decision-making factors that really have nothing to do with current-period product demand drivers.

Obviously, this is not a time when the customer typically needs highway deicing salt for wintry conditions, though occasionally early April weather results in a sales boost. In this particular year, most of our customers had maximized their purchase under their prior winter contracts, and there was no additional salt for them to purchase until this fall, when the new customer contracts go into effect.

But we did have some customers who hadn't taken their full maximum commitments, and we had expected them to complete those purchases in the second quarter. Some of those final sales to reach the maximum commitments were not requested during the June quarter. Given the rising price environment, we certainly expect those customers to complete their purchases very shortly. And as a result of this unanticipated customer order timing, our sales were lower than we had originally expected; and, in fact, were lower than any other second quarter for Compass Minerals since 2007.

And while the highway deicing sales volumes reduced revenue, it had a further impact on our reported results by reducing our average sales price and our salt operating margin. Let me explain. Many of you will remember that there is a mix of products and end uses in our highway deicing sales line. We also sell the same mined rock salt to customers in the chemical industry, who utilize the salt as one of their key ingredients on a year-round basis. As a result of fewer deicing end-use sales tons this quarter, the lower-priced chemical sales were a higher proportion of the total, thus reducing price and contributing to a squeeze in salt profit margin comparables.

Those are all just seasonal impacts that bear no impact on the real fundamental market dynamics in our business. But those impacts were anticipated by us on our prior salt segment guidance.

We had a similar, though distinct, situation during the second quarter in our consumer and industrial product sales. We actually sold more tons of these products than in any second quarter over the last five years. The driver of the sales increase was deicing products. Those consumer and industrial deicing sales were heavily weighted to a customer segment we refer to as re-packagers.

They want more bulk salt deliveries so they can secure supply for them to package and distribute smaller lots to their own customers this fall. This bulk, non-package product sales surge, which we expected, unfavorably impacted our sales price and related profit margin percentage, similar to the impact on our highway deicing products I just mentioned. I want to be clear that on a mix-adjusted basis, consumer and industrial product prices were flat to slightly improved.

We expect to see year-over-year consumer and industrial sales price and margin lift in the third quarter, in similar magnitude as the second-quarter compression, because our deicing sales surge switches to packaged retail customers who will be seeking to position their supply chain just in advance of the upcoming winter season.

All of these C&I factors were anticipated in our prior segment guidance, but we were expecting a little demand from retailers in the second quarter that isn't going to materialize until the third quarter. Again, all of that is just simply timing.

So after considering all these items, but principally related to the highway deicing reduced tons and at lower average prices, EBITDA and margin for the segment declined from the prior year. One final contributing factor to this, as Fran mentioned: we are seeing higher shipping costs, principally in our consumer and industrial product area, and we expect higher trucking cost to impact the salt segment for the remainder of 2014 as a result of pressures being felt through the transportation sector. Our guidance factors in that upcoming expectation.

So for the second half of the year, we expect to continue to see strength in the consumer and industrial sales volumes, driven by higher demand for packaged deicing products from retailers, who were essentially fully depleted as a result of the extreme winter last season. These packaged products carry higher prices than the average C&I product; so in contrast to our second-quarter price performance, we expect to report a similarly sized year-over-year third-quarter average price increase.

Most significantly for our salt segment profitability, we expect to see highway deicing selling prices to improve and get sequentially stronger in Q3 and Q4, given the North American bid season results that Fran has just outlined.

Historically, there have been minimal changes to the end-of-season bid price results when we get through this point of the bid season. When combined with our sales expectation for all of salt, we anticipate that our average selling price for all salt products in the last half of the year will improve at least 12% from the prior-year results of just under $70 per ton. This is a weighted average result of all salt products.

We expect our salt operating margin for the second half to range between 24% and 26%. As you'll note from history, the fourth quarter is typically better than the third quarter on those margin percentages, mostly driven by product mix.

I will also point out that the impacts of the bid season are expected to be most significantly pronounced in the second half of the winter when compared to year-over-year results. Our early expectations, as noted during Investor Day, is for our salt operating margin to expand around 500 basis points next year versus 2014.

One final point about the second half of the year for salt. We are coming up on the third anniversary of the tornado which struck both our salt production facilities and Goderich, which are miles apart from each other. It was a big impact for Compass Minerals' reported results. And we endeavored to provide you with relevant information about how that event subsequently impacted our financials in 2011 and 2012.

