Q3 2019 Earnings Call
<unk> third quarter earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference <unk> Director of Investor Relations. Please go ahead.
Thank you.
This morning, I see yeah, Kevin Crutchfield, and R.C.S.R., Jamie standard rubber your company no third quarter result, as well got outlet could the rest of 2019. During the question and answer periodically will also have available <unk> I chief commercial or that's why I turn the call ever to power then let me remind you that today's discussion make.
Came forward looking statements within the meaning of the private Securities litigation Reformat the 1995.
Statements are based on the company's expectation as if today's date November sex 2019, and involved with uncertainties that could cause the company's actual results, but differ materially. Please refer to the companies must respect farms and <unk> and couldn't care for full disclosure of each read.
The company undertake no obligation to update any forward looking statements made today three is like future events or development.
<unk> awesome include non got financial disclosures, which we feel are important to provide a full understanding of our business and operating condition.
You can find reconciliation of any of these measures and our earnings really or any earnings presentation Earth of which are available any investor relations section of our website at Tempest minerals Dot Com now I'll turn the color were to Kevin.
Good morning, everyone.
<unk> again today with a brief overview of some of the highlights of our third quarter of results then discuss the path to senior management team and I have defined for moving forward to be able to better compass minerals.
For our customers employees communities and shareholder.
Before I do that I'd like to take a moment to address a fatal incident that occurred at our cope larch mine in mid August when Sean climates, a contract for it to mine contacted alive electrical cable while working inside the fire suppression systems electrical panel.
We would once again like to extend our sincere condolences to his family.
The safety of our workforce is our top priority and incidents such as the one which claimed Mr. Climates life are unacceptable.
Coming from a long career in mining also believe it's imperative that we take the necessary time in actions.
Learn from these tragedies in order to prevent them from happening again.
As such I've been impressed with the manner in which our code blocks team has responded.
Reviewing the circumstances that resulted in the accident in order to minimize future risk.
And sharing those warnings across the enterprise.
Operationally the mine was off line approximately three weeks beginning in mid August as a result of the investigation of the incident.
But our cope launched team.
Is expected to recoup the loss production before the year ends.
Turning to this quarter's financial results.
Just say up front, there disappointing to me and our leadership team.
While consolidated revenue increase 6% do completely two year on year improvements in our salt business.
Are operating earnings any but <unk> declined.
We had a challenging quarter in Brazil were uncertainty and global agriculture market has reduced farmers appetite for many of the specialty nutrients, we sell while in North America, we eat out modest gains in S.L.P. sales volumes.
The bright spot with our salt business, where stronger year over year demand for pre season stocking of de icing products lifted highway de icing and consumer industrial sales volumes compared to the third quarter of 2018.
And strong highway de icing prices in North America race total salt average selling prices.
Higher than expected costs, However, limited our earnings growth.
I'll speak more to those results shortly.
We're also reporting our final North American highway de icing bit season results, which are described on slide four of our earnings deck.
We increased outbid volumes, an additional 3% from what we reported last quarter, which brings the total increase to 18% over the 2018 19 winter season.
I'm pleased to also report that are solid team achieved this additional increase while still maintaining the plus 8% average selling price we announced in August .
Just as we stated last quarter, we've achieved a total price improvement over the last three bits seasons of plus 22%.
So commercially speaking things remain old track for this all business from a production perspective, we face some challenges in the corridor. In addition to the downtime <unk>, we had to work through some difficult geology, I got a rich which slowed our production rates compared to what we achieved in the second quarter.
Even with those challenges, we still improve production through the first nine months of the year by 34% compared to 2018 results.
We've also taking a deliberate approach to settling outstanding labor dispute that God Rich I believe this is critical to our long term success, a strong partnership with our employees is and must be a focus for us.
The good news that God riches that the focus we've placed all corrective actions to mind more efficiently and the efforts to improve our labor relations are bearing fruit.
We had an excellent month or production in October even exceeding our targeted production rate.
In fact, it was a record production within the current fleet God Rich and demonstrates well. This mine is capable when everything comes together.
Given that I'd like to congratulate the team there for an outstanding <unk>.
Because of their efforts we can report that at the end of October How're. Your today production at the mine was a strong 40 per cent ahead of last year's result for the same period.
That said one month does not a year make that were also taking definitive steps to build on this success.
We're using ground penetrating radar along with N. seem horizontal drilling to explore both existing and future mining areas and reconfiguring. The geometry of current mind panels to better accommodate the continuous mining and haulage systems.
This work is party initial stages of implementing a new long term mind plan a garbage.
Some of the broad brush strokes are provided on <unk> slide six.
What did you see here isn't illustrated representation of how we plan to evolve than mine over the next few years.
This plan is designed to maximize the productive capability have our continuous mining systems.
You should also reduce maintenance costs related to the massive abandoned in previously mind areas, while they're providing safety and provide operational flexibility throughout the various mining district.
This flexibility is key and we'll make it easier to respond to solve deposit quality inconsistency issues that can always emerge in any mine.
