Compass Minerals International Inc (CMP) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good day, and welcome to the Compass Minerals second quarter earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Theresa Womble. Please go ahead.

Thank you, Paula. This morning, our CEO, Fran Malecha; and our CFO, Jamie Standen, will review Compass Minerals' second quarter 2018 results and our outlook for the rest 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 the company's expectations as of today's date, August 7, 2018, and involve risks and uncertainties that could cause the company's actual results to differ materially. Please refer to the company's most recent Forms 10-K and 10-Q for a full disclosure of these risks. And we -- the company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments.

Also, our remarks today will include non-GAAP financial disclosures, which we feel are important to provide a full understanding of our business and our operating conditions. You can find reconciliations of these measures in our earnings release or in our earnings presentation, both of which are available at 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. We reported another strong quarter in terms of our year-over-year top line growth. We accomplished this while enduring an 11-week strike at our Goderich salt mine as well as a week-long national trucker strike in Brazil. Cost pressures, however, reduced our operating earnings and net results, while adjusted EBITDA increased 13%.

Despite these challenges, there are several positives that I think are important for our stakeholders to take away from our second quarter performance in this call today. These developments reinforce my commitment to our strategy for sustainable, long-term growth, and that we should begin to experience some tailwinds as we progress through the rest of 2018 and into 2019.

The first takeaway I'd like to discuss is the positive market developments in our salt business. The North American highway deicing market is improving from the supplier perspective due to stronger winter demand last season following 2 mild winters. The results of the North American highway deicing bid season are clearly demonstrating this to be true. We estimate that average bid volumes, market wide, are returning to more typical levels and pricing has been very strong in several regions. With approximately 75% of our bid season completed, we're currently estimating that our average contracted price for North American highway deicing customers will be up approximately 15% for the upcoming winter. This average price not only includes contracts that were bidded this year, but also rollover and multiyear contracts.

Our awarded sales volumes are lower than last year's levels due to the production constraints we faced at our Goderich mine. However, the margins that we expect to earn and the volumes that we have been awarded have largely compensated for the limits on our bidding activity in terms of full year earnings expectations for the salt business, which Jamie will discuss further in his remarks.

Our U.K. highway deicing business has also experienced strength after a severe winter. Our U.K. sales volumes for the quarter increased more than threefold from last year as customers restocked their salt inventories. And we are operating our mine there at near-full capacity, which provided a nice benefit to our total salt operating earnings and margins this quarter.

The second important takeaway is that we believe we have all the pieces in place to drive more efficiency through our salt operations, and particularly, at our Goderich mine. Our continuous mining and continuous haulage systems at the mine are ramping up and served us well during the work stoppage. As we have previously reported, we estimate that this investment has already delivered approximately $5 million in ongoing annualized cost savings.

Our new Goderich mine labor contract aligns with our continuous mining operations and provides increased efficiency with our shift schedules and flexibility in how we work. Our salt -- our other salt operations have been demonstrating strong performance throughout the year as well. This, together with the progress at Goderich and an improving pricing environment, is why we expect to deliver increased salt operating margins for the rest of 2018 and into 2019.

The third takeaway is that our plant nutrition business who is focused on semi-specialty SOP and specialty micronutrient solutions in the Americas, is achieving solid growth. I'm very pleased with developments in North America and Brazil.

In North America, we continue to enjoy steady demand for our plant nutrition products with sales increases in both SOP and micronutrients. This is a strong achievement given some of the trade uncertainty that is currently the backdrop for agricultural markets in North America. It also speaks to the underlying value our products can provide to growers of the both specialty and row crops. I am further encouraged by our ongoing crop trials in North America. In fact, this year, we have 90 trials either completed or underway in North America. We expect these efforts will help expand our market penetration as the data on the efficacy increases, particularly, for newer micronutrient formulations.

In Brazil, broad long-term and short-term macro factors are supportive of the strong ag market there and are expected to drive demand for our specific product portfolio. This increase in hectares put to agricultural use is expected to continue well into the next decade. This year, specifically, the soybean harvest is expected to exceed all historical records given the increase in the soybean planning area for the upcoming season. And now with the uncertainty surrounding U.S. trade policies and their consequences for global agriculture markets, expectations are increasing that Brazil will become the global leader in soybean exports.

