Q1 2020 Earnings Call
Good day and welcome to the Compass minerals fourth quarter earnings Conference Today's conference is being recorded.
This time I would like to turn the conference.
Trees to Womble. Please go ahead.
Good morning, everyone, we're very glad to be hosting this call with you during these challenging and I've got you Didnt times.
On the call today, we have our CEO Kevin Crutchfield.
Our CFO Jamie to Canada.
Also joining could acuity fashion or Grad Griffith, our chief commercial officer, as well as our Chief operating Officer George Chiller.
Well that's already about so please bear through any positive as we organize during acuity session.
Before we get started yet let me remind everyone that the remarks, we know today that we get our view of our financial and operational outlook.
As of today may.
2020.
These expectations involve risks and uncertainties that could cause the companys actual results.
Differ materially we discuss each rep and aren't actually see filings, Okay, Dan online at Investor Relations Compass minerals Dot com.
Our remarks today also include non-GAAP financial measures such as adjusted EBITDA and free cash flow you can find reconciliations of these items in our earnings release or <unk> earnings presentation, both of which are also available on our website.
With that housekeeping out of the way I now turn the call over to Kevin.
Thanks. The recent good morning, everyone. That's the recent mentioned these are indeed unprecedented times for all about says we addressed the challenge it goes.
Current endemic.
There, we get started over half of our leadership team here at Compass Minerals' I'd like to extend a heartfelt. Thank you Dr. Borys continued working to produce our centric products service customer needs and maintain business continuity in an uncertain environment.
Half of your car company. We also think those on the front ones that are cobot 19 pin debit.
Health care professionals in first responders.
Food service and deliberate personnel and the many others, who are keeping us going during this period of uncertainty in change.
As an essential business, we had compass minerals have continued producing and delivering the vital products. It's important to critical industries, such as transportation agriculture chemicals to pharmaceutical in animal nutrition, all while seeking to safeguard our employees and adhere to governmental protocols and shaky recommendations.
Dan exposure to it's spread out 'cause it 19.
But before sharing more detail on how where we've responded to the challenges posed by cobot 19.
Our current view because when factoring the pandemic and where we think will be as we moved beyond the current crisis I want to spend just a few minutes summarizing our first quarter results.
He will then provide greater detail on our financial performance and share additional insight into the rigor scenario planning, we've undertaken and our current liquidity outlook.
Right and George will also be available for follow up questions. After these prepared remarks.
Third quarter 2020 results were very positive as operating earnings increased 33% from first quarter 2019 results.
EBITDA rose, 15% and cash flow from operations increased 78% to almost $229 million.
This strong performance was achieved despite lower demand for deicing salt due to the mild winter experienced in both North America and the UK.
Strong solid pricing as well its sales volume growth in our plant nutrition businesses drove up operating earnings and EBITDA improvements in all three of our business segments.
Production rates at our North American Salt mines have remained strong and we executed on our March maintenance outages exactly as planned.
Among other things. This included commissioning the upsides continuous miner it got or.
Which is now in full production mode delivered more than a 35% improvement in cutting rates.
Hi, it's even peaking at 50% improvement compared to the over again.
Behind these results are the efforts of our 3000, plus employees, who continue to engage deeply and driving improvements through all areas of our business from operations to sales and marketing from logistics in procurement and back office systems and cash management, we've worked hard to leave no stone unturned in our.
But to sharpen our execution and enhance our performance.
And the dedication focus and adaptability than our employees continue to show. Despite the challenges of these uncertain times has been absolutely incredible and I. Thank them again for their efforts.
Since this crisis emerge their senior management team that's focused on for priority areas.
Number one safeguarding the health and safety of our employees number to fulfilling our responsibilities as an essential business by delivering on customer expectations.
Three maintaining a healthy level of liquidity and for pressure testing our business through rigorous scenario planning and analysis.
Our first priority as we face the challenges of this pandemic frankly, our first priority at all times is working to ensure the health and safety of our employees and we've undertaken a number of actions to do so specifically we have implemented staggered shift times and restricted crew size is an operational sites Tonight.
Well social distancing.
Placed significant restrictions on outside visitation to both our operating side and support offices.
Enacted a temporary work from home policy at our company headquarters in North America in Brazil for certain support roles and operation sites.
Temporarily ceased all business related commercial air travel, both domestic and international.
Heightened to safety protocols around contractor loading and unloading on site.
Implemented increased professional sanitation of offices in common areas within our facilities organization wide.
Increased our emphasis on good hygiene practices provided ongoing mental health support direct call potential employee assistance program.
Thankful to report that due to the continued need for our central products, we've not had to lay off any employees, where NAC wage reductions across our operating platform as a result at cobot 19 impacts.
In addition, our UK employees are receiving their full pay while our mind there is items.
Ensuring we continue to serve our customers demand for our central products in a timely and efficient manner is also a top focus for us.
Our company has a privilege set of assets that produced at a re the central mineral products for critical industries.
Our rock Salt helps keep people say phone wintery roadways, and its critical input for chemical and industrial products.
