Compass Minerals International Inc (CMP) 2016 Q2 法說會逐字稿

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

Thank you, Matt, and good morning, everyone. Today our CEO, Fran Malecha, and our CFO, Matthew Foulston, will review our second-quarter results and current outlook.

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, July 26, 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 future events or developments.

You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release or in our earnings release presentation, both of which are available on the investor relations section of our website at CompassMinerals.com.

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

Thank you, Theresa. Good morning, everyone, and thanks for joining our call today. I will start with a broad overview of our results before turning to some comments on our individual businesses.

Our earnings this quarter continued to be pressured by the weak agricultural sector, while some of that weakness was offset by strength in our salt business. While total revenue was down 8%, our operating earnings declined 35%, driven principally by weaker plant nutrition income.

These results are disappointing, but not unexpected, given the current down cycle in the agricultural market. More important for us is the confidence we have in our long-term strategy, based on ensuring the integrity of our assets and improving our cost position; completing our investments to expand capacity in salt and sulfate of potash, which positions us for organic growth as the markets for deicing salt and specialty potash recover; and positioning the Company for international growth, specifically in Brazil with our initial investment in Produquimica. This investment will provide geographic diversity in our earnings and lessen the impact of winter weather on our overall results.

While the current results and, to some degree, the outlook for the remainder of 2016 are not ideal, we remain focused on execution and being prepared to maximize our profitability once our key markets begin to recover.

So turning first to salt, year-over-year salt revenue was up 2% this quarter as a result of an increase in highway deicing sales volumes. Some of this increase was driven by late-season snow events in April. In fact, we recorded 15 events in the 11 cities we track, which compares to a 10-year average of 3.5 events. We also benefited from higher commitment volumes for the 2015/2016 bid season, which meant more customers were purchasing the remainder of their contract minimums.

Our consumer and industrial business also made a meaningful contribution to our earnings this quarter, even though their sales volumes were slightly below prior years' results. This group has been executing their plan of rationalizing product offerings at our customer base to focus on those most profitable products, increasing prices where possible, and running our plants efficiently. As a result of these factors, we achieved record second-quarter earnings for the salt segment.

Looking forward, our salt results for the second half of the year will be largely determined by a combination of the outcome of the North American highway deicing bid season and winter weather. As most of you listening know, we experienced very mild winter weather in our served market this past year. We also believe that winter was even milder in some of the more Eastern markets in North America, thus increasing producer and customer inventory in many North American markets.

This has resulted in a very competitive bid season. With the bid season approximately 65% complete, we estimate that bid volumes across the market we serve have contracted about 15%. That contraction has put pricing under pressure. Our bid results indicate that our expected average awarded contract price likely will decline about 7% for the 2016/2017 winter season.

Matthew will talk more specifically in his remarks about what this will mean for our key financial metrics. Let me just say that the business overall is working diligently to limit the negative impact on margins from the lower prices and volumes. That's why we took the aggressive cost-cutting actions earlier in the year, working to match supply with current demand.

Even with these measures, it will not be possible to offset the full impact of the expected lower prices and volumes on our results for the full year. We are continuing to make progress on the installation of the continuous mining in our Goderich mine. We have two units in service and are operating, with one more being commissioned. The fourth and final unit is expected to be in service in 2016 to complete that project.

Now turning to our plant nutrition business, this was another challenging quarter for us, as it has been for most companies in the ag sector. While specialty crops are faring better than commodity row crops, some of these cops have experienced lower pricing compared to last year and this is putting pressure on growers' profitability. These crops include almonds and walnuts, for example. Further, when commodity cycles move down this significantly, there is inevitably an impact on specialty plant nutrients as well, due to the negative price psychology throughout the market.

We have taken aggressive price actions to keep SOP competitive, including reducing our list prices by another $30 per ton effective July 1. But those actions are not making much headway in terms of reducing the premium of SOP compared to MOP. As a result, there continues to be substitution risk for less chloride-sensitive crops. For these reasons, the overall market for SOP in North America appears to have contracted a little over 20% year to date when compared to last year.

The good news is that the imports have declined significantly this year, perhaps even more than the overall market. At a minimum, we believe we are holding our share of the North American SOP market.