The strength of the U.S. dollar has also been economically beneficial to the Brazilian farmer. Historically, a strong dollar has been supportive of increased purchases of crop inputs, which help maximize farmers' profitability. Adding to this is the increase in the price premium that Brazil soybeans are achieving due to the changing tariff policies in China. Given our strong and growing position in nutritional solutions for this particular crop, we believe we are well positioned to benefit from these market developments.

Delivering on our commitments for the Plant Nutrition South America segment in 2018 does face some risks around logistics issues that have been created following that national truckers' strike in Brazil, but we have been proactive in addressing our own warehousing and transportation needs to help mitigate these impacts.

Last, I'd like to touch on the fact that we have delivered 25% year-over-year growth in cash flow from operations for the first 6 months of 2018. Coupled with lower capital expenditures, we're very optimistic that we'll generate attractive levels of free cash flow into 2019 as well.

In fact, I believe that we are at an important inflection point for Compass Minerals. Not only have we largely completed a reinvestment program aimed at increasing our key assets longevity, efficiency and productive capacity, we've also more than doubled the size of our plant nutrition business by investing in a strong company located in one of the world's agricultural powerhouses. Given the improved market fundamentals, we're experiencing, we are poised to deliver increased earnings, free cash flow and shareholder value.

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

Thanks, Fran. Before diving into our segment discussions, I'd like to touch on our consolidated results. Our net loss this quarter totaled $7.6 million compared to $6.4 million in the prior year. The increase in depreciation expense reported this quarter was the primary driver for the decline. On an adjusted EBITDA basis, our earnings grew 13% as a result of EBITDA improvements in each of our business segments. Furthermore, during the first half of the year, we generated cash flow from operations of $182 million, which was a 25% increase from prior year results and reduced our total debt by about $77 million.

Now let's turn to Slide 9 to discuss our salt segment results. Salt segment revenue increased 11% on a 17% increase in sales volume, offset by a 5% decline in average selling prices. This year, we benefited from April snow events as well as strong demand in the U.K. following a severe winter there. It is typical for our customers in the U.K. to begin restocking early -- earlier than in North America, so this was a nice boost to our sales volumes and revenue in the second quarter. The decline in average selling prices was driven completely by product sales mix as we sold more highway deicing salt versus higher priced consumer and industrial salt this quarter when compared to the 2017 period.

Salt operating earnings for the quarter increased 17% from second quarter 2017 results and operating margin expanded slightly. This growth was primarily due to better-operating rates in the U.K., partially offset by the pull forward of costs associated with the Goderich ceiling fall last year. Recall that we had expected about $3 million of carryover logistics cost in the second half of 2018. This expense is related to the shipment of Cote Blanche salt to some of our northern markets. With the increase in highway deicing demand in the second quarter, we ended up selling almost all of this higher cost salt, which pulled those additional costs into the second quarter.

Now turning to Slide 10 where we discuss our Plant Nutrition North America results. We generated 3% revenue growth on 3% higher sales volumes and flat average selling prices. Net price was 2% higher, however, as we sold more SOP on an FOB basis from our Ogden facility than last year. As we've been discussing for several quarters, a step-up in depreciation related to the commissioning of our new plant assets at Ogden has pressured our operating earnings and margin performance. Because much of the commissioning wasn't completed until the end of 2017, we will continue to have higher year-over-year depreciation costs through the end of the year.

The Plant Nutrition South America segment reported an 8% increase in revenue, driven by a 5% increase in sales volumes and a 2% increase in average selling price. It's important to note that sales volumes increased despite the 10-day national trucker strike that began in Brazil in late May.

While our sales did grow year-over-year, the lower-than-expected sales volumes due to the trucker strike negatively impacted our profitability and is the primary driver for why our earnings margin was below our guidance range.

Please note that foreign exchange volatility impacting Brazil in the second quarter reduced our translated results by approximately 11%. We have provided local currency results in our presentation for reference purposes where you can see that year-over-year growth was quite strong.

Turning to our outlook on Slide 12. We are maintaining our full year EPS guidance range. That being said, there are a few factors that we anticipate will push us to the lower half of that range.

