Q2 2020 Compass Minerals International Inc Earnings Call
Please standby we're about to begin.
Good day, everyone and welcome to the Compass minerals second quarter earnings Conference call.
Conference is being recorded at this time I turn the call.
<unk> director of Investor Relations. Please go ahead.
Good morning, and welcome to our call today to discuss our second quarter results and rest of 2020 outlook.
I'll begin with prepared remarks from our CEO, Kevin Crutchfield, and our CFO, Jamie Stanton joining in for the key money fashion, Brad script, that's our chief commercial officer as well as our Chief operations Officer George Schuler.
Before we get started let me remind everyone that the remarks, we make today represent our view of our financial and operational outlook as if they paid August <unk> 2020.
These expectations involve risks and uncertainties caused the company's actual results could differ materially.
Question, a beach, but can be found in our S. You see a filings located on mine at investors Dot 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 in our earnings presentation. Both of which are also available at our Investor Relations website, but that housekeeping out of the way I now.
During the call over to Kevin.
Thanks to reset and good morning, everyone. Thanks for participating today.
As reported yesterday in our earnings materials, we posted very strong second quarter 2020 results.
Operating earnings and EBITDA growth well ahead of expectations.
This was achieved through robust year over year sales volume growth across all three of our business segments and strong execution within our operations and year to date 2020 cash flow from operations totaled $233.9 million up nearly 110% compared to last year's first half.
The strong performance, we accomplished in the quarter achieved in the face of Cobot 19 pandemic demonstrates not only the central nature of our products, but also the resilience of the core markets we serve.
Of course, none of this would have been possible without the deep commitment of our employees to say, we serve our customers needs and execute on our strategic initiatives and I'd like to take a moment to thank them for all they contribute.
Toward the success of our central business.
From those who work in our underground mines, our packaging and processing facilities.
I've been working remotely and our customer service will corporate support functions have been deeply inspired by the commitment they've shown to our customers in our company.
The ongoing thread of this global pandemic has required careful analysis and implementation of numerous additional protocols across our operating platform to ensure the safety and health of our people there well being remains are Paramount concern.
Because of the efforts of our employees, we've been able to maintain production across our global operations in order to meet customer demand for our products, while our UK mine was idled for a portion of the second quarter due to a combination of lower expected demand due to the mild winter there and UK governments recommendation for Cabot 19 spread mitigation.
I'm happy to report the mine resumed production at the end of May and its ramping production backup to normalized levels.
From the perspective, the product demand. We've also experienced only limited impact today due to the virus. The primary pressure has been almost exclusively within our portfolio non deicing salt product.
This includes sales through retail outlets, which were impacted by stay at home orders as well its commercial food producers and industrial customers, who may have faced production outages or slowdown due to the virus in most cases. These sales began to normalize in June.
And we continue to be laser focused on our liquidity management ending the quarter was $67 million and cash on hand, and have further reduced risk through the execution of a 100 million dollar accounts receivable securitization program. The JV will discuss in more detail shortly.
Digging more specifically into the second quarter results operating earnings from our salt business doubled compared to second quarter, not 2009, King while EBITDA from the segment grew 60% year over year.
In addition to increased highway deicing sales volumes and prices. There's significant improvement was also driven by lower per unit salt and logistics costs, both of which are beginning to reflect our improved mining performance at goderich had benefits from our enterprise wide optimization efforts.
Our plant nutrition businesses enjoyed meaningful gains as well due to robust demand stemming from improved crop conditions in North America, and the continued strength of crop economics in Brazil.
Compared to second quarter 2019 plant nutrition in North America delivered strong sales volume growth of 20% as demand for our sulfate of potash and micro nutrients continue to rebound from last year's depressed results.
In fact total plant nutrition sales volumes in North America year to date represent the strongest first half for that segment since 2014.
Segment also reported an 11% improvement in operating earnings were basically flat EBITDA compared to last year.
Second quarter operating earnings for our plant Nutrition, South America segment improved more than five fold year over year, while EBITDA for the segment increased approximately 88% compared to second quarter 2019.
Improved farmer economics, so far in 2020 helped to drive increased agriculture products sales again, this quarter and we experienced improved demand for chlor alkali products in our chemical solutions business.
These strong results during a challenging macro environment again, demonstrating the resilience of our business and the progress we're making on our strategic priorities as I outlined last quarter, we have three key priority focus areas as a company.
Building a sustainable culture.
Delivering on our commitments and conducting a deep strategic assessment of our advantaged assets and related capabilities.
Despite the pandemic, we continue to make meaningful progress in all three of these areas embedded within our strong second quarter is the early impact of our enterprise wide optimization program as we are beginning to demonstrate the strengthening of our execution muscle.
And depend Imec has highlighted for us as well as for all companies the crucial importance of health and safety.
At the end of the day, our number one responsibilities to make certain our employees go home as healthy as they came to work.
Building that culture of safety is Paramount.
As you can see in our presentation deck, we've already made meaningful progress and we'll continue to strive for improvements in critical safety metrics like total case incident rates.
We also acknowledge that we had much room for improvement in terms of employee engagement.
Shortly after our joint Compass minerals, we conducted a deep assessment of our culture and how employees view their ability to engage in influence change within the company.
As part of our optimization program. We therefore focused a significant amount of time and energy has an extended leadership team listening to the concerns ideas and inputs of our people and acting upon that feedback by providing the internal resources to empower success.
