Compass Minerals International Inc (CMP) 2014 Q3 法說會逐字稿

Good day and welcome to the Compass Minerals Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Theresa Womble, Director of Investor Relations. Please go ahead.

Thank you, Eric. Today are CEO, Fran Malecha; and our CFO, Rod Underdown will be reviewing our third quarter results. Before I turn the call over to them, let me remind you that today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on the Company's expectations as of today's date, October 28, 2014, and involve risks and uncertainties that could cause the Company's actual results to differ materially. The difference 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 will turn the call over to Fran.

Thank you, Theresa. And good morning to all of you on the call. We delivered strong results this quarter, posting year-over-year increases in sales volume, average selling prices and earnings for both of our business segments. Our results also included the final insurance settlement of $83.3 million steaming from the Goderich tornado that struck our facilities in 2011. Our people have done an excellent job in working through the recovery and details of the insurance process to make sure we recouped our losses, and we that we exited this period with even stronger assets at our facilities there. We are now focused on the projects that will further strength this flagship mine and reduce production costs over time. Excluding this gain we increased our operating earnings 72% from last year's results, and our net income increased 77%. Strong market dynamics underpin both of our segments but I will start today with the salt business.

The trucks have been rolling from our depots to the hundreds of delivery points we serve during the winter. Preseason orders in September from our North American highway deicing customers were stronger than we would see in a typical preseason. You don't necessarily see the strength in the reported volume numbers because sales in the U.K. were lower following an extremely milder winter there, and because rock salt sales to chemical customers were soft in the third quarter as well.

You can certainly see the impact in our average selling price this quarter. As we reported in earlier September our average awarded price for North American highway deicing contracts for the 2014/2015 season were 25% above last year's price. Most of the salt was shipped to highway deicing customers in the third quarter was at new contract pricing. As a result average selling price for highway deicing salt was about 20% better than last year's third quarter price.

And as we expected restocking orders by retailers of consumer deicing products has also increased. This lifted third quarter consumer and industrial sales volumes above last year's results, and the higher pricing these products command also increased the average selling price we reported compared to last year's third quarter.

These top line results drove EBITDA up 25% from the 2013 third quarter to $45.8 million although our EBITDA margin percentage was similar to the prior year. We would have achieved a higher profit margin were it not for the fact we purchased the imported salt to increase our overall sales potential for the up-coming winter. These purchases impacted the Salt segment EBITDA margin by about 1.5 percentage points.

Brisk preseason deicing demand has continued in October as customers seek to replenish their inventories in preparation for the up-coming winter. Once that restocking is completed in November, it will be winter weather events that determine the remaining sales volumes.

We expect to sell approximately 4 million tons of salt products in the fourth quarter assuming an average number of winter weather events. And the average selling price for all salt products is expected to increase approximately 15% from prior year prices. That would be about $78 for every ton of salt we sell. We expect these price improvements and higher operating rates at our mines and manufacturing facilities to push our fourth quarter salt segment operating margin to between 26% and 28%. This estimate includes a short-term impact of about 3 percentage points from imported purchased salt. We reported an operating margin of 23% in the fourth quarter of 2013.

We do continue to experience elevated logistics costs. We like most manufactures in North American continue to face higher shipping rates. We mentioned before how regulations and strong demand through the transportation industry has placed a premium on over-the-road trucking for our consumer salt products. And we expect to report higher shipping and handling costs for the fourth quarter compared to the prior year; although, a year-over-year, per-unit increase is not expected to be as substantial as what we reported this quarter.

Fundamentally our salt business is benefiting from improved market dynamics and this is translating into a very strong operational outlook. With a normal winter we would expect to produce at near capacity rates throughout 2015, as we have in 2014, to replenish our rock salt inventories. While we are not providing detailed 2015 guidance at this time because so much will ultimately depend on winter weather results, we continue to expect healthy margin expansion in 2015.