I'm happy to report that we expect to close the chapter on that event in the third quarter of this year. We expect to receive the final $10 million or more in insurance proceeds on top of the $100 million we have already received. The result of settling the claim will mean we can recognize a gain. The accounting rules required us to defer the income recognition of the insurance proceeds for much of the claim.

As we reported in our release, we expect the gain to be more than $80 million. We will, of course, separate that special item gain so that you can assess our underlying performance next quarter. It goes without saying, therefore, that our salt guidance does not factor in the expected tornado gain.

When looking at plant nutrition, the second quarter was a continuation of the steady SOP pricing and year-over-year growth in sales, driven by both SOP and our newly acquired Wolf Trax micronutrient business. Wolf Trax micronutrient products have a higher per-unit sales price and total cost, and a similar EBITDA margin percentage profile as our sulfate of potash products.

So, keeping those in mind, total sales volume for the segment increased 29,000 tons from the prior year to 98,000 tons, while the average selling price improved 5% to $670 per ton. This produced total segment revenues of almost $66 million, a year-over-year increase of $22 million. And as we noted in the materials this morning, our SOP-only price was very near the prior-year price of $638 per ton.

Shipping and handling costs for the specialty segment -- plant nutrition segment, increased approximately $12 per ton, and was primarily related to fewer customers taking delivery of our Ogden product, as well as some regional mix. However, we expect similar logistics costs for the remainder of the year.

Plant nutrition EBITDA increased to just under $25 million, which was a 25% increase from the prior year. This equates to a healthy EBITDA margin of 38%. And as Fran noted, in the second quarter of 2013, we had not yet resumed supplementing our production with potassium chloride; so our per-unit costs were higher this year, as incremental tons we produce from that potassium chloride route are more expensive than the solar pond-based feedstock tons. In addition, this is the first quarter to include the impact of our micronutrients business.

So to recap the outlook for our plant nutrition in the second half of 2014, we expect sales tons between 175,000 and 185,000 tons, including our micronutrient products, a little heavier weighted to the fourth quarter. Average selling price guidance of $725 to $750 per ton includes a heavier mix of micronutrient product sales from Wolf Trax in the third quarter than in the second quarter, but does include a modest increase related to SOP-only selling prices.

We expect our operating margin to remain consistent with last year's levels of between 28% and 30%. And this would be a significant improvement over last year's pro forma improvement, which included an insurance settlement of $9 million in the fourth quarter last year. Without that benefit, operating margin in the second half was 20%, demonstrating our expectation of some significant margin expansion this year.

Now, turning to our consolidated results and some corporate items, we reported a small net loss in the quarter of approximately $700,000. Our net income was reduced by $5.1 million, after tax, from costs associated with the early redemption of our $100 million 8% percent senior notes due in 2019.

In June, we issued $250 million in 4 7/8% senior notes due in 10 years, and used a portion of the proceeds to early redeem the 8% notes. Because we upsized the offering, even with the lower interest rate we expect that our quarterly interest expense will pick up modestly for the rest of the year.

Our net results for the second quarter were also negatively impacted by year-to-date true-up to a higher expected full-year effective tax rate. For the full year, we now expect a tax rate of around 26% compared to the prior forecast of near 24%. For accounting purposes, we trued up year-to-date results in the quarter; so, therefore, we have a change in the full-year rate estimate.

Selling, general, and administrative costs and were down just over $3 million this quarter compared to 2013 results, which included a $1.7 million uptick in corporate restructuring costs last year.

Cash flow from operations for the six months ending June 30 was $161.8 million compared to $175.8 million in the prior-year period, primarily reflecting year-over-year seasonal differences in working capital.

Year to date, the Company has invested $49 million in capital expenditures. We expect spending to accelerate just a touch in the second half of the year, as we begin spending on our multi-year shaft enhancement project at the Goderich mine. Currently, we expect to invest $110 million to $120 million for the full year of 2014.

Finally, our depreciation and amortization was $19 million for the quarter. This amount is expected to increase about $1 million per quarter for the remainder of 2014.

So, with that I will turn the call over to the operator, Aaron, for our Q&A session.

(Operator Instructions). Jeff Zekauskas, JPMorgan.

You spoke about your prices being up 20% for the bid season. Did you round to the nearest 5? Is 20% the best estimate, or is a number like 25% or 23% or 22% a more accurate estimate?

Sure, Jeff. This is Rod. In a year like this, the range of price increases has been fairly wide. It's been a little more than 20% as we've gotten to this point in the bid season, and recognizing that there's just a little bit of time remaining, we didn't want to provide a specific point number. We certainly wouldn't have provided a number of more than 20% unless we thought it was going to exceed that by the time we get to the end of the bid season. It has been more than 20% up until now. And I would say that gives us a little room once we report the final number, following the third-quarter results.