While we still have work to do to be the company. We strive to be we're seeing a number of leading indicators that our efforts are making an impact.
These efforts are foundational in terms of building the execution muscle we've discussed previously.
They are also critical to enabling our ability to consistently deliver on our commitments whether that means timely and reliable customer service hitting our production targets at our minds, we're innovating new products for our plant nutrition customers.
And we're making clear progress and all these areas as well.
Our Salt segment earnings have showed significant improvement over the last three years from improved production at our North American mine's cost savings logistics strategies and strong pricing.
Performance at our Goderich mine continues to hit or exceed targeted production rates, including setting a monthly production record in the month of June since we transition to the utilization of continuous miners.
We've also progressed roughly 2000 feet into our built for purpose roadways in the Eastern mine development area and are currently in the process and finalizing the design of and developing for the new meal. We've been discussing on prior calls. These are both very important steps and implementing our new mine plan at Goderich, which is down.
Designed to better leverage our continuous mining in haulage equipment, while simultaneously, reducing long term mine maintenance costs in the old mine works.
While we've been pleased with the progress we're making at Goderich. We continue to believe that we've not yet reached a full mine operating potential.
To help us get to that next level, a new mine leader Peter Baker has taken the helmet goderich.
Peter brings three decades of mining experience in all aspects of operations with specific continuous mining expertise.
Equally important he brings a firm belief in the value of employee and community engagement and a strong track record of leading an organized labor force.
We're confident he'll provide the day to day leadership, we need to drive further progress at the mine and we're delighted to have him joining our team.
Overall I'm extremely pleased with the ongoing work of our optimization efforts and firmly believe without them, we would not have been able to deliver the results we have thus far in 2020.
Looking ahead. These results have positioned us well from a volume and underlying cost perspective to help whether any challenges in the second half of the year, including continued uncertainty around what impacts a sustained or even the second wave of cobot 19 spread in the fall might have on our supply chain or certain end markets.
The current North America Highway bid season as a Prime example of how our improved production allows us increased flexibility to execute on our strategy even through a challenged market period.
Current bid season for North American Highway Deicing is about 75% complete.
Not surprisingly, it's been a tough pricing environment, given the mild winter and the improved supply position for producers.
In fact, as we've stated before we believe that to constrain production, we faced at Goderich likely contributed to a price response for the last couple of bid season as imported salt began to play a more significant role and meeting seasonal demand.
This bid season provided an opportunity for a reset.
We've taken a disciplined approach to placing our low cost production from goderich to regain market share while maintaining attractive margins.
Overall, we estimate that bid volumes at our served market have declined about 15% due to the elevated inventories following the mild winter.
But given our bid results thus far we estimate weve increased our bid volumes for the upcoming winter season by about 8%.
We also expect our average awarded bid price to decline about 11% compared to the prior bid season.
Obviously, we always like higher prices, but as you can see in the chart on slide eight over the last three bid seasons. Our average awarded bid price has increased 14%.
Even factoring in this season's price declines.
All in all we believe we've increased our market share in a disciplined and sustainable way, particularly given our improved cost to serve customers, which is making us competitive and more geographies.
Given the results of the bid season, plus the benefits were achieving from improved operational execution, we still expect to achieve excellent salt segment operating and EBITDA margins for the full year 2020.
Before hearing from Jamie I'd also like to point out that our plant nutrition businesses have momentum going into the second half of the year.
In North America demand for Esso peak continues to be stable and micro nutrient demand continues to exceed prior year results.
We're also cognizant of potential pricing headwinds as some customers may take a more conservative approach to inventories and spend in light of continued covered 19 uncertainties.
In Brazil, we've recently launched two new products, including the introduction of our award winning rockets seeds line into our core South American market, which will complement and already stellar year out of that business.
The way our team in Brazil continues to perform only increases our comfort level with the previously announced pause of our strategic review of this business due to covert 19.
Further highlights our position that any future action involving our plant nutrition, South America business would have to reflect the intrinsic long term value of these assets.
With that I'll now turn it over to Jamie to provide additional color on our second quarter financial performance in more detail on our second half outlook, Jamie Thanks, Kevin and good morning, everyone.
I'll start on slide nine with some comments on our consolidated results before discussing our segments. Our outlook then a few balance sheet items.
This was a very strong quarter for us given the second quarter is typically our lowest earnings period.
We delivered strong sales volume growth across all three segments.
And excluding the FX translation impacts on our plant nutrition South America results.
We delivered revenue growth across all three segments as well.
Operating earnings Rose significantly and our EBITDA result increased 44% compared to the second quarter 2019.
These results combined with the strong first quarter earnings.
In the US tax refund we received earlier this year generated free cash flow of $191 million more than doubled the first six months of 2019.
As indicated in the EBITDA bridge on this slide strong Salt segment performance in the second quarter was the primary driver for the better year over year results overall.
We discuss these results on slide 10.
Second quarter 2020, Salt segment revenue increased 8% year over year as an 18% increase in highway Deicing sales volumes and an 11% increase in highway deicing selling prices from prior year results more than offset a 9% year over year reduction in consumer and industrial sales volumes.
A bit of April snow as well as customers purchasing their minimum deicing contract volumes bolstered the improve highway deicing results.
While the decline in sales of non Deicing salt products due to covert 19 related impacts depressed consumer and industrial sales volumes in the 2022nd quarter compared to prior year.
In addition to increase highway Deicing sales lower logistics in production costs helped us double our operating earnings and deliver a 46% increase in adjusted EBITDA in the second quarter 2020 compared to prior year.
