Compass Minerals International, Inc. (CMP) 2026 Q2 法說會逐字稿

Hello, everyone, and thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals Second Quarter Fiscal 2026 Earnings Call. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, that is star followed by the number one. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Brent Collins, Vice President, Treasurer, and Investor Relations. Brent, please go ahead.

Thank you, operator. Good morning and welcome to the Compass Minerals Fiscal Second Quarter 2026 Earnings Conference Call. Today, we will discuss our most recent quarterly results. We will begin with prepared remarks from our President and CEO, Edward Dowling, and our CFO, Peter Fjellman. Joining in for the question-and-answer portion of the call will be Ben Nichols, our Chief Commercial Officer, and our Chief Operations Officer, Pat Merrin.

Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date, May 7, 2026. These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures.

You can find reconciliations of these items in our earnings release or in our presentation, both of which are also available online. And with that, I will now turn the call over to Ed.

Thank you, Brent. Good morning, everyone, and thank you for joining us today. I'll get right to it. In the second quarter, we retired our remaining $150 million of the 2027 senior unsecured notes earlier than anticipated.

We continue to push on operational improvements at Goderich and elsewhere. We had a strong winter across much of North America, and our salt business delivered on high level of sale commitments, while continuing to build on the foundation we've put in place. We are making progress, and we recognize that we have more work to do. In the plant nutrition, we are showing outstanding momentum with the objectives we outlined two years ago.

With the winter season behind us, it's worth looking at how much the first half of this year has improved from last year. In both the salt and plant nutrition businesses, revenues are up, operating margins are up, EBITDA is up, company-wide debt is down, and SG&A is down. And we completed new collecting bargain agreements with two of our sites, including the Goderich Mine.

That's quite a great start for the year. Now let's talk about what we're doing in each of our businesses. The improvement processes that we've successfully deployed within our SOP business is the same approach that we are using in the salt business, starting with our larger operations. A focus on restoring good long-term operating practice is critical to improving performance, which requires that we focus on key metrics that will drive performance.

Safety, utilization, equipment availability, production and development rates, and improved mining planning process, all of which are advancing. This is a key part of our back-to-basics framework. Production cost per ton in the salt business moved up year over year, and I want to explain why. The reported number reflects several factors: regional weather activity, the product mix, the pace of our operational improvements. During the quarter, we began selling production from the current year's production, which flows through the P&L. While the production cost per ton within the mines are improving, we've not yet met the efficiency gains we've expected. Pete will walk you through this in more detail. As I noted earlier, we recently completed a new CBA with the workforce at Goderich.

It was a fair agreement for everyone. It reflects a genuine partnership between the company and our workforce. This mutually beneficial arrangement allows us to continue building on the safe, reliable operation while allowing us the mine's efficiency and flexibility. We've also concluded CBA at another site in the process of completing negotiations at others. While the highway de-icing season is behind us, our focus turns to building inventory and preparing for next year's de-icing bid season.

Our production and inventory planning will be informed in part by the commitments we win in the upcoming bid season. The North American highway de-icing market remains structurally tight. Inventories across the system are low following the past winter, which is constructive from both the pricing and tender size growth. We're moving into the bid season within this framework firmly in mind. We'll be focused on maximizing the value of every ton we commit for the next season.

The market conditions are constructive, and we'll approach the upcoming bid season with the same discipline that we've brought to the market in recent years that has allowed us to see growth in pricing and margins. Based on our first half performance, the current operational plans, we've updated our full-year adjusted EBITDA guidance within the midpoint is sessionally unchanged.

We have adjusted the segment outlook. Plant nutrition is running ahead. We have moderated salt to reflect the impact of regional product mix sales, as well as the pace of operational improvements I described earlier. Phil will walk you through the updated ranges.