So, if your prices are supposed be up, I don't know, 12% in the second half of 2014 -- or, I don't know, let's assume that the fourth-quarter price increase is 12% -- then, I don't know, [may] the average price increase for the first quarter of 2015 must be, I'll call it, 25% or some materially larger number. Is that right?

Jeff, I want to make sure, I put the 12% -- we tried to put that in proper context.

Sure.

The 12% is a weighted average across all of our salt products. That includes chemical and UK that are in highway deicing, that aren't part of the North American bid season. It also includes all of our consumer and industrial salt products in that weighted average.

So, the 20%-plus on the North American highway bids factors in those actual expected bid season results that will run through the rest of our salt products aren't increasing at those kind of rates. And so that's where we get the weighted average of more than 12% for the second half of the year.

Okay. Why is your tax rate higher this year? Or what were the factors that seem to be driving it up?

Sure. Well, just a couple of things. Our primary tax jurisdictions are the US and Canada and the UK. Those all have different rates of corporate tax. And there was a bit of a mix shift there towards our US, which is a higher tax rate.

But you've probably also heard me in the past talk about how some of our rate benefits that we get that reduce our rate below the statutory rate are fixed. And so when we have a rising earnings expectation environment, those fixed benefits aren't as significant to the rate as when earnings are going in the other direction. And so there's an element of that that also comes into play in that rate change.

Okay, great. Thank you so much.

Mark Gulley, BGC Financial.

On the salt segment, this is the first time I can remember ever having to purchase competitors' salt for the North America highway deicing season. Is that because your salesforce maybe did a little bit too good of a job in getting volume, or are the production shortfalls maybe in some of the mines? Maybe help explain the need for the purchased salt.

Sure, Mark. It's Fran. I think it really points to the strength of the demand in the market, and probably not just Compass's production impacts, but others as well. I suspect we're all producing at or near capacity to fill that void, but the demand is still greater. And so the market is importing salt, and I think we look at our customer base and our capability to do that, given our transportation agreements and our distribution capability, as something that makes a lot of sense for us to meet the demand to the extent we can this year, and then go from there. So I think it's just managing our customer base, and trying to do that as effectively as possible in a fairly unique environment for us this season.

And a second question. You were talking about the negative mix impact of having to sell more C&I product to bulk people. When your Buffalo plant is onstream, is that going to enable you to have a positive mix shift back to your own packaged products? And then do you cut back on selling the low-margin stuff to the bulk guys?

Yes, I think that's right. We're always looking at our customer base, and where we can get closer to the customer and expand those margins and earn the kind of returns that we look to earn on our capital investment, we'll do that, and Buffalo is an example of that.

Okay, thank you.

Chris Shaw, Monness, Crespi.

Couple questions. About the volumes you think might have got pushed out of 2Q to 3Q from customers fulfilling the remainders of the contract, are you seeing that volume now? Or are you just assuming it's going to happen, based on a rational business decision? Is there potential that they just don't, and then they -- because either their budgets are under some flux and they're just waiting for that to happen, to actually be buying it later, maybe under the new pricing? Is that possible?

It's a good question, Chris. We actually haven't seen it yet, I would say, in July. From our perspective, if the customer doesn't make the right business decision and go ahead and purchase that salt under the contract, that should be a net positive for us. It would free up those tons to be able to be allocated into the current, better price environment, upcoming winter.

Our customers, we stay in contact with them. Some of them have told us the remainder of the contract they expect to purchase here in the third quarter. So we aren't talking about huge volumes, but order of magnitude on that uncertain portion is just south of a couple hundred thousand tons. So, in the scheme of things, not a huge amount; but to a quarter like the second quarter, it's meaningful just because it's the seasonally weakest quarter for our salt business.

Maybe somewhat following up on Mark's question, with 25% of the bid season left, and you are already accessing that additional capacity -- sorry, not additional capacity, but additional supplies from overseas -- what happens to the last 25%? I assume there's a really -- as those last customers put out bids, there's a real even more tightening of the supply/demand. Are there going to be some customers that are going to be left without salt if they wait too long to have their bids done? Or does the pricing then accelerate from here? I'm just curious how the dynamics work at the end of a bid season.

Yes, we're nearing the end of the state bidding process. There's certainly industrial customers and some other customers that are still looking to secure supplies for the upcoming season. And I think as we look at the last 25% or so to be priced, and I think starting -- as the bid season starts back in April, you learn a lot as you go through it. And the market certainly, I think, has done that, as we've seen an escalation in pricing.