Our mechanically evaporated salt is used for commercial food production water care and animal nutrition.
And our specialty plant nutrient support the growth in yield of healthy crops and ultimately food security.
In total these products remains essential and demand for them has been relatively consistent during the crisis.
To meet this continued demand we have maintained healthy production levels and all of our facilities in North American Brazil.
We continue to review and update business continuity plans for all of our sites prepare for the unexpected and developed contingency plans and worked proactively with our workforce customers suppliers and logistics partners to prevent any material disruption to our production forecast or distribution networks.
I can report as of today, we've not experienced any material disruptions in our production or ability to serve our customers. While we do not know precisely the impact of this pandemic may have on certain end markets in the short term, we are confident that over the medium and long term our customers will still rely on the.
Essential inputs for their own products and services.
Its resilience has long been and we'd expect will continue to be an important attribute of compass minerals.
Turning now to liquidity I'm very pleased to report that a combination of a tax refund from the IRS at an intense focus on working capital management resulted in cash flow from operations of $228.6 million in the first quarter.
We also ended the quarter was just about a $110 million and cash on hand, compared to roughly $35 million at the end of 2019.
Jamie will discuss in more detail these results, but I want to stress to you all that we have been and we'll continue to keep a laser focused on liquidity and cash management and on how we deploy capital in these unique circumstances.
Currently well position from a liquidity perspective to comfortably navigate this period of uncertainty and have a variety of financial levers to pull should that become necessary.
The last priority focus area for our team has been to ensure the preparedness and agility of our business to do so weve pressure tested a variety of scenarios to identify the potential for various risks to our operations supply chains in markets and what those would mean for our financial outlook, we'll hear more specific.
Next from Jamie shortly about some of this planning at risk analysis.
I can tell you though than from what we see today, we continue to be confident in the resilience of our business.
In addition to the code would related pressure testing we've been conducting we've also taken a hard look at seasonal demand thus far in 2020, and how it will impact our overall business performance through the rest of the year.
As a result, and with an eye toward prudent conservatism, we decided to tighten our EBITDA guidance and lowered it modestly to better reflect our current expectations.
Now I'd like to return to what we stated in February as our key strategic priorities for Twentytwenty, an update you on where we see these priorities and why did the current environment.
First I'd like to discuss our strategic review of our plant nutrition in South America business.
We have determined it's in the best interest of our shareholders to suspend this process for the time being due to increased uncertainty and the unexpected impacts to the logistics of capital markets business planning and travel caused by the global pandemic.
This is an excellent business and we've also been very pleased with the strong performance. It is generated thus far in 2020.
This performance reinforces our belief in the inherent value of these assets and its management team and we remain steadfast in our position that the only transaction that we'd consider for this asset is one that sufficiently recognizes that value.
Turning to delivering on our commitments and our enterprise wide optimization effort.
I have continued to be both impressed at inspired by the dedication of our people to identify and implement improvements to the way we do business.
We're just beginning to see some tangible financial benefits from these efforts and expect them to build as we progress through the year, while small number of the initiatives have been partially delayed by the current environment for the most bar we remain on track with our original plan.
For example, the Goddard Compaction project, we mentioned last quarter has been initiated and we expect to see incremental volumes at lower cost from this project beginning in the second half of the year.
As the benefits of our optimization never build overtime, we expect to demonstrate a range of improvements across our company from top line growth to lower logistics and production cost to other forms of margin enhancement.
In the meantime, as we look to the rest of the year, we'll continue to focus on those things we can control.
Protecting the safety and well being of our employees maintaining discipline in our production sites and through our commercial channels and fulfilling our responsibilities to our customers and communities as an essential business.
Before turning to Jamie Let me conclude with a couple of final thoughts.
Our business is built on the production manufacturer and innovation of essential mineral products from a set of strong and unique assets.
The essential nature of our products combined with the inherent advantages of many of our assets has resulted in considerable stability and resilience through a variety of economic cycles I believe that will be the case during this crisis as well a belief that is further grounded in the optimization efforts we've have underway.
And the improvements we've made in our mining operations and the strength of our plant nutrition product portfolio and then the active engagement, we're experiencing from our employees.
So as we continue to adapt to any short term challenges over the course, the coming months I remain confident in our business ability to weather the storm and continue to demonstrate its resiliency.
Now, we'll hear from Jamie for greater details on our financial results outlook and liquidity and risk assessments regarding the coated banking crisis Jamie.
Thanks, Kevin and good morning, everyone.
I'll start on slide seven with some comments on our consolidated results before going into greater detail on our first quarter 2020 segment results and our current outlook.
I will also take a few minutes to highlight some of the potential risks we have modeled in light of the cobot 19 pandemic as well as our liquidity and leverage positions.
Strong year over year sales volume growth in our plant nutrition businesses in North and South America more than offset lower sales within our salt business and generated at 3% increase in consolidated first quarter 2020 revenue compared to prior year results.
Consolidated operating earnings and EBITDA were bolstered by year over year increases across all three operating segments.
