Compass Minerals International Inc (CMP) 2015 Q4 法說會逐字稿

Good day, everyone, and welcome to the Compass Minerals fourth-quarter earnings conference call. Today's conference is being recorded. At this time I would like to turn the call over to Theresa Womble. Please go ahead.

Thank you, Dana, and good morning, everyone. Today we have Fran Malecha, our CEO, and Matthew Foulston, our CFO, to review our fourth-quarter and full-year results as well as our outlook for 2016.

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, February 9, 2016, and involve risks and uncertainties that could cause the Company's actual results to differ materially.

These 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 any 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 would like to turn the call over to Fran.

Thank you, Theresa. Good morning and thank you for joining our call today. As many of you know by reading our press release or looking at our investor presentation for this quarter, Compass Minerals faced some challenges as we exited 2015.

Clearly, most of these challenges fall into the category of things we can't control: things like the weather, the global economy's impact on commodity prices, or the strength of the US dollar. What continues to make Compass Minerals a compelling investment though is the resilience we demonstrate through our earnings performance in the face of these headwinds.

I would like to stress three key points that I hope you take away from this call today. First is our operational performance proved extremely important for us in order to offset weakness in our key markets. Despite lower sales in both businesses, adjusted EBITDA margin increased for the quarter and the full year. We did this by executing on our margin maximization strategies and by working diligently to improve operating rates and efficiencies at our production facilities.

The second key point is that our investment plan is largely on track in terms of delivering on-time and on-budget projects. As you know, we are in the middle of a significant capital plan and we are well on our way to completing the key projects that we expect will drive profitable, long-term growth.

In addition this quarter, we made an important plant nutrition investment by purchasing a 35% stake in Produquimica. This is a leading specialty plant nutrition company in Brazil with a strong history of growth. This company is a great strategic fit for us because of their strong presence in one of the world's most important agricultural markets, where there's more opportunity for agricultural growth than potentially anywhere else in the world.

The Company has an excellent portfolio of products and more than 50 years of history in the specialty plant nutrition business in Brazil. We hope to partner and learn from their expertise before taking full ownership of the Company at some point between now and early 2019.

The third key point here is that we are taking the necessary steps to respond to the current market conditions and position the Company for long-term success. As Matthew will discuss shortly, this will involve more than the typical belt-tightening around discretionary spending. We will be streamlining our management, moving ahead with the personnel reductions in Goderich related to continuous mining, and taking every opportunity to maximize our assets in terms of human and physical resources in order to be as lean and agile as possible.

We believe these actions are not only necessary given current market conditions, but they are also important in order to increase our effectiveness and resilience going forward. We're a strong company and I believe we will be even stronger as a result of these actions.

Before I get into our capital plan and where we stand with our goals of earnings and cash flow growth, I would like to review some of the drivers of our 2015 results.

Starting with the salt segment, winter weather was slightly mild in the first quarter and extremely mild in the fourth quarter in terms of both number of snow events and temperature. Even with limited demand for our deicing products, we still earnings near-record-high EBITDA for the full year.

The factors driving these results include: the benefits of strong highway deicing pricing that we enjoyed for the first half of the year, a successful bid season which resulted in Compass Minerals regaining market share in profitable geographies, lower fuel prices throughout the year, and improvements in our cost structure due to strong production rates for most of the year. Most of these factors reflect our ability to effectively manage the things we can control and leverage our competitive advantages where possible.

In our plant nutrition results you can see a growing impact from the downturn that has been affecting most other agricultural and fertilizer companies. With US farm incomes at 13-year lows and a strong dollar environment pressuring pricing on just about all agricultural inputs, it has been a difficult market for our products as well.

These developments are certainly impacting our business. When growers aren't buying N, P, or K due to profitability concerns, we see some of the same hesitation to purchase SOP and micronutrients. In addition to that demand pressure, we're experiencing more competition because of the strong dollar attracting European imports. Further pressure on sales comes from the depressed price of MOP, which is increasing the threat of functional substitution on the less chloride-sensitive crops we serve.

Despite near-term weakness, we remain committed to the specialty plant nutrition market. Long-term macro trends continue to support the need for more efficient and sustainable farm production and our products are well-positioned to respond to this. That's why we have invested in growing our SOP production capacity and that's why we're expanding our present globally with the investment in Produquimica.