Now turning to our plant nutrition segment. Sales volume for our products improved significantly from last year's results. The third quarter 2013 sales volumes were depressed by market-wide uncertainty regarding fertilizer prices, which resulted in cautiousness on the part of our customers. Our prices this year have improved as well. For sulfate of potash specifically we increased prices this quarter by about $25 per ton compared to our average, sequential, second-quarter 2014 price. We were able to do this because the underlying economics of the crops we serve has been robust and demand remains strong. Our results also include the positive impact of Wolf Trax micronutrient sales.

Strong volumes and price improvements in the third quarter also drove a 69% increase in our EBITDA year-over-year, and the segment EBITDA margin expanded by about 5 percentage points. Both higher SOP prices and lower SOP per-unit product costs contributed to the margin expansion. And our micronutrient is performing as expected and contributing to our earnings as well.

We remain optimistic about the outlook for our premium plant nutrients. We successfully demonstrated our ability to differentiate SOP from other potassium fertilizers by marketing the value of this product can bring growers especially crops. We further believe there is strong potential to grow our micronutrient business and expand its product line. This quarter we introduced a new phosphorus product called Nu-Trax P+. This is our first macro nutrient plus micronutrient product which is processed with our patented DDP technology. It allows us to further augment our product offerings and meet the emerging needs of farmers. As result of its efficiency, Nu-Trax P+ helps maximize early season growth while helping growers reduce the environmental impact of their phosphate fertilizer program.

We have also just recently completed the branding of our SOP product now known as Protassium+. This initiative provides a platform for greater differentiation of our SOP products and further positions Compass Minerals as the go to source for premium plant nutrition products.

For the remainder of 2014 we expect total plant attrition sales volume to reach between 90,000 tons and 100,000 tons, with average selling prices for all plant nutrition products in the range of $725 per ton to $750 per ton.

We are facing a headwind at our SOP production facility at the Great Salt Lake. Late summer weather this year has not been ideal for solar evaporation in Utah. This is another area of our business that is subject to some degree of weather impact. While the weather this year was not as mild and wet as what we experienced during the last poor solar evaporation season, we still expect our pond harvest to be impacted. As a result, we expect that we will need to source some additional potassium feedstock to secure our 2015 production target. As we get better detail on the exact need, we will provide more guidance on how that will impact our plant nutrition business. Considering that the specialty plant nutrient market remains buoyant, we expect to minimize the impact that these additional costs will have on our overall plant nutrition segment operating earnings in 2015.

In conclusion, we are entering the last quarter of the year with strong momentum, and I am confident we have the foundation in place to execute on our longer-term plans to improve our operations and build on our market positions in salt and specialty plant nutrition while providing strong returns to shareholders. And with that, I will turn the call over to Rod for some more comments on our financial results

Sure. Thanks, Fran. The meaningful momentum to our results at quarter is related to the continuing impact of the severe 2013/2014 winter season and the continued strength of our premium plant nutrition business. For the third quarter our total sales were $240.5 million up from $184.7 million, or 30%, from the third quarter of last year. The growth was attributable to both higher sales volumes and stronger pricing in both of our business segments. Our operating earnings and other measures of profitability on an U.S. GAAP basis included a one-time large gain, which I will discuss shortly. Adjusted operating earnings which excludes the gain related to the insurance settlement jumped over 70% to $39.7 million and earnings per share also excluding the special item was up 75% to $0.81 per share.

So first let's take a look at our Salt business. When examining the third quarter Salt segments results, it is apparent that the strong highway deicing bid season is beginning to express itself in our financial results. Average sales price in highway are up nearly 20% versus last year and we would expect an even greater percent increase in the fourth quarter though it could be partially muted by foreign exchange impacts. Pricing in our C&I business is also improving. A large portion of the third quarter year-over-year average price improvement was driven by product sales mix. This year we are selling more volumes of our consumer deicing products. Many of those products are sold at prices which are above the prices of other consumer and industrial salt products. Sales of those consumer deicing products were depressed last year due to weather affects. So on a mixed-adjusted basis our price increases in this business have been consistent with inflation.

