Q3 2020 Compass Minerals International Inc Earnings Call
Ladies and gentlemen, please standby today's conference is scheduled to begin momentarily until that time.
And your lines will be again play Sony music hold thank you for your patience.
[music].
Good morning, and welcome to the Compass Minerals' third quarter earnings Conference call.
All participants will begin in a listen only mode.
A question and answer session will follow the presentation by management.
Today's call is being recorded and replays will be available on the company's Investor Relations website.
I will now turn the call over to Theresa Womble director of Investor Relations. Please.
Please go ahead.
Good morning, and welcome to our call today to discuss our third quarter 2020 resolved and rest of your outlet.
We will begin with prepared remarks from our CEO, Kevin Crutchfield Nrcs, Jamie Standen, joining increased acuity session. Our brides Greffin, our chief commercial officer, George Schuller, Our Chief operations Officer.
Before we get started I remind everyone that the remarks, we make today represent our view of our financial and operational outlook as of today's date November.
2020.
These expectations involve risks and uncertainties that could cause the companys actual results to differ materially.
Discussion of these risks can be found in our SEC filings located online and investors Dot compass minerals dotcom.
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 online.
With that housekeeping out of the way I will now turn the call over to Kevin.
Thank you Theresa.
Good morning to everyone. I know this is a busy earnings day for many of you. So thanks for taking the time to join our third quarter 2020 earnings call.
As we published in our earnings release last night, our third quarter 2020 results were below prior year levels there.
There are several reasons for that Delta primarily related to delayed ordering of plant nutrition products at our north and South American markets.
Those timing issues were driven by very dry weather in both Brazil.
And key North American markets as well as extreme wildfires in the western part of United States.
We also reported an unfavorable non cash inventory adjustment related to an error in bulk stockpile measurements at our Ogden, Utah, So p. facility, which Jamie will discuss in more detail shortly.
Because we expect these third quarter market disruptions to be short term.
I'll focus my remarks, instead on our year to date performance on a consolidated basis operating earnings for the year to date period increased 19% and EBITDA rose, 10% compared to 2019 results.
In addition, we generated over $188 million of cash flow from operations.
Which is a 93% increase from 2019.
These are very strong results given the fact that we experienced a mild winter and all of our Deicing markets in the first quarter as well as the operational challenges stemming from the global pandemic beginning in March we also highlighted in our presentation. The excellent trajectory. We're on in terms of the safety of our employees.
As many of you have heard me say before our number one priority as a management team is ensuring our employees go home at the end of their shift as healthy as when they arrived.
Our focus on this zero harm culture has been as critical to our ability to navigate the current pandemic as it is toward the sustainability of our organization in.
And anyone who has spent their career in mining knows the value this focus benefits all stakeholders.
As it has been proven time and time again that over the long term. The safest operations are also the most productive operations.
This quarter, we continued to see a decline in our total case incident rate or Tc IR.
In addition to achieving a multi year low for our 12 month Rolling T.I., our average I'm very happy to share that our T.I.R. in September was among the lowest of any more in the history of the company.
I'd also like to specifically commend the employees at our Ogden facility for their exemplary safety performance, they're very near to achieving 1 million exposure hours with no lost time safety incidents.
As a leading indicator for operational success. This continuous improvement in our safety metrics speaks volumes about the discipline and commitment to safe and responsible operations our employees bring to their jobs each and every day.
We clearly see the impact of this improved operational discipline and execution at our salt business highlighted on slide five of our quarterly presentation.
It may sound like a broken record here, but it's a song I'm really glad to see.
Our Goderich mine continued to deliver very strong year over year production results.
For the quarter production volumes were 53% ahead of third quarter night 2019 results, while the cost to produce these tons declined 24%.
On a year to date basis production tons have increased 28% from 2019 levels and production costs are down 11%.
The steadily improving metrics highlight the strength of our continuous mining platform, there, which will help to ultimately secure god or its position as the leading salt mine in North America from both a cost and volume perspective, as we continue to build our new mine plan there over the long term.