Consistent with our back-to-basics framework, as announced earlier this year, we simplified our portfolio with the sale of our Wynyard SOP operation, which was completed during the quarter. The sales strengthened our cash position and now allows plant nutrition business to focus on our world-class Ogden facility. Turning to the balance sheet, at the end of March, we redeemed the remaining $150 million of our 2027 senior unsecured notes. We funded the paydown from cash on hand and removed our nearest maturity. This represents a significant deleveraging milestone and provides us with more financial flexibility. Reducing debt remains one of our top priorities and strengthening our balance sheet as a result. This is what investors expect and it's what we're doing.

Before I hand it over to Peter, I want to briefly note the recent changes to our Board. We've added four new directors over the past year. Each brings deep knowledge and relevant experience in the industrial manufacturing businesses, some of which have direct experience in salt and plant nutrition industries. The Board is aligned with our strategy and brings operating and financial expertise we need for this phase of the company's development. With that, I'll turn the call over to Peter to walk you through the numbers and our outlook.

Thanks, Ed. I'll walk through our financial results as well as our updated outlook. For the second quarter of fiscal 2026, consolidated revenue was $453 million, down $41 million or 8% versus prior year Q2. The decrease is primarily due to lower highway deicing sales in the current quarter. Adjusted EBITDA was $86 million compared to $84 million in the prior year Q2 or up 3.3% over prior year.

Adjusted EBITDA margin was 19.1% compared to 17.0% in the prior year.

The improvement reflects adjusted EBITDA margin growth in both the salt and the plant nutrition business as well as lower SG&A expense year-over-year. In the Salt business, revenue was $383 million compared to $433 million in the prior year Q2. Tons sold were 4.1 million, down 19% versus prior year, which is a function of timing and velocity of the winter weather. On a per ton basis, operating earnings were $15.85 per ton, up 21% versus $13.10 per ton in the prior year Q2. The per ton progression reflects price realization, offset partially by increased distribution and product costs.

As Ed mentioned, the sales mix dynamic in Q2 warrants some additional commentary. Our salt business serves customers and end uses across several businesses from multiple production facilities across different geographies. In any given year, the volume each facility contributes depends significantly on where winter weather occurs.

With different pricing and cost structures, volume shifts in a given season can impact comparably. So the reported cost per ton reflects 3 things: the geographic mix driven by weather, product mix and the production cost dynamics at the facility level. In the Plant Nutrition segment, revenue was $67 million compared to $58 million in the prior year Q2. Adjusted EBITDA was $17 million, up 202% year-over-year with the adjusted EBITDA margin improving to 25.2% in the current quarter from only 9.6% a year ago.

I want to note that we closed on the sale of our SOP operations at Wynyard during the quarter. Q2 '26 only reflects a partial contribution from that asset prior to the sale, which makes the year-over-year comparison even more impressive. The Ogden story continues to be strong. We're achieving year-over-year cost favorability from better operational execution and strong asset utilization. On a year-to-date basis, first half adjusted EBITDA was $152 million compared to $116 million in the first half of last year, a 32% increase year-over-year.

Adjusted EBITDA margin for the first half of the year was 17.9% compared to 14.5% for the first half a year ago. These combined results show that the plan we put in place is working. We are working hard to maximize value, control costs and manage working capital and inventory.

And the result is that we are enhancing profitability and delevering the balance sheet simultaneously. Switching to the balance sheet. As Ed noted, we redeemed the remaining $150 million of our 2027 senior unsecured notes. The redemption, which was funded from cash, extends our maturity profile and delevers the balance sheet. We also renewed our accounts receivable securitization facility during the quarter on improved terms.

Combined with the retirement of the 2027 notes, our significant debt maturity is now in 2028, which gives us meaningful runway to continue executing on our operational priorities without near-term refinancing pressure. At quarter end, total net debt was $639 million, down $119 million versus Q2 prior year.