Salt sales volumes have also rebounded nicely from last year with C&I sales volumes up 13% and highway volumes up 5%. Both of these year-over-year increases are the result of deicing salt restocking by our customers whose inventory were depleted by the end of this past severe winter season.

Our results include a significant gain we recorded this quarter for the final insurance settlement related to the 2011 Goderich tornado. The tornado struck both our Goderich and evaporated salt plant in 2011 damaging surface assets at the mine, demolishing much of our evaporated salt packaging plant and initially suspended and then limiting operations at both facilities for months. Three years later during this third quarter of 2014, we have completed the property loss and business interruption loss documentation with our insurers. This allowed us to finalize the claim, generating a one-time gain of $83.3 million or on an after-tax basis $1.79 per share. Of that total gain, $82.3 million was recognized in our Salt segment results and $1 million of income was recorded in Corporate and Other as a recoupment of previously expensed administrative claims cost. Most of the $114 million in total insurance proceeds had previously been collected.

During 2014 we collected a total of $31 million including $17 million in this third quarter as we completed the claim. Much of the cash insurance proceeds previously received had been held on our balance sheet as a deferred gain until this final settlement was reached. During 2011 and 2012 we estimated the effects the tornado had on our earnings and provided our investors with those estimates in order to assess a more normalized amount of Salt segment earnings. Similarly we have noted this gain as a one-time item in the same way. So going forward today I will refer to our third quarter adjusted results, which again exclude that tornado gain -- insurance gain.

Our third quarter adjusted Salt segment operating earnings results show solid improvement increasing to $45.7 million which was $9.1 million better than the prior year, and resulted in an EBITDA margin for the quarter of 26.1%. Higher salt prices were partially offset by higher per unit shipping costs and increased product costs. Our per unit product costs were higher primarily as result of imported highway deicing salt that we purchase to in order to better serve our markets this winter. The additional imported salt will not only allow us to generate more profit but we can also serve communities that may not have been served otherwise. The purchase salt is higher cost which temporarily compresses our margin. For example if we had been able to serve all of our demand with our own production, then our third quarter salt segment EBITDA margin would have been close to 28% instead of the 26.1%. We continue to see lower mining production costs in 2014 than in the prior year mainly as a result of improved rock salt mine utilization rates. That improvement will continue to be offset by the impact of the purchased salt through the coming winter. Our Salt fourth quarter margin guidance of 26% to 28% factors in all of those items including an approximate 3% impact form purchased salt.

Our per-unit shipping and handling costs were elevated this quarter due to several factors some of which are temporary while others are more structural. We experience shorter-term issues for highway deicing product deliveries over the last couple of months. We received more early restocking orders for deicing salt this year. Because we deliver or highway deicing salt to customers in the same type of trucks which are used for delivery of highway construction supplies, we faced a shortage of truck availability in some markets because construction activities have gone later than normal. This situation has been corrected, but it resulted in some elevated freight rates primarily in the third quarter in order to serve our customers in a timely fashion.

In the Consumer and Industrial portion of our Salt business we have seen some modestly freight rates but for different reasons. Nationally over-the-road trucking market continues to suffer from driver shortages. This has pushed freight rates higher for most of our routes, and we don't expect to see significant relief in the near term. This isn't unique to Compass Minerals, it has been impacting manufacturers across North American. So when you factor in all of those items, we were able to increase salt segment EBITDA by more than $3 per ton versus last year's third quarter.

Now turning to our plant nutrition segment. Total segment sales for the third quarter were $62.7 million, up 60%, or $39.1 million, compared to the third quarter of 2013. You may recall that last year our third quarter sales volumes were generally depressed due to some growers temporally delaying their purchases as a result of market instability in the broader fertilizer industry. Since then, we have been successful at selling the value-added benefits of our products, and growers who use our products particularly SOP have not been impacted by crop prices as have been growers of larger commodity crops. These factors have meant that we are not experiencing much of the market turbulence that seems to have continued in those commodity fertilizer markets. Operating earnings were $34.3 million in the third quarter, up from $25.4 million in the third quarter of 2014. The earnings improvement is mostly related to higher plant nutrition sales volumes and a 14% improvement in our sales price.