Per unit logistics costs declined 22%, even after excluding last years 2.8 million dollar cost impact related to extreme flooding along the Mississippi River.
The factors driving this improvement include our overall enterprise wide optimization efforts.
Improved utilization of great lakes vessels, lower fuel costs, as well as favorable customer and geographic sales mix compared to the second quarter 2019.
Per unit production costs. This quarter were also significantly lower than prior year.
We achieved significant benefits from both lower year over year, North American mining costs and better product sales mix. However, about half of that benefit was offset by higher per unit costs in the UK due to lower year over year production levels as we adjusted for lower weather related demand and compliance.
With the UK government Kovac 19 guidance.
Consumer and industrial Salt costs were also slightly elevated due to some minor cobot 19 related production inefficiencies.
Even with both of these short term cost pressures, we delivered the lowest second quarter per unit cash costs in this segment since 2006.
Looking forward, we continue to expect lower per unit costs in the second half of the year.
No not to the same magnitude as the second quarter results.
We are managing production downward at our Cote Blanche mine due to reduced deicing demand in the southern portions of our North American market as well as lower demand from chemical producers, resulting from cobot 19 impact.
That utilization rate is expected to negatively impact salt cost by about 50 cents per ton in the second half of the year.
We're also expecting a stronger mix of premium package deicing versus both the icing in the second half of the year when compared to last year.
This change in sales mix would also increased total salt costs by about 50 cents per tonne.
However, it is expected to push consumer and industrial average selling prices significantly higher in the second half as well.
Even with those cost headwinds, we believe we can deliver one to $2 of salt unit cost improvement in the second half of the year compared to the second half of 2019, assuming average winter weather in the fourth quarter.
This is based on the elimination of purchase Salt and continued improvement in our Goderich mine operating rates.
Turning to plant Nutrition, North America results on Slide 11, we note that strong volume growth of 20% compared to the second quarter of 2019 drove a 15% increase in revenue more than offsetting a 5% decline in average selling prices.
We remain cleaves with the stability of our SLP price, which declined about 4% this quarter on a year over year basis, but with only $5 per ton below our first quarter 2020 result.
The slight sequential decline was largely driven by geographic sales mix, including some international sales volumes.
On a net sales price basis, our SLP only price was actually up $3 per 10 sequentially.
In light of the persistent pricing challenges facing macro fertilizers over the last 12 months. This is a testament to the appealing value proposition of RF soapy product per Kathy and class.
Fortunately that downward pressure on macro fertilizers does have a negative impact on grower and dealer psychology, and as a potential headwind for pricing in the second half for 2020.
Operating earnings in the quarter increased about half a million dollars, primarily due to increased sales volumes and lower depreciation expense, partially offset by the lower average selling prices, while EBITDA was down just slightly.
Our EBITDA margin compressed about four percentage points compared to prior year on the lower sales price, partially offset by some logistics benefits.
We discussed our plant nutrition, South America performance on Slide 12.
Positive trends, we saw in the first quarter gained momentum in the second quarter with continued strength in agriculture product demand, resulting in sales volumes, increasing 17% from 2019 levels.
This has been driven by very attractive grower economics for the Brazilian farmer.
We have experienced particular strength in our higher value products sold through our direct to grow our sales channel.
Which was the primary driver at that 18% average price increase in local currency for agriculture products.
We expect our BDC business to continue strengthening in the second half of the year. Although we may have seen from sales pulled forward into second quarter as barter rates had been very attractive and many soybean growers forward sold their crop and purchased inputs a little earlier than normal.
Chemicals solution sales volumes increased 6% driven by Chlor alkali demand, which offset some cobot 19 related decline in our industrial process chemicals sales.
In local currency. These factors combined to produce a 28% increase in revenue for the second quarter of 2020 compared to prior year.
This increase in revenue and more attractive sales mix compared to prior year helped drive substantial operating earnings and EBITDA increases as well as margin expansion compared to prior year.
Profitability was also boosted by better production costs due to asset utilization improvements lower energy costs and early benefits from our enterprise wide optimization efforts.
Second half outlook for our segments as discussed on slide 13, I'd like to take a few moments to provide additional color on some puts and takes that are shaping this outlook.
First in our Salt segment as Kevin discussed.
Highway Deicing average selling price is expected to decline as a result of the North American bid season results. Although the realize decline is likely to be less than the average bid price results.
Remember that our reported highway Deicing sales results include rock salt sales to chemical producers and sales in the UK.
Taking those other volumes into consideration we are anticipating average selling prices for the second half of the year to be down between five and 7% overall compared to second half 2019.
We expect second half EBITDA for the Salt segment to be similar to the second half of 2019.
Several offsetting factors impact the outlook.
While fuel costs are certainly lower and helping our logistics costs, we are experiencing increases in barge and vessel rates and as a result, we expect slightly higher year over year shipping and handling costs for the rest of 2020.
We do expect to offset some of this pressure with lower salt product costs. As we are no longer using purchase salt to serve our highway deicing customers and our Goderich mine costs are expected to decline about 15% from second half 2019 costs.
However, as I previously discussed we are expecting these benefit to be partially offset by increased per unit cost Center, Cote Blanche mine and a products product mix shift toward premium package deicing within our consumer and industrial business.
And our plant nutrition, North America business, we believe our second half sales volumes will be slightly below prior year results as we pulled forward some international sales activity from the third quarter ended the second quarter.
