Compass Minerals International Inc (CMP) 2018 Q1 法說會逐字稿

Good day, and welcome to the Compass Minerals First 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, ma'am.

Thank you, Amy. Good morning to all on the call. Today our CFO, Fran Malecha; and our CFO, Jamie Standen, will review our first quarter results and outlook for the remainder of the year.

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 our expectations as of today's date, May 2, 2018, and involve risks and uncertainties that could cause our actual results to differ materially. The differences could be caused by a number of factors including those we identify and 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. Last, our remarks may contain non-GAAP financial disclosures, which we feel are important to provide a full understanding of our business and operating conditions. We provide reconciliations of these measures in our earnings release and in our earnings presentation, both of which are available in the Investor Relations section of our website at compassminerals.com. Now I'll turn the call over to Fran.

Thank you, Theresa, and good morning. Revenue growth across each of our business segments drove over a 13% year-over-year increase in first quarter 2018 consolidated revenue. Stronger sales on our salt business resulted from better winter weather activity in our deicing markets, increased demand for specialty nutrients in both Brazil and North America support sales growth in our plant nutrition business as well. However, increased cost particularly, in our salt segment and our plant nutrition North American segment, reduced our operating margins and resulted in a 36% decline in operating earnings compared to prior year results.

Despite the weakness in our operating and net earnings, we did generate strong growth in our cash flow from operations this quarter. As underlying fundamentals improve throughout our markets, we expect to be able to deliver more cash flow given many of the strategic initiatives we've undertaken.

Looking specifically at our salt segment, we believe market fundamentals on the highway deicing portion of the salt business are improving. After 2 mild winters, we were pleased to see a return to more typical winter in North America.

Our sales in the first quarter also benefited from a strong contributions from the U.K., where demand was robust and replenishing orders are expected to be strong throughout the summer for our customers. While we don't typically discuss April snow activity, the snow events continued in the spring in many of our North American markets. In fact, our data indicate April winter events were more than 4x the 10-year average in the cities we track.

Overall, we've been pleased with the increase in sales volumes throughout the first quarter and into April, but that's balanced a bit by the fact that we have been production constrained at our Goderich mine, due to the ceiling fall last year and ramping up with the new continuous mining, continuous haulage system.

Overall we think these developments are supportive of a strong bid season in North America. There is one caveat and that is that many of our customers are seeking to take their current contract maximums in this quarter, due to their expectations of upward price pressure. This dynamic might offset some of the expected growth in bid volumes. So we feel very good about the demand side of the equation for the salt business.

In terms of our production capabilities, we are facing the challenge of the strike at our Goderich mine, which was announced on Friday. As I stated in that announcement, we have been in negotiations with the union since early March, and we believe we have made an excellent offer to our workers that recognizes their importance to our organization, while also representing the mine's current operational environment, specifically our transformation of the mine with the investments in continuous mining and continuous haulage.

While we are clearly disappointed the union decided to strike, I've been very pleased with how our supervisors and management employees are executing our contingency plans.

As of Saturday, our teams had continuous miners running underground. Salt was been hoisted. Jamie will discuss a few of the financial details of the situation, but we're moving forward and expect to maintain our original earnings outlook, and the salt sales volumes for the full year is also unchanged.

We also expect that the collective bargaining agreement we eventually reach with our Goderich employees, which will be an important component of getting where we need to on production.

In addition, we have made important progress on the new optical sorting equipment that will help us address the salt quality issues we've recently encountered.

Turning to plant nutrition. We continue to see a steady improvement in our agricultural markets. Even though weather has delayed application of fertilizers in some North American areas, our sales volumes in the quarter were above prior year results. Our earnings for this segment were pressured by increased production costs compared to the prior year, partially due to increased appreciation costs and selling some higher-cost carryover inventory.

In South America, direct sales to farmers were strong in the quarter, and sales to distributors improved for us, although competition in that sales channel has increased. We continue to focus on our proprietary higher-value products, which we deliver -- which deliver increased values to growers.

There are several unknowns in terms how the agricultural market will continue to develop throughout 2018, given questions around tariffs and trade. We have yet to see any meaningful impact on our sales or the end markets we serve in North America.

Regardless, we feel that our geographic balance between South America and North America will serve us well during this period, as Brazilian producers are likely to benefit from any U.S. tariff constraints on the North American market.