Our Cote Blanche mine has also demonstrated strong performance year to date not to mention impressive dose of Moxi.
By meeting the challenges posed by not one but for significant hurricane events in 2020.
These storms resulted in seven lost production days during the third quarter and another four lost production days in October.
The preparations made by our team to protect the site and the safety of our people met we've been able to resume production efficiently and effectively after each of it as another testament to our operational agility, we expect to make up most if not all of the lost production from those unplanned outage days by the end of the year this quarter the salt segment.
Also delivered early benefits from our enterprise wide optimization effort, particularly in terms of lower logistics costs. Our logistics team has worked diligently to reshape our network of partners to maximize efficiencies across our operations to deliver cost savings, while maintaining strong service levels for our customers keep in mind.
And that we typically move more than 12 million tons of bulk materials using multiple transportation modalities. Each year. Their work has helped offset the impact of some of the short term freight rate inflation, we're experiencing this year.
Commercial teams have also been highly engaged in the enterprise wide optimization effort looking for opportunities to adjust and improve customer mix as well as pricing levels.
These efforts were largely responsible for the 8% year over year increase achieved for consumer and industrial average selling prices this quarter. These.
These achievements were important drivers for the margin expansion, we've reported and helped us overcome the impact of lower sales volumes due to mild winter weather. So far in 2020 as well as the COVID-19 impacts on non Deicing salt sales before moving on I'd like to provide a final update on the 2020 2021 North American.
Hi way Deicing bid season, given the mild weather during last winter. It came as no surprise that the bid season was competitive as we noted in our second quarter call with total bid tenders down roughly 15%.
We have essentially completed all bidding activity and have achieved 4% growth in our contracted bid volumes with a price decline of 11% compared to prior bid season results.
Consequently, these bid season results along with slightly elevated customer inventories have a streaming our full year salt volume guidance by about 250000 tons for 2020, ultimately our deicing salt sales are driven by winter weather and we expect to production and logistics cost improvements, we've made provide offsets to lower.
Bid season prices similar to the Hurricanes hitting Louisiana, our plant nutrition business, particularly in North America faced some unforeseen circumstances, this past quarter, including extreme wildfires in drought.
I spoke from these events has delayed the harvest of key crops, particularly tree nuts.
This has also delayed the fall fertilizer application season, and thus we believe that a portion of expected third quarter 2020 sales volumes have been pushed into the fourth quarter.
Recent conversations with customers have reinforced our confidence that underlying demand remains robust for the remainder of 2020, particularly given that some of these harvests are expected to be very strong translating into nutrient deficiencies for the soil and thus the need for our products.
Similarly in Brazil, we experienced some timing issues with sales volumes in the third quarter. After a very strong second quarter. We believe some of our agriculture products sales were accelerated.
Additionally, the hot and dry weather in that geography has also been unfavorable so we believe a portion of what what we expected to sell in the third quarter has now shifted into the fourth quarter on a positive note South American farmer economics continue to be very attractive, particularly for soybeans in fact, a record level of the so.
Crop in Brazil has already been forward sold which means farmers need yield and thus will need our specialty plant nutrients to support that yield.
As a result of these underlying positive market fundamentals in Brazil in North America, we're keeping our sales volume ranges for 2020 unchanged for both the plant nutrition, North and South America segments against the backdrop of the challenges Weve all faced in 2020, I'm, even more impressed with the efforts of our employees to engage.
And execute on our enterprise wide optimization effort.
This effort is focused on five broad value streams, namely operations commercial logistics procurement and working capital.
I referenced previously in my comments some of the early benefits coming through our Salt segment results from certain of these value streams.
We also highlighted last quarter, the progress, we're making with engaging our employees through our organizational health focus as well as the compaction project at Goderich mine to essentially recycle sulfide waste into saleable product had a minimal incremental cost today I'd like to share a little detail regarding a very.
Citing project at our Ogden, Utah facility.
As many of you know our solar evaporation pond based S&P production that this site is among the lowest cost processes globally for the specialty form of potassium any.