Another piece of good news is certainly that we are improving our production costs for SOP. We have sold through the high-cost inventory produced with purchased KCl in 2015 and we are now benefiting from the use of mostly pond-based feedstock.

Because of lower sales volumes this quarter, we didn't achieve all the unit cost savings we had expected this quarter.

The long-term outlook for our plant nutrition portfolio, which is built on differentiated value-added products like sulfate of potash and micronutrients, remains strong. We have a great team in place to market the benefits of our products and the underlying fundamentals of specialty crops are better than commodity row crops, so we like our position in the specialty fertilizer market.

As we progress with our improvements at our Ogden facility, we will be able to produce more low-cost pond-based SOP than we ever have before and more tons in total, with our capability to convert MOP into SOP also at an attractive cost. With this additional dependable supply, we will be in the best position to serve growers of specialty high-value crops in North America. Thus, we expect to weather these near-term challenges and to come out of the trough position as a supplier of choice in the North American SOP market.

In Brazil, we continue to build our relationships with the team at Produquimica. Year to date, they are on plan and remain ahead of last year, with first-half revenues up 26%. All indications are that they expect a strong second half of the year. We're also evaluating the Produquimica portfolio of products for compatibility with soils and growers' needs in North America, with the plan to introduce some of those products into the North American market in 2017.

Before turning the call over to Matthew, let me add that we have taken appropriate actions to ensure our costs are under control, while still executing on the important capital projects we have been discussing for a couple of years. As these projects reach completion, we expect to generate significant free cash flow due to lower costs and lower capital spending requirements, with significant volume upside when demand warrants it.

Finally, we have been working since 2013 on a five-year plan to surpass $500 million in EBITDA in 2018. We continue to execute on our strategies across both businesses in order to reach that goal, but the timing may be challenged, given the extremely mild winter and severe downturn in the agricultural cycle.

With that said, I am confident that we are executing on the right strategies to get to the target. We are evaluating the opportunities we have in front of us for growth and we believe that the core fundamentals underpinning our businesses remain strong.

With that, I will turn the call over to Matthew for some greater financial detail on our results.

Thanks, Fran, and good morning, everyone.

I would like to begin by discussing our second-quarter salt results on slide 8. Even though this wasn't a winter quarter, several of the winter-season dynamics that lifted our earnings in the first quarter continued to benefit us in the second. First, as Fran mentioned, we actually had some snow events. In addition, we had customers placing orders to reach their minimum commitment levels.

These sales boosted the mix of higher-priced highway deicing tons in our mix of total salt sales and lifted our average price for highway deicing salt by 3%, compared to the second quarter of 2015. While these late-season orders were a positive for second-quarter results, they have had a negative impact on bid volumes, as well as early season order expectations for the upcoming winter. Both are lower, due to the fact that customers exited the winter with above-average inventories. I will discuss the repercussions of that on our outlook shortly.

Results for our consumer and industrial business have also been good. We instituted a price increase on most of our non-deicing products at the end of 2015 and the positive impact of that can be seen in our results this quarter. On average, the price for our consumer and industrial products increased 3% from our 2015 second-quarter results.

We are also benefiting from lower shipping costs, as a combination of lower fuel and a softer trucking market has significantly lowered freight rates. This, in combination with our efforts to focus on the most profitable customers, has boosted the business's earnings contribution to the salt segment.

Second-quarter earnings in the salt segment were the highest Q2 earnings since our IPO and represent the eighth consecutive quarter of year-over-year operating margin expansion.

Turning to slide 9, I will cover our plant nutrition results. Segment revenue was down 25% from second-quarter 2015 results on 13% lower sales volume and 14% lower average selling price. Looking specifically at our SOP pricing, our average price for these products in the quarter was $620 per ton. This compares to $722 in the second quarter of 2015 and to $644 in the first quarter of 2016. As you can see, we have taken price actions to drive demand.

Unfortunately, many of the growers in our less chloride-sensitive markets are either substituting MOP for their potassium needs or are deferring application of potassium entirely.

As Fran mentioned, although our volume was down, imports were down substantially, allowing us to hold and perhaps even improve our market share in North America, which is encouraging. As I will note again in our outlook, the fall season tends to be dominated by more chloride-sensitive crops and we are very well positioned to serve that demand.