Excluding the $55 million IRS refund, we generated a 35% increasing cash flow from operations versus our first quarter 2019 results.
Our free cash flow for the first quarter, excluding the IRS refund was approximately $145 million, which is 37% more than we delivered in the prior year quarter.
We achieved this through a combination of working capital improvements across our entire enterprise along with improved operating earnings.
I will discuss the details of our free cash flow result, and liquidity position later.
Moving to slide eight for our Salt segment results mild winter weather throughout North America, and very mild winter conditions in the UK during the first quarter drove a 13% decline in salt sales volumes and a 6% dropped in revenues versus first quarter 2019 results.
Despite these declines the segment still achieved a 9% increase in first quarter 2020 operating earnings and a 6% increase in EBITDA compared to 2019 results.
The growth in earnings and the 300 basis point improvements in both EBITDA and operating margins resulted from an 8% increase in average selling prices, which more than offset higher per unit costs compared to our 2019 first quarter results.
Some of the factors contributing to the increase in per unit cost. This quarter include the significant year over year decline in production rates in the UK, which resulted in about a one dollar per tonne negative impact to our total salt cost.
We continue to expect lower operating rates during 2020 at our UK mine as we took an extended shutdown in order to match, our inventory levels with our updated expectations for fall and winter demand.
We also completed some planned refurbishment of our continuous haulage equipment at the Goderich mine during our typical mark shutdown.
Our oldest of these flexible conveyor trains have been in service for about four years, and we're ready for some scheduled maintenance.
During these rebuilds, we upgraded and replaced certain components, which is expected to improve performance and reliability going forward.
Placement of these components contributed about $1 per ton of negative impact to total salt cost in the quarter.
Looking forward, we expect salt segment per unit costs in the second quarter to remain somewhat elevated mainly due to the lower UK production.
This lower production level is pulling fixed cost into the second quarter due to certain accounting rules.
Under normal production conditions, we inventory those costs until we sell the salt during the subsequent winner.
However, as we move into the second half of 2020, we expect salt cost to improve compared to prior year for several reasons.
First we will no longer be selling purchase sole sourced in 2018 to supplement our production shortfalls during that time period.
Second we continue to see production rates at our North American rock Salt mines come in at or above plan on a sustained basis and finally, our enterprise wide optimization efforts are expected to reduce costs and improve efficiency as well.
The realization of some of these benefits will be dependent upon early fill demand and how quickly we begin selling our lower cost 2020 production turns.
In fact, our 2020 production plan at Goderich, each of which all tons are going into inventory. Each day is expected to reduce year over year per unit cash cost at the mine by about 15%.
This comes after delivering a 29% decline in unit costs in 2019 versus 2018 results.
Turning to slide nine our plant nutrition, North America segment delivered much improved first quarter results from last year's first quarter, when wet and cold weather resulted in depressed sales volumes.
This year is off to a tremendous start with sales volumes up 68% from first quarter 2019 results.
Lower application rates last spring resulted in many growers mining the soil for nutrients throughout the year.
We are seeing some catch up on a year to date basis, which is consistent with the essential nature of our so Pete.
Average selling prices for the segment declined 4% year over year, mainly due to geographic sales mix changes from prior year.
First quarter 2020, EBITDA for this segment increased 57% from prior year results per unit costs were essentially flat with prior year, while logistics costs were lower on a per unit basis due to selling more tons into key markets in the western us compared to prior year.
Now turning to plant nutrition, South America on slide 10.
We've also had a very strong start to the year in Brazil with first quarter 2020, agriculture products sales volumes at 31% from 2019 levels and chemical solutions sales volumes up 10%.
The drivers for these improvements include much stronger crop economics, and fertilizer affordability for farmers.
For example, about a year ago Brazilian barter rates for soybeans was that about 33 to one this means a grower had to treat 30 60 kilogram bags of beans for one ton of fertilizer.
Today that barter rate is sitting around 22 to one which means the grower has to deliver a third fewer beans than last year.
In other words affordability for crop nutrients has significantly improved on a year over year basis.
Our chemical solutions product sales benefited from continued growth in water treatment as well as an uptick in chlor alkali demand as many of these derivatives go into cleaning products and other disinfectants.
In local currency these trends drove a 24% year over year improvement for first quarter 2020 revenue.
EBITDA for the segment also improve significantly increasing to 22 million high from 10.9 million high in the first quarter 2019.
In addition to the strong year over year volume improvement.
We also saw lower unit costs due to higher production levels and lower spending.
Our second quarter 2020 outlook for our segments can be found on slide 11.
This is a light quarter seasonally for the Salt segment.
We expect to see increased revenue in this segment driven largely by increases in average selling prices. However, EBITDA is expected to be similar to prior year due to the UK cost pressures I mentioned earlier.
We still expect to drive costs lower in the second half of the year and estimate that per unit cash costs are likely to decline by more than $2 per tonne compared to the second half or 2019.
In our plant Nutrition, North America segment, we have not changed our second quarter sales volume outlook materially as we believe the strong first quarter was consistent with our prior expectations for the first half overall.