This is why we remain pleased with our investment in South America. The products developed in Brazil and the commercial and agronomic teams that support these products have proven to be strong and continue to demonstrate their value in the market place. In fact, our results this quarter, which is typically a very low earnings quarter in the year, were ahead of the expectations.

I'm extremely confident in the team we have in place in Brazil and in our ability to increasingly leverage the advanced specialty products they've developed to grow our specialty plant nutrition business in North America and eventually beyond.

While some short-term challenges have also the benefits of our investments and actions to reduce cost, we demonstrated this quarter that Compass Minerals has the ability to generate solid cash flow from operations.

We are increasingly confident in our ability to deliver on our growth objectives in our salt and plant nutrition businesses given the positive developments we're seeing across those businesses.

As markets' conditions continue to improve, and as we execute on delivering value from the investments we've made, we expect to deliver increased free cash flow as we get into 2019 and beyond. We intend to continue our disciplined approach to capital allocation as free cash flow increases. This approach focuses on returning value directly to shareholders, paying down debt and improving our balance sheet, and executing strategic value creating investments.

Before turning to questions from our callers, Jamie will review details of our financial results and our rest of 2018 outlook.

Thanks Fran. Before I jump into the segment discussions, I would like to discuss our free cash flow from operations and our leverage ratio as of the end of the first quarter.

We generated cash flow from operations of $173 million, which was a 37% increase from prior year results. We used approximately $125 million in trade working capital improvements during the quarter to pay down more than $110 million of debt.

This allowed us to reduce our leverage ratio as measured by our lenders to 4.1x EBITDA. Overall, this quarter was a good reminder of our cash generation capability under more normal market conditions.

Now let's turn to Slide 8 and discuss the salt segment, which was the main driver behind our stronger cash flow generation. As Fran noted, winter weather was certainly more active this season compared to the prior 2 seasons, and that boosted our highway deicing sales.

In total, salt segment revenue increased 15% year-over-year on a 22% increase in highway deicing volumes, partially offset by a 7% decline in consumer and industrial sales volumes. Average selling prices for the segment declined 3%, primarily due to our sales mix shifting in favor of highway deicing sales, which have a lower average selling price.

Looking at the pricing for our 2 primary salt categories, highway deicing pricing was essentially unchanged from prior year, while consumer and industrial selling prices were up 6% year-over-year, due to price increases introduced throughout 2017.

Operating earnings for the quarter declined 25% compared to the 2017 first quarter as a result of 2 primary factors. First, as we discussed on our fourth quarter call, we are experiencing inflationary pressures on our logistics cost, stemming from higher freight rates and increased fuel costs. The good news on this front is that we will consider these cost increases as we complete our bids for new highway deicing contracts in North America. As many of you know, these bid prices include the cost to deliver salt to the customers' locations.

The second primary factor, which depressed earnings this quarter was related to the short-term costs primarily associated with the ceiling fall at Goderich mine last year. We recognized about $20 million of additional costs related to this incident, which we previously outlined during our fourth quarter earnings call. These costs include increased unit costs as a result of lower production levels at the Goderich mine as well as the logistics cost of using salt from our Cote Blanche mine to serve customers in the Great Lakes.

Our underlined logistics costs, which excluded the impact of illogical shipping, were approximately 6% above prior year. We estimate there is only about $3 million of these incremental short-term distribution costs remaining and they should be incurred throughout the remainder of the year. We have also fully depleted the higher-cost carryover inventories from 2017.

I would like to make one last comment on the salt business around our winter weather impact disclosure before turning to the plant nutrition North America segment. We estimated that variations from average winter weather provided a positive impact for the quarter of between $15 million and $20 million on salt revenue, and $4 million to $8 million on salt operating earnings. When combined with the fourth quarter's negative winter impact, we estimate variations from average winter weather had a negligible impact on our sales and earnings this season.

Now turning to Slide 9, where we discuss our plant nutrition North America results. We generated 8% year-over-year revenue growth in the first quarter, driven primarily by increased sales volumes of both SOP and micronutrients products. Average selling prices did decline modestly, primarily due to lower micronutrient prices caused by sales mix.

Operating earnings for the quarter declined from prior year results due to increased depreciation and an uptick in production costs, as we sold SOP this quarter that included some tons produced with KCl versus last year when we were only selling pond-based SOP from our Ogden location.

Our logistics' costs, however, were lower than prior year, due to the fact that we had more customer pickup orders and shipped more product directly to our customers, which reduced warehouse cost.

That being said, our average SOP selling price was $583 per ton in the first quarter of 2018, up about $20 versus the fourth quarter of 2017.