Average selling prices for the business are expected to increase as we plan to sell more micro nutrient products. During the second half than we did in the second half of 2018 as crop and weather conditions are significantly better compared to prior year.
As a result, we could see higher year over year second half revenue for the segment.
We expect this segment to deliver roughly flat to slightly higher EBITDA for the second half of 2020 compared to 2019 results. We have a couple of factors offsetting a portion of our expected second half revenue increase.
We currently expect a modest increase in per unit logistics costs versus prior year due to rail in rail rate inflation and a step up in per unit production costs due to increased mix of micro nutrient sales compared to prior year levels.
Strong performance in our plant Nutrition South America segment is also expected to continue due to attractive grower economics in Brazil.
While the weaker local currency is helping with fertilizer affordability is negatively impacting our translated results.
We're also keeping a close eye on the progression of coated 19 in Brazil as we are for all the communities in which we operate Fortunately all of our sites there continue to produce efficiently and serve the strong demand we are seeing.
And our Chlor alkali plant is working hard to meet increased demand for chlorine products due to the pandemic.
This is providing an offset to some lower demand for other chemical solutions end markets.
All in all we are reaffirming our EBITDA guidance for the full year of between 330 million and $370 million.
While we had several significant headwinds, including currency translation highway deicing bid season pricing and lower UK sell demand we have taken actions across the entire organization, which are expected to offset these headwinds to a large degree.
On slide 14, where we provide our corporate items outlook you can see that we're reducing our expected range for corporate and other expense as we continue to limit all spending to critical items only.
In addition, we are lowering our interest expense range due in part to the fact that we completed a three year us accounts receivable securitization facility, which has now our lowest cost of capital overall at just 1.5%.
Furthermore, we also expect to reduce our capital spending compared to our initial 2020 plan.
These measures in addition to improved execution on many levels are helping to drive improvements throughout our businesses demonstrate our progress towards an improved balance sheet and very importantly, helping us maintain a strong liquidity position.
We ended the second quarter with about $67 million in cash and 300 million in total liquidity.
Finally, it's important to note that we expect to generate 125 million to 150 million of free cash flow for the full year 2020, compared to 62 million in 2019.
Now I'll hand, it back to Kevin for some closing remarks.
Thanks, Jamie I want to take another moment emphasize that we are making important progress on our journey to build a company consistently able to deliver value for all of our stakeholders.
The rest of 2020 and beyond the key factors for us to deliver this value start with the health and safety of our employees at our communities with or without the current pandemic. This is critical.
Second we're an essential business, providing critical inputs across a wide range of markets most of which are resilient throughout the economic cycle.
And that is largely the case now.
Always have demonstrated great agility and meeting our customers' needs during this challenging time.
This is a key proof point that we're getting better at execution and growing those capabilities, which we expect continued building with our enterprise wide optimization effort.
And as these benefits are reflected in our future earnings we expect to continue improving our balance sheet and earned the right to explore additional growth opportunities for our businesses.
The day organic or otherwise.
I'm extremely pleased with the progress we've made thus far and excited for what lies ahead for compass minerals now I'd ask the operator to open up the session for questions.
Q.
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All right and one more time, but as star one if you'd like to ask your question.
Just another moment.
I will take our first question from Mark Connelly with Stephens.
Thank you.
Okay.
Brad you should we take it.
We're pleased with way companies approach to bid season. So I'm curious if you could give us incentive.
What you saw and whether there were any big surprises. This year last year, we had seen in places where you didnt see a lot of.
Competition I'm curious how this continued progress and then second question.
I don't know movements from Jamie I'm curious if you have any sense of how much will pull forward you might have seen because it looks like acres or going to be up nicely in the second half. So so somebody to producers that we're talking to our figuring that.
Even though they did pull some sales forward it may not pull down your overall results very much in the next quarter. So just curious you're going to be visibility on this.
Hey, Mark this is Brad.
Appreciate the question.
I would say to characterize the season, it's certainly been competitive as Kevin and both Jamie pointed out.
Their comments RF Hughes.
We would estimate to be down in the mid teens were about 75% of the way through so we're not done yet.
Am I believe I am our bid team has decades of experience backed by analytical tools that really help us approach each bid in a in a very process driven disciplined manner and and the goal of each one of these business to optimize.
One tons that we have now really from Goderich mine with a degree of consistency, where we're producing more tons utilizing the same inputs. So.
It's obviously my team's job to put those tons in the right places.
Does that reflect on the season are there surprises there is always going to be surprises, they're going to be.
Markets that make perfect sense, and we estimated it perfectly through our analytical tools and knowledge than historical context, and there'll be others that are that are probably more surprising but.
It's certainly been more competitive I think obviously, our production coming online our competitors, having inventories weaker winter.
As we say a a good early winter in a sustained winter.
As a key catalyst for pricing and volumes.
So we didnt really have a lot of that coming into the season.
Just one other thing Mark Tim if I might add I mean, what are the key things that we talked about for us was.
As you know garden Goderich had its issues over the past couple of years, we've begun to import fair amount of tons in the goal. This year was not to rely on those imports into Goddard credit.
In the operating team up there they've done a good job of delivering that and getting doddridge back on on track and putting us in a position to grow.
Our market share back to kind of what was really hours to start with so we're really just clawing back ground that we used to own anyway.
Then in recognition of what we're seeing in the market Thats why we decided to curtail some production that at coke loss to try to better better balance that out, but as Brad said look we're really pleased with.