Our costs in this segment are beginning to improve, although we did not reach our initial estimate for per-unit cost improvement. That miss was the result of reducing our production and sales, which increased fixed-cost absorption. Looking forward, our per-unit cost, which we define as net income minus operating earnings divided by tons sold, is expected to decline modestly in the second half of the year from our second-quarter result of $505 per ton.

Before moving on to our outlook, I would like to mention a few corporate items. The first is regarding our Brazilian investment in 35% of Produquimica. This is the first full quarter of Produquimica's results that we have included in our earnings, because of the quarterly lag in reporting. You can see in our earnings press release we recorded a loss of $1.7 million in net income from Produquimica. We were expecting a loss at this point in the year, given the highly seasonal nature of their agriculture business, with most sales occurring in the third quarter. The loss was also impacted by a $1 million purchase accounting adjustment related to a step-up in valuation of the Company's assets and inventories.

Year to date, the Company is performing in line to slightly ahead of their annual plan. We have included in our presentation some statistics on Produquimica's revenues for the first half of the year and you can see that they are up 26% compared to 2015 results.

Looking at slides 10 and 11, we can talk about the key changes to our view of our markets and quantify the impact those are having on our guidance. Our salt outlook is driven primarily by the outcome of the North American highway deicing bid season. With bid volume contracting, we expect sales volumes for the year to range from 10.6 million to 11 million tons. Given the current bid season results and our expectations regarding all salt product sales, we expect average salt pricing for the second half of 2016 to range from $75 to $79 per ton, compared to the 2015 second-half result of $79 per ton.

One important item to keep in mind is that last year we had fairly robust preseason deicing demand in the third quarter. After very mild winters, such as we just had, preseason orders are often depressed, due to the fact customers already have inventories on hand. That phenomenon is likely to impact the split of our sales volumes between third and fourth quarter this year.

Because of the (technical difficulty) pricing, the fixed-cost nature of our salt mines, and the lower expected production volumes at those mines, we expect compressed operating margins for the rest of the year. That being said, we're optimistic that our performance will be better than the prior mild winter results, due to the underlying improvements we've made throughout our salt business, such as the positive developments that Fran mentioned in the consumer and industrial business and lower overall logistics costs.

In our plant nutrition segment, we expect our average selling price for SOP to decline in line with the price cuts we introduced July 1. Operating margins for the plant nutrition segment are expected to ship higher for the second half of 2016 as we continue to benefit from lower SOP production costs, with a significant step up occurring in the fourth quarter, driven by an increased mix of micronutrients.

On slide 11, we summarize these guidance elements. When compared to prior guidance, the primary drivers pushing our full-year EPS lower for the $2.60 to $2.90 per share range include lower highway deicing salt sales and production volumes going into the winter, lower highway deicing average selling prices, and reduced plant nutrition sales volumes and average selling price.

You'll note that our guidance on corporate items remains essentially unchanged. We have added the range for the full year tax rate, due to minor jurisdictional changes in earnings.

Before turning to the Q&A session, I would like to step back from the quarterly results and discuss some of the key initiatives we are executing, which we expect will drive future growth and move Compass Minerals towards significant free cash flow generation. In fact, if you look back to slide 6, we outlined some of the key points I would like to focus on now.

We are nearing the end of a significant investment period and we knew that 2016 would be a tough year in terms of getting through the peak period of capital spending. It has been made more difficult with the extremely mild winter weather we just experienced and the current challenges in the ag sector. That's why we have focused on executing our key projects at Goderich and Ogden. We're on budget and on time with our continuous mining investment at Goderich, which is expected to generate $30 million in annualized savings once fully implemented in 2017. At Ogden, we're also on budget and on time. Some of you were able to see our progress there at our recent analyst visit to the site.

Once we complete those projects, we will have more tons to serve a market in North America that has historically been underserved. Remember, it was as recent as early 2015 that we were allocating our customers seeking to purchase SOP in North America.

The Ogden projects are also expected to improve our cost position from palm-based feedstock. We're already beginning to see improvements in our production there. Those improvements, however, are currently masked by the fact we have reduced production levels to match our current demand situation, which has increased fixed-cost absorption and skewed our costs upward in the short term.

On a normalized run rate, we would expect our Ogden production cash costs for palm-based feedstock to be in the low $200s per ton.