In our Plant Nutritions South America segment, revenue increased 8% from prior year results on higher sales volumes of both agriculture and chemical solutions products, while pricing was stable.

In local currency, however, revenue increased 11%. Operating earnings and EBITDA were ahead of our own internal expectations. Part of this was driven by increased selling into the distribution channels, as Fran mentioned. In addition, we benefited in the chemical solutions business from the fact that one of our competitors in the water treatment market had a temporary production outage.

I would also like to mention that operating earnings and EBITDA would have been ahead of first quarter 2017 results, if you exclude the onetime benefit that we enjoyed last year from a purchase price adjustment. This prior year benefit boosted our results by about $1.9 million.

On Slide 11, we discuss our outlook for our business segments, focusing primarily on the second quarter.

Our salt business is expected to benefit from the continuation of snow events in April, which will likely push highway deicing sales volumes higher, and keep revenue at or above prior year results.

Our operating margin is expected to improve from first quarter results due to the absence of impacts from high-cost carryover inventory. Our full year volume guidance remains unchanged despite the ongoing strike at Goderich.

We have implemented a very thorough contingency plan focused on safely producing the salt needed to serve our customers. This includes a short-term plan to use management employees to produce for the next several weeks. If the strike is prolonged, we plan to bring in contract workers to maintain production levels.

That being said, we look forward to continued negotiations with union representatives in order to reach a new contract that supports our employees and allows us to optimize our mining operations. While the length of the strike is uncertain, we estimate that the cost of our contingency plan is unlikely to reduce our full year earnings expectations.

Given this situation, plus our ongoing gradual ramp up of continuous mining and haulage systems, we currently do not anticipate flexing up our production to match potential increases in deicing demand. This is the primary reason our volume outlook remains unchanged.

Plant Nutrition North America sales are expected to be somewhat pressured by the challenging weather in North America. This is created a shortened application season for fertilizers, so we're expecting a modest decline in revenue from first quarter results, although these sales are likely to be similar to prior year levels. The operating margin for this segment is expected to be similar to the first quarter 2018 results. Many of the factors I've outlined impacting our operating income in the first quarter are expected to continue into the second quarter.

Lastly, I would like to mention that our full year volumes in this segment remain unchanged. Plant Nutrition South America's outlook is fairly similar to what we expected at the beginning of the year. With the strengthening U.S. dollar and better soybean prices, we expect fertilizer demand in Brazil to be strong this year. The second quarter is seasonally weak for agriculture sales, as we note in our presentation. But we are experiencing better sales so far this year in our distribution channel.

We have also updated several of our corporate items, which are outlined on Slide 12. Noted here is that we have increased our anticipated interest expense to reflect higher interest rates, which are impacting the cost of our floating-rate debt.

Also, we are reducing our full year view of capital expenditures to less than $100 million, as opposed to the prior range of $100 million to $110 million. We are diligently monitoring every dollar of capital spending to make certain we are optimizing our investments and focusing on delivering returns on the capital we've already deployed.

Given these factors, we expect normalized free cash flow before the dividend to be approximately $80 million in 2018. This normalized free cash flow excludes approximately $70 million of transfer price settlement tax payments we expect to make later this year, which will largely be offset by a 2019 tax settlement refund of approximately $55 million.

In conclusion, we are very optimistic about the supply and demand dynamics, which are shaping up to be favorable this year in salt. In plant nutrition, we continue to make the appropriate investments in our people and enhanced commercialization efforts.

And finally, we remain focused on driving waste out of the business and strengthening our balance sheet. With that, I will turn the call over to Amy to begin the Q&A session.

(Operator Instructions) We will take our first question from Vincent Anderson with Stifel.

So you're able to maintain the guidance despite the strike. Was the possibility of this strike already anticipated in your full year guidance range? Or has your outlook improved enough elsewhere in the business to offset the strike impact?

Vincent, this is Fran. I mean, we -- as we mentioned in our remarks, have been negotiating the agreement with the union for the last roughly month, so coming end of the year, as we established our plans and our guidance, we didn't anticipate -- we weren't anticipating a strike at that time.

But I think, there -- we are expecting improvements in other parts of the business, and we expect to produce tons, as Jamie mentioned, as we go through the strike situation using management and third-party contractors.

So -- it's been a good winter. So that's helpful. But I think we're tempering our enthusiasm by being prudent on the production side in terms of our forecasting.