Our efforts to reduce costs and streamline the organization will also increase our ability to leverage growth when the ag market does recover.

Moving on to our capital projects, I would like to provide an update on the multiyear capital spending plan that we initiated back in 2014 and how we are executing on that plan. The major capital projects we've outlined for the market are currently on budget, if not better, and are largely getting completed within the established timeline. We have shifted some of our spending related to the Goderich shaft relining from 2016 to 2017 in order to improve our near-term cash position.

Even with this modification, we continue to expect to access additional hoisting capacity by the 2017-2018 winter should market demand require it.

We have also been able to reduce the total capital budget for the 2015 to 2018 period. Including a $225 million that was spent this past year, the current plan calls for about $100 million less in capital spending through 2018. We are able to make this adjustment through more efficient execution, aggressive prioritization of smaller projects, and the help of some modest foreign exchange benefits.

The investment projects included here will be critical in achieving our 2018 goal of $500 million-plus of EBITDA. I'm confident that we have the ability to overcome the near-term weakness in the ag sector, which has reduced some of our original assumptions for growth in the business. With the expected addition of Produquimica at some point between now and early 2019, we believe we have the opportunities available to reach our target.

With our investment plan largely complete by 2017 and our growth initiatives underway, we continue to expect increasingly robust free cash flow in 2017 and 2018. This cash will allow us to grow our dividend, reinvest in the business to ensure long-term growth, and to explore other opportunities to return value to shareholders.

Now I will turn the call over to Matthew for a more detailed review of our financial results.

Thanks, Fran, and good morning, everyone. First, a quick review of our consolidated results.

Total sales and operating earnings in the quarter were 33% below 2014's results. Adding a bit to Fran's comments, the two primary drivers for the decline were very mild winter weather in our North American and UK service areas, in terms of both snow events and temperature on the salt side, and weakness in the plant nutrition sales compared to very strong sales in the 2014 period.

For the full year, sales declined 14%, while operating earnings and EBITDA were only 2% below prior year's results, excluding the special item related to the Goderich insurance settlement, which occurred in the third quarter of 2014. These results represented operating and EBITDA margin growth of 2 points and 3 points, respectively. The primary factors driving the profitability of the Company for the year and the quarter, despite top-line weakness, have been the strong performance of our salt segment and healthy SOP prices, which have largely offset the planned higher SOP production costs, which I will discuss shortly.

If you are following with our presentation online, I would like to move to slide 10 and review our salt results.

Weather was not in our favor this quarter, as snow events were near historic lows and temperatures were near historic highs. Not a good combination for deicing demand. As a result, our sales volumes were 29% below 2014 results.

As expected, the average selling price for our products in the fourth quarter was also lower, driven by lower highway deicing contract prices. In addition, because we sold fewer tons of deicing products, both in the highway business and the consumer and industrial business, our average selling price was negatively impacted by this less favorable product sales mix.

While obviously we would've preferred to ship more salt this quarter, we are pleased with the profitability of the tons we did sell. As you can see here, our operating and EBITDA margins expanded 2 points as a result of continued benefits from lower fuel costs and lower logistics costs from the freight-logical customers we are serving as a result of our successful bidding strategy, as well as a lower impact from imported salt and strong operating rates at our North American mines.

These profit drivers, as well as improved highway deicing selling prices for the first half of the year, also helped us achieve the second-strongest full-year salt earnings on record. In fact, while salt segment revenue was 15% lower than in 2014, the business actually generated 2% more EBITDA and the margin percentage expanded 6 points when we exclude the benefit of the insurance settlement from 2014 results.

Turning to slide 12, I will review details of the plant nutrition segment's performance.

Plant nutrition revenue was down 34% on 41% lower sales volumes in the fourth quarter. General slowness throughout the ag sector and increased SOP import activity from Europe, largely driven by the strength of the US dollar, kept sales low in the quarter. It is also likely that depressed MOP prices have increased some functional competition for SOP in crops that are less chloride-sensitive.

These realities are what will be driving our price outlook for 2016, which I will discuss shortly.

Earnings in this business remain pressured by higher production costs due to the planned use of more source potassium feedstock to supplement last year's poor solar pond harvest. Low sales volumes also drove costs higher, as fixed costs in the business were spread over fewer tons. This means that will be entering 2016 with some high-cost inventory that will continue to pressure our operating and EBITDA margins during the first half of the year.