Anything we can do to expand our ability to produce with that low cost feedstock further increases our competitive advantage domestically and globally.
In a typical year very condensed brines from which we extract both solved in SLP feedstock spin two months in the final evaporation stage.
After draining those ponds, we then spend 10 months harvesting.
Which is essentially scooping up the material from dry pawn beds.
And transporting the material to the production plan.
The goal of our optimization project is to extend the evaporation season and decrease the length of the harvest period doing.
Doing so is expected to materially increase the yield of feedstock from the patterns by in sourcing our harvest in hall activities using pond appropriate equipment, we can do just that.
The change in equipment allows us to work faster and deliver more tons per load as material to our salt and S&P plan.
Currently under this new equipment set up we're delivering 28% more turns per load for S&P at about 14% more for salt as a result, we're able to shorten our harvest season to eight months and extend our evaporation season to four months, which ultimately provides us with more and higher quality SLP feet.
So.
Further this new equipment is expected to be safer for our ponds further reinforcing our sustainable harvest practices. This.
This project highlights our ability to look at old problems and generate new and innovative solutions to help ensure the long term sustainability and growth of our company.
As we continue to execute on the many projects throughout these value streams over the next couple of years, we expect to fundamentally improve the earnings potential of compass minerals in the near term we continue to aggressively work to overcome the various external factors, which have reduced our earnings compared to our original outlook for 2020.
Just to level set a bit we entered the year with a strong expectation for around 20% EBITDA growth using the midpoint of our guidance provided in February.
We now estimate a combined negative impact to this original forecast of about $45 million from several factors, which were largely outside of our control. These include mild winter weather in the first quarter of Brazilian currency that progressively weaken throughout the year and COVID-19 impacts, including both the cost of preventative.
Three segments, which pulled sales into the first half of 2020.
Salt segment sales volumes are down just 9% on a year to date basis, which is more than explained by the winter weather, we experienced during the first quarter of 2020.
As a reminder, first quarter of 2020 snow events were 24% below the 10 year average and 30% below 2019 levels.
This week, whether caused customers to take their minimums in the second quarter, and therefore put pressure on our third quarter early fill orders on a year to date basis plant nutrition North America sales volumes are up 20% versus the 2019 period, which you may recall was very challenging due to the excessive rainfall in our.
Markets.
Our plant Nutrition, South America segment generated a 5% year over year increase in sales volume on a year to date basis as strong an early demand for plant nutrients in the first half of the year offset third quarter sluggishness.
Our third quarter Salt operating results helped offset the lower year over year third quarter operating earnings and EBIT. Our results in both of our plant nutrition businesses lower year over year third quarter sales volumes in both plant nutrition segments, and an inventory adjustment charge in the plant nutrition, North America segment, where the primary drivers of the Dickler.
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Despite the challenges we faced we delivered double digit consolidated earnings growth as well as strong free cash flow of $126 million through the first nine months of 2020, we.
We discuss our salt segment third quarter of 2020 results on slide 10.
Third quarter revenue declined 11% compared to the prior year on a 13% drop in sales volume slightly offset by a 1% increase in average selling prices.
Volumes declined for both our highway dicing and consumer and industrial sales.
In addition to lower year over year preseason demand for the icing products, we are still experiencing some slack in demand for other consumer and industrial products due to COVID-19 challenges.
Average selling prices in the third quarter of 2020 increased 1% compared to third quarter 2019 results.
A shift in sales mix towards lower priced chemical sales pushed highway dicing pricing down, 8%, while consumer and industrial average selling prices increased 8% largely due to strategic price increases implemented as a result of our enterprise wide optimization effort.
On a net price basis, we actually achieved a 5% improvement in average selling price versus third quarter 2019 results with highway icing average net price flat to prior year results and consumer and industrial net price up 8% <unk>.
Improved production and logistics costs, and the 2023rd quarter more than offset lower revenue and resulted in year over year increases of 21% for operating earnings and 17% for adjusted EBITDA.