Well this is a multi year project, we're beginning to institute the New mine panel shape, which you can see here and the call out graphic.
Set of rooms, and pillars oriented at right angles, where modifying to more of a chevron pattern.
With 60, or 70 degree angle advances, which we believe through past experience will work much better what's it flexible convey it systems, we have in place here It got rich.
Another key feature will be the new bypass road area, where we will have permanent built for purpose roads entryways, leading to and from the mining district.
Significantly reducing travel time shortening the belt distance out into mine.
Importantly, these roadways, who will be easier to maintain and safer for our minors.
As we further develop our long term mind plan will share more details regarding timing unrelated spending importantly, we expect to be able to complete this work and keep our total cap acts in the 90 to 110 million dollar range.
Now turning to our plant nutrition business, we continue to face challenging market conditions.
In North America, R.S.L.P. business has helped fairly steady, but our micro nutrient business has lagged due to the significant reduction in acres planted due to poor weather conditions earlier this year.
In South America, the lack of clarity on China, U.S. trade has prolonged uncertainty, resulting in delayed decisions by farmers or even skip to nutrient application altogether.
Cases.
In addition Asian swine flu has pressured.
A man from China, you can see the price chart on Slideseven for Brazil soybean.
Which is indicative of the weaker grower economics.
These pressures have mainly impacted our business to business sales, which serves smaller drivers through the distribution channels.
Our direct to grow or business actually increased modestly versus 2018 results and we expect to this portion of the business to remain strong in the fourth quarter.
Before turning the call over to Jamie.
I'd like to spend a few minutes discussing our approach to setting up compas minerals for the future.
It's clear to me that there's a men's potential with encompassed minerals for organic growth in operational improvement.
Significant investments had been made in this company and less than stellar execution has prevented us from achieving the appropriate level of returns on these investments.
Are focused over the next 18 months will be twofold.
Burst, we will work to become an execution machine and pushed to deliver on the promise of the investments we've already made.
Second is our results at our balance sheet improve.
We'll be able to better define what our long term direction will be.
We outlined the process will be following on slide eight.
First we're conducting a top to bottom review of all our operations in business is looking for every value generating opportunity available to.
We call this enterprise wide optimization.
Next we'll announce department details of the plan and begin executing on it.
We expect to begin delivering improved financial performance as a result of this plan and 2020.
As these business improvements in organic growth opportunities materialize.
We'll begin discerning what we want the compass minerals of the future to look like.
Consequently, we'd expect to have a thorough strategic discussion next turn really later in 2020.
Throughout this process will provide updates on our progress in an effort to be as transparent as possible with her investors.
Today I'll share that we're making great progress I'll phase one.
We've completed the review.
I think of it like an organizational M.R.I. of sorts and identified several key value streams, where we will be focusing our efforts.
Where employing bottom up process involving everyone in the organization to generate the initiatives.
Within the plan that will foster broader improvements throughout our organization.
We expect to announce more the specifics of this optimization.
On early next year.
Very enthusiastic about the work we've done so far and impressed with the energy and engagement of our employees have already brought to bear in this process and I'd like to thank them all for their hard work today.
Now Jamie will walk through the financial details or the quarter and the rest of the year outlook Jamie.
Next Kevin good morning, everyone.
I'll start with a review of our Salt segment results, which are on slide can.
Third quarter 2019 revenue for the segment increased 16 per cent from prior year results on seven per cent volume growth and nine per cent higher average selling price.
Volumes grew in both the highway de icing and consumer in industrial businesses, primarily due to more pre season stocking orders compared to the 2018 third quarter.
We also had some sales pushed into the third quarter from the second quarter due to shipping delays caused by Mississippi River flooding.
The 9% improvement in salt pricing was driven by better highway deicing prices, which increased 22% on a combination of improved highway de icing contract prices and a lower mix of sales to chemical customers compared to the prior year.
Consumer and industrial average selling price is decline, 2% duty year over year changes in product sales next.
So all in all we had a solid quarter from a revenue perspective.
We also generated significant you're over your operating earnings and eat it not gross but it's Kevin stated it was less than what we were targeting.
There are several key factors that pressured salt earnings growth this quarter.
First is Kevin mentioned, we encountered some tough geology God rich mind during the quarter, it's slowed our patient production.
This lower than expected production depressed our results by about $6 million in the corridor.
The good news is that the ground penetrating radar. We've recently began using she'd be a powerful planning tool going forward.
This will help us avoid impurities that it historically been encountered from time to time.
Second downtime it to cope launch mine also resulted in lower than expected production in the quarter and reduced earnings by about $3 million.
We do expect to make up that production in the fourth quarter. So this is just the timing impact.
Finally, executive transition costs, and a proactive decision to settle some labor dispute that got rich resulted in a total charge for about $3 million.
If not for these items this quarter, we would've handily outperformed prior year results, even after adjusting for the 15 million and Gatorade strike related impacts we called out last year.