Our full-year plant nutrition results, which are summarized on slide 13, were impacted by the severe decline in demand during the second half of the year, offset partially by improved average selling prices compared to 2014.

Before I turn to our 2016 outlook, if you look at slide 14 you can see how we performed versus our guidance. We equaled or beat guidance on all corporate items and had higher average selling prices in both segments. The fourth-quarter story is really all about volume. We were extremely pleased with our margin performance in both segments, given the lower-than-planned sales volumes in the quarter.

As we look to 2016, we expect to face some headwinds from the challenges that impacted our fourth-quarter results. While there is still a good deal of winter ahead of us, temperature and snowfall trends continue to mute deicing demand. Despite the early mildness, we expect to sell more salt in 2016, assuming normal winter weather for the remainder of the year.

Fran has outlined the key factors impacting our plant nutrition sales volumes and pricing. Let me take a few minutes to walk you through what's impacting our margins in plant nutrition this year.

Clearly, we anticipate price having the largest impact on our profitability. The price adjustments we are planning for the first half of the year drive about two-thirds of the margin compression in our guidance. As I mentioned earlier, because of the lower sales volumes in 2015, we have a significant amount of high-cost inventory going into 2016. We expect this to have a large impact in the first quarter.

Additional pressure on our margin expectations include higher royalties due to less use of purchased KCl in our feedstock in our 2016 production and increased distribution costs as we are storing more inventory in warehouses closer to our customers to improve service levels.

On the bright side, we do have more pond-based feedstock from the 2015 solar season available for 2016 production, so we expect about a $50 per ton decline in Ogden production costs as we get into the back half of the year, resulting from less purchased feedstock. We anticipate that we will see about half of that amount in our reported results, with the offset being a higher mix of [off tracks] product.

We expect our operating margin in the second half of the year to improve significantly, but still remain below 2015 levels. As Fran noted, we have determined that market conditions warrant some aggressive action in order for us to offset the current weakness and build a more nimble, efficient organization going forward.

To that end, we are reducing our workforce by about 150 people. Most of these reductions will occur in 2016. Let me walk you through some of the key areas of focus for that reduction.

The majority of the reductions are related to the implementation of continuous mining at Goderich. Because of the milder winter, we are able to pull forward some of those reductions. The balance is expected to be achieved by the end of 2017.

We are eliminating one shift at our UK mine and we plan to centralize and rationalize our support staff across the Company. In addition, some management positions will be reduced as we seek to streamline our organization and speed up decision-making.

These actions are expected to save the Company around $15 million annually once complete. Of that total about $9 million relates to the savings that were already anticipated from the expansion of continuous mining at Goderich. We expect these actions to result in a restructuring charge of approximately $4 million in the first quarter, and given the savings we expect, the payback on the charge should be less than one year.

Now turning to our 2016 guidance summarized on slide 16, salt sales volume of between 5.9 million and 6.3 million tons represents a modest increase over what we achieved in 2015. This increase is driven by the expectation of average winter weather for the remainder of the period, coupled with the fact we won more highway deicing contracts for the current winter.

I would like to draw your attention here to our operating margin outlook. At a range of 26% to 28% we expect to significantly outperform 2015 results. Drivers of this improvement include: the positive impact of our freight-logical contracts following the successful 2015 highway deicing bid the season, no impact from imported salt costs -- we estimate that those were about $1.30 per ton in the first half of 2015 -- and lower fuel prices.

Summarizing our plant nutrition outlook, while we expect an increase in full-year sales volumes, in the first half of the year we are projecting a slight decline in sales volume from the prior year. The average selling price of our portfolio of products also is expected to decline, driven primarily by lower SOP pricing. These expectations are consequently weighing on the segment's operating margins.

As I've covered in some detail, for the first half of the year our margin guidance is down significantly from the second half of 2015, but we do expect margins to improve in the second half of the year as we begin selling lower cost 2016 SOP production. With these factors in mind, we are establishing a full-year EPS guidance range of $3.80 to $4.20, and this includes about $0.07 for the expected restructuring charge.

Before turning the call over to the operator for the question-and-answer session, I would like to recap some key points that make us very optimistic about Compass Minerals' future despite the current business environment. We have demonstrated strong margin performance in the face of short-term headwinds. We are making excellent progress executing our major CapEx projects and have significantly reduced capital spending while retaining the key elements of our investment plan, which will drive future growth.