It is important to remind everyone that plant nutrition now includes both SOP and micronutrient sales. Our micronutrient products have significantly higher average sales prices and unit costs but similar EBITDA margins. We previously indicated we would continue reporting SOP only prices in order to provide more visibility into our results. During the third quarter we saw our SOP only average price rise to $670 per ton versus the $646 per ton we reported in last year's third quarter, and that is also an increase of about $32 per ton compared to the second quarter of this year.

Our effort to expand SOP's penetration and grow North American market continues to be successful, so we continue to purchase MOP on the spot market and supplement our pond base production. We will continue to use MOP as an input as long as it remains economic. Over the past year this route has become even more profitability as our SOP price has risen while MOP prices have been flat to lower. This option allows us to continue to grow our penetration of SOP in the North American market with low incremental investment in the short-term. So while our pond-based SOP has continued to trend lower than prior year, we are using more MOP at our SOP production process this year which along with the impact from the micronutrient business has increased in our per unit cost. In summary, plant nutrition segment operating and EBITDA margins increase when compared to last year. Our EBITDA margin as a percent of sales expanded more than 200 basis points, and EBITDA increased by more than $50 per ton when compared to the prior year.

So finally I will just touch on a few corporate items on a consolidated basis. Depreciation and amortization was $20 million in the third quarter and is expected to remain near that same level for the fourth quarter. Consolidated SG&A was $26.8 million which was about $4 million greater than last year's results. This was primarily due to the higher cost associated with our micronutrient business.

We expect about $17 million of Corporate and Other costs during the fourth quarter of 2014 which is consistent with our prior guidance for the second half of the year. Restructure costs primarily in the fourth quarter are elevating Corporate and Other costs when compared to the prior year result. Interest expense should continue around $5.5 million for the fourth quarter as it was in the third quarter. And we expect our fourth quarter income tax rate to be approximately 27%. Capital expenditures amounted to $34.5 million in the quarter bringing the total year-to-date amount to $83.5 million. For the full year we continue to anticipate about $120 million in total capital investment.

And so that is it for our prepared remarks. I will turn the call over to the operator for the question-and-answer session now. Eric.

Thank you. (Operator Instructions). And we will take our first question from Ivan Marcuse of KeyBanc Capital Markets.

Thanks for taking my questions. Real quick on the trucking costs it looked like it sort of -- are you having the same issues in your fertilizer business or no or is it different?

We do truck out of Ogden. I would say some of the trucking issues have been regional, and we haven't seen nearly the effect that we have seen mostly in our Consumer and Industrial business. So it hasn't been as great of an effect in our plant nutrition segment.

Great. And if you look at your third quarter in salt did, nice volumes, but how much of a drag was the U.K. in the chemical sales if you backed or how down were they relative to what your volumes look like on a normal basis?

Sure. As you know our, Ivan, our U.K. is typically about, just order of magnitude, 10% of our total highway deicing volume. The winter there this past winter was very mild, which meant that our customers there really didn't need to early order. I would say the order patterns there are typically more even throughout the year. So we were affected by a couple of hundred thousand tons there, and then we probably had another 100,000 tons in the chemical space that impacted us. Some of that is customers that have temporarily idled facilities, others there was some problems with their production, so we don't know that all of that would continue. The one thing that we are a bit blessed by as it relates to that, is that the chemical salt is the same salt as used for deicing, and in a year like this we anticipate being able to sell the salt that we are producing from our facilities, so really it is just kind of a timing difference. And since we earn a bit more on the deicing it is really a net positive for us.