First I'll discuss the financial implications of the Goderich strike, including the costs we incurred and its impact on our production volumes, which has also impacted how we approached the North American highway deicing bid season. The direct costs associated with the strike were offset by the payroll savings from our striking workforce. Therefore, the primary cost impact relates to reduced production levels at the beginning of the strike, during the unplanned work stoppage at the end of the strike, and now, as we make another transition back to our unionized employees.

This transition has included safety, value and operational training prior to resuming mining. The operational training was critical given the fact that we commissioned and began full utilizing our new optical sorting and screening equipment during the strike. Ultimately, we believe these efforts will improve our operations as we've largely addressed the quality issues in our salt production.

These starts and stops have reduced full year production expectations at Goderich, which puts pressure on producing salt in advance of the upcoming winter season and on our second half operating margins because of unfavorable fixed cost absorption.

It's important to note that we plan to make up some of the production shortfall with purchased salt as well as serving some northern customers with salt from our Cote Blanche mine. We expect that most of the volume-related cost impacts from the strike will be felt throughout the second half of 2018, as we deplete this higher cost inventory.

All in all, I and the rest of the senior leadership team are pleased with how the company and, specifically, our local management team in Goderich, led the company and our employees through the challenges posed by the strike. We are also pleased with the ultimate outcome.

Additionally, we are expecting some increased pressure on second half salt logistics due to a combination of factors such as freight rates, higher fuel costs and the announced lock closures along the Mississippi, which is leading to work-around shipping arrangements.

That being said, we expect this bid season's highway deicing pricing in North America to more than offset the impact of the strike and increased logistics costs. As a result, we expect to achieve expanded operating margins in the second half of the year compared to prior year. So even with our supply constraints, we expect full year salt volumes to be in the range of 11.8 million to 12.3 million tons.

Looking at our plant nutrition business, we are expecting year-over-year improvements in North and South America. The strengthening of the U.S. dollar, however, has changed our original assumptions around our translated results for Plant Nutrition South America and is another factor pushing us to the lower end up of our EPS range. Earlier this year, we assumed a U.S. dollar to Brazilian reais rate of $1 to BRL 3.35. Now we're assuming $1 to BRL 3.75 for the remainder of 2018, while recognizing there may be additional volatility due to the upcoming elections in Brazil.

We do expect to offset some of the FX impact with increased sales volumes and pricing as Brazilian farmers are, historically, more profitable in a strong dollar environment and are, therefore, more willing to invest in our specialty plant nutrients.

When we look at our expectations for South America in local currency, we anticipate as much as 20% year-over-year growth in revenue and earnings from last year's somewhat depressed results.

The corporate outlook items listed on Slide 13 are largely unchanged with the exception of the tax rate. We anticipate a full year rate around 21% given the discrete items in the second quarter and our current view of pretax income by jurisdiction.

Before turning to our Q&A session, I'd like to share some final thoughts on the quarter and 2018 overall. Improving market fundamentals in both North and South America are expected to positively impact our businesses as we enter the back half of 2018. In salt, given the positive resolution with Goderich unionized employees, our ramping up of continuous mining, and other strategic and efficiency actions taken across our salt operations, we believe this business is well positioned to improve profitability not just this year, but in 2019 and 2020 as well.

Our plant nutrition business is also poised to deliver growth through our focus on specialty products as an innovative solution to crop nutrition. In South America, we can benefit from the strong grower economics that are developing this year, particularly, for soybeans where our products have a good foothold and attractive opportunities for additional market penetration.

And in North America, our position in SOP remains solid with steady demand growth continuing, while our role as a leading supplier of innovative micronutrients continues to build momentum.

Last, to echo Fran, we believe we are positioned to deliver strong free cash flow next year and beyond. We expect to use that cash flow to reduce our debt, continue our dividend and make strategic investments with attractive returns.

Now let's open the call for questions. Paula?

(Operator Instructions) And our first question will come from Jeff Zekauskas with JPMorgan.

How much was your salt production, in theory, curtailed by all of the different issues that afflicted the company this year?