I would expect that, as we manage our customer base, we will do the best to supply those customers for the upcoming season. I would say if it's an average winter, we would expect that our customers to find the salt, and are planning to set up for that and manage the pricing accordingly. It's a year where we're resetting the market. And I think if you look back in history over the last 10 or 15 years, you'll see years where you get some follow-on in the second year, depending on the strength of the winter.

And we're managing this business for -- certainly, to optimize the short term, but for the long term as well, and are mindful of that as we price our customers throughout the season.

And then just a quick one. You mentioned again the guidance that you first said at the Investor Day for a 500 bps improvement in the margins for salt next year, if pricing comes in the way you think. Is that now -- with your guidance for second half of pretty good margins as well -- is that 500 bps on top of the expanded margins you are seeing now the second half?

Yes, Chris, that's a full-year expectation. So, if you look at the expectations based on our guidance for this year, we'd roughly be flat, because the first quarter, first half, was lower than the prior year-end 2013.

Okay, thank you.

Chris Parkinson, Credit Suisse.

You hit on this a little, but can you offer a little more color on which regions within the US are seeing the largest increases, and then also which regions remain in the 25% with still having bids outstanding? Thank you.

Chris, this is Fran. We don't talk about specific geographies and specific customers in terms of contracting. And I would just say that when you look at the state bids, which are tendered, and those results are made public, that's basically almost complete. And our industrial customers and some of the other customers from throughout our service area are continuing to contract. So I wouldn't say it's specific to any one region anyways. But we just don't really want to get into those geographic specifics when we talk about activity with our customers.

Perfect, fair enough. And just a quick follow-up. On the Ogden improvements in the second half of the year, can you just give a little bit more of a timeline regarding the benefits of that, and how you expect them to roll through the first half of 2015 and possibly the second half of 2015? Thank you.

Sure. I think those capital projects will be initiated this back half of the year. And depending -- there's a few projects there -- depending on the timing and length to get them complete, that implementation will continue into the first half of the year. So I really wouldn't expect to see a significant yield change in Ogden, as an example, until we probably get into the last half of 2015.

The other thing we have to manage is, as we take the plant up and down for maintenance, the timing of implementing those projects gets matched with that operating cycle. And we want to make sure that we continue to produce as much as possible, even as we go through those changes. So I would just anticipate more of that benefit being realized in the back half of 2015.

Perfect, thank you.

Joel Jackson, BMO Capital Markets.

Just wanted to follow up a little more on some of the pricing you've seen. So, we've seen obviously high pricing. We've seen a lot of situations, at least I have, where you have had single bidders winning at well above the award range of the last few years.

So what I want to know is, in your crystal ball here, if you look out to next year's bid season, which is a long way away -- is it reasonable to assume that prices would go back to the normal ranges, assuming normal weather and normal inventories and more multi-bidder situations?

Joel, that's pure speculation on our part, or anybody's part, for that matter. I guess the way I think about it is, the inventories for our customers and for our producers are basically completely depleted going into this season. Production is being ramped up. We mentioned there is some imports that are going to come in which we're participating in. And I think it all boils down to winter. And if we have a, I would say, a normal or average winter or greater than that, it will certainly impact pricing into next season, as we just wouldn't replenish or really be able to build much on inventories throughout this season, heading into the following years.

So, conversely, a mild winter would allow the market to probably build some inventory. So I think that's what you have to look at is, as we get into late 2014 and 2015, until we really start to maybe get an idea of what pricing might be into 2015. And if you go back and look at pricing, as I mentioned earlier, over the last 10 or 15 years I think you'll see -- and look at those seasons -- you'll see what can happen with follow-on winter seasons.

Okay. And also following up on the import questions. So, can you give us a sense of what types of volumes of imports you expect to buy, the types of prices you'll be paying? Will you be profitable on those purchases? And are you doing this because you did end up winning a lot of nontraditional business in some of the single-bidder situations that maybe you didn't think you were going to win, and you did?

We won't comment on the actual tons and the prices, but I will say that -- two things, I guess. One, when you look at those tons in isolation, they are profitable tons; but we look at the business holistically, and really set up to manage our customer base in the short term, as well as in the future.

And we are looking to build our market share, I think as we mentioned in June at the Investor Day, over the next 4 to 5 years, and want to make sure that we're in a position to do that. And I think imports in this current year will help us with that.