Okay, that makes sense. And if you could clarify quickly, you said earlier -- I missed it. You would've otherwise captured additional tons in the following bid season if it weren't -- if it not for the ramp up of the continuous mining units or the strike?

I think our production is -- as I mentioned, we're being prudent in our forecasting as we look forward here, because we're in this strike situation. And we would expect that in normal circumstances, our ability to ramp up would've been greater.

Right, so given the strike circumstances, we feel -- we're being conservative, and we don't feel like -- depending on how the bid season goes, and those commitment levels, we don't feel like we can ramp up beyond what we had already planned to produce.

And is there a point of no return on the strike? Or if it doesn't break, you're held to that high end of the guidance this year? Or if you're back in business by June, for instance, you can participate? Is there any kind of timing there that works out cleanly?

I mean, that'll just depend on the timing, as you mentioned, because our bid season has begun. And that'll go through -- usually through July. And maybe August, we end up with a few straggler bids. So that's all -- it would all be based on the timing of that bid season. And keep in mind, then it gets down to what the winter actually is and our ability, when we're in season, to meet our commitments and/or make some additional sales at that time. So we're managing the business with all those factors in front of us, and hopeful that we'll reach an agreement with the -- with our union employees and be back to more normal working conditions as soon as possible.

If I could ask one more quick one on North American ag. Just in terms of the progress on commercializing your new product platform, do you have all the necessary people hired and trained at this point? Or are there still some upfront costs associated with those product rollouts left to work through this year?

I think we have pretty much the team in place, both on the R&D side and on the sales and marketing side. Though I wouldn't expect any additional costs or a significant changes in our costs to create and produce and deliver these products in the marketplace.

And we will take our next question from Mark Connelly with Stephens.

Fran, can you give us a sense of the regulatory process, the costs and the other issues involved in bringing the Produquímica products into the U.S., and help us understand sort of how that process is going to roll out?

I mean, most of those products have -- I mean, they've been approved, and we've gone through that -- the registration process to initiate that business in North America. So I think now...

[Retributions] finished?

Yes. For those, I think, we brought in about 19 products that we mentioned, and so those products are in the market. In the -- our ability to sell them in North America, we've gone through kind of those requirements to get them registered and be able to do that on an ongoing basis. So then, it really just gets down to managing the production and logistics to meet our customer demands and that's what we'll continue to going forward.

Okay. Second question. How much of your current North America ag sales are California versus the rest of the market? And is that mix going to change significantly as you integrate Produquímica?

We don't break our sales out by state or region or geography. We are heavily -- well, heavier-weighted to California, especially in our SOP business. And crops like almonds are the driver there. So as the more specialty products grows, I would expect we would get continued diversity geographically across North America, both in terms of the geography, as I mentioned, but also crops. And that's really been part of our strategy from the onset.

We'll hear next from Joel Jackson with BMO Capital Markets.

I will move to our next question that is from Goldman Sachs, we have Bob Koort.

This is Dylan Campbell on for Bob. Going back to the salt segment. I noticed you guys delivered pretty strong revenue growth, 15%, during the first quarter. But then, in the second quarter, it seems like you're -- the midpoint of your guidance only assumes mid-single-digit-type of growth, despite you saying that April was a very strong snow season. Can you help me bridge that kind of quarter-over-quarter -- or that growth rate implied in your guidance for second quarter?

Sure, so I think you have to consider that -- considering the change is interesting because typically our operating margins are better in the first and fourth quarters then the second and third, because of the natural profitability of highway versus C&I, and so C&I makes a heavier weighting in the second and third quarter. So the fact that it's going up is actually unusual in and of itself, and it's primarily driven by mix impact of C&I versus highway. So we are selling more highway tons, which is more profitable, which is helping drive that quarter higher. And that's how I would help you kind of bridge that.

Okay. And were the higher freight costs from the Goderich mine any or at all magnified by tightness we're currently seeing in the freight markets?

Not really. Are you talking about the illogical freight that we had to move.

Yes, just the increased logistics costs.

Yes, so they -- there is natural rate inflation occurring across all modes of transportation. So it was kind of indirectly impacted, but the bulk of the cost of it is purely related to the illogical nature not the actual freight rate.

And we do have Mr. Jackson again from BMO Capital Markets.

Do you hear me now?

We do, Joel.

Okay. Okay, so there's been some concern that maybe with what's going on in Goderich and the (inaudible) of the [keynote] miners, that some of the products that you're selling aren't meeting spec. So are there any products right now that you're currently not able to reach spec on, how are you dealing with it? Has is it been fixed with the optical sorters? What are those products? And how might it get resolved?