Yes, so I think we're not going to be specific. We don't disclose our production levels. But it was a material decline for the full year. Remember, in the first quarter, we were coming up to the end of a collective bargaining agreement and had a workforce that was looking forward to that. And then having gone through the strike and now having to go through a transition back, having finalization of the new CBA and going back to those employees, it's a fairly significant impact to our full year production.

So let's try it a different way. How much more do you think you could produce in 2019 in salt than you produced -- than you will produce in 2018 under more normal conditions?

Jeff, it's Fran. I think we expect to ramp-up coming out of this work stoppage to kind of a monthly rate that would drive our production up to -- we've always kind of talked about the 7 million ton range at Goderich. And we expect to be able to operate at that level with the equipment, with the employees there going forward as we ramp-up and come out of the strike. So I think -- I would think about our production capability to kind of be at a level in '19 that would meet the demand of a solid winter, which we hope to have this coming year, and producing at very cost-effective production levels for both Goderich and our Cote Blanche mine.

And next, we'll go to Vincent Anderson with Stifel.

So I just -- I'll stay on salt then. I just want to parse out your expectations for salt sales more into 2019. Why is it too early to give some more detail on the year-over-year award shortfall? And when you look at which markets those shortfalls are coming from, have you committed to fewer tons on certain awards? Or is the delta entirely from RFPs that you've passed on? And all that kind of just builds to what kind of opportunities do you see to make up any volumes in the spot market if weather cooperates?

It's Fran, Vincent. I think as we went through the bidding season, obviously, knowing that our production at Goderich was going to be impacted and impacted by the -- by a work stoppage, that certainly went into our bidding strategy. And we ended up with commitments that we've described. And I think as we ramp-up our production coming out of this -- out of the strike and get towards full production for the balance of '18 and into '19, our hope is that we'll have some additional salt to sell and assuming the winter's -- the weather doesn't impact us negatively in the season. And we'll just have to see how that plays out. So we, obviously, were aware of the risk to our production, and we took that into account as we went through our bidding cycle.

I'll go to SOP next. A lot of positive read-throughs coming out of KCl prices, but maybe some pressure on some of your customers from the tariff disputes. With all of that, we haven't really seen a significant movement in the published SOP prices, and you've raised volume guidance for the year. So should we interpret this as a conscious effort to prioritize volume over price as your current go-to-market strategy?

I don't think our go-to-market strategy has changed at all. We're always, because it's a competitive environment, going to try to optimize price and volume, and we expect to continue to do that going forward. So I think we've seen the price of SOP inch up over the last season and probably, not keep pace with some of the price increases you've seen in MOP to date, but really, no difference in our approach to how we impact the market area here commercially.

Moving on, we'll go to Mark Connelly with Stephens Inc.

,

Fran, just 2 questions. Behind -- Beyond the higher depreciation, are there any other meaningful changes in the cost position we should expect at Ogden after the investment you've made?

No. I think that the main one. Obviously, we need to make that asset work and that really -- I think as we look to the future of SOP in North America, really, it's about building demand and growing the volumes from Ogden. Consistent with my comments just recently, on how we're approaching the market, trying to optimize price and volume, we expect to maintain our share as the market grows. And from a commercial standpoint, we just need to build that demand in the right places on the right crops.

And I would just add that as we do grow, remember, we use KCl on our incremental production tons. So to the extent we're using KCl, that would drive -- Mark, that would drive a higher cost.

Right, right. Okay. And then just one follow-up. Did you experience anything very different in Southern Brazil versus the North given the huge difference in logistics and distribution? Was one materially better or worse for you?

No. I think we're -- our bidding season is kind of coming up now, right. So I think the volumes in the first -- or the last quarter when the strike was going on weren't as significant as they'll be going forward. That environment is still uncertain in terms of how the freight costs will be passed on and who will absorb them. I think what we've done is we've been proactive in booking freight with larger carriers, so forward-booking that to get us through the season. Our team down there was very proactive on that front. We've also put some warehouses or will be putting warehouses kind of as we speak further out into the North and into places like -- states like Montegrosso to help us manage those logistics more effectively, ultimately to the grower. So I think we're -- we think we're as well positioned as we can be in this environment to make sure that our products get to the farmers when they need them. And also kind of managing costs, I think, pretty effectively given the changes down there and some of the uncertainty.