So, it's not something that is unplanned, and we thought going into the season early that the market would need more than it could supply through North American production. I think we were able to get on that early and continued to make those purchases effectively throughout the season. And that includes a lot of logistical setup and requirements as well, to get that product to the market.

So I think our team has done a great job of that. And we'll certainly help our customers get through this year, and deliver more profit as a result for Compass for the entire season, if the winter does progress on an average basis.

Okay. And finally just going through all the commentary you've made on this call, do you think that in Q3 the preseason sales for highly deicing will be average, a little bit above average, below average; sort of putting it all together? Thanks.

Joel, I guess it depends on, again, our customers. Usually there's early-season bids, and those contracts typically allow the customer to take it any time between the contract signing and October 31. Some years, they tend to be early purchasing; other years, they wait towards the end. So at this point, it's hard for us to guide specifically about a third-quarter number. That's why we did the second-half guidance, because all of that potential timing noise is out of the system by then.

I will say that the early fill bids have been a bit larger than they have in the past, and typically you'd expect that governments would want to make sure their supply is secure as they enter the winter. And many times, that results in a healthy bit of ordering earlier under those early bids, those preseason bids. But it's too early to predict that at this point.

Sorry, just one more. Why do you think that the government entities are not taking advantage of buying under their maximums from last season, and instead of paying 20% to 50% higher? Is it just straight budget when their funds are available?

I don't think we're saying that they won't take all the salt on the previous contracts. We just expected or anticipated them to do that a bit earlier, and that those tons would've hit this quarter rather than the third quarter.

It's in their best interest to take those tons and not leave them for higher pricing in the next season. I think it's just timing. And as Rod mentioned, we're talking about a couple of hundred thousand tons, which isn't a lot, but does impact certainly to a greater degree on our second quarter than you would see on any other quarter. So it would be in their best interest to take those tons. We expect them to do that, and certainly have a salt earmark for that at this point.

Okay, thank you. Thank you very much.

(Operator Instructions). Bob Koort, Goldman Sachs.

Fran, I guess I'm a little confused. So the folks that have deferred their purchases from when you expected to take them -- they will still be able to make those purchases under their prior contract terms; it's just going to happen more in the third quarter than the second quarter, is that right?

That's correct. Those contracts, everyone is a bit different on timing, but some may go through August and even early September. So, by the third quarter, all those tons will either be picked up or we'll be moving on to new contracts by that time.

And the volumes of imported salt you are going to use, which port do those come into? Because I know in the past you've talked about not really accessing the East Coast from a cost standpoint, and that water transportation is critical to cost. So, where will you receive those tons, and where will they go?

I think the majority of those tons will come up through the -- into the Southern market, so come up through the Louisiana Gulf, and make it up through the river system into the Southern. That's the majority of those tons. You may see some tons come up through the northern/northeastern side, but I think the majority are going to come up from the south.

And then my last one is, is there any hope of inking a long-term MOP contract that you can convert to SOP, given the price declines you've seen there? Would you consider doing it now? Do you think there's more room to [follow] an MOP with some of the projects on the horizon? How do you think about sourcing your MOP for any medium-term or long-term contract opportunity?

Yes, that's a great question. We certainly think about that. And as we look at our suppliers and talk to them, if the timing and the pricing was right for us and we could construct an agreement that was longer-term in nature, we would do that.

And just my personal -- from a personal standpoint, I think with the capacity that's going to come online over the next one or two, maybe three years, I think bodes well for that type of an arrangement. And I think the pricing will be attractive to us, as well. So, just the overall MOP pricing, I'm not expecting a huge run-up here over the next couple of seasons.

So, we're taking that today on a more short-term or near-term contracts. That's been working well for us with our suppliers. And we have ongoing conversations for that supply, and for, as I mentioned, for longer type opportunities if they meet with our requirements.

Great, thanks.

Eugene Fedotoff, KeyBanc Capital Markets.

Just to follow up on a previous question, what's driving your assumption of higher SOP prices in the second half of the year?

Yes, Eugene, one of the things that we mentioned is that there will be, we expect, some SOP price lift. However, the bigger effect on the prices that we've guided to is just that the Wolf Trax micronutrient business should be a larger, richer mix in the total. And so that is driving the topline gross price number higher, just on average.

And this does conclude today's question-and-answer session.

I would like to turn the call back over to Theresa Womble for closing remarks.

Thank you, Aaron, and thank you, everyone, for joining us today. As usual, we invite you to contact our Investor Relations department with any additional questions. Have a great day.

This concludes today's conference. Thank you for your participation.