Great. And then last question and I will jump back into queue. If you are unit operating -- what would you gage the increase to cost unit operating cost in the fertilizer business with the evaporation? Because if you look back at 2011, there is a pretty big pop. So would you expect half of that type of magnitude or on a dollar basis or how do you think about it going forward? I know you are still trying to figure it out yourself, but how would you start it off?

I think you are right. We are trying to determine that and the amount of the harvest won't be known with certainty for several months. But having said that, the order of magnitude of the wetness, so to speak, of the solar season is on a rough-cut basis is about half of what it was all the way back in 2011. That season it started out very wet and really never recovered. This year the rains and the cooler temperature didn't really start until sometime in August early to mid-August, and so it only affected us in the back half of the year in that solar season. So rough-cut probably half the impact.

On a dollar per ton basis?

Yes.

Got it. Thanks a lot.

The next question is from Christopher Parkinson of Credit Suisse.

Hi, good morning. This is Tom filling in for Chris. I was wondering if you could provide a little bit more detail on the timing of sales in addition to the pricing momentum you are expecting within the Consumer/Industrial segment as we finish out the fourth quarter and into 2015?

Sure. I think the retailers are typically -- they restock, this is talking now specifically about Consumer deicing. They tend to restock their distribution centers in the September, October and November timeframe. Then what happens is if it starts snowing in December, they reorder, and if it doesn't, then they don't. So the timing of the sales is such that we need December snowfall in order to make the kind of numbers that we are talking about on the Consumer side of the business.

Okay, great. Thanks. And also you mentioned margin expansion for 2015 within Salt. Are we expecting something along the lines of the kind of the 3% impact you are seeing from the purchased salt or something along those lines?

Good question. Maybe stepping back and looking at what our guidance is for the fourth quarter, last year reported 23%. We did have a special item in there, so on an adjusted basis that is closer 25% in the fourth quarter of last year. This year we have guided to 26% to 28%, but recognizing that does include that short-term impact of the purchased salt. So when we look at where we are at as we enter the winter, we kind of think of it on a normalized basis about a 500 basis point improvement in our profitability. And as we look through the winter, we are seeing that similar kind of improvement. Now it is hard to really predict the back half of the year because so much of that is dependent on what happens during the up-coming winter season, but that is the kind of step change I think we are thinking of and salt is about 500 basis points.

All right. Thanks for taking my questions.

And the next question is from Joel Jackson with BMO Capital Markets.

Hi, good morning. Wanted to follow-up on the question a little bit. If I look at some of your guidance in talking about actually what Q3 and Q4 were adjusted for, for the salt import purchases. It seems like you are suggesting on a per ton basis salt costs were inflated maybe $1.50 a ton or $2.00 a ton from import purchases. If we look forward to a year from now -- I know it is tough, assuming a normal winter and all these things, but if you assume inflation and some better mining cost is there scope here to get maybe $0.50 a ton or $0.75 a ton improvement in cost a year from now for salt?

I think I followed your math there, Joel, and I think those are pretty solid analytics. I think the investments we are making as a Company in further step-changing and reducing our salt costs we are going to start making those investment we expect to make some of those investments here in 2015, but those likely wouldn't start rolling through our results until the 2016 or maybe even 2017 time period. I think until then we are looking at mine utilization as being the primary driver of our salt costs. In a quarter like this, Joel, you end up with some product mix when you look at any individual quarter where we had more deicing products. So the per unit costs numbers are also elevated because of more Consumer and Industrial. But if you just look across a full year and you can take out any of those short-terms variances then I would say we would expect to not need to purchase any of the high-cost imported salt next year and that would be the primary driver for a further salt cost reduction in 2015.

Okay, thanks for that. And on plant nutrition can you give us some context, either what percent of sales or what percent of operating earnings where Wolf Trax are non-SOP contributing in the quarter please?

Sorry. That was a question about Wolf Trax --

Just in terms of sales or operating earnings or plant nutrition what the contribution was from the non-SOP sales or Wolf Trax or what you like to call it.