Further, we have made an important investment in Brazil to drive long-term growth for Compass Minerals. Produquimica is executing and performing well. We are very pleased with how our relationship is developing and look forward to the time when we own the entire company and welcome them into the Compass Minerals family. In the meantime, we are working to introduce our Wolf Trax micronutrients into Brazil with their help and are looking at introducing some of their products here in North America.

Clearly, Fran and I and the entire Compass Minerals team are confident that we will manage through the current challenges and that our investments, both internally and with PDQ, are positioning the Company for long-term success.

With that, I will hand the call over to the operator.

(Operator Instructions). Chris Parkinson, Credit Suisse.

When you think about the longer-term outlook for SOP pricing, can you give any color on how you are working with your current customers and how are you thinking about the pricing of the potassium component, the sulfur component, as well as the lack of a chloride, so some of the things you are looking for in the back half of the year? Just anything on how to think about this slightly differently, given your customer mix versus MOP, would be very helpful. Thank you.

Chris, it is Fran. We definitely know there is value in the non-chloride aspects of SOP, of our Protassium+, and we are focused on trying to grow that demand and increase our volumes on those crops.

As I mentioned in my script, some of those crops have been under pressure on pricing over the past six to nine months and that's flowing through the market, and those growers have less profitability than they had a year ago. So that's also impacting, I think, some of the demand in the short term.

But we feel like with the pricing that we have in place today we can compete and maintain our share and maintain the current tons, if you will, against SOP -- against MOP on the substitutable volume, and we will continue to build demand on the crops that are sensitive to chloride. So, it's really a bit of a dual strategy there, and we think we have the right people in place and the right pricing structure in place to compete, given today's dynamics.

Perfect, and just very quickly on some of your longer-term targets, you hit on this a little bit in your prepared remarks, but can you just give some of the longer-term -- some longer-term color in terms of the costs at Goderich on one side and then, obviously, Ogden on the other? You hit on some of that, but just how do you think about the cost structure on a per-unit basis, assuming, let's say, a normalized outlook for both salt and plant nutrition over the next two to three years, so ignoring the next year, but the true longer-term aspect there? Thank you.

Chris, this is Matthew. Let me talk about Goderich first. That is where we're really making this transformative move to continuous mining. We are already significantly into that project, but we don't realize the benefits until we are able to stop the drill and blast.

Right now, we are running a combination of technologies underground as we are stepping into continuous mining, disassembling machines, reassembling, up and running. So they're already a big part of our operation up there. The technology transfer is going well and we are on track to have that completed by the end of 2017, at which point our costs will go down by a projected $30 million a year.

So full-year 2018 compared to today's run rate, we should be $30 million lower, given the performance at continuous mining. And again, I think as you guys know we have had this technology in operation in the UK for years now and part of making this transition successful was having UK guys here and our guys over there, so this is really a seamless adoption of a new technology, so we feel real comfortable about how that is coming along.

On the other side of the business, as we talked about with a lot of you that were up in Ogden, a lot of money put into the business, new thickener technology, new harvest feed system, all things that are feeding through into costs today and will continue to improve in the coming period here.

The key to unlocking cost -- further cost up there I think is really related to volume. We are looking at very, very low levels, driven by the overall ag market, and I think as we get back to more normalized levels, which since I have been in the business here have been 400,000 tons a year instead of closer to 300,000, there will be a significant improvement in the fixed-cost absorption and we will be running that facility closer to its intended rate.

That's very helpful. Thank you very much.

Vincent Anderson, Stifel.

Thanks for taking my question. I was hoping you could talk about the weakness in the salt guidance, when you compare it to the 2011/2012 winter, which was comparatively even worse than last year's, and also given your previous comments that there have been some incremental market-share gains.

I think if I look at the way the salt business has progressed over the past few years, and you're going back, in the time frame you mentioned, about five years now, we have been working hard to increase our margins and you have been seeing that over the last eight quarters of consistent margin improvement. And as the margins have increased, I would just offer that I think in mild -- when we do experience mild winters like we have gone through this past year, we're probably going to have a little more volatility in the pricing. We have seen that with our 7% lower pricing expectation, given the competitive nature of the bid season.