Next, we'll go Chris Shaw with Monness, Crespi.

Can I ask a question about salt? Looking forward to 2019, just sort of the cost structure, what's the sort of net delta from -- do you think from I guess a number of things, the higher costs from -- absorbing higher fixed costs in 2018 from lower production, but everything from the -- also the sort of greater efficiency you're getting from the continuous mining equipment? I mean, is there a delta you can point to me to the costs that won't repeat, I guess, for the salt business in 2019, that have occurred now in '18?

Sure. I'll take a shot at that. I think the distribution costs are feeling more permanent. So we will see higher logistics costs. I referred to higher freight rates. We've talked about 5% plus increase this year. I'm not necessarily saying they increase another 5% next year, but that new level of freight has been established and wouldn't go away in 2019. Also, remember, fuel is up about $20 year-over-year. So depending on what fuel does, that will, obviously, have an impact in 2019. And then, as far as the costs side, you could -- we would expect to be -- costs are going to run at $1 a ton higher probably in the second half of the year versus prior year, so on total salt cost. And then depending on how effective we are in ramping up through the second half of the year here, our continuous mining, like Fran mentioned before, if we continue to make the improvements we think we can well into next year, then we will really start to see the benefits of continuous mining as we get those volumes back up. And then you could see some significant benefit in the P&L in the second half of 2019.

There are no like specific discrete costs from the strike at all that won't repeat? Or those were offset by the -- I guess, the savings of not having to pay workers. Is that right?

Yes. So there's a couple of factors. It depends on how many tons we end the year with, right. So this year's production has a cost, I talked about it in my prepared remarks, the fixed cost absorption. And we've estimated that to be about $1 a ton for the second half of the year. And then, depending on our inventory levels we end with, which is a function of winter weather in the fourth quarter, then some will carry over into '19. It's difficult to say exactly. Right now, I'm not going to tell you how much would carry over. It just depends on our production during the second half of the year and the actual sales that occur based on weather.

And next we'll hear from Christopher Parkinson with Crédit Suisse.

This is Graeme Welds, on for Chris. Just had a quick question, again, on SOP. Just wondering about, in the market, what you're seeing is driving the higher volumes with respect to the absolute kind of market demand in North America versus what you're seeing on the import front?

Yes. I think as I mentioned earlier, we're maintaining our share of the market. And our market share in SOP has been pretty consistent going back a number of years. So we're not looking to capture volumes at the expense -- and share at the expense of price. But if you go back to the 2014 time frame, the demand in the market was higher than it is today. So I'd look at it as we're getting back to demand that has been in the market previously and then look to continue to grow. This market should grow at 5% or so a year, at least that's our expectation going forward, And so I think we still have a little bit of demand to pick up from prior years and then grow from there.

Got it. If I could just have one quick question then on salt. Just kind of following up on some questions before in terms of the back half margin outlook. I was just curious what in that is embedded from what you expect to achieve in terms of savings from continuous mining? And then, how we should kind of maybe think about the margin standpoint in 2019, assuming that we kind of have a more normalized production year?

Yes, so are you referring to the back half of '18 in terms of...

Of '18. Of '18, correct. Yes, in terms of the continuous mining. Yes.

Yes, so we -- we're -- we feel like the $5 million of savings is in and that would be the only savings we would see this year, which is embedded in our forecast. So like I said before, I think as we ramp-up production in the second half of the year here, with our employees back in place, and if we hit our targets and continue to improve our targets into '19, then you're going to see the savings in the back half of '19. So I'm not ready to give 2019 margin guidance yet, but we certainly expect them to improve next year.

And next we'll go to Joel Jackson with BMO Capital Markets.

Okay, a similar margin guidance question maybe. Just understanding a bit about the 15% higher rock salt pricing on new contracts, excluding, I guess, chemical [salt] in the U.K., the higher freight costs, some other things going on, can you give us a sense of what kind of the netback expansion would be net-net at the -- factoring all of this, maybe the greater ask would be first half of '19, if it's a normal winter whatever that is, does this mean you should see an expansion in margins, 300 basis points, 500 basis points? Can you give any kind of color that would help us understand what 15% means and sort of drag down for other factors?