I'd also like to note that are U.K. felt business either I was a couple million lower this quarter compared to 2018 due to lower year over year production rate following the very mild winter last season.
Obviously, we would like to have a cheap better results in the Salt business is Kevin said the focus we have placed on corrective actions to mine more efficiently at the Guy to rich mine are already yielding benefits as seen in the very strong production results in October .
And our cope launch mine has also been performing at or above plan coming out of its outage.
Both of these are great signs for the Salt segment overall.
Turning to slide 11 point Nutrition, North America segment delivered six per cent revenue growth compared to the 2018 third quarter driven by an 8% increase in sales volumes, partially offset by a 3% decline in average selling prices.
Operating earnings and eat it dot both increase as a result of lower production cost revenue growth.
I would also like to know that logistics cost in the quarter were higher versus prior year, you to less favorable geographic sales next an increase warehousing costs.
I third quarter plant Nutrition, South America results found on slide 12 were broadly down versus the strong third quarter of results at 28 chain.
Thirdquarter 2019 revenue declined 4% on volume in price weakness.
Agriculture revenue dropped five per cent from third quarter 2018 levels, driven bright primarily by lower it'd be it'd be sales to distributors. Although importantly, we saw an increase indirect to grow or sales.
We believe our agriculture sales this quarter were pressured by delayed planting trade uncertainty and weaker farmer economics in Brazil, which tend to have a larger impact on the smaller growers ultimately search through our beat it'd be channel.
Hi, larger more sophisticated grow where customers are still investing in our yield enhancing products, even in a less favorable agriculture market.
Chemicals solutions revenue for this segment was flat compared to prior year on a 14% increase in sales volumes offset by a 12% decline in average selling price.
As we previously discussed this business continues to sell higher volumes low priced water treatment products compared to prior year as many states and municipalities are looking to spend less and water treatment solution.
Unfortunately, we also saw some margin compression this quarter in the agriculture business as the modest price list was more than offset by higher unit costs due to raw material input and lower production levels.
It's also important to note that we continue to invest more each year in our sales force agronomy expertise marketing efforts to drive strong growth going forward.
All these things together resulted in at 28% decline in operating earnings and a 22% decline and eat it Ah compared to the prior year corridor.
We begin discussing our fourth quarter outlook on flight 13, with a look at expectations for each of our segments for the rest of the year.
Given the strength of our North American Highway Deicing bid results, we expect low teen salt revenue growth compared to the fourth quarter It last year.
Remember that our bid season results impact only about two thirds of our overall highway de icing business remainder is shaped by our bulk sales to chemical producers and R.U.K. salt business.
In both of those businesses, we expect lower sales volumes versus prior year.
Our sales to chemical customers have been reduced as we prioritize our constraints supply on higher margin D. I think customers.
Even the improved pricing environment increased volumes and significant improvements in operating performance at our North American Salt mines, We expect fourth quarter 2019. He did that grows up between 40 and 50 per cent versus prior year.
Where are we fall in that range will ultimately be determined by how winter weather unfolds and our ability to continue hitting our plan production rate at our North American mine.
Both plant nutrition segments are dealing with some demand challenges.
And we've reduced our full year volume outlet for each to take into account third quarter results and the fact that we don't expect to recover all of the lost sales by year end.
In North America, we expect a strong fourth quarter of S.L.P. sales, but micro nutrients are likely to remain challenged.
In South America, we expect earnings growth in the fourth quarter versus prior year as we believe a combination of delayed planting and trade uncertainty pushed buying decisions into the fourth quarter.
This shift is also expected to improve the segments eat it down margin compared to prior year results as we expect to sell more of our higher value.
Holier products.
It's also important to note that in this segment, we do expect a 5% to 8% currency translation headwind in the fourth quarter when compared to prior year.
Our full year consolidated outlook is provided on slide 14 as noted in our press release, we've reduced our full year, even <unk> outlet to take into account the weaker results in outlook for the plant nutrition businesses.
Before beginning the question and answer session I'd like to touch on our leverage in free cash flow expectation.
Given our lower eat it dot outlook, we now expect to generate between 80 and $90 million a free cash flow this year, but expect a very large step up in 2020.
We also expect to in the year within adjusted net debt leverage ratio of about 3.9 times.
Lastly.
It's important to know that all of these estimates exclude the benefits that we believe will come from the enterprise wide optimization plan, we are in the process of deploying.
While we aren't quite ready to discuss the value of the internal opportunities. We've identified we are confident that our new operating structure.
Strengthened mining capability in recent success executing the basics day in day out well serve as the foundation to execute our optimization plan over the coming months in quarters with that Oh now ask the operator to begin to <unk>.
Operator.
Thank you if you'd like to ask that question.
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It yourself to one question on one follow what have you have any further questions. Please wake you.
I think I first question.
Yeah.
Please go ahead.
Good morning, everyone.
<unk> <unk> <unk>, Hi, Jamie Kevin I want to discuss the geologic that geology issue that you've been facing and maybe going back to send the problems that beside cottage, a year or two years ago.