The real story, though, for us is volume, in addition to that pricing, and not only do we have the weaker North American market impacting us, but also a very mild winter that we just experienced in the UK impacting this year, and we will look in the next year and see how the weather impacts that. So we are getting the combination of both of our key markets that have gone through a mild winter and the volume impact is, I would suspect, probably even greater than looking back maybe to the time frame you mentioned.

Thanks, that's helpful. And on the SOP price reduction, if you are holding market share right now and it is really just the total market has declined, I think you said 20%, is this new price level -- is it necessary to defend your core market share? Is it pushback from your core market share because of lower crop prices or is it actually at a level where you think you can grow your market share going forward as you have increased capacity? I am just trying to -- I'm trying to wrap my head around the driver for that if, again, the premium over MOP is large enough where it doesn't look like a $30 per ton reduction is necessarily going to claw back some of the marginal buyers of that product.

Yes, I think the other thing that is happening out there is, at least for the last bit of time, maybe the last couple months, we have seen the MOP prices stabilize. Granted, they are at probably 10-year low pricing, but they have stabilized. So that's, from our perspective, a positive signal.

And as I mentioned earlier, I think we have the pricing on SOP at a point where we will continue to defend against imports, but can grow the demand from here on the chloride-sensitive crops. And as the profitability of those growers returns in some of those key crops for us, key specialty crops improve, we think we will get some benefit over the midterm. But I think right now we're just in the middle of the perfect storm and wanting to make sure that we are doing the blocking and tackling with the customer base so that as things do improve, our volumes will go up and hopefully the pricing will go up as well.

Great, thank you.

Ivan Marcuse, KeyBanc Capital Markets.

Thanks for taking my questions. The first one is on your 2018 $500 million outlook. If volumes and the business fundamentals, underlying fundamentals, just bounce around here, remain relatively stable to flat through 2018, does -- with your cost initiatives and the projects that you are doing, where does EBITDA guidance get to, assuming that volume stays where it's at?

Ivan, this is Fran. I think in my comments I mentioned that we are in a bit of a timing gap here because of the winter impact more than anything else. When we put that plan together, we assume normal weather, and that's normal weather on both the winter season for salt and the evaporation season for our SOP harvest.

This hasn't been this way for the past couple of seasons. With that said, so we will continue to assume in our planning average weather going forward, so not the benefit of a harsh winter or things like that, but average weather going forward. We are going through our plans, working through the impact that the cost reductions and to the extent what demand growth we can get, especially on the SOP side, to fill that gap that we have with organic growth that is going to come from our Wolf Trax business and we will just have to see about Produquimica. We're going to assume that that full transaction will be complete at the end of the plan in 2018, which will be the last year that the put could be exercised.

So with all those things in play here, we think that we have a good plan in front of us to bring us close to those -- that original target, and as we work through the coming months and revisit on an ongoing basis our strategies, we'll probably give a little bit more clarity on the timing and the dollar impact of the earnings that you're looking for. But right now, I would say that we are doing the right things. We haven't given up on the $500 million and I would say that we will provide more clarity as time goes on.

There is another way to ask it. The $230 million in free cash flow that you laid out -- that you continue to target for 2018, what's the underlying EBITDA that you need to achieve to get that free cash flow?

That number reflects a shortfall of about $50 million to that target that drives that free cash flow, so if we get to $500 million, we're a little bit better. If we come up a little short to the $450 million, we would be off that a little.

But as Fran said, we are going through the deep-dive refresh and strategic planning process right now, so we're deep into that, and over the coming couple of months, we will have that completed in a much more -- what's the right word -- accurate kind of view of where we think 2018 is going to land with the assumptions we make.

Okay, and then last question and I will jump back in the queue, the PDQ, the equity line here, how should we look at it? So the third quarter, you said, is their biggest quarter. Is that your third quarter or would their third quarter show up in your fourth-quarter results? I guess you made $0.5 million in the first quarter. You lost $1.5 million in the second quarter. Should you lose money again in the third quarter and then make a bunch in the fourth quarter or how should I think about that?

Their third quarter will show up in our fourth quarter, and consistent with how we have talked about that business, we've said all along that we thought it would be a modest single-digit positive contribution to our profits this year because we only pick up our 35% of their net income while we own this minority ownership. So, we continue to have a profitable outlook for that in the full year. The big number will be their Q3, our Q4.