We've made a strategic investment in Brazil, which gives us a foothold in one of the most important agriculture regions in the world through a deal that provides a path to full ownership by early 2019 at the latest. We have taken the tough tactical decisions around rightsizing our company to enhance our agility and meet the current challenges. And most importantly, we remain on track to reach our target of $500 million in EBITDA in 2018.

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

(Operator Instructions) Chris Parkinson, Credit Suisse.

Perfect, thank you very much. What type of discussions are you having with your SOP customers as the price of MOP continues to fall? I'm sure it's well understood, the differences between potassium, sulfur, and chloride, but how are your customers really thinking about the subsequent spread at this point?

Sure, Chris. This is Fran. I think, if you look at our customer base, there is a portion of that customer base that is growing crops that are sensitive to chloride. So it's a different discussion I think with them on SOP and that spread that you talked about, than it would be with customers that are growing crops that maybe have some substitutability there.

So depending on that discussion, we are looking at pricing relationship, and in some cases we would be dropping our pricing more to compete with tons that we feel like we've lost to MOPU due to that substitutability.

Perfect, and just a quick follow-up. You mentioned a $50 cost reduction for Ogden beginning in the second half. Can you just walk us through the cadence of this benefit as we head into the longer term and just how to really think about the intermediate to long-term costs now that you are kind of closing in on that benefit? Thank you.

This is Matthew, Chris. As you know, when we went into 2015 we were coming off a very poor solar pond harvest and we talked about the magnitude of penalty that would burden us in 2015.

With a very steep sales decline that really primarily occurred in the fourth quarter on SOP, we ended up carrying over some of that high-cost inventory into 2016. So we think first half to the tail-end of 2015 cost to be about flat and then we start accessing materially the new harvest, which, although below average, was significantly better. And that's where we see this $50 improvement coming in.

Obviously, when you going to 2017 we're expecting at some point here a return to more normal weather and normal harvest out of Ogden. And we think there's probably in the region of $20 to $30 of improvement yet to come when we get back to that type of harvest.

Perfect, thank you very much.

Chris, if I just might add something there, we are scheduled to complete our expansion at Ogden basically by the end of the year here. So as we move into 2017, the way that I think about it and just going back through the numbers, is on our pond-based production, -- which we will maximize through the capital that we are spending because we get an additional capacity lift and we also get a better yield impact on all our pond tons. So as we think about maximizing those pond tons of about 325,000 tons, our cash cost should be around $200 a ton, our all-in cost should be somewhere probably slightly less than $300, and we should be able to achieve maximum margin on those tons and fit into this non-chloride market effectively.

The balance of our capacity we will be able to use making the excess sulfur from our ponds with KCl, and that's where that pricing relationship will be more important. But we are confident that we can continue to meet the growth in the market, be the low-cost producer, and kind of hit those incremental tons with this KCl-based production. And that is how we look at the future, so as the ag business rebounds we're going to be well-positioned to take advantage of that.

That's great color, thank you.

Bob Koort, Goldman Sachs.

Thank you very much. Two quick questions, Fran. First, SOP -- and you mentioned chloride-sensitive and non-chloride-sensitive markets -- is it possible to have a binary price structure there where you are pressured on the non-chloride sensitive, but you maintain that nice, healthy premium in the chloride-sensitive application?

I would say it is possible. I think there's some regional differences. Some parts of the US, as an example, say California, it just has more of those non-chloride crops and so you can separate that from maybe other parts that have crops that are more chloride-sensitive. But at the same time, as we go through the distribution system that we go through, that creates a bit of a challenge.

So I think that's something that we will need to continue to continue to fine-tune as we focus on our customer base and the supply chain partners that we are using out there to reach those customers.

Right. And the import pressure you're feeling, should we think of that as a function of currency issues mainly and an improvement in the euro would help there? Is it new capacity from competitors? Is it the competitors having their base fertilizer businesses really get hurt and forcing them to be more aggressive?

Can you help us sort of characterize those components which is maybe driving the changes?

Those may all be factors, but the significant factor is the exchange rate, the currency. That move in the euro over the past year has probably been --

Close to 30%.

-- close to 30%, so that has really been the impact. As we came into the fall of last year, we made a conscious decision on SOP to hold our pricing and kind of see how this market plays out. And we've seen kind of the final leg down here on MOPU and more of an impact from currency, and so I think that certainly impacted our volume.