Joel, I think -- this is Fran. As we've been communicating over the past couple of quarters here, we've had quality issues at the mine, but not driven by -- or caused by the continuous miners, but more the area of the mine that we're mining in, and the geology that we're incurring, is just including more off-spec products than we've ever experienced in the past. So to deal with that, we have put screening and sorting equipment into the -- into operation at the mine. And we initiated and finished that project as we did our annual shutdown, which occurred in March.

So now we're confident going forward that we can deal with those quality issues and effectively meet our customers' specs. And some of those would be in -- mainly in the -- to our -- especially our chemical customers. And then, in some cases, to highway depending on the location just -- or we're able now to screen more of the [finds out] underground we're -- and deliver those products to the differening specs that our customers demand, depending on if they're in Canada or the U.S. or different regions within those countries.

Okay. So other -- some of your competitors are also talking about how their customers -- government customers are maxing out their optional tonnages, under the [8,120] or the [8,130] contract setups this quarter, anticipating higher prices. So does this set up a bid season where produced inventories are low but [channel] inventories are average are high. So would you expect bid volumes to be similar year-over-year or down? It's a bit of an interesting dynamic. Can you elaborate on that?

I can speak for us, not for our competitors. I think that we don't see our inventories above average. And I think we've talked about that -- the reasons for that. Some of that being our production constraints at Goderich, but also a relatively good winter. So if you think about the last couple of years being mild and this winter being above -- slightly above average, stronger certainly than the last 2 years, and I think also more consistent from east to west. In our geography and the eastern geography, that's a bit outside of the area that we serve, I would expect bid commitments to go up.

Just maybe one more question. You talked about the screening and optical sorting at Goderich completed in March. I think some of the stuff we'd seen the union talk about to [pull the optical sorting] only went in a few days before the strike hit. Is that true? Had you been able to ramp up the optical sorting and screening to [see to] fix the issues? Or is that something you have to wait to do till after the full labor team is back?

As I mentioned, we put that equipment in during our annual shutdown, which basically covered the month of March. It's in-line and operating.

Well next here from Chris Shaw with Monness, Crespi.

I just wanted -- I guess, ask a question of clarification from something earlier. I might've missed part of the answer. In regards to the strike and the upcoming bid season, and I guess volumes, where you've adjusted you could still do sort of 2018 levels. But I mean, is the strike going to impact how you did? I wasn't sure if you were answering that you can only, sort of -- that'll happen more -- I guess, a limited volume bidding abilities if the strike persists. Did I hear that correctly?

The way I would think about the upcoming bid season, which we're just beginning, so we're just starting to see bids and running through our normal process of how we assess the market, and certainly our supply. I mean, that's the heart of our strategy. So -- and that includes both production in the year plus inventory levels. We're just beginning that process. And as I mentioned on the call, I expect that you would see, given the winter that we've incurred, especially in the north, that was either at or above average kind of across our region and into the East, that we should see higher bid commitments and I would say just a more normal kind of distribution, given the locations of the mine. That would be our expectation. And we'll continue to proceed through the bidding process, and we always make kind of in-season adjustments based on what's happening.

You don't really foresee any real constraints on your bidding based on the strike?

I think, as Jamie mentioned in his remarks, given the fact that we're in this strike situation and producing through it, our ability to ramp up our production, if the demand is there -- we're being prudent on our guidance here, and don't think that we'll able to do that or do what we would normally do if the demand was there given that situation. So if the demand is stronger, that might limit our ability on some of the bids. And then, as I mentioned also later in the Q&A that it depends on winter and our production ultimately will be what it'll be, and that will determine our ability to maybe capture some in-season demand if there's more there as we go through the winter.

And is there any, I mean, like you did, I guess, in those past quarters, any chance to sort of offset some of that with Louisiana production?

I think we will always manage the line, if you will, north to south. We have increased our production in our Louisiana mine this year compared to last year. Most of that's because the winter was stronger this year than last year in the markets that we serve. But I would expect that you might see that line move further north for us given the situation that we're in.

And from Credit Suisse we have Chris Parkinson.

This is Graeme Welds on for Chris. I just had a quick question, again, kind of around everything at Goderich in terms of the outline that you guys have previously put out for the cost savings you expected to achieve there as you ramped up. I think, if memory serves, I think you were expecting something along the lines of kind of the incremental $10 million of savings at '18 versus '17. I'm wondering if recent developments there have caused you to kind of reconsider this outlook? Or whether that's still consistent with what you're planning for in your guidance for this year?