So again, are you talking about the second half of this year? Or are you talking about the second half of next year?

No. I'm talking about first half of '19. I mean, you've given second half...

First half of '19?

Yes. Just generally, what it means for the winter, but first half of '19 would be helpful?

So I anticipate if we hit our plans and end the year -- with average weather and end the year with -- we'll end with some carryover inventory, which would be something that would be nonrepeat in the future. So you could think of that as being at least several million dollars. So when we see this price unfold in the first quarter, you could see a couple of percent of improvement. And again, so much of it, Joel, depends on our production rates through the rest of the year and into January and February, because those will be the tons we're going to be selling. So if you wanted to estimate a couple of 100 basis points, I think that would be fine.

That's actually quite really helpful. Second question is you talked about your awarded volumes being down this year because of various factors, Goderich, et cetera. How did the overall market do in terms of order volumes? I mean, you were, I guess, at lower volume. I guess, cargo's at lower volume, I guess, the other players then benefited from that?

I think it's probably a fair way to look at it.

And how did the overall market grow in terms of the order volume so far?

I think we're -- as I think I mentioned in my remarks, I mean, the volumes are up -- back up to kind of that historical level coming off the previous winter. So I'm not going to put an actual percentage on it on this call, but I think we're optimistic to see those volumes there. As I mentioned, if and as we produce more at Goderich coming out of the strike into the back half of the year, we hope to have some -- maybe more in-season demand than we historically probably would have looking at previous bidding seasons.

And I'll sneak one more in. You have a lot of different types of products in PDQ, some niche products, seed treatment, slow-release nitrogen, micronutrient, how does that -- like is the shift to more beans in Brazil versus corn and other crops? Would that be positive or negative for your business?

It's positive. We actually have a -- kind of a menu of products geared specifically to all crops, but specifically to soybeans. And if growers are on our program, we've proven that they get better yields. And so we see that those additional soybean acres in Brazil as very positive to our business down there.

And moving on, we'll go to Bob Koort with Goldman Sachs.

This is Dylan Campbell, on for Bob. Quick question on free cash flow. I think you guys are tracking at around $130 million for the first 6 months. Do you have any updated kind of guidance for how we should expect that to track in the second half of the year?

We're going to end the year around flat and it's really a function of some -- the net tax payments that we need to make related to our Canadian tax settlement. So we're planning on making those settlements. We think we can get that done, which would drive the $70 million in net payments. If they don't get done this year and they slide into next year, that would have a meaningful impact. Not saying that's going to happen. We still plan to execute and get that done this year. But that would put us down around flat to up $20 million. So $20 million of free cash flow before dividend.

Got it. And I was encouraged to see, I mean, North America shipping and handling costs decrease year-over-year. Seems a little bit different than what we've seen across the Americas with increased logistic pressures. Do you have any additional color on that decrease?

Yes. So specifically in plant nutrition, yes.

Yes, salt was up a bit.

But I think that -- remember, fuel is less impactful to us there. We use rail as shipment. Now there are -- the railroads do have -- are running at capacity and are having trouble even hiring trainmen, so they've had pricing power, but we've offset some of that with some warehousing things we've done and some direct rail shipments out of the plant versus out of our warehouses. So we've managed our cost lower that way, shipping direct from the plant.

Moving on, we'll go to David Begleiter with Deutsche Bank.

Fran, on the 15% highway deicing pricing for next year or this upcoming winter season, how much would you have required just to offset the rise in logistics and fuel costs that you're realizing this year and you expect to realize next year? Would it be roughly half perhaps of that 15%?

I mean, that's -- that wouldn't be a bad estimate. I think that would be fair to say.

Very good. And Fran, just on the order volumes this year, if you've lost "some" market share and want to get it back next year, once Goderich ramps up, would that imply some potential pricing pressure as you regain this loss share that you give up this year?

I mean, I guess, that's speculative. It's hard to say. I think as our production ramps up, I would expect that we would increase our volumes closer to the mine and just be more competitive in the market. So a lot is going to be dependent on winter and it's just hard to speculate on that. I think we've seen in the past, though, that we've been able to increase our share -- get share back. If we go back a number of years, in a -- if we have a reasonably good market to do that in, I would say average volumes or above. So we'll just have to wait and see what winter brings and then go from there.