Our leverage ratio was 2.7x on a trailing 12-month basis compared to 4.6x last year. We are focused on continuing to strengthen that balance sheet. Liquidity at the quarter end was $379 million, comprised of cash of $74 million and revolver capacity of around $305 million. We are updating our full year adjusted EBITDA guidance range of $212 million to $236 million with a midpoint of $224 million. We have adjusted Salt segment outlook.

The midpoint is now $233 million compared to the previous midpoint of $241 million. The adjustment reflects the factors I mentioned above. Plant Nutrition adjusted EBITDA is now $43 million to $47 million compared with the midpoint of $45 million, up from the prior midpoint. Volumes are up, pricing is favorable and Ogden is delivering strong cost performance. This is a straightforward story and a reflection of the commitment we made 2 years ago to restore the business to historical levels of financial performance.

The range of our corporate adjusted EBITDA, capital expenditures, depreciation, depletion and amortization and the effective income tax rate remain unchanged. Interest expense net is now lower at $62 million to $67 million to reflect the paydown of the 2027 senior unsecured notes. Operator, we're now ready for questions.

(Operator Instructions)

Our first question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open.

Hi there. Good morning. It's Evan on for Joel. Thank you for taking my question. Just a couple here. If you could talk about what we can expect from solid costs over the next couple of years before the potential mill project comes online at Goderich?

Good morning, Joel. We don't generally guide on costs, but as we work our way through our operational improvements, those unit costs at the mine should continue to decrease from where we are now and to really our performance at the mine, if you look at it in some of the key KPIs, reaching a point here to four, not down at the mine. We need to do that because we're still facing headwinds with regard to where we sit in the mine plant.

Great, thanks. And in the full year guide for this year, in Salt specifically, you raised volumes, but you lowered your margins. Can you talk about some of the puts and takes there? I understand some issues at Goderich, but you're also raising the volume, so just some color on that would be great.

Yeah, let me just pass that off to Peter. That's great.

Sure. Thanks for the question. Right. Overall, it's really coming down to the reported cost per ton reflects those three things that we mentioned in our opening comments. It is geographic mix. It is production dynamics at a facility level and product mix. And this year, it's simply that the heavier winter proportion of winter sales get into our served markets, including limited winter impact out west and volume and higher costs served markets, as well as kind of mix within our C&I business.

Always carry different cost profiles, so our guidance is updated to reflect basically those factors.

Okay, you guys need one more in. I know it's early, but are you seeing any specific trends in the bid season coming up in terms of volumes and bids and prices for the rock salt bid season and any color on channel inventories?

So, Joel, thanks for the question. It's early days in the bid season here for us, very early days. But as we said before, we expect the market to be constructive. And we're focused -- that said, our primary focus is always value over volume. And we're focused on maximizing value on every ton of production across all of our facilities.

Much better visibility to this and be able to report on it in our Q3 earnings call.

Thank you. Our next question comes from the line of David Silver with Freedom Capital Markets. Your line is open.

Yeah, hi. Thank you.

I guess I would like to follow-up maybe on Ed's comments in the press release where, I'm just going to quote you, but you said, quote unquote, we know we still have, we know what we have to do. We still have work to do in terms of addressing salt mine production efficiency.

Could you just kind of highlight, what, what's included in, quote-unquote, the work that you have to do there?

Yeah, thanks, David. I appreciate the question. This is really core to what we're really focused on in the company, is really driving our costs everywhere, not just at Goderich, but everywhere into a more competitive position. And these are things like improving maintenance practices so that we can improve the availability of the equipment to actually run more hours in the day and actually take advantage of that through our utilization. We're seeing really good inputs on that, kind of a. Of waste, improvements in our mine planning efforts and other things. We've got a handful of teams underway working on this very diligently, and there's a lot more to come here. Later this month, we'll be commissioning a bunch of other teams to really tackle some really great enterprise opportunities for us. Let me just ask Pat if there's anything else you'd like to add to that.