One more quick question. As a result of your cash flow being a lot lower this year than you probably were expecting, are you going to have to tap more into your revolver? Do we expect total debt to start to rise and how much do you expect that to rise for the full year?

We will tap into it a little more than we are now. I don't think you're going to see it materially rise significantly that will cause anyone any alarm, but it will be a higher level by the time we get to the end of the year than we are at now. We will still have a lot of revolver capacity left.

What level would you expect?

I am not sure I want to be specific about that right now, but we are going to be nowhere near tapping our revolver to the limit.

Great, thanks.

Garrett Nelson, BB&T Capital Markets.

I think that in last quarter's 10-Q you estimated that if the PDQ put option were to be exercised this October, it would cost $250 million to $270 million, plus the assumption of about $100 million in existing PDQ debt. Is that still a reasonable estimate or has it changed at all in light of the improved year-to-date revenue numbers from PDQ?

We talked about the year to date in terms of where they are this year versus last year, but also we said they are tracking on to slightly ahead of plan, so we don't see a really material change in what it is going to cost us, driven by their earnings. But probably the biggest thing that's changed is the currency. The reais has appreciated significantly since then, so with that, the cost of the put goes up and the quality in terms of US dollars of the income stream moves. So, I think we will see some upward pressure on that number, but primarily due to FX, not due to any big change in the business.

Okay, and do you have the first-half EBITDA numbers for PDQ and maybe how that compares to the first half of 2015?

We are not disclosing their EBITDA numbers precisely, but we are up year over year and we are ahead of plan, so we are extremely happy with the way that thing is progressing.

Okay, great. And could you remind us when the Ogden plant expansion is expected to be finished and maybe your plans regarding the ramp-up there?

Sure. We will finish the expansion there in the first quarter of 2017, so we are putting in a new crystallizer and a new compactor. The new compactor will be complete in this year, by the end of 2016, and the crystallizer in the first quarter of 2017, and that will create additional capacity that we can access.

And I think, as I talked earlier, we plan to ramp up that volume by building demand on the chloride-sensitive crops and really focusing on the key markets for us, which are primarily in the West and California, and we will compete against MOP for the crops that aren't sensitive to the chlorides, but that's where the bulk of the growth will come. That's sustainable, in our mind.

And as we talked about earlier, looking to 2018 and the ramp-up to our EBITDA target, we're assuming measured growth, I would say, on the SOP side, so not full capacity in 2018, so we are being more realistic there, given the current situation as we see it. And we -- in terms of pricing, we will just have to see where it goes, but we aren't plugging in a huge price increase into our numbers to get to a target. It is looking at the market as it is today and doing the things that we can do that are under our control to build demand and manage margins.

Okay, great. Thanks very much.

David Begleiter, Deutsche Bank.

Just on deicing, I may have missed this, are you going to hold share this year based on your current bid season volumes?

The bid season is not over yet, but we are about two-thirds through and we generally expect to hold our share. It might be -- as the season starts and progresses through the geography, it may not be in exactly the same place that we thought it would be when we started the bid season, given the competitive nature and just the way the bidding happens, but we do expect to largely maintain our share.

And just the competitiveness of the bid season, Fran, is it different than last year when you had a similar price decline? How can you qualify this bid season?

It is different because if you recall the -- from last year, we were coming off a significant increase in price in the prior year, and at the tail end of that pricing season, we had -- a fair amount of our volumes were at a significantly higher price than was probably sustainable. So that just fell off, if you will, as you looked into what we priced last year.

So this year, I think we were starting at maybe a narrower pricing scenario from start to finish, looking to the year prior. And so, I would say from that aspect it is more disappointing than the prior year. But we also had a milder winter and the volumes are down significantly in our served area, and we think given the fact that the eastern part of the US was even milder, that -- and they were coming off probably a stronger winter the year before, that has certainly a significant influence on the bid season this year that wasn't there last year.

And Fran, lastly, as Goderich mine costs come down due to the continuous mining equipment, would you hope to use that cost advantage to gain some share in the US?

We're pretty comfortable with our share as it stands today. As I mentioned, the share will bounce around a bit from year to year in the geography, but in terms of our overall share of the market, we think we're in pretty good shape. So I would expect that the cost benefit that Matthew has described will fall straight to the bottom line.

Thank you very much.

Bob Koort, Goldman Sachs.