Look we always love our higher prices, but at the end of the day the strategy for US has been getting got or its back on track and kudos to the team there for.
Getting it headed into right direction, Jimmy you want to yen Mark Second Park. I think you were you were referring to kind of plant nutrition, North America, and SLP and the pull forward is that right.
No not taking about Latin America.
Because certainly our C or C.
In other crop inputs and pull forward.
From farmers flush with cash and I know your comments didnt reflect that so much but.
With acres in Brazil, looking like it might be up I'm, just curious how those two things might be balancing.
And also whether you're you're Brazil, Mitch is shifting to more direct because.
Yes, well, maybe Brad can add some color on that but.
We it's hard to have perfect visibility and how thats going to unfold throughout the rest of the season, obviously very pleased with our volumes but.
It's difficult to say the order of magnitude there, but it's a it's a significant amount where we saw a lot more higher value products purchased in the quarter now we're going to push hard and try to deliver and look back and say well. It wasn't pull forward. We hit these numbers better, but we're just cost.
Mystic that some of those have been bought and we won't be able to.
Kind of hit the second half that we thought because they were pulled forward I don't have a good figure for you in terms of.
How big that is but it was we believe it is sizable which is why we haven't changed our full year volume guidance. There in South America, Brad did you want to add a little color on the direct I think I think you some of the Jamie.
I think everything I would I would mention on our direct farm team. We we called it the B to C team Omar and that team continues to perform and exceptional.
Level and so even through the pandemic.
Where we've had salespeople who have had a more challenging time accessing their accounts for their customers because some of the municipalities and the states that really shutting down our team has continued to use digital means to reach their customers. We just wrapped up our eighth installment eighth annual installments of Nutra experts, which is a.
Some of the some of the world's leading bought five provokers on on specialty crop nutrition and crop nutrition to.
To date program, we had over 350.
Key crop advisors from Brazil, and attendance and in that that program continues to get rave reviews.
From from the crop consultant, so im very pleased with how the team has adapted to the environment that they're in right now we're seeing custom customers began to sort of open up and welcome welcome us back to their farms, but it's slow going in Brazil as you might expect based upon.
The cases in country.
Sure I can appreciate it's very tough this quarter to get us into the pull forward I appreciate your thinking.
All right, we'll take our next question from Vincent Anderson with Stifel.
Hi, good morning, nice nice job on the quarter.
My first question was Kevin.
Any major take away the big businesses are first full annual maintenance shutdown that God rights under your leadership.
So any any takeaways there that.
Kind of tied to that will then you're below or capex guidance coming out of doddridge and if so what was what drove that decision.
Why don't I take it at a high level, then pass it off to George to make few comments about God. It's got a lot of great things going on up there, but I think.
Echo, Georgia sentiments here that we would characterize the.
The maintenance shutdown at Goderich is being having been very very successful.
It was very detailed.
Very very planned out they got everything done that.
Plan to do and look as it relates to capital, we always estimate upfront and then.
As we manage our way through this pandemic, we're trying to limit spending to that that that's absolutely critical because jamies. He's watson our balance sheet, along with myself very carefully to make sure that ended in the event, we have something unexpected occur with this pandemic that we're in good shape to be able to absorb the body blow like that but George would you.
I would add any comments to.
Got it shut down just got or it's in general how things are going up there.
Yes sure. Thanks, Kevin again I appreciate the question your Vincent yes, little bit more on what Kevin said I mean, when I look at the the annual shutdown that we had I would say was real success.
Some of the major things that we've actually done during that process, where we were actually setting ourselves up for the new Eastern Mange said, Kevin spoke about earlier so at some of that transition. We had in that area. Also we have the compaction that we talked about in the last quarterly meeting setting that up some of the belt lines and some of the transition areas.
So again.
When you look at it we're still spend a lot of capital at Dod rich.
When you look at where it's at its very selective capital, but some of the things that we're seeing in our in our shutdown is our lifecycle management trying to understand in real good detail.
Our our miners are FCTA, what type of maintenance to they need annually what are they need monthly and not to say they haven't done that passed but to put some real good rigor and.
And timing around how we're going to actually do that on a year on year basis. So.
Look I thought it was a extreme success I would always go back to safety, we didnt have any injuries during that period of time Theres a lot of work going on so I'm pretty excited about where we are and where we're heading born of future. Thanks, Kevin.
That's very helpful in the inventory.
If I could turn back to the bid season, just a little bit more detail.
That's a pretty significant outperformance on volumes.
I guess my question would be specifically are the importers.
Besides yourself, losing a lot of that share.
Is there any encroachment from the east coast Winter being being also exceptionally core last year and then finally.
As you notice any change in kisses bidding under its new ownership this year.
So lot of pack in there.
The big.
The impact.
So just a little bit of background on the imports I mean, I think we enabled in large part we enabled.
Importers to kind of come into the market just given the issues that we had at goderich in particular production wise and then.
As we continued to improve there and we've improved a lot over.
Over the last year, but I think we have that much to go again.
This this market will begin to rebalance and I, just don't see the importers ability to stay competitive in the market, especially when you look at when we get Goddard to where we want it to be where it's going to be on a volume basis in a cost basis.
So I think that it probably takes a couple of seasons for that to the balance out and we're not focused on running the importers out we're focused on playing for the long term appear because this is 60 to 100 year mine and we're getting is set up now for that so we're we're playing along.