Over fines or maybe some of the particle break distribution partial distribution you talk about is this just straight geology or is this related to how you're now managing the or with the continuous miner versus drilling black for and wasn't the optical sort are supposed to fix a lot of this or.
Is this a new issue thanks.
Yeah. That's a good question Joel so the optical sorters are designed obviously to parse the separate the.
Small rock particles from the the salt particles as long as you have a mixture of those two those those machines are operating just fine.
We hit in the third quarter was actually more of.
Geologic an anomaly it was an intrusion.
Mineral we call and hide right and.
That's why we've engaged the the ground penetrating radars to really understand the extent and Brett of this formation.
Because we don't want a mind, where that that exist. It's not a profitable venture is very difficult. It's very hard on the machines and the optical sorters don't work when you're in those conditions because the the level of of a reject materials or non soft materials is just too high for the optical sorters to function not notwithstanding the the <unk>.
Multi on the mining machinery itself. So we've got a good handle so far just through the the ground penetrating radar that technique that we've deployed we're also going to start some horizontal drilling a probably this weekend to better define that that feature because we we want to set up as we're working towards.
As long term mine plan, we want to set the mine up in such a matter that we avoid those kinds of of areas. So in the process of determining what that what that looks like you know look the bad news is you know one of the units had a tough corridor.
In in that material. The good news is is we are defining it and we can avoid those areas in the future, which we think will result in.
Better performance in what we saw in the third quarter, which as I said and.
The prepared remarks as well as in the press release were disappointing from our perspective.
Okay. Thank you for that and in South America I know, Kevin This may not be fair, because you're gonna go through a process here and.
Now being at this company for several months you know when you look at that South American business. It certainly is not meaning the types of double digit growth caters and targets that Ah you know the manager team.
On the acquisition is you know when you look at this your gut feeling is.
Business stay intact, you need to cut it off or something you can do to acquire to make it better and what is your got on that.
Yeah. Good. Good question. So are you know job on the way we're looking at it Joel is to make the company run to its full potential stay focused on execution I think it would be a fair to say that we've had some execution problems here in the past I mean, I I really believe that there's a lot.
Of pinta potential inside the company both across all implant nutrition businesses, where we can realize better results better execution better performance and once we get the company kind of stood up and running to the degree. We believe it's possible that I think that's when we're going to begin working through more of a strategic.
Discussion you know internally with our board and then begin having that discussion externally. So I don't Wanna front run anything at all I think it's got to first things first let's get the company running at at at a school potential we've got a lot of work to do there, but again continue to be very very encouraged about the internal potential.
It exists here.
From up just from a transformation perspective in word and you know we're knee deep into that work right now and look forward to sharing our thinking on that early in in 2020, just to try to paint what we think potential the company does look like so that everybody's on board with where we're going.
Thank you.
If you find your question has been answered.
So from the queue once again at Star one to ask a question well now take our next question from Christopher Parkinson with credits. Please go ahead.
Great. Thank you kind of a corollary of the last question, but you know Kevin now that you've had a few quarters on your belt evaluating the situation got rich you. What is ultimately been the biggest surprises in salt mining versus you're just you're past experience.
And we're ultimately does your past experience enable you to truly 60 issues I mean, it just seems like a lot still in flux, but I just want to get a sense of your degree of competence in your ability to truly turn everything around thank you.
Well look I'll I'll say M- my degree of confidence in our ability to turn this around with the Chino changes. We've made on the operating side I believe is very very high things that are I think should come a little more natural to us haven't come as natural to God rich So I think.
You know as I said before we didn't get where we are overnight, we won't get where we need to be overnight either it's a process. It's a continuum.
But we're taking very definitive steps here on the development of this long term mind plan is is illustrated in the slides to set this mine up for the next 50 years and you know while I understand the pressure of demonstrating some results quarter on quarter and we're completely focused on that we do want to be focused on the long term.
Playing here too because we are sitting this thing up for.
The next 50 years or so so I think through a combination of.
You know better maintenance practices, better utilization better availability, coupled with mining where there aren't geologic anomalies.
Then coupled with the institution of this new room and pillar system that set up more on an angle as opposed to 90 degree angles and then ultimately.
Setting up these long term roadways, where we can create these rooms, where we mine for.
46 years, and then shut them off permanently and you don't have all these ground control costs.
Well manifest itself in truly a world class to World Class Reserve already it'll truly manifests itself in a world class asset that's performing at world class level. So we'd only scratched the potential of where a garbage can be long term, but just to reiterate my confidence level in our teams ability to get this.
Mind running it that world class level is exceptionally high there's not a doubt in my mind, we'll get there.
It's very helpful and just yet COVID-19 isn't the benchmark you on investors to think about the land and is but you just give us an update on your confidence also in this front not for a your portfolio positioning distribution. Your transportation logistics at you know capabilities. So just without the concept of any portfolio action just what are the key puts and takes.