And producers may have been holding back on some purchase as well. So we think those are the three factors that impacted our volumes in the back half of 2015 and we will just have to see how those volumes come back here in 2016.

Then last quick one on the guidance you've given for 2016 coming out of the very weak fourth-quarter weather season. Does that assume for the balance of this winter you get normal weather going forward or how do you think about that and maybe snow events so far in the quarter?

The guidance that we are giving today is based on normal weather, so that's normal snow events and normal temperatures, from this date forward.

Great, thank you very much.

(Operator Instructions) Garrett Nelson, BB&T Capital Markets.

Good morning. On the $100 million of CapEx savings, are those savings mainly related to Goderich or Ogden or both?

Garrett, this is Matthew. We have been taking a hard look at all our CapEx project by project, both the big projects and the smaller ones underpin it. We've gone through a very strict prioritization process and just been brutal on CapEx across the board here, so I think it's everywhere. Clearly, the biggest chunks came out of those two places.

As I will just add, I think if you looked at the entire capital spend it was more heavily weighted to salt and so there's a bigger overall impact on salt and at Goderich where the majority of that salt has been initiated.

Okay, great. And where do your inventories stand for both businesses right now? Is that a contributor to why you're expecting higher shipments for both segments in 2016?

This is Matthew again. Obviously we exited 2015 with higher inventory on both sides of the business. It's very difficult on salt to call how Q4 looks like until you get deep into December, because it's such a big month, and then you've got a lag for notifying employees and then responding and taking production out, which we acted on pretty quickly.

So we did go out of 2015 with more salt inventory than we expected and, accordingly, we are addressing that with lower production in 2016. And similarly, the demand fell off late in the year on the SOP side and we got -- we're carrying about 30% more inventory than we would normally like there, which we are planning to work off as we go through the year. As I mentioned, we should certainly be through that high-cost inventory by the time we get to the middle of the year here.

Great, thanks a lot.

David Begleiter, Deutsche Bank.

Thank you, good morning. Fran, on your Brazilian acquisition, can you discuss expectations for growth and margins in that business going forward? It looks like you pay about 7 times EBITDA. Is that -- how do you view that multiple in context of other acquisitions you are looking at or have looked at?

Sure. That business has a long history. They've been in business down there for 50 years and I think over the last 10 years or so have shown significant growth. And that is really due to investments that they made in new products and having people on the ground selling these products to growers.

They have a strong distribution system in Brazil, which is extremely important to reaching the market and continuing to tap into that growth. So we look at this as a platform business for specialty fertilizers in Brazil; they've got that kind of reach to the customer base down there. So that is driving, and will continue to drive, more growth in the future.

In the micronutrients business, globally it has been growing in that 7% to 9% range and we would expect this business to meet or exceed that in Brazil, which is a growth market. And the Brazilian ag economy has been strong through this past year or so. They are getting the benefit of currency and continue to increase acres and continue to increase their use of nutrients as the soils down there aren't nearly as good from that standpoint as we find here in North America for comparison.

So we are real bullish on the business and on entering the market down there. In terms of the multiple, we look at it on an enterprise value multiple of about 9.5 times and that's about where Compass has historically traded. So we look at this as we have acquired a strategic foothold in the Brazilian market; growth business, right down the fairway of our strategy at our current multiple and think it's a good investments that we can also build as we go down the road.

Why do you think they are willing to sell now at this time? Was it just their own cash needs or other issues?

It's hard to say, to answer that exactly. The only thing I would say is that we spent about a year and a half on this business with the owners, getting to know them, getting to understand it, and this was the culmination of that process. So that is the only color that I would add there.

Last, Fran, on your salt margins, given the step up we're seeing now in the first half to some good activities by you, is this now a sustainable margin going forward for salt over the next couple years?

We think so. Weather does impact this business and you have all seen the impact of that in the last quarter here, but we think the measures that we have taken on managing our margins are sustainable. And we still think the long-term pricing over the long term in this business is that plus 3% or so.

We have invested in our assets to continue to become more efficient and also, through continuous mining at Goderich, to lower our costs. And that will take effect primarily in 2017 forward. We think about it as certainly sustainable and just a real strong cash flow generator well into the future.

Thank you very much.

Eugene Fedotoff, KeyBanc.

Good morning, guys. Thanks for taking my questions. A couple follow-ups on the SOP prices.