In this business sales are concentrated in March and April so an early sales season can pull significant volumes into the first quarter.
Therefore, we expect second quarter, 2020 revenue and EBITDA to be similar to second quarter 2019 levels.
Our plant Nutrition, South America segment is expected to continue ramping up agriculture products sales as crop economics remain positive.
We continue to see strong performance in our direct to grow our sales channel and are beginning to see increased volumes in our business to business sales as well.
So as Kevin mentioned, we're pleased with the results and outlook for this business and were it not for a week Brazilian currency. We would expect this business to be a more significant driver of our consolidated EBITDA growth into 2022nd quarter and for the full year.
We summarize our full year 2020 guidance metrics on slide 12.
Key items to note here are that we have reduced our full year salt sales volumes to take into account the mild winter weather in the first quarter.
Our rest of your outlook on volumes remains consistent with our prior view.
As we still expect to modestly grow winter season volumes with our improved Goderich mine production.
Mild winter and the expected weakness in the Brazilian and Canadian currency are the primary reasons for our decision to modestly lower our full year EBITDA guidance range.
Just for some context on the currency impacts we began the year, assuming an exchange rate of 4.15 BRL two you SD.
That rate is now well above 5.25 to one.
At this rate is very supportive for Brazilian farmers and encourages increased input purchases. It's also a significant drag on our results as reported in us dollars.
One other item of note, we're taking a conservative approach to our capital spending as we navigate the uncertainty ahead.
We are looking to manage our capex to the lower end of our 100 million to 110 million full year guidance.
Before turning to the question and answer session I'd like to provide some color on how we'd been pressure testing our business plan given potential cobot 19 scenarios.
We do not feel that any of the scenarios are imminent or even likely however, we believe it is very important to understand the magnitude of these potential risks in order to determine what mitigating actions can be implemented should we start to see code 19 related impacts.
This will help us stave off or minimize the financial impacts as quickly and effectively as possible.
We've looked at a wide range of possibilities as part of this scenario planning.
Starting first with risks to the health and safety of our employees.
The potential impacts on our operations and end markets. We've also looked at the stability of our supply chain and logistics infrastructure.
The Echo what Kevin said earlier, our employees health and safety is our highest priority and we have implemented a variety of additional protocols to mitigate the potential spread at the virus.
As we continue to monitor the evolution of the pandemic and see various states counties and provinces loosen their stay at home orders.
We will continue to be vigilant in maintaining these health and safety practices.
While we have not had material operational interruptions stemming from cobot 19 to date.
We have estimated what an extended shutdown of our facilities would generate in terms of lower earnings and believe even in a worst case scenario in which all of our primary operations were impacted for an extended period of time.
We would not expect a breach or covenants or have any liquidity concerns.
Looking at our end markets. Our analysis indicates that we would need to see prolonged and significant deterioration across all of our businesses to purchase near our debt covenants. This would include a broad base decline in highway Deicing requests for tenders from states and municipalities in North America as we progress.
Through the current bid season as well as next year's bid season.
This decline in theory could be driven by a significant reduction in state and local tax revenues in a conscious decision by state and local governments to choose lower roadway maintenance spending over public safety.
We don't believe this is an option because the ATM municipalities prioritize safety and also know that if their constituents are not able to shop and travel for work their tax base will be negatively impacted.
But nevertheless, a possibility we must consider in this environment.
In addition to that our worst case scenario would include a protracted shelter in place order and abroad shutdown of retail hardware home improvement in supercenter stores throughout which a large portion of our consumer and industrial salt volumes are distributed.
Finally, we would need to see a historic decline in global demand for specialty fruits vegetables, and nuts in order to drive specialty crop prices significantly lower.
Thereby deeply damaging specialty crop farmer profitability, which might reduce demand for specialty fertilizer such as SMP.
Again, all of this is hypothetical and in no way something that we expect to happen.
I'd like to think of these situations in terms of reasonable boundaries. For example, could we be partially impacted in all of these areas previously mentioned and into year at or below our current EBITDA guidance range maybe.
Although that is certainly at the edge of what I referred to as a reasonable boundary.
In fact looking today at how our North American Highway Deicing bid season is developing.
I can tell you that the bid requests that we are seeing are right in line with what we would expect after a mild winter.
Our plant nutrition businesses were very strong in the first quarter and that has continued in April as well.
While there is some uncertainty around specialty crop economics in the second half of the year, we would expect any weakening to be short term in nature versus a long term case of demand destruction.
Our cautious optimism is based on the fact that our underlying end markets have historically been relatively stable and resilient even in very challenging environments.
However, we know that these are unprecedented times. So we're looking around the corner and prioritizing mitigating activities on a real time basis.
We have established a multi phased approach to cost savings depending on the severity of any impact to our business.
We have already made some changes to help control costs.
For example, we have limited hiring activity to critical roles only.
After our commercial travel ban is lifted later this month, we plan to restrict travel and entertainment activity overall.
And finally, we're looking to reduce discretionary spending in all areas.