That we should be thinking about you know as we had an at 2020 and even 2021. It just seems like there are a lot of efforts to read calibrate the growth in the margin profile. So just yeah scrap in the near term how shall easiest thing about this intermediate to long term. Thank you.
The the on the soft franchise.
Is that your question no sorry for the for the person only business.
Oh.
Yeah, Let me, let me start with that maybe <unk>.
<unk>. So this this is a tough year, obviously with trade uncertainty African swine flu, China demand or a number of factors you know fundamentally we we feel very good about the long term growth profile of our South American business.
The key competitive position that it has in the marketplace. It's it's a market leader as are all of our businesses.
So so we feel Barry Barry Barry good about R.B. to see business as well. So you know we we continue to think about top line growth in the 10 per cent area over over the longer period of time and that kinda load and mid teens earnings growth potential as.
Well now it's going to add been flow, we've seen that when we bought the business. We had a flat year. We bought it in 16 had a flat you're in 17.
Demonstrated about 20 per cent growth in 2018, now it's dealing a bit flatish again in local currency.
You know that's frustrating, but no I think the real focus and the potential down there is two fold. It it's in our be to see a category, which maybe brattle ads can add some color too and then this enterprise wide optimization program.
Will will really help us achieve at at those earnings growth levels, we see a lot of opportunity through global sourcing through you know sales sales force efficiency.
There's a there's a lot of things Brad did you want to talk a little bit about b. to see yeah sure. Thanks, Jamie.
Mr. For Hello, you just building on Jamie's comments, when we look at our direct to farm business internally couldn't even be to see.
We we are seeing over at three or Cagar that.
20 per cent, 22% range.
Of performance in terms of the operating income and I think when we look even at 2019 you today given the difficulties that Jamie outlined in terms of global trade uncertainty the African swine fever peace barter rates behind where farmers were in 2018 that business is still looking to grow about 11%.
A year to date and we expected to close stronger so when we look at our competitive peer group through Abby solo we're about two times just over two times the industry average in terms of expected grows. So we feel very good about the investment thesis that we made in Brazil, our direct a farm business you're to date accounts for about.
Half of our Brazilian business revenues and over 60% of our operating income. So you know I suppose in poker terms, we want to feed the hot hand, and and we certainly feel like our director farm approach is that hot hand on the be the beside that's where we kind of felt some of the pressure.
Masturbated by the kind of environmental topics that we spoke about a little bit earlier, you know our customers are having a challenging time, we have small customers at large commercial customers, we sell them raw materials intermediates finished good and when they're feeling the pain you know they buy less.
From us and so I think as we look at our portfolio and Recalibrating that portfolio in our resources and making sure we're able to feedback and without incurring additional expense. That's how we look and enterprise optimization and it's a significant opportunity for our entire business.
Mm.
Thank you.
Yeah.
Well now take our next question from Anderson.
Please go ahead.
Thanks, Good morning.
I wanted to go back Hey.
I wanted to go back to geology, just for for a minute. So how how far out can you really get with ground radar and horizontal drilling and is the plan you know in the new mining districts to make one long cut into each new panel and sample out along the chevron's and then maybe a long shot here I know you're a long ways.
Way from Michigan, but is there any reliable geological work that's been done on the other end of the reserve.
Anything you can glean from it with regards to the consistency of the or great at least at the book ends of the deposit.
Hitting the last party question first I don't know the answer that question. That's a that's a good point it'd be worth looking at yeah look at the end of the day what horizontal drilling tells you is what's in that core.
Hmm, but you can if you sample enough data you can create a very nice well defined image of what you're or body looks like.
That coupled with the ground penetrating right or I'm not sure actually the extent to the the link that the ground penetrating radar works because when it hits these.
Anomalous hydride areas in hydride areas, it'll it'll bounce back, but we have enough confidence in the technology that we believe it's going to create a very good image for us to vary completely understand <unk> you know what's in the area of concern right now, but more importantly, what's lies across the.
Areas, where we plan to lay out future parts of the mind.
Look this is this is just minding one of one is understanding your resource and that's what we're in the process of doing right now is understanding the resource and you know as a consequence that <unk> that is what will drive what the long term mind plan looks like to ensure that you can you can never 100% eliminate the chances of having.
Geologic anomalies, but you can certainly mitigate those circumstances to a great degree by deploying the technologies that we're that we're talking about here. So I think there's a very high level of confidence that we can do that.
And I think.
I think we're talking about the the the depth penetration on this radars about a mile.
Oh, the horror excuse me that and the horizontal drilling itself will will penetrate a mile and then we drop off laterals along the way. So that gives you a in you can start at the you know the the development lifting go all the way down through the the fourth lift that were mining so it'll it'll really be very additive in terms.
Defining the resource.
That's that's very helpful. Thank you I just quickly to bring it back to to the numbers on Sol Yeah. I I. Appreciate the detailed three Q. 19 cost Overages you gave Jamie how should we think about the hang over and inventories and so the first half of 2020 or was this pretty well contained to three q. assuming goddard.
And used to improve.