Can you sort of comment about current prices in the SOP and your expectations, the $645 to $675 level? Do you expect a gradual decline in pricing through first and second quarter or it's more sort of going to be a drop in the first quarter?

It's more a drop that's occurring now in the first quarter. We've adjusted our pricing down as we've headed into the beginning of the year here, the spring planting season, in our geographies and we expect to proceed from here.

Got it. And just to follow-up, from the volume decline in SOP in 2015, can you comment on how much you think was driven by lower demand, lower end-market demand and how much was driven by increased import competition? At what prices do you think those import pressures will decline? Thanks.

I think, as I commented earlier, we think it's a combination of the impact of currency that led to import competition, to some substitutability that would have gone to the MOP market. And also we think just maybe some delay from growers where they just delayed the decision in 2015 and will look to purchase that SOP in 2016. So it's a combination of those three.

And I think the other thing that is impacting us maybe throughout the late fourth quarter and a bit here early in the first quarter has been it has been wet in California. So it appears like the drought is breaking. Maybe not totally broken, but certainly they are getting rainfall and that has maybe delayed some applications that might've gone down in the fall or early here in 2015.

That's kind of a good news story long term; it just impacts more timing in the short term.

And the volume assumption for 2016, do you expect any market recovery there or it's all going to be driven by market share gains?

I don't think it's all market share gains. I think some of that is market recovery, for sure.

Got it, thank you.

Joel Jackson, BMO Capital Markets.

Good morning. I thought I would pursue a bit more the Produquimica.

Can you talk about what the earnings contribution is in your guidance from that business in 2016? And talk about the unique dynamic of that investment where the seller can buy you out as early as 2017, but I believe you cannot buy them out till -- they can force you to buy out the stake as early as 2017 but you can't force it till 2019. Just talk about that dynamic and if that means you need to basically keep cash on your balance sheet in advance of not knowing exactly when you'll be notified of them buying out that or selling that remaining stake?

Let's break that into a couple of pieces; I'll take the first one. When we -- sorry, Joel, can you just go back through that first part of the question again? It just slipped out my mind, apologies.

The first part of the question was what do you expect in your guidance of around $4 EPS in (multiple speakers)?

Got it.

Where does that model in for an earnings contribution out of Brazil?

Got it. We will be using the equity method for accounting for this, so we will be taking our 35% of their net income and we will be operating on a quarter lag. We will have three quarters of 35% of their net income, so it will be a low single-digit impact on our earnings.

Joel, to answer your question on the put-call provision that we agreed to, they do have the ability at the end of 2016 and the end of 2017 to sell the Company, the balance of the Company to us. And in 2018 they have the ability to sell; we have the ability to buy the Company from them.

There is a notice period in there, so we will have ample time, irregardless of when that happens, from our perspective, to ensure that we will have the appropriate financing in place and use our balance sheet accordingly. And we are working closely with the group down there, getting to know the business, the people.

And all that is part of building a relationship that does two things from our perspective. It will create a dialogue about when and if they are looking to sell the business to us and, two, will serve us well because those are people that today are managing that business; will continue to manage it going forward as we own 100% and go through the integration process. So that's kind of the dynamic there.

If I understand what you're saying is the seller can only at the end of each calendar year exercise the option. There's a certain number of months or weeks of a notice period. Is that correct?

There's a notice period within the year and then it will be using the EBITDA that is generated in that year, so the transaction will close off of the EBITDA at the end of those years depending on when they -- if they trigger the notice period within the year. So within the year we will then have ample period to prepare for a closing of the transaction that would happen, I would guess, early in the following year.

Is your base case that you are running right now that they would exercise that option at 2016, so you would have that business consolidated for most of 2017? Is that your base case?

It's not our base case. I think we are looking at this as to what would happen if we acquired it in any one of those three years and plugging that into our thinking. But I wouldn't say that our base case is to own this 100% next year.

Okay. And then moving on, your salt operating margin guidance for the first half of the year is quite attractive, 26%, 28% if I recall. It looks like you are assuming some improvement in salt costs, specifically in Q1 year over year.

Can you maybe talk about what's happening in the business to lower per-ton salt cost? Because I know volumes are not going well because of the mal weather. You'd think there would be higher -- there would be fixed cost absorption issues in the per-ton costs?