Now turning to our current liquidity and debt structure on slide 14.
Based on our reasonable boundaries and our current liquidity position, we feel very comfortable sitting here today.
Our refinancing in the fourth quarter of 2019 significantly improved our liquidity position and pushed our debt maturities out significantly.
As you can see in our maturity schedule on the left side of the page. We don't have any large debt maturities until our $250 million in senior unsecured notes coming due in 2024.
To add further cushion we are working to put a U.S. accounts receivable securitization program in place as well.
This facility with further bolster our liquidity position, particularly in the fourth quarter, when our working capital requirement peak.
Last I'd like to again note that during the first quarter, we generated $200 million of free cash flow, including 55 million dollar IRS tax refunds, which compares to just 106 million in the prior year.
We ended the quarter with an adjusted net debt to EBITDA ratio of 3.7 times.
For the full year 2020, we expect strong free cash flow and we expected in the year with our leverage ratio at or around 3.9 times.
Now I'll ask the operator to begin the Q and a session.
Operator.
Thank you.
If you would like to ask a question on today's call. Please signal now by pressing star one on your telephone keypad.
Star one to ask a question.
We will pause for one moment to allow everyone to sink.
We can now take off first a question.
Vincent Anderson from Stifel. Please go ahead.
Yes, thanks, and good morning.
I think you mentioned.
$1 per ton cost impacts from the consumers line or do you can issue this quarter.
Much of that.
Expects to incur similar charges going forward.
No. So thanks Vincent good morning.
Yes that was that was non cash expense there.
I know you cut out a little bit I think you're referring to the you said the decommissioning the cost at Goderich.
Yes that right.
Yes, so when we when we got into that BT and.
Kind of giving it its first refurbishment.
We were able to upgrade some parts.
And so taking some of those older. Those parts came out of service there was noncash expense related to that and.
I have that kind of behind us now and wouldn't expect refurbishment there for for another four years or so and that the depreciable life on on those parts. We put in will will match with that so we don't expect to see that again.
Okay, and then just following up on that the unit those being decommissioned.
These being fully disposed of or is this going in seating.
The new roadways and mine development and then on that are there going to be any expenses that aren't capitalize related with.
And you're going to use for from my development.
Okay. Thanks, Thats that those are two different two different things the new machine that.
That Kevin referred to that that's operating very well at 35% improvement versus yields are machine is is in service and that's.
Thats not the the conveyance system the flexible conveyor train we took the unit that we pulled out of service and now it is in fact.
Just stuck.
Give me just started.
Driving the new roads that we'd previously talked about the built for purpose red ways.
Yes, Kevin do you want to add anything there yes.
The new unit is out in the production area, we pulled the overview that off to start developing the.
Column domains Theres a map in the appendix that illustrates that it's in the northeast area.
So that that work has now commenced which is part of the loan per month plan that we referenced over the last several calls.
Okay perfect I appreciate the clarification.
And then just quickly you spoke about unit cash costs at Goderich being down 15% in 2020.
I assume thats measure directly at the mine as it's going into inventory, so not not exclusively comparable to what we'll see near term.
But the point of clarification does that run rate savings by year end or your 2020 average and you've seen today.
That'd be our 2020 average savings.
Cash cost savings versus 2019.
At the mine.
Perfect. Thank you.
We can now take our next question.
Mark Connelly from Stephens. Please go ahead.
Thanks.
When you took over UTI striking in relation to look out or just terrible.
Can you tell us when you since that relation is today relative to terrible.
[laughter].
Never use that word exactly but it was pretty close to that for sure I.
I think due to the efforts of Jordan He's on the call can't put it into comment on this as well.
There there much better the way we have addressed the situation. There is they are partners with US we are partners with them and tried to work on things that we can agree on.
And we don't agree on everything obviously, but I would characterize the relationship there as significantly improved several ways to go.
Strike, we'll just have period.
We view them as partners with us up there and I would characterize the relations as pretty darn. Good right now George would you like to anything to that.
[music].
Your general view.
Okay.
We are having a problem with together looks like we're having a audio problem sorry, sorry about that.
That's a much improved.
Second question is.
We're seeing some very disappointing performance from commodity potash producers.
In most places are now in the low two hundreds which needs to see economics of upgrading so keen might do change obviously salt is not that easily available, but you guys probably know more about economics is that upgrading when when anybody else do you think we're going to see more and we will be upgraded so can we maybe.
Putting some pressure on that market.
Let Brad.
So that please.
Okay. Thanks, Kevin Thanks, Mark, It's Brad Griffith and.
I think it's something that we certainly keep our eye on and I would concur with your assessment around.
Or commodity potash.
What we look at.
With that so Pete.
And I.
I think we sense as to you on previous calls.
We're always going to price dynamically we are exceptionally proud of our people in our asset.
Thats in Ogden, Utah, and when your schedule, one and we have the ability to supply all of North America with our capacity.
We do want to ensure that we continue to provide consistent quality product, we stay closer to our customers and I think that customer centricity really allows us to give a pulse on end users and agronomists and the growing piece I think is a key point as you talk about to specialty.