Yes, so within our guidance, as mentioned in the prepared remarks, we do continue to ramp up the CM, CH equipment. So as we continue to go through that process, we expect to see those savings materialize. It's difficult to say right now. It is a dynamic situation. If the union comes back, that's a different circumstance than a current plan to have management run it and then bring in contract workers. But as those volumes increase and we ramp up that equipment, we do expect to see those savings. Most of which would occur in the second half of the year. The $10 million, I'm referring to.

Right, right, right. Okay, got it, that makes sense. And then, just another quick question on the plant nutrition business. Just wondering, in terms of the margin outlook there, I know in 2Q you were expecting still to have some of those kind of lagging higher-cost inventory in addition to the impact that the higher G&A is having on the margins there. I'm just wondering kind of when should we be through kind of the bulk of that higher-cost inventory in that business. And as you think about kind of the back half relative to what your guidance implies for the first half, are you thinking about margins in the plant nutrition business and what should be kind of the key drivers for you guys there?

Yes, sure. So it will deteriorate -- the cost, rather, will decline over time here. That being said, as we continue to grow that business and introduce -- start utilizing our incremental capacity, which requires KCL, there is an impact from that as well. So on an EBITDA margin basis, we feel very good about ultimately getting this business up into the mid-30s EBITDA margins, which is significantly higher than where we finished last year at 25%. So this year feels similar to that area and then out into 2019 and forward, we can utilize the operating leverage as we continue to grow our sales volumes and drive back EBITDA margin up into the mid-30s.

From KeyBanc Capital Markets, we'll hear from Curtis Seigmeyer.

Can you remind us -- or maybe talk about how much higher you think pricing will be in the highway deicing this bid season, given the cost pressures that you talked about, just sort of how pricing should compare to maybe a normal year?

As I mentioned earlier, we just begun the bidding season here and we aren't talking about pricing at this time or expectations around pricing. I think we talked about the winter and our view on inventories, but we won't actually be talking to the market about the pricing in the bid season until our next call, which is consistent with past practice.

Okay. But it's fair to assume then because of the pull-forward you talked about in 2Q or the higher volumes that, in the marketplace anyway, there is expectations that pricing would be meaningfully higher. Is that a fair...

Well, I think, you could -- we've made remarks that we like the supply and demand dynamics that are set-up for the season. We mentioned -- I mentioned in my remarks that core inflation in freight was up about 6%, and that's not unique to us. So those are the data points that we've have given you and we really don't make any remarks on price specifically. We will give that on our second quarter earnings call, a status update on pricing, but we just don't have any more color to add at this time.

Okay, okay. Fair enough. And then, just one on Plant Nutrition South America. Would you expect similar levels of profitability in the second half as you saw last year with the typical seasonal benefit that you normally get? And can you talk about the increased competition that you called out in your slide deck that you're seeing in the distribution channel? And just a little more color around that, if you expect that to weigh on profitability at all this year.

I think on the -- on that point, we tend to see more of that volume, more of those sales in the first half than the last half of the year in Brazil. And in the last half, more of the sales are higher-value products that go direct to farmers. So I think that's a positive. And the environment in Brazil year-over-year is -- I think is much more positive because of commodity pricing, because of the currency. And how that reflects on the pricing to the growers. And we expect a strong rest of the year in South America. We've been -- we're growing sales there, we're growing sales in the areas that are important to us. So we expect that to continue throughout the year, and I think it's really a sign and a reflection of our products and our people down there that are making that happen.

Follow-up question from Mark Connelly with Stephens.

Just one more, Fran, you mentioned more direct sales in Brazil. Do you expect that proportion to move up? Or are the 2 sides sort of growing more or less the same?

The growth in the direct side is higher. And it's really the growth in the -- in those higher-value products, which are more -- a higher percentage goes direct to growers than through distribution. But we do utilize both channels as well. But I think that would tick-up over - certainly over time.

That concludes today's question-and-answer session. At this time, I would like to turn the conference back our speakers for additional or closing remarks.

Thank you, Amy, and thank you all for joining us today. Once again, we appreciate your interest in Compass Minerals. Feel free to contact the Investor Relations department with any follow-up questions. Thank you.

This conclude today's conference. Thank you for your participation. You may now disconnect.