This is Ryan Berney on for Bob. I was hoping you could give us a little bit of color. Versus maybe a 10-year average, call it, normal municipal contract that you'd sign for highway deicing salt, what do you think is maybe typical for their ability to inventory as a percentage of that? Or maybe asked another way, what is the ability of a municipality versus a normal purchase to inventory salt?

In general, I would say that they don't have significant inventory capacity, and in most cases, those depots will hold about three salt events. And they are carrying inventory more than they would like, because usually they like to be out or close to out so they can then do their road construction work and utilize their facilities and their assets accordingly.

So I think certainly their inventories are higher than they were a year ago. Inventories throughout the market are higher, but I think that I would say for us as we look at our inventory levels, they are lower than we look back to the previous mild winter that we had in the 2012 season. So, I think that's a result of we reacted quickly to the weather this year and did reduce production, primarily at Goderich, to help improve our inventory situation, which we knew would be higher than normal, as well as the rest of the industry.

Great, that's helpful. And then, maybe just a quick one on the plant nutrition side. It seems like you're guiding to the back half a little bit better volume based on some of the seasonality of the chloride-sensitive crops the SOP is especially useful for. If I'm looking back to the previous year, in the third and fourth quarter clearly there was a little bit of a pause on the demand side and I know there was a little bit of import angle and there were still some of the pricing issues.

Is your implied guidance, with the pricing you have given as well, basically indicating that you think your current pricing level is largely where it needs to be to get that volume level back to where it has been the last few years?

We do. Yes. I think as I mentioned earlier we think we have the pricing where it needs to be to drive the volumes that we are guiding to and to hold our share, and then we will go from there.

Joel Jackson, BMO Capital Markets.

So first on salt, it seems like Compass did lose a bunch of share in a lot of the large state tenders so far in the bid season. As you say, there is still one-third to go. Maybe you can give a little more color on what's going on. Is it that salt is being shoved more west? Do you have a lot more importers bringing salt into the coast, because of the large salt price increases two years ago, and that's putting a lot of your East Coast competitors to now move more salt into the Midwest? Can you maybe talk a little bit about what you're seeing and why some of your volumes were down in the large state tenders in the Midwest? Thanks.

Sure, Joel, this is Fran. I don't think it is particularly pressure from imports, although I would say that given vessel freight rates and currency rates, the move in those over the past couple of seasons, there has been a slight dynamic there in terms of the cost to land imports into the US and that's putting pressure on the overall market, I would say, and probably shine through on some of the pricing.

But I think more the pressure is just coming due to the fact that the eastern US had an extremely mild winter, and so the tendency for the producers in that part of the country will be to move west, and I think we saw the opposite happen a bit last year where we moved into the east and picked up some volume and some early fill volume in some cases that the others just couldn't secure.

So, you are seeing some of that dynamic in the state tenders, but as we look at our overall business, the overall region that we serve, which is quite a large geography, there are some markets that aren't down nearly as much as maybe what you have seen in the public bids and the pricing is -- we are talking about the averages when we talked about how we expect the season to end up.

So, there is a lot of those types of dynamics going on in the bid season, but as I mentioned, we think that we are largely holding our share and there is a bit of a shift in some of the geographies in the volume, but not, I would say, a material shift away from where we normally compete.

That was helpful. For my second question, I will move to SOP. You mentioned a little bit earlier that you wouldn't expect to bring on all of your new -- sell all of your new capacity at Ogden next year. Maybe we could dive into that a little bit more. Is it reasonable to assume you will only sell a fraction of that new capacity next year, because just listening to your commentary on SOP, if you were to bring anything more than a little bit on next year, wouldn't you really cause potential pressure to SOP prices?

As I mentioned, I think we are looking at building the demand over time, and as I said and as we look to our 2018 objective that we've laid out there, we don't expect to be at full capacity at Ogden by then, so it is going to take more time to build the demand effectively, from our perspective.

I think what will happen and the benefit that we will get at Ogden is the improvement in our yield, so we will be able to get more SOP tons produced from our own harvest than we ever had before, assuming the normal weather, and we get a benefit there on our cost, for sure.

So, that is where the early benefit comes from, from the improvements that we've made out there, and then the longer-term benefit will come from the expansion of capacity. And as we fully utilize our own harvest, our own feedstock, we will augment that with MOP, taking advantage of our excess sulfur to make a margin and deliver into the market.