And next, we'll go to Christopher Perrella with Bloomberg Intelligence.

A question on the South American Plant Nutrition business. How has the currency move impacted raw material costs down there? And how does that play in -- I know the translation headwind, but maybe some translational headwind as well on operating margins in the second half?

Sure. So it has been significant. Many of our input costs are denominated in U.S. dollars when you just think of general commodities such as copper, I always refer to. So we have seen significant increases in those prices, in those costs -- input costs. However, the business itself and the innovative nature of our products and the importance of our products to growers and their yields, we do have pricing power. So we've have been able to pass those along to our customers. We use dynamic pricing in the field. So we're constantly watching our replacement costs and adjusting our pricing in the marketplace. One risk, however, to that is the volatility. So we think of a weaker reais or a strong dollar as benefiting the grower ultimately, but we do prefer stability over volatility. Dynamic pricing in the field with a currency moving quickly can cause significant lag issues.

All right. And then that would be -- you would see that more in the season with the -- in the planting season down there? Or how -- did that impact 2Q to some degree?

Yes. So it did impact 2Q, but we're building our inventories in 2Q. We do have some sales as well. So we're passing along that pricing. And now we've built much of our inventory and we're going into the [seeding] and we'll be selling that product that we've already made. Plus we'll be taking new orders and we'll be producing new material and constantly adjusting that pricing to match and maintain our -- maintain or improve our margins.

All right. And one quick follow-up on the salt business. With the purchased material and the shipping from South to North, will most of that cost flow through inventory and shipments in 3Q? Or is that spread evenly between the 2 quarters in the back half of the year?

It'll be allocated based on the sales volumes, so heavier to Q4. It's the costs come through when the sale occurs.

(Operator Instructions) We will return to Vincent Anderson with Stifel.

Just a really quick housekeeping question. Sorry if I missed it. Did we get an SOP only price? And if not, are you willing to give us one for the quarter?

Yes. We didn't put in the business deck this quarter, but SOP only in Q2 was $596 a ton.

And we'll move on to Mark Connelly with Stephens Inc.

Just 2 things. The weakness that you saw in the Brazil chemical business, is that extending into Q3? And if you could help us understand what's driving that? And second, if we think broadly about the specialty fertilizer product pipeline, should we expect that to be lumpy? Or is that going to help keep the growth fairly steady?

So let me take the first one there regarding the chemical business. The main impact to the chemical business was related to the 10 days truckers' strike. Remember, that business is more consistent through the year. So losing the 10 days in the quarter was very impactful. So regarding the product pipeline, can you ask that again?

Sure. I'm just wondering, as you think about your specialty fertilizer introductions, is that going to add lumpiness to your revenue? Or is it going to actually keep things relatively steady? It sort of depends on how you're planning to roll those things out.

Yes. So it's -- I don't think it would cause any particular lumpiness. So we're really focused on innovation. We expect to deliver new formulations and new products over the next several years. And we're very excited about some of the things we have in that pipeline. Some of them are replacement products. So we think we can stop, move -- or move away from certain older formulations and replace them with new ones to really drive growth. Will there be a little bit of lumpiness? Absolutely, if we have something particularly innovative in a particular year. But all in all, we would expect steady growth profile going forward.

And next, we'll go to Joel Jackson with BMO Capital Markets.

Sorry, Jamie. I had a follow-up for you. You had given some good guidance about maybe, maybe, if all things play out a certain way, maybe 200 basis points salt margin expansion. Can you just clarify? I think you're talking about Q1 as opposed to the first half?

Yes.

And I think…

Yes.

Your comp was what -- Q4 or -- was it versus Q4 of '18? Or was it year-over-year?

Yes. I was thinking sequentially.

And that does conclude our question-and-answer session. I'd like to turn things back to Theresa Womble for any additional or closing comments.

Thank you, Paula, and thank you, all, for joining us today. Once again, we appreciate your interest in Compass Minerals. Please feel free to contact the Investor Relations department with any additional questions you may have. Have a great day.

And that will conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.