Well yeah. So we're you know the the salt we made a lot of that did flush through the quarter. We will have it some into fourth quarter. If we continue at the rates were running as we mentioned renting above targeted rates.
You know our our internal planned raid you know, we we shouldn't expect to have a significant carry over.
That's great.
Yeah.
Okay, I'm going to sneak one more in if that's okay. It did look like one of your more fringe competitors in the eastern U.S. was sitting on some high stockpiles and didn't start shipping an earnest really until fairly late and the third quarter did you see any pole eastward in your contract book towards the end of the bit season.
You know not not not really we we were a bulk of our business was was booked when we reported earnings in August remember you recall, we were at eight yeah, 85% complete so a lot of our remaining book was was commercial I think Brad you'd agree we didn't see a particular pulled at these <unk> yeah.
Mm Hmm, okay. Thank you.
You will now take.
From marks Connolly.
Please go ahead.
<unk>.
Prices have been a little bit sloppy and it feels like S.L.P. is how old he got better can you talk about.
The the economic trade offs and and how confident you are the desk. So you can hold up even if M.L.P. doesn't recover from this.
Lousy summer.
Yeah, Hey, Hey, Mark this is bred griffis, yeah, I like how you characterize a movie I I would say, we feel very good about about pricing and and the stability of the market.
Oh I think what we've seen is based on the unprecedented spring that the United States went through with respect to precipitation of 125 year. Whether then yeah. There were a number that was a significant amount of inventory carry over in the in the channel and so what we're seeing now is we're seeing good demand.
From you know our tree nuts Barry's by of course sensitive crops in the South East, but also now in the in the West U.S. and the Pacific Northwest. So it's very good to see those those areas coming on line you know the Allman harvest is probably about anywhere from two to four weeks delayed from what we typically seeing an average year.
And it's been an extremely resilient crop as it pertains to the export stability. He was still strong India still strong. So I think that the export data data points as well as just internal demand for the crops that really given at a given us a p. a good good pricing.
Having said that you know Mark we we said in the past, we we will continue to price dynamically to to the market. We we have a significant share of the north American market and we certainly intend to ensure that that continues to be the case I think we also feel very good about to our cost of production.
In a in our Augured an asset.
Been able to we've had a good harvest that we've been able to use the upon times to get to to get attractive margins as far.
<unk>.
<unk> question, maybe for Jamie.
I think investors want to hear that you can keep your cap action that 90, 210 range, but they know you're spending more on these <unk> heavy pieces of equipment. So can you remind us some of the puts and takes in the overall cap expend that's allowing you to stay in that range. Even as you proceed shoe these big new initiatives.
Yeah. So we're we're focused on finding the the the the perfect amount of in both M. Ob maintenance stand, which we believe is in the 70 to 80 million dollar range for this business. So if we're going to be running in the in the 90 to 110 out in the future as we go through this.
Long term mind plan, we think there's plenty of flexibility there to make some adjustments even on the m. obese side to to absorb some of the bulky ness that may come with the longer term mind plan, which we we haven't outlined yet we don't have you know any specific line of sight on the timing exactly that.
But because of that M.O.B. level and that targeted range of 90 to 110, we believe we can fit it in there.
That's great. Thank you.
Once again.
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Goldman Sachs. Please go ahead.
Hi, everyone. This is Tom glinski on for Bob. So first just touching back on solid unit costs. So transportation costs per ton, we're down around 20 per cent quarter over a quarter could you just walk through the drivers the air and wasn't mainly just weaker volume and two q. and are there any larger factors at play.
Thank you.
So are you are you insult I'm sorry, yeah. So yeah, yeah. Okay.
Yeah. So.
Yeah, not showing down 20 per cent, so you're talking about logistics cost just in a stop segments are you talking about sequentially are here ever yet.
<unk>.
<unk>, yeah, so and yes.
Yeah sure. So so sequentially, we we all we see what we all we see a decline I think a better way to look at all costs would be year over year because of the at the really mix activity of what we're shipping in the third quarter versus the second quarter.
Soon the third quarter, we we see a ticket been highway de icing shipping right as we do our prefill activity. So we tend to see lower lower shipping costs and the third quarter.
Yeah. The the other pizza that would've been some there was some Mississippi River flooding impact that we incurred in the that was about 2.8 million of cost in the second quarter that would have run through distribution costs.
Okay. That's helpful. And then second just going back to the labor discussions at got Rich could you give any color on just what the conversations with employees sounds like and maybe how you see that progressing in the next year.
Oh, Yeah sure I mean, as we talked about we resolved.
A fair number of outstanding disputes that had been laying around up there for for some time.
And myself and our new Chief operating Officer, George Schuler, along with the management team there at the mine have been working very diligently.
With the the Union leadership, there as well as our employee base to try to set some mutual goals together, how we can work work together well continue to resolve disputes not will not allow things to get to the grievance category, but because at the end of the day <unk>. We're we're it's a partnership up there.
There there are partners and we can't do what we need to do without them. They can't do what they need to do without so it is a partnership and what we're trying to do is re forge.