Sulfate of potash and Commoditized.
That the agronomy is different and chloride sensitive crops respond differently and again as Jamie had mentioned if you reflect upon last year. This time last year.
Producers were having a difficult time getting applications into the soil at all.
And so when you have 1.3 million acres for example of almonds in California.
And your supplying 82% of the worlds almond supply.
You are going to make that investment and so thats what were seeing in terms of the strength.
That we're experiencing right now so do I have a crystal ball to tell exactly what's going to happen now is the ammo PSP spread.
It is and I think there's a high willingness again in utility for the producer to pay for that difference between the compound, but again Walt will adapt prices we need to mark.
I would just add something there I think.
Sulfuric acid prices.
Probably down a bit which could be a benefit for somebody wanting to convert of course. The other side of that is the hcl credit would be down.
That's a that's a byproduct of.
Many of the global Upgraders.
Which.
Driven by driven by the need for PBC in construction and whatnot. So construction is slower than the delta is weaker too so.
Those those kinda offset a bit and then it goes back to the main point the kraftmaid about that value here for us.
Yes, definitely sounds like a mix. Thanks, Thank you and just if I could squeeze one last one and will you be looking to carry more inventory.
In some next winter or about the same.
Yes. So we are we are inventory levels in our salt business, where we're very depressed as we.
Kind of got through the winter.
18, 19 and.
We did a good job in 19 of rebuilding that with our improved production at Goderich that we've already talked about and we imported as well as we also talked about we won't be importing. This year. The mine is running great at an above plan, we're really excited about that and we're rebuilding our inventories further so that would be a draw on on.
On cash this year in terms of working capital draw.
Upwards of kind of 30 million.
Or so in 22020 to get those inventories at the right levels based on on how we look at the bids upcoming bid season and of course, we always plan for average winter.
Sure and also what substrate and thank you very much.
Thanks Mark.
Thank you and we will now take our next question from Joel Jackson from be an old capital markets. Please go ahead.
Hi, good morning, everyone.
Two questions for me.
I fear of junior can we spoke about it ginnie spoke about how.
Bid season, so far the bids coming in volume seems to be somewhat consistent with what you expect for low average winter here library that a little bit.
Channel inventory situation, you're seeing municipality in the government customers and what we might expect this flowing gets even.
To be down inflation, you can get assortment.
Let me just ticket at a high level it looked a genuine bread kind of kind of fill in and I think we'd characterize.
Canadian markets is kind of normal.
Easter.
Northeastern markets or kind of week after the.
The week, where they had that we don't anticipate over there so thats not going to affect us the mid Midwest markets pretty typical.
Reactions actor after a mild winter so nothing at all related to cope with that we've seen on on this front and shaping up to be a very normal bid bid season kind of following a mildish mommy's winter.
Anything Jamie Brad you guys lumped into that.
You look back at historic miles and extremely mild winters, just a few years ago.
We saw extremely mild winter following bid season, we were down 15%.
Request for quotes were down around 15% or so just a typical miles season, two three years ago. It was down about 5% so.
We.
We're seeing.
Did did commitment requests in that range.
No nothing to add I think you I think you know that and we're in the frozen of the season right now so.
Going if thats helpful. Thanks.
Very helpful.
Got it makes you talked about.
Just wondering given guidance about.
Costs more than $50, 50%, Sydney and running above plan can you comp right now compare where where do you expect cottage to run in 2020 on a cost and operating rate perspective versus pre strike from continuous mining levels.
Yes, let me hit us some high high level statistics, and maybe you can read the tea leaves and get what you what kind of that but at 18 to 19.
Production volumes were up.
40% year over year.
19 to 20 were expecting at least 20%.
More increase on so the base is beginning to in increase so the rate of improvement will necessarily slow on an LTM basis at the end of April were up 32%.
Cost wise, Jamie mentioned in his script 18 to 19 were down.
29% expecting another 15 or so this year.
The number you quoted in the back half of the year.
A couple Bucks down I would characterize that he said at least but I would characterize that is pretty conservative so.
George and the team their daughter, it's nice job of.
In a handle on things again, the same to back in there in the right direction and I have no doubt as I've said, all along that will will give starting now long term and it will be the 800 pound gorilla bucket like it once was I didnt want to run back on the Labor comment George got we had an audio issue, but he's back online now do they.
It's important to hear from PMO Thats I'll, just ask him to add a little color around labor piece.
Yes. Thank you Kevin can you hear me.
Yes, Sir.
That's great yet and if I do want to call that out as Kevin said look we had a strong experienced workforce.
I think the common ground that we were able to go back to is the safety is a core value for us.
Completely across compass minerals, but again it was a real focus area. When you look at Red dog niches.
We think we started from a good base as Kevin said.
There has been some issues in the past, but I would say at this point, it's much improved.
And again, our engagement is really good we've talked a lot about a lot of things at our site, including lifecycle management is Jane you referenced earlier around some of the equipment. So we're doing a lot of great things of that operation and it's in a lot of that is derived right Mauling force. So thanks guys.