Yes. As we said when we bought the company, just due to some deal costs and other things we expected operating earnings to be for the nine month period of 2014 to be marginally accretive to our results. I think the Wolf Trax products command a much higher price at similar EBITDA margins. So across a year it's meaningful, but I think in this initial year it is meeting our expectations. But we don't talk specifically about the profitability of that segment of our plant nutrition business.

It has been marginally accretive as expected in Q3 in the first nine months?

Yes, that's correct. Well, in the first six months but yes.

First six months, okay. Thank you.

Because we bought them, Joel, on April 1.

(Operator Instructions). And we will take our next question from Mark Gulley of BGC Brokerage.

Yes, BGC Financial. Good morning. Fran, you talked about some of the new products being launched I think in connection with Wolf Trax. Can you tell us what crops those two individual new products are targeted for? Particularly in the first one you talked about one of your first macro nutrients.

Sure. That is a phosphate product, and it will actually can be targeted at I would say more of the mainstream crops, if you will, in the corn and soybean areas. And we also think just because of the amount that is required per acres is much lower than traditional phosphate applications that and some of the water shed areas that are having issue with algae bloom and what not that there is potential penetration in those markets in kind of the Midwest and part of the Eastern areas of the U.S. as well. So I think it is not as much of a focus on the specialty crops as we have had in the past, and we'll compete across more acres and new customers than we have had in the past.

The branding of our SOP I think is important as well, the Protassium+ branding. And I think as we look at ways to continue to differentiate ourselves with our customers and that could include things like blends with micronutrients going forward, it most likely will, by branding it I think it continues to help us sell the value and keep a step ahead of any competition that is either in the market or could be coming in the market down the road.

As my follow-up again sticking with SOP, in your prepared remarks sort of imply that given tight market conditions you would be able to recover the increased cost to production tied to the wet August. Did I hear you right there that price in cost at worst would just offset or perhaps maybe you get continued margin expansion in SOP next year?

The supply-demand situation is tight, and we see it continuing that way into 2015. And I think there are more specialty crop acres in our core markets that can continue to expand at the expense of some other crops. So I would say it is fair to say that we think the price side can offset the cost side. It is early yet and we are still trying to understand what the impact will be, but that is our mind set at least going into the new year.

Thank you.

Thank you.

And our next question is from Chris Shaw of Monness, Crespi.

Good morning, guys. How are you doing?

Good morning.

I would like to ask about the preseason fill on the highway deicing salt side. I'm sure it is much bigger than last year obviously they're refilling, but do you have a sense now once they are done with that early season buy how on a relative basis maybe to last year on average where the customers are in terms of tons? Is it more than normal, is it less, do you know?

It is hard to say that exactly. But I think when you look at the preseason fill programs that a number of the States came out and that we committed volume to it probably positions them well for the winter to start, and I would guess that that would be roughly similar with the prior year. If you go back a couple of years, they were probably carrying more inventory than last year. So our sense is that heading into November or through November they will be positioned probably on average for normal winter weather events, and then we will just see what happens from there.

Okay. And then kind of keeping with that, of the 4 million tons guidance of volume guidance for the fourth quarter, I assume you have pretty good visibility obviously on the piece that is highway deicing and the early season fill. How much is sort of I guess then variable, so if you take away the Consumer at 600 million to 700 million and you have maybe 3.3 million -- that's not 100,000 tons, right. 3.3 million tons for highway deicing how much of that do you think is the preseason fill orders?

Chris, December is an important month in terms of sales. So I would say well more than half of our highway deicing sales are preseason and would be not really at weather-risk in the fourth quarter. Hopefully that helps you gauge the relative significant of snowfall need in December.

Right. That does give me (Inaudible). Thanks

Thank you.

And the next question is from Bob Koort with Goldman Sachs.

Hi, good morning. This is Ryan Berney on for Bob. Just kind of piggybacking on that previous question, it sounds like you guys are going to come in towards the lower end of that 6 million tons up to 6.5 million tons that you gave at the Investor Day. Just curious considering it sounds like you are able to import salt profitable do you think you're going hit the lower end of that range more based on your expectation for weather demand or is there something else going on there?