That that relationship and create that partnership. So we can work together to solve problems because as I have shared with them and George as well you know a safe profitable.
Productive God rich is good for everybody around the table. So look it's just it's pretty basic at the end of the day I think I'm treating people like they wanted to like you'd like to be treated and working with them as a as a partner I think we'll set the stage for better relations going going forward to again, we didn't we didn't get here.
Overnight, we won't get out of this overnight it'll take time and rebuilding some trust, but I believe the proper steps have been taken then we look forward to continuing to force that relationship.
That's helpful. Thank you.
Thank you will not take our next question from Jeff Cetkovska. Please go ahead.
He's got.
Oh, Thanks, very much you know I know October is thoroughly and snow season, but you know there's some snow in the dakota's some snow and.
Minneapolis in Chicago with any of that what's their appreciable snowfall that influence in the fourth quarter because of early snows or no.
No not yet Jeff it's a it's too early on that we're seeing our we're seeing really nice prefill. So we're excited about that.
So snow impact yet hey, it's nice to see it's nice to see it start to get going but it's not it's not appreciable yet.
Okay, and then did you say that you're geological issue increased your costs by 6 million in.
In the corner.
Yes, yes, so the impact of producing fewer tons in the quarter because of the geology.
Create you know the way we account in the way for for our.
<unk> costs to come through our P.N.L. that impacts it in the current period.
Okay, and then lastly in terms of your capital expenditure expectations in the future <unk> where you.
Where you wouldn't affect saying that you're optimization program.
You know could cost you as much as 20 million annually and kept backs or where you're not saying that because <unk> <unk> to get to that 90 to 110 now burris normal number.
Well, what we're saying is there are a number of opportunities to invest internally right to to generate higher profits the maintenance of business, let's call. It that that 75 million I said 70 to 80, you've got other opportunities to invest along the way and we should be able to absorb any impact.
Related to our long term mine plan. So it's not the long term mind planned cap x. is not.
The difference there are other items that will come through their overtime.
So you're optimization program is not a capital intensive optimization program it's <unk>.
Yeah, Yes, I'm sorry, yeah. So it is mostly operational there is there are opportunities that will identify that will require some capitol, but and we'll we'll give more clarity and color about that but certainly the things that don't require any capital and can be done quickly, we'll do as quickly as we can and that will drive higher.
Profitability and generate more cash flow to make incremental investments in the business. So.
Yeah, I would I would categorize it as operational first but there we will identify opportunities to invest.
And then in terms of how we allocate that amount will figure out what we can for just been and I think as we've talked about we've kind of.
Good idea on what that ranges and then we'll look at all the opportunities all the projects and rank them in order of payback return et cetera, and then when the capital's gone. It's it's gone and then we'll we'll enter the face for the for the next period. So there's a very disciplined approach and process in place there that will deploy going forward.
You will not take our next question.
Shot with <unk>.
Yeah, good morning, everyone.
Morning.
I bet to Brazil for a second just on your your beat it'd be business I guess.
Brazil, I think people get worried when.
I think distributors sort of style back as it is there any sense that this is the channel inventory issue perfectly given that the the the to see is doing better had they maybe over bought the past just have too much inventory or are you not saying that.
Hey, Chris Brat again, I think that's a great question you know when when we look at our be to see business I like how you delineated those two segments on our director farm business, we call that P.O.G.. So we we get product on the ground through that team is it's not sitting in distribution is not sitting in warehouses said the statistics that.
Named earlier that as product that is getting on the farm getting used in crop.
On the on the on the direct to sorta commercial side of the business, which could be commercial customers and then competitors you know I I think that it's less that they have a significant amount of inventory I think that there are certainly some in between the channel, but it's not what I have seen in Brazil in prior years from other place.
I think it's just more of concern around market demand and and some of the global uncertainty in terms of you know how aggressive producers are going to be in terms of of managing their inputs in shared wallet. So I since that that's more more the situation more on the uncertainty side of things versus.
Sorta they channel epidemic if you.
Okay. Thanks to that just shifting back to salt I guess more of a a longer term a conceptual question I've got a rich I guess and all operations cutting you do improve and you're producing more volumes like what's the thought going ahead in terms of like it's like market share and volume versus price I mean, how how do you how do you see.
Tackling 40, you're going to try to get more volume out there to cover costs, the mind or as you want to flood the market you know sacrificing price give a philosophy going ahead.
Yeah Fair point, because we always want to try to achieve fair value for our our product. So to the extent that we are successful and taking got a rich to its potential which are fully believe we will be the first absorption that'll occur there will be the import side. So will you know, we'll lose the expensive buying import salt.
Which would be a margin expansion exercise in in another itself.
And then from there depending on what kind of volume, we ultimately decide god rich ought to be [noise]. Then we can think about longer market reach as opposed to stealing market share in the the the current <unk>. The current market. So it will give us a longer reach because you'll have the costs structure to be able to do it relative to where we are now.
So that's how how we're approaching it over a gradual period.