And I.
Just had one more question.
Obviously with the wild swings are not not want local production.
Oil and Eagle prices and happens before bid season, I began to begin using their pricing and delivered basis for a lot of contract.
Compensate the freight last couple of the winter. So can you talk about a little bit about where transportation costs are doesnt really matter for you because we'll be able to basically figure it out through the through the bidding process.
Or do you have to take some special.
Levels here to make sure you don't end up.
Taking a freight risk if you've gotten more V shaped recovery in oil prices across the next nine months.
Thanks, Joe Yes, so.
Good question.
So with Brent crude down around 30, right now as we look at our full year and a lot of this impact would be kind of fourth quarter, as we use vessels and and barge and rail to some extent to ship through the summer and and ready for winter.
We we built into our plan the assumption that that Brent stays that that Brent at 30 now by the end of the year works its way up to about 40, so a pretty significant change that's that's in our full year guidance.
We haven't talked about back half and specific segment guidance, yet, we'll get to that in the second quarter.
So, but I can tell you that if if fuel stays where its it where it is today 30.
We could see we could see two to three to 4 million of a benefit mostly in the fourth quarter. If fuel stays here, where it's a bit rise rises faster and heads back towards 60, which had we've seen some some expectation up just depends on the economy and demand for four for gasoline.
In diesel.
So that those those would be some of the variables there as it relates to our bid season, we absolutely.
Include this in our calculus, and our bid process and our.
As we go through the bid season and bid these that we always take that risk from between booking a bit and delivering it.
To a depot and the winner that's that's not unusual so.
We look at we look at forward fuel prices include that in our estimate and make our bids appropriately always always looking obviously as we go through the bid season to optimize the value of every time we produce.
Thank you.
Well, we can now take our next question from David Silver from CL King Please.
Okay. Thank you Im just kind of preface my remarks, they did have to step away. So if I'd make you repeat yourself.
My apologies.
My first question would be on your SNP business.
Our the segment results.
And I guess over the little struck by the.
Adjusted EBITDA margin per ton.
And when I compare it to a year ago, when I compare it to the fourth quarter.
It seems like the cash margin really good contract a bit and I just found that unusual given the.
Hi.
Sales volumes.
I was just wondering if you could kind of walk through wide more of the volume at a seemingly pretty attractive price didnt fall down to the EBIT da line in that segment. Thank you.
Sure I'll I'll take that one.
So theres a couple of things there David I think.
Geographic mix plays into it.
We did see generally the lower prices, we talked about we we have three product groups within SLP. So we have got our highest.
Highest price highest quality production.
We actually produced out of when yard.
And that was that was unaffected last year.
So so those volumes are kind of similar year over year. The other two categories are we refer to as is as has.
As compacted or non compacted or granular versus standard.
Last year.
Last year the.
Compacted tonnage was was lower year over year.
And.
You know because of the because of the wet and cold weather. So.
That's that is a little bit lower margin business. There. So that's that's part of the impact Fred you want to add a little bit the only the only other thing is we probably had another 80 8500 tons that that went ex us.
Yes, so that that has an impact on on sort of your that sales price.
In margin, yes for sure and as we look at the margins.
Versus versus prior year on protests in plus I think we've actually been pretty pleased with the margin themselves on a per ton basis.
And then that the other factor would be kind of mixing into that is that is the micro nutrients business in North America, Yes, yes, I mean, our micronutrients business.
Done has done quite well our volumes were up 63%.
And as Jay as Kevin Jamie mentioned in their remarks and.
Adjusted gross sales are up over 51%, we're seeing stronger margins there as well so.
Again, I think I don't know if you could you.
Yes.
I hear you kind of cutting it announced okay.
Sorry, just cutting it out so I'm going to ask one more question. This is fairly theoretical.
But.
It's something I'd been scratching my head and thinking about so.
Times, when there is a warm winter.
Around this time on this conference call people today, but what are you going to do to get your inventories back in order for the upcoming.
Pete peak selling season starts maybe six months down the road.
I'm kind of scratching my head and I'm, just looking to stay at that.
Tax revenues at the state and city level could be significantly below prior year levels.
And I'd also say that if we're in a global recession Chlor alkali.
Demand could be down.
Sorry, Chlor alkali production could be down substantially in that that would mean that the traditional volumes that the industry moves over the summer.
Could be.
They initially lower so I mean from your planning purposes, what is what's the chance to either from tight.
Budgets at the state and local level or.
Unusually soft.
Pull through of.
So for the Chlor alkali industry leads the industry, a little little to full of inventory and that that would.
And in turn kind of impact your ability to to achieve the pricing that you hope to.
So just it's kind of an unusual set of circumstances I'm just wondering if.
We could get to an oversupplied are too high of an inventory level coming into the next peak season, but but kind of getting there from from a different.
From a non traditional set of circumstances, sorry for that word sale that that that was my concern. Thanks.
Yes.
It's fair point and is not one that is lost on us either as part of this.
Scenario planning and stress test.