If I could sneak one more in on Produquimica, so I understand the commentary that Matthew talked about and I understand the seasonality, but I'm a little confused a bit modeling Produquimica just because it looks like sales are pretty close to half or just below half in the first half of the calendar year for Produquimica of the full year, so the first-half mix looks pretty strong. But you are talking about near zero earnings and the earnings are mostly weighted almost all in the second half of the year.

What am I missing here? It seems like you have a lot of sales in the first half year in Produquimica, yet almost no earnings. Does that make sense?

We are on this lag, Joel, so what we described as first-half sales --

(multiple speakers) the calendar. You're giving Produquimica's calendar year, so ignoring the lag.

So calendar year, we remain confident that they will be profitable, bearing in mind we pick up 35% of their net income only, so that's a lot different to the sort of EBITDA discussion we generally have because that's an after-tax number that we are picking up.

Through the six months and -- next quarter, we will get to report what happened in the quarter just gone. That's where some of the 26% up will come into our income, and then in the fourth quarter we will report their third, which is typically every year their big planting season. So, it is the cyclicality, plus the lag. We remain committed to that being a positive contribution to our income in 2016.

How do they do BRL0.5 billion of sales the first half of the year and do near zero earnings? And you disclosed on the transaction there is about BRL1 billion of sales in the entire year of 2015. I am just trying to understand how they could have near zero earnings with almost half of their sales happening in the first half of the calendar year?

I don't think, Joel, that half their sales are going to occur in the first half of the year, so there is growth happening in their sales. And the ag sales are more heavily weighted to the back half than the first half. The water conditioning and treatment business is more consistent throughout the year.

Okay, thank you.

Chris Shaw, Monness, Crespi.

In the highway salt business, the bidding season so far, is there any discernible trends as we move through in terms of -- I know in the past in a year you got the 25% price increases that accelerated throughout the season, the bidding season. Are we seeing any sort of trends this season or is it all pretty constant in terms of the same sort of pricing across the market?

Chris, you cut out there a bit in your question. Could you just repeat that? I wasn't quite sure what you are asking.

I'm trying to get at -- because you still have 35% of the bidding to go -- if there is any discernible trend throughout the season. Does it start with smaller or higher price decline? I know back when you had the 25% price increase that year, it accelerated throughout the bid season. So, is there any discernible trend this year in bidding?

I would say that the state bids, so the large bids, are virtually behind us, and so the balance of our pricing will be some of the smaller municipalities and the commercial business that we do. That tends to be pretty close to the pricing that is in the market in the geographies that we have already priced, so we wouldn't expect a significant shift away from what has already happened through the pricing season.

And keep in mind that we have some contracts that are longer term in nature. We have a Canadian marketplace that is a bit more consistent, probably, in terms of weather than the southern US, and so you have some of those geographic dynamics that happen in the bid that all add up to the average pricing that we guide to. But I would say I wouldn't expect a significant differentiation in the last one-third of the pricing season from what we have experienced in the first two-thirds.

Okay, thanks. And then for SOP, do you guys have any insight to your customers or your customers' customers, maybe, about what -- the reason that the demand is down? Is it strictly that when we are looking at substitution, is it just that the farmers can afford less because of crop prices or is it more strictly a mathematical problem between MOP and, say, adding AMS is just cheaper than SOP at this point?

I think it's a combination of those things. I do think we have -- because of profitability, the growers are looking to reduce cost and would be using more MOP relative to SOP than they normally would, and that could mean the blend is different and is more favored to MOP than normal, if they were using MOP at all in the past; they might be using some. So I think that's happening. And we think that there are some growers that are using less -- I don't know if that means they are taking the season off -- but applying less fertilizer per acre than they normally would. And I think that's happening probably in all the macro fertilizers and we are seeing some of that in SOP as well.

Okay, thank you.

That concludes today's question-and-answer session. Ms. Womble, at this time I will turn the conference back to you for any additional or closing remarks.

Thank you, Matt. We appreciate your interest in Compass Minerals. Please feel free to contact the investor relations department with any additional follow-up questions you may have. You can find the contact information on the investor relations section of our website. Have a great day.

That concludes today's conference. Thank you for your participation. You may now disconnect.