Game and importers that they can come and go what or whatever they want to do.
But I think overtime, what you'll see as this market kind of kind of rebalance with God rich being the premier.
The premier low cost supplier there and then in terms of did we see any encroachment into our served market from the folks over in the east that had separate of.
A more mild winter than than than even we did the answer to that question isn't though.
No no just absolutely not in the last question.
Probably just going to let that go and it really want to comment on our competitors behavior. We saw pockets of hot competition, everybody trying to get their tons placed in.
Lot of it played out as you would expect is that we did have some areas that were pretty competitive but again, we're real pleased with where we ended up.
Got a little bit more more to go and our game is to try to optimize.
Our our production and optimize the profit margins thinking about it more on a net back basis as opposed to gross price basis, because that's what really matters at the end of the day.
Thanks for the question all right.
Yes, absolutely all Oh penicillin. Thank you.
All right next question comes from Chris Parkinson Parkinson with credit Suisse.
Good.
The first question.
You talked about margin differential between the incremental increase that they got its production versus imported products.
In years past.
How should we think about the differential versus 11% low prices just in terms of like Netbacks and profitability can you give any framework there. Thank you.
We'll take that yes, yes. So we've historically talked about you kind of a 15 million of of incremental costs related to import salt back in 2019 and that that was going across years.
We had about.
Five or $6 million of of that cost that was in the first quarter really more like five there has been about $6 million year to date.
You know that's.
It is a significant impact.
To the to the tons that we sell we were selling on an import basis, but you can think of it as.
Uh huh.
I'd say roughly five or eight points it can be.
City easily if you want to think about that differential.
Got it and I'm just to close the last question. We're obviously on top of the increase of 8% and what did that volume growth.
Versus your comments I guess is negative 15.
Percent decline in our queues can you talk a little bit.
Once again.
Let's please.
Additional system strategy.
At all in terms of the addressable market perceptions of given you did have withdrawn or in the east coast, obviously, not a focus your markets as well as your let's say 12 to 13 focused markets in their snow index in the Midwest and just how you're thinking about that on an aggregate basis versus say, yes.
The a lot of the issues I Gotta rich has there been any change in perception there or is it just trying to go back to kind of where you work. Thank you.
Yes, Chris we were having a little trouble hearing you there I don't know if it's on our end are yours, but.
But.
We don't see it much differently in it and it is going back I like I said, we couldn't pick up a lot of that question. There was a lot there.
But.
When we look at the market as a whole.
The our served market.
East Coast, primarily served by imports over there couple other players can you know in between but we don't we don't see the market changing that much and.
I'm sorry, maybe maybe if you had a better signal I could I could answer that a little bit better but.
I don't I don't really have anything more to add there.
I mean, I guess as we think about our market. We can reach it from code launch we can reach it from God rich and what we will do is.
You know has got rates gets better and better its reach gets greater and greater and.
There's probably some areas outside of the traditional served market that become.
More interesting for us with the passage of time, we're not going approach those overly aggressively but we just try to optimize our portfolio.
On a cost basis to optimize around.
Around margins I'm not sure that answer to your your question, Chris again, because as James said, it broke up pretty badly about halfway through there.
Yeah. If you can hear me you do get the question.
Thank you very much.
Okay all right. Good thanks, Thank you.
All right once again that star wanted to ask a question. We we'll next go to Joel Jackson with BMO capital markets.
I'd like to follow up on the same discussion I mean, if you're thinking kind of high level language.
As you can pricing here.
Kevin can you get a sneak assessment and talk about how it.
It looks like you're playing the long game here and the strategy College back on track and this will be you're trying to pull Scott or it's harder and to do that I guess, you had said when more volume push out imports.
If you talk about I don't know five $6, how lower pricing on.
So the probably the I can portfolio.
Can you talk about what kind of cost improvements this from freight from Gaza, How do you make that like it seems like you have analytical models, but in some of the state it seems like.
It's a low it would be hard.
More profitable on the mix you have now to bid season I was on extensive I'm just trying to figure out how do you overcome such a large price decrease what do you have to gather daughters and freight cost to make on excess.
Well.
Number one again, we're in this for the long the long haul. This is not to optimize season by season. It's been very important I think given the attention that goderich has gotten any issues that it's had to allow it to progress on its planned back towards restored health consistency profit.
Ability et cetera. So.
Taking your argument maybe to an extreme.
One could have said, where we need auto Goddard for six weeks or two months or something I, just didnt take that was prudent nor did george when they're on such a nice run and making such a nice progression because again, we're thinking about this over the over the over the very long term and what drive what's going to drive pricing year on.
Here is the kind of weather that we have so we don't have any control over that what we can control is.
What our minds look like how they produce what the safety record is their productivity, how we allocate capital to them et cetera, and then over the long term based on what we see the perceived.
For instance, supply and demand will will moderate.
Moderate accordingly, so I don't have any regrets at all about the position that we took in fact I'm quite pleased with where we've ended up thus thus far and we'll just take it winter from winter from here you have anything you want to add to that dream I mean, I think that remember net prices are up 14%. We've got we've got an IND.
Garment, where we expect costs to be falling and over the last three years net prices up 14%. So we're very well positioned to go forward and as Kevin said I mean every bid season has a life of its own and we're running this business over the long term and.
No that's that's all.
That's helpful. So my follow up is looking at Goderich, so getting back on track and things that you're looking at.