I think the 6 million tons -- you know the 4 million tons would put us at the low end of the guidance from several months ago. We have been talking about 6 million tons for a while now, and we definitely are not weather adjusting that based on any long-term weather forecast. That would be our estimate of the total amount of sales. If there was an approximate average number of weather evens, I seem to remember that being in the 50 to 60 weather event range on that 10 or 11 city analysis that we do for the market each quarter.

Got you. Thanks. And just as a follow-up, it seems like your SOP only pricing has been creeping up. Can you talk a little bit about what is going on there as far as the potash market feeling a little bit softer early this year?

I think we just continue to see increased demand for SOP. There have been some production issues offshore mainly in Europe and some in South America that maybe limiting global supply. But we have shifted almost all of our volume in North American over the past couple of years and most of that volume is now centered in California and Pacific Northwest on nuts and fruits and produce, and these products that continue to experience demand growth both domestically and from international demand. So our pricing is separated in my mind from MOP and will continue to be that way. And as long as almond producers and walnut producers are experiencing the kind of profitability they are, we see continued opportunity for SOP both demand and hopefully pricing.

So that feels more like a demand pull rather than a cost push from kind of higher transport or production cost?

I think that is right. That's what we are seeing.

Thanks guys.

And we have a follow up question from Ivan Marcuse of KeyBanc Capital Markets.

Hi, just a couple of quick questions. What would you target your ability or what is your volume target for next year? How much do you think you could produce in the fertilizer business with using MOP?

We are not guiding on that yet. I think as we talked earlier we need to get a little further down the road on what our harvest is going to be, how much we can augment with KCL or potentially some other sources and then I think we will come out with some numbers on that. I think we have been increasing the supply over the last couple of years. The demand is strong, so we would like to think we can continue to produced increased volumes next year under a bit of a challenging situation but I think one we will still be able met more of the market demand than we have this past year.

Got you. And then, Rod, you might have said this, but what is your expectations for Corporate expense in the fourth quarter?

The Corporate cost guidance was $17 million, and I referenced some restructuring costs that were primarily hitting in the fourth quarter when I talked about that.

How much are those restructuring cost going to be?

Rough-cut about $3 million and almost all of those relate to some cost cutting that we are doing in our deep store or document storage business that will even further improve the profitability of that business over the coming years.

What is that going to translate to in savings next year?

Somewhere in the $1.5 million range.

Got you. So X the restructuring your Corporate expense in the fourth quarter should be around $14 million give or take a million?

That's right.

Got it. Thanks a lot.

And our next question is from Mark Gulley of BGC.

I wanted to follow-up, Fran, with respect to SOP pricing. You alluded to the fact that you are really backing off of exports so your net backs in SOP ought to be better. So if I take a look at the increase in the SOP price how much is that real price increase, i.e., higher prices you are selling to the same customers in California, Pacific Northwest of whatever and how much of it is just better net backs because you are not shipping as far?

We have been on that net back change over year and a half, and I would say our price in the market today those impacts have totally been completed. And so anything as we look forward will be pure price increase.

Okay. Then shifting gears for a second, one of the margin expansion opportunities you have spoken about previously is doing more of the bagging of salt in your C&I business so you capture the margin that the typical baggers were collecting. Is that plant near completion and would that be a source of potential modest margin expansion next year?

It is on schedule for completion in early 2015. So that should be an opportunity for margin expansion. I think it would be a good test for us to see what we can do with that plant, and if merited, look for other areas to continue to do the same thing.

Okay.

Thank you.

It appears there are no further questions at this time. Ms. Womble, I would like to turn the conference back to you for any additional or closing remarks.

Thank you, Eric. We appreciate your time today and your interest in Compass Minerals. Feel free to contact the Investor Relations Department with any follow-up questions you might have. Contact information can be found on the Investor Relations page of our website. Have a great day.

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