Do you Wanna and I want to this did hang on to spend just why the lines open I want to clean up some comments that I made earlier specific to geology defining it.
So on the horizontal drilling we can go kind of circa a mile in any direction.
And as I've mentioned drop laterals off so that gives you a good view of what's in that and then the ground penetrating radar is maybe a 100 meters are so something like that with a little bit more even more definition and then the question around Michigan, while I think the data.
About what's happening in Michigan is interesting and helpful. As it relates to defining the sort of the breadth and perspective of the reserve base, what we're focused on his localized geologic issues.
Impact day to day decisions month to month decisions and setting up the long term mine plan. So.
Just wanted to be on record kind of cleaning that up relative to what are what I said before just so it is clear.
Your next question from David Begleiter with Deutsche Bank. Please go ahead.
Thank you Kevin staying on the highway Deicing issue you just mentioned.
Perhaps a longer market reach versus stealing market share.
What's the difference between those two since it's so both involve taking someone else's business at the end of the day.
Yeah, that's a fair point, but I think when I think you think about it from a cost structure perspective, and look we're not talking about steel and market share in Europe or something.
We're just talking about moving over maybe a state or state in half potentially in Eastern-west were.
Eastern or west where western.
Reach and when we achieved the cost structure, there that we think as possible.
It will become an option to it not option to us I'm not saying that we will we'll look at the economics of it and does it make sense to do it or does it not so we will approach it from a margin perspective.
It does it grow margins is the incremental ton worse, pushing pushing it out extra extra distance or we happy with sort of the served market. They were that we're in now it'll be a high class problem. When we get to have that discussion for sure relative to where we've been.
And look forward to having that discussion internally when when it presents itself.
Got it and does this year is 18% increase in big volumes.
Recapture all to share you've lost last few years due to some operational issues.
So so we've we've we've recaptured a lot of our share we think that theres a little bit more to go.
Because you'll recall when we when we took our commitment down back in 2018.
That was that was coming off of two mild winters. So the market kind of came back and we reduced our commitments. So we believe there is a bit more to go not a lot. We've got most of the back.
Thank you.
Yes, Brad you want to add a little bit it just won't comment David.
As we is Kevin is explained as we become that reliable supplier.
What I'm learning from our customers is just how coveted our product is in terms of the product specification as it pertains to other global options. So so I think I think we're going to Theres no question in my mind, either that we're going to improve and there are opportunities on the chemical side of the business on that.
Commercial packaging side of the business. In addition to the highway deicing side of business.
Our team is sitting on a book of demand right now so like Kevin I like how you term it it's a personal problem and and so we're we're really looking forward to putting those tons to use.
Once again, if you'd like to.
And if your question asked and answered please press star too well now take our next question from Seth Goldstein with Morningstar. Please go ahead.
Hi, just.
Ask one salt question I know, we've talked about a lot today, but on over the next couple years, assuming you continue to produce on plan can you quantify the continued volume increasing costs decrease margin impact and so on and in light of the recent geology issues is there an updated timeline for when you expect to be at full production.
Yes, you will of course still a process of determine what we think full production Ken can be so you know over that continuum.
We're kind of I think we said through October year over year were up circa 40% I expect another step function change you own into similar magnitude going into.
2020, and 2021, so again, it's going to take some time because we've got to work towards this long term mine plan getting ourselves set up for the future not trying to prove anything in a quarter. For example, because you don't want to make a mistake here in compromise 50.
The years' worth of reserves through.
Short term thinking as we as we work through this so it's going to take some time, but I'm very confident in the team's ability to to generate this mine plan and then once we have it in place we'll be able to execute.
Execute against it.
Okay, Great and then as we turn to 2020 in the North American business would you expect a strong rebound in micro nutrients and SLP from from higher acres planted next year or whats your sort of initial read there.
Hi, My comment Brad again.
Yes, we certainly expect that and as you know our dry dispersible powder micro nutrients take a ride to the acre on the macro nutrient so as more acres.
Our our planted in.
And more fertility applied there's a there's significant opportunity for our micro nutrients to take a ride with those macros to the field.
In exciting development that we have we we've implemented a systems based approach to our nutritional products.
We branded as compass crops edge in the United States in South America, it's called the Supera system.
What we see what this Matt is about a 6% to 8% improvement in yields over grower standard practice for fertility and a win rate of 70 and in some cases, 80%. So what we know is our products do create value for the farmer.
And generate a very attractive return on their investments so as things normalize we anticipate.
You have to plan for for normal normal weather, if you will.
We see more acres, we see acres in the in the low to mid 90 range in corn and 85 million range in soybeans and we have we have a portfolio for both of those those key row crops. In addition to the specialty crops, where we sell S&P in some of our micro nutrients as well so yes.
Sure we're bullish on 2020.
Thank you everyone I think thats going to be it for the Q and eight today. If you have any additional questions. Please contact investor relations or be here to answer your question. Thank you.
Okay.
This concludes today's call. Thank you for your participation you may now disconnect.