Do you want to truck was another million tons their revenues going to be can you talk about how you're going to get there like you'd have to look at the equipment you have to bring back drill and blast hybrid model drill and blast and continuous mining to really shut out that volume over the next couple of years that add on more costs in GB add on more body, so that 1%.
For more volumes for fixed cost absorption can talk about.
I will play in all of that.
Yes, let me again hit it at a high level and as stewards to add some additional color number one and this is that this is really important we haven't added additional inputs at goderich inputs are the same output is higher so that means efficiency is getting greater costs costs are falling over the long.
Term, we will want to moderate our fleet of there, but as we've talked about we're trying to get the eastern roadways develop because that's the artery.
For the next 50 years at that mine and get these new rooms set up but you could expect over the course of the next few years that our production fleet is going to look different than it has in the past with these.
As newer.
Jim 46 is it et cetera. So again, it's a work in work in process. We are on the right trajectory, we still have a long ways to go we didnt get into this.
Fix overnight, we're not going to get out overnight, but I'm very pleased with the progression and I think this would be a good opportunity for George to add some color because he's all over this thing on or on a daily basis with the team up there.
Yes, yes, thanks, Kevin and ill just add little bit of color. There I'll try to temper my enthusiasm here, but that Kevin laid it out pretty well when you lots of the change that we've seen over the last year lot of folks think its equipment. It's people. It's anything like that is is Kevin highlighted its really it is around.
See it's understanding maintenance.
It's taken a look at how we operate our shifts it's all about our people. It starts with safety and every time I talk about this lots mines everybody's looking for a a silver bullet I guess I would call it but when you look at it it's not one thing it's multiple things in it really in succession that are driving the improvement.
Rich.
As I said, we started with our people.
Again, a great team up there great resource.
So again when you look at it.
I'm pretty excited about where we are I don't see that in a future I think what we will continue to do see how we optimize that with the with looking at the equipment we have.
I'd say, maybe getting more out of it we might even look at what we do do you potentially reduce unit and the increase in I say produce a unit, but actually take some some metal out of the.
Out of the operation itself. So we don't actually have to put additional FC keys in additional monitors. This Kevin said to 40 Sixs are really LBM out the tons. So.
Hopefully at a little bit of color Kevin. Thank you.
Just on the question I was asked do you have to reintroduce drill and blast.
The volume targets you want.
No no absolutely not we might do it opportunistically from time to die because we've got no issue with drill drill and blast auto on a limited basis, but it'd be opportunistic as the situation presents itself, but no. We do not have to do it to get where we need to be absolutely not.
Yes, it's a mechanized mining it's.
Sorry to mechanized mining going forward as Kevin said, we don't.
We have opportunities to do it but again, that's not too that's not to increase production that's to supplement or do some development areas that we currently have so I don't see that short term or long term. Thank you.
All right now.
Next question will come from David Begleiter with Deutsche Bank.
Hi, Thank you Kevin you mentioned cope launch having low volumes of flowing through our either cost actions can take there too limited impact on those costs.
Yes, I mean, we're doing everything we can to minimize the cost of the of the curtailment.
But look as we all notices of volume game and you have relatively high fixed cost set of set of inputs and when you got the volume it's going to its going to make your unit unit costs look higher than it than it has in the past, but we're trying to minimize that manage our way through it and.
We spent a lot of time on these calls talking about.
God Rich, but you got to give a special call out to the folks at Cotwo too.
Basically hit their plan day in day out do exactly what their their asked on a on a regular basis. So hopefully we'll have it will have a good winter and we'll be able to get them.
Now back up so we'll be at full production levels and get that full cost benefit.
Very good and just on the premium packaged increase what's driving that increase and.
How much higher margin is that product.
Can you repeat that question sorry.
On the premium Pat premium packaging increase you talked about how much let's try that increase and how much higher margin is that product.
Yes, it's it's a it's significantly higher margin than bulk think of selling massive amounts by the.
By that more than truckload by the railcar.
So to speak versus selling package deicing.
So it's a it's a significant impact and you'll see a very material improvement in the back half and that will come through this unite pricing. So I'm not going to tell you exactly how much better those margins are but they are so they are significantly better.
Thank you.
Next we'll go to Chris Shaw with Monness Crespi.
Hi, good morning on hydro.
Hi, good morning.
If I could hasn't got a rich sorry on sort of asking questions around that but on this important but if you go back I can't remember, how many years ago and the.
Encompass before Kevin you were there compass set out in this plan to rely in some jobs, bringing that continues mining equipment.
You know and there was a goal of increased volumes and I'm, just wondering how far long or beyond that process or is it about comparing apples and oranges habit I mean that the initial sort of.
I guess effort or goal to get to got her to this higher production level on all I mean I read.
90% of away there given that would only replacing the imported volumes. This year or we are we just dive back to sort of where we started I just like it I got it I've got kind of got lost over the years, where that sort of original plan as maybe that plan.
[laughter], that's understandable, yeah look I'm not sure how much has been talked about in the past what the targets, where I actually don't care. What those originally those original targets work is that's a different set of targets now.
Up there and I know I've said this on multiple calls I think at Goderich will will run out of market before we run out of capacity there and capability once we get everything running exactly the way it needs to be and that's what that's when it will you'll see US then begin to calibrate. Okay. This this is a year where it needs to produce 20%.
Less than it did last year for example in and we'll we'll find a way to be able to manage through that from a supply demand perspective, but.
Given the.
Given the gear that's there.
And.