No, hi, David. This is Pat. I think Ed's hit those points well. We're focused on the basic fundamentals of how mines operate. And that comes down to, at Goderich, are the machines getting fixed and are they available? Are we using them? And are we using them the way we should be? And then optimization of our mine planning process, which is all of which has been underway for a year or so. And so we're seeing benefits of that. They're just not coming in as quickly as we would have liked.

The improvements are continuing.

Yeah. Thanks for that, Pat. we are seeing, some really great shoots coming up from this effort. I feel pretty good about that. And, we'll be reporting more and more on this as time goes by.

And then if I could just follow-up on your comments about the new collective bargaining agreements and, in particular.

I'm going to ask you, well, whatever is most important, but I was thinking Goderich first. And in particular, I know that over a longer period of time, there has been some meaningful changes in how, you go about things and allocate labor, at the mine. Does the current collective bargaining agreement that you highlighted, does that include any.

Greater flexibility on your part in terms of how you can deploy, labor and equipment, just in the normal day-to-day operation of Goderich. Thank you.

Yeah, the simple answer to that is yes, but it's a mutually beneficial agreement, and we're all incentives, including the workforce, to improve performance. Let me pass it off to Pat, then he could give you a little more color on that. But we want to keep this pretty high level.

Yeah, David, we can't get too far into the details.

But what I will say is that we have spent a lot of time over the last 18 months or so working on the relationship with our union, which has improved dramatically. And I think the CBA reflects our desire and their desire to see the site succeed.

We're looking forward to continuing to work with our workforce in driving improvements from safety costs and tonnage, and we think the CBA is going to allow us to do that.

Okay, and I appreciate you keeping it high level. One last question for me.

And it would be regarding Ogden and the very strong improvement there on your SOP business.

When I look at the results, I mean, there's a number of highlights, but I'm just kind of scratching my head and wondering, is the meaningful improvement there in, let's say, per ton margins, really all the metrics?

How much of the improvement there is related to, let's say, accessing more brine-based tons or, more brine-based potassium as opposed to, supplemental purchases at KCL? So, how much of it is maybe just nuts and bolts of operating, the evaporation ponds and everything versus maybe tapping into a richer source of brine with more.

Potassium in the original brine.

Yeah, David, that's a great question. And it depends where you really start the clock of looking at it. We turn the clock back a couple of years. You remember our earnings out of that tire business, including Wynyard, was something in the mid-teens.

And now we're going back to sort of historical levels of about $50 million a year, which is really kind of $40 million to $50 million is what it said was our target. We're there.

And with more improvement to come. A lot of that improvement is exactly what you said. It's about managing the ponds correctly and building up the salt at the right grade. Remember we talked about the harvest to production ratio and all those sort of details. Getting that right and then putting sufficient inventory in front of our wet plants so that we can manage and stabilize the plant in a better way. So that's been a great success for us. We'll continue to do that. And I just want to remind you.

That -- and we'll continue to supplement as appropriate with KCL, but the big improvement over the last couple of years is really just managing the ponds better, restoring that. Remind you that we're not done yet, that we've got an important capital project to execute, which will be done later next year, where we're going to -- which is really the drier compaction plant, where we have yield losses and other things, so very high circling lows, inefficient operations, making.

A product that we could want to improve the quality of, and we'll execute that project, and we'll see more capacity at lower cost, all things being equal, with a better quality than what we're producing right now.

Okay.

Thank you for all the color. I am going to get back in the queue, so thank you.

Once again, a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Once again, that is star followed by the number one. We'll pause for just another moment here to compile the Q&A roster.

And we have a question from David Silver of Freedom Capital Market. Your line is open.

Okay, great. Thanks very much.

I did want to ask a question, I guess, about your particular tax situation here, as you look at fiscal 2026.

And in particular, I would love to maybe get Peter's comments on. What kind of cash tax liability may be in a reasonable range, we should expect. I mean, it's a very complicated tax, analysis to do with the different geographies, and on top of that, the big, settlement was the government of Ontario, I guess.