We thought lot about that that at the end of the day.
What we believe is.
Mild winters mild winter behavior that we're seeing right now is exactly consistent with that coming off of a mild winter.
But the tax collection piece is a.
A worthwhile mentioned for sure.
As with unemployment rates, where they are and where they are projected to be tax collections are going to be off but I think it comes down to a public safety question as Jeremy mentioned in his script.
Somebody's going to send that a compromise safety.
Icy roads to say the few bucks and given the the percentage that salt represents.
Any difficulties budget, it's a pretty small portion.
And our belief is people are not going to take that risk.
Safety over economics, all day long, especially given the fairly miniscule size. So.
Could somebody makes a decision like that and say well, we're off a little bit because of the mild winter, we're going to buy a little bit less than perhaps but we can't see any signs of that in the bid season.
Okay. Thank you very much and again I apologize if jamie covered that off earlier.
Thank you.
Yes.
We can now take our next question.
Chris Shaw from Monness Crespi. Please go ahead.
Hi, good morning, everyone high volume.
I wanted to follow up on the.
The question earlier on shipping costs and lower oil.
Yes.
No you're just give a.
Impact.
Stays where it is now versus where the modeling at the $40 but.
Curious.
What the year over year fourth quarter impact might be.
That concludes is like 60 or 70 nodes for.
Most of last year, Brent that is I know I looked back the.
Hey that 2008, nine period, where oil collapse I think you.
How big called out at $5 tons shipping benefits just yet.
How big an impact that could be for the big attitudes that stays at $30 year over year, what's what's sort of benefit that is for the second half.
Yep. Thanks, Chris Let me, let me add a little bit more color to what I said I guess that.
Remember certain certain contracts have floors on fuel surcharge, so when when fuel falls below a certain level. You did you just not getting any benefit anymore. That's the way some of the contracts are now that varies by truck by mode by by truck by vessel by barge.
I would tell you that we are expecting some rate.
Headwind on the barge side and the second half the year.
Because of some contractual agreements that we had in place that being said.
Fuel can be a benefit fuel being lower can be a significant benefit, particularly in truck and and vessel. So.
I would expect and there's one other element here that.
As we work through our enterprise wide optimization program.
We have got benefits coming on the freight side as well to offset some of those barge headwinds that I talked about for example, so those are coming back half of the year.
As as they get implemented now in through the summer So we would.
I would expect to see it flat.
In the back in the fourth quarter, particularly were better than that depending on how fuel behaves the rest of the way that would be just kind of generally.
How how where we where we see it right now.
That's what's the reason the barge thoughts or headwinds.
It's a you won't get a little bit of color Brad is that it has to do with.
Grain trade and where we are yes I think.
If you follow the barge companies themselves. They have had a hard go of things over the past 12 to 16 months.
Grain movement.
Post tariff.
Was.
Impacted.
Steel now impacted.
And.
Third for tit for till the last year.
Certainly in the spring large shipments of fertility moving up and down the Mississippi impacted.
And so.
I think the a number of barge handlers have had a difficult time.
Princeling, Pennsylvania profit so.
We came to market that at that time, and we've we've signed a short term agreement with the carrier that we feel very comfortable with that will meet our needs.
In a in a fantastic way.
And then we'll we'll be out to market.
In a reasonable amount of time, we did did not go in long term.
You want to play.
Our thoughts are at some points deal may rebound I mean coal has certainly been impacted probably for the long term, but it's up but there will be other movements along the river systems that we believe will normalize over time and that'll probably be a better time to come back out to the market. So as Jamie had mentioned we've worked diligently through the.
The enterprise wide optimization effort with our logistics and supply chain teams to identify.
Other opportunities for savings in the second half I know your door.
Okay.
Yeah.
Got it and then I.
In the past years I've been some.
Supply issues.
Salt side competitors, having production. This is is there any I don't outlook for fiscal button industry, right, now, but any rent or any sort of supply restrictions from the competitors at this point, you're heading into the season Hello.
None that were.
[noise], particularly aware of maybe what we're focused on is making our operations run well through.
Just normal execution, but in addition to our enterprise wide optimization.
As we've said before it into the first go for US was voice our federal grant that.
Operator year on the call with US here did you.
You please.
To provide insight.
Yeah.
Not here either.
[noise] deferred to produce enough to displays our own.
Imports, which were we were going to be successful in doing this year I can tell you that now.
Longer term is gone rich gets up and running and co blowing through as well and are seeing us much runway all that.
We think we can target other imports into the into the region. So yes. It extends this is a soft season given.
The week winter.
I think it will be the imports civil taken over those first just because of the lack of margin relative to the.
The folks that are more well positioned to supply the served markets.
Okay Thats helpful. Thanks.
There are no further questions on the line at this time I would now like to turn the call back to treat so for any additional or closing.
Thank you Mike we're glad to have you all join us on the call. Today you have any follow up question. Please contact the Investor Relations Department you can find information on our website have a great fall.
That concludes today's conference. Thank you for your participation ladies and gentlemen, you may now disconnect.
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