Getting reoriented towards this long term mine plan I think expectations of the past are not particularly all that relevant because I see much more potential than perhaps they even did in the past, but again, it's going to take a while to get there getting this new long term mine plan developed as we talked about we've got 2000 feet.
Theres an illustration in the appendix, but we've got about 2000 feet.
Developed.
We're starting to transition to that that chevron pattern, which will be easier on the fccs et cetera. So as we get the mine positioned I think it will be it will be of very predictable very reliable from a volume and cost and output standpoint, and then will calibrate volumes based on what we see.
Developing in the marketplace.
Fair enough and then if I could ask on.
South American business I mean, I know you suspended the strategic review I guess last quarter, but what's the sort of signposts, maybe you're looking for that sort of bring that back to.
Back to status in terms of looking for.
Alternative.
On for that maybe.
Yeah, I mean look we'll.
Well, we'll kind of play a day by day based on what's going on in the environment travel still extremely limited capital capital markets are a little better than than they were there for awhile, but.
At the end of the day I think our pause does nothing but reemphasize. The fact that we we made a good decision the team down there gets a ton of credit for the way they're executing this year in any action that we'd ever contemplate is got of has got to recognize intrinsic value those assets are.
We wouldn't pull the trigger on it so we'll decide when when the time is right and beyond that I really don't want to say too much more about.
Great. That's helpful. Thank you.
Yeah.
All right. We'll next go to David Silver with CL King.
Yeah, Hi, Thank you so.
I'll apologize in advance the joined the call little late and I had a little trouble hearing a couple of questions as well.
So apologies if I make you repeat yourself.
First thing you know three months ago, Jamie I believe set out a.
Cost reduction target for your salt business of.
An incremental $2 a ton I believe lower.
Mining costs or production cost.
Year over year, beginning in the in the second half and it's been many questions about that and again I apologize. If you touched on this already but is that is that $2 per tonne target still on track for second half and would would that and I apologize would that apply to got a rich alone or or does that apply to.
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The entire salt segment. Thank you.
We I think we mentioned in our prepared remarks that we're targeting a dollar to up to $2.
Total salt cost improvement in the second half of the year.
A couple of things are impacting that there there are a few mix issues, there, but but most notably the cote Blanche curtailment is having an impact there and as well as the UK the impact of lower production at the UK. So.
Yes, we still expect lower cost in the back half.
Across all tons of a dollar to $2.
But so so you we don't talk about that Goderich specific factors on it on it on a $1 per ton basis.
Okay, great. Thank you and then I did have a question maybe about a strategic issue that's kind of looming in the is in the industry in that.
That the owner of Morton Salt has kind of put the asset up for sale with the timetable ideally I think by the end of the year.
And I understand or a stipulate, you're not going to be able to slow that whole or anything or that that's kind of off the table, but.
This is the second time the assets been up for sale in a little over a decade and I'm sure Institutionally you guys have done your due diligence.
On that asset so so couple of things but.
From a anti trust perspective, I mean do the authorities looked at the salt business all at one in other words, a onetime the salt is the same as any other or do they segmented by the highway deicing business versus consumer business versus I don't know the agribusiness element and.
Then secondly, I mean, just noticing the stock price of the owner of that company I mean, it it really doesn't look like.
Stock price of that in my opinion is acting like they're expecting a gallon knockout bid or anything.
So so from Compass is perspective, I mean, what would there be an opportunity maybe too.
Hi, two separate.
Business, that's that's on the market and maybe go after.
The commercial or the non Deicing salt there in other words pair up the leading deicing salt producer with the leading branded sold so anchor I mean to me that that would seem like a natural pairing and would really supplement you know.
Leadership position in the industry. So there's a lot there, but I'm just wondering you know what if anything can be done from your perspective in terms of strengthening your company as a result, the pending sale of the Martin Salt business. Thank you.
Yes, let me address the parts that I feel comfortable addressing when I got here I think or at least I hope I did have made clear that.
Our top priorities are.
Creating a culture in the system and a.
Structure here to deliver on our commitments.
And we felt like just after we did our top to bottom assessment of the company that we weren't delivering at our full potential and so our 100% focus has been dedicated to that because we have a great set of what I would call privileged are advantaged assets that we're performing to their full.
Potential and there's a lot of potential here, so thats really jobs, one two and three for us.
As it relates to strategy, you mean that we're not sitting back ignoring what's what's happening in the in the world. We do we do want to think about that but I think for us.
Number one we've got to be able to deliver on our commitments to sort of re earn the right then to think about strategic intent via organic growth or in the inorganic growth via the means that youre youre talking about.
I don't think theres any doubt from a.
Just as department standpoint.
The board an asset is it would be highly problematic for for us and I don't think it takes a rocket scientist figure that out but look to the extent that whoever ends up with that and there are assets that could fit us better than them. We would certainly be open to those those conversations to build out our portfolio to augment our pool.
Folio, but it would have to be at valuations that we think makes sense of strong synergies and fit with our competency. So.
Wide open to those in the future, but beyond that I really wouldn't want to comment on any any further the thing is good question. Thank you and I don't know if.
Jamie wanted to comment on the whole HSR thing how they look at it out because I don't really no no I mean, I think you hit it with fundamentally.
That would be there would be some issues.
I think that thanks.
Okay. Thank you very much appreciate it.
And ladies and gentlemen, Unfortunately that has all the time, we have for questions and that does conclude today's conference call. We thank you all for your participation you may now disconnect.
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