I think in the first half of the year we're beginning to or continuing to see good news shipping and handling. So the very favorable fuel price environment and oil price environment is certainly helping us. We also are getting some benefit from the US dollar versus the Canadian dollar. As we've talked about, when you chase it all the way down to EPS it tends to be relatively neutral within the year but it certainly helps us on the cost line.

Also, we won't have any imported salt impact in 2016 and that hit us for about $1.30 a ton in 2015. So we feel pretty good about the margin structure taking into account the production volumes and the selling prices, which are pretty locked and loaded going into the year.

Okay. My final question is historically you don't really give much guidance on where bid season will go for pricing and how could you know? It's only middle of February, beginning of February. It seems like, when I look at your guidance, the midpoint of guidance would assume roughly a 5% decline, expected decline in average highway deicing realized salt pricing.

Can you maybe comment on what the midpoint of guidance assumes for bid season or maybe what the upper or lower end of the range imply? That would be very helpful.

Sure, I don't -- it's not the 5%, so we're not assuming that so I'm not sure how you got to that. And that may be something to look at at a later time with Theresa.

So we're not assuming that. It's too early to predict the pricing here, but we are managing inventories. And we have a view of where the market will end the year based just on what we are doing, what others may be doing given the mildest to date and assuming average going forward.

But there's also a bit of a mix issue that comes into play here as well, but we are certainly not looking at a, at this point in time, 5% reduction in deicing pricing.

Thank you very much.

Chris Shaw, Moness, Crespi.

Good morning, everyone. Just to go back to the question from earlier, is there any way to quantify maybe total percent benefits margin in salt, the reduction in the oil, gas, the diesel costs for shipping? How much margin benefit has that been I guess maybe from the top down here to the bottom?

This is Matthew. Let me kind of take that in two halves in 2015. I would say we were down $0.50 to $1 in the first half, but we really saw some significant improvement in the second half, where we were probably down over $2 ton on shipping and handling. So the fuel has really started to help us in the second half of the year.

Obviously, as we go into next year we're making our guess on oil, like everyone, and we're thinking round about $40 a barrel going through next year.

Okay. And then on the 2018 outlook for plant nutrition, what sort of SOP price have you forecasted in the increase in profit from that segment?

We are not disclosing that SOP price today. As I mentioned earlier, we have made an adjustment to our pricing here for the first half of the year and we think that will spur some more demand going forward and allow us to meet those volume -- that volume guidance that we've given.

Okay, fair enough. Thank you.

Christopher Perrella, Bloomberg Intelligence.

Good morning, thank you for taking the call. Question on the SOP business. You had mentioned that you had placed some of the tonnage closer to the customer. Is that a -- do you see that as more of a structural shift in the way the SOP business is going, similar to the way MOP is going? Or is that sort of a special tactic or strategy in light of the way the market has been behaving lately?

I think the work that we've done on SOP over the past couple of years has been to focus our supply on the best margin, highest net back business. And that has shifted some tons out of export markets more into the US and especially into California, where there's more chloride-sensitive crops. It's close to our production facility in Ogden, so that helps us deliver to those customers consistently when the need the product.

And despite the changes that we've talked about and the impact on SOP from a competitive standpoint with imports, we are the only producer in North America. We are closest to our customers. There is value we think we deliver to those customers by being the consistent supplier year in, year out in the market.

All right. And the competitive pressure from the SOP imports over from Europe, is that mostly in the Mississippi River or the eastern seaboard or has some of that found its way over the West Coast?

I think the majority would be on the eastern side of the US. There has been -- historically has been imports that do come into the West Coast as well.

All right. Then the last question. With the put-call option on Produquimica, does that conclude you from doing a similar-sized acquisition over the next one, two years if one presents itself? Or does that limit you to bolt-on acquisitions in the near term?

I don't see it as eliminating that possibility. We are certainly spending time getting to know the market down there and the business that we have acquired a portion of, spending a lot of time focusing on that as well as the current business. If other acquisition opportunities come up that are attractive in the plant nutrition space, then we would certainly take a look at those.

All right, thank you very much.

That does conclude today's question-and-answer session. I would now like to turn the conference back over to Theresa Womble for any additional or closing remarks.

Thank you, Dana, and thank all of you for joining us today. If you have any additional questions, feel free to follow-up with me. You can find my contact information on the investor relations website. Thank you.

Again, that does conclude today's Compass Minerals fourth-quarter earnings conference call. We thank you for your participation.