So, in thinking about kind of, we're trying to do our cash flow work here, free cash flow work, but what, could you point us to in terms of, a cash tax liability for this year?

Okay, well, look, it is a complicated question. The short answer is, within our guidance, everything's built into that. Nothing has really changed. In terms of the details, let me pass it off to Peter to try to address your question with a little more substance.

Sure, thank you. David, thanks for the question.

As we spoke before, right, the tax at compass here swings in our effective tax rate is what happens, right? It's based on relatively, income in Canada, losses in the U.S., adding a relatively small number for income tax purposes, right? So as we think through how that's compared and comparability, that number will tend to fluctuate quite a bit from an effective tax rate.

From a cash standpoint, which is your question, remember that we did make some OMT.

Relayed to the Ontario mining manner, had a resolution of that in previous quarters, and working through that, but obviously have adjusted our balance sheet and our cash payments in previous quarters, and we're working through that as well. So at this point, there's not a lot to guide on cash tax, and we'll have a better update here in Q3 and Q1.

Yeah, thanks, Peter. Just let me just close here with that thought.

Put yourself back a year or two. We had a lot of sort of non --

Core business issues in the company and getting these matters behind us in terms of the refinancing that we've done, the Ontario mining tax, a number of legal issues. We've really cleared much of this out of the company. And the great news there, it's allowed us to really focus more on what's important.

Okay, great. And just last one for me, but, just at a very high level, I mean, I do have a question about your thinking heading into this current bid season. And I know it's very early days and whatnot, but, when I think about how the past winter played out, I mean, when we spoke.

I don't know, two and a half, two and a half months ago, it was really kind of, hand to mouth or, very tight supply across, your primary marketing region.

And, the way the winter worked out, I mean, the last month or so was pretty calm or pretty mild, I guess you'd say.

And I'm just kind of wondering, do you think the industry is still kind of, in a scarcity mode, or has the mild March weather, I mean, given a chance for the situation to kind of normalize?

Last year you got single-digits or low single-digits on volume and price. And I'm just kind of scratching my head. I'm pretty sure, you're trying to, you're interested in, improving upon that result. But, maybe just some comments from the field, what you think the winter ending inventories look like maybe at the key customers and yourselves.

Thank you.

Let me just make an early comment, it's always important to, when we talk about inventories, to talk about where.

We had a really strong winter in much of our, how to call it, northern system, and inventories remain tight there. We've had better. Winter in the south. That's part of what's driving the mix of costs.

But in the U.K. And out west particularly, where our lowest cost salts actually produce, it was less so. So their inventories remain higher there. So it's really important to kind of understand where you are. Within that context, our objective is to maximize value. Let me pass it off to Ben here for some comments.

Good morning, David. This is Ben. I think, as I've stated, we think that the scenario. Is very constructive for value moving forward.

We see that the industry is thin on inventories coming out of the last season, all things being equal. While it is early in the bid process, the few data points that we have seen are positive and support the thesis that we've stated. So we're excited about the bid season. It seems very focused on driving value for every ton that we sell. And we'll have a lot more detail for you when we get together about a quarter from now.

Very helpful.

Thank you very much. Appreciate it.

With no additional questions in the queue, I'll turn it back to Ed Dowling, President and CEO, for closing remarks.

Well, thank you all for your questions and your interest in Compass Minerals. I'm going to leave you with this. We had a strong quarter, but the journey isn't finished.

Some of the hard work has continued to drive operational improvements, and we are.

Some is continuing to improve the plant nutrition business, and we are.

Some of it's retiring debt to improve our balance sheet, and we are.

And some is disciplined execution on our commercial side. We're doing that too.

The direction is right, the strategy is sound, the team is committed. We look forward to updating you on our next call.

Thank you. This concludes today's conference call. You may now disconnect.

Goodbye.