In addition to improved got her it's production, we've aggressively implemented initiatives across logistics and procurement that are driving our costs lower.
Beyond the logistics improvements Kevin mentioned, we have rationalized are spending patterns patterns to reduce waste. We've also upgraded our global sourcing efforts with comprehensive negotiation of agreements with key contractors and optimization of raw material pricing across all businesses to achieve more favorable scale.
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These efforts contributed to the expansion of the Salt segment, EBIT margin to 30% compared to 23% in the third quarter of 2019, while these initiatives are expected to drive sustainable improvements for all segments over time, we're pleased to see these early benefits and our salt results.
Turning to our plant nutrition, North America results, which we discussed on slide 11, we reported a 21% year over year decline in revenue on a 22% decline in sales volumes and a 2% higher average selling prices.
As already noted the extreme wildfire conditions in the Western U S have delayed the start of the application season, and we believe they have shifted the timing of SLP sales towards the fourth quarter. This year.
Earnings for the segment, where further reduced by an inventory adjustment due to an error we identified in our measurement of our book stockpiles of standard SLP at our Ogden, Utah facility.
This is the product that we stockpile and then process through our compaction system into the various high value grades of SLP that our customers demand.
While we regularly estimate the size of our stockpiles this can be difficult to assess due to the size and limited accessibility of our storage domes in silos.
As we depleted our standard SLP inventory, we detected a stockpile shortfall, which occurred over a period of time as these particular domes had not been zeroed out we're fully empty for several years.
Once we identify the issue we reviewed our processes and are implementing several additional operational control enhancements that will improve our estimates going forward and prevent this from occurring in the future.
It is important to note that we have determined that this inventory adjustment is not material to any single prior period and Furthermore, this adjustment has no impact on our 2020 free cash flow and we don't expect these operational enhancements to impact our ability to serve our customer demand or the future profitability of the plant nutrition North America.
We discuss our plant nutrition, South America segment results on slide 12.
This segment delivered a 5% year over year increase in third quarter of 2020 revenue in local currency driven by increases in average selling prices for both agricultural products and chemical solution products.
These price improvements.
Offset a year over year decline in agriculture, and chemical solution sales volumes.
As we noted on our second quarter earnings call demand came early for many of our specialty plant nutrition products due to a very attractive grower economics for the Brazilian farmer.
Therefore, some of that pull forward in queue to is showing up as weakness here in the third quarter. However.
However, we continued to see strong third quarter year over year revenue growth in our direct to grow or sales channel on flat volumes, an improved product sales mix.
Both directed grower <unk> sales volumes. We're also impacted by the late start of the spring rains in the Cerrado region in the central of Brazil.
These dry conditions delayed fertilizer applications and we believe they are therefore, pushing some of our sales volumes into the fourth quarter.
And local currency third quarter of 2020 operating earnings and EBITDA declined, 9% and 7%, respectively, which was mostly attributable to lower volumes in our BTB business compared to the prior year quarter and continued aggressive investment and our director grower sales force.
We discuss our outlook for our segments on slide 13.
While we have reduced our full year salt sales volume guidance, we still expect an increase in our salt sales volumes and revenue in the fourth quarter compared to prior year.
<unk> EBITDA margin for this business is expected to contract due to the reduction in average awarded bid prices for our North American highway the icing customers ultra.
Ultimately our average reported highway the icing sales price will be impacted by the sales mix, we achieve in the quarter based on winter weather activity.
And an average winter scenario, we're expecting highway dicing average selling prices to decline about 8% compared to prior year and the Salt segment overall is expected to see a price decline of around 5%.
We continue working to offset the impact on our operating margins with both value creation and cost containment through our enterprise wide optimization effort, we expect improved sales demand sequentially and year over year for both of our plant nutrition businesses in North America, our sales and earnings are expected to be driven.
<unk> by a rebound an ESOP sales to western U S markets that have been negatively impacted by wildfires in dry conditions. The fourth quarter is also typically the strongest selling season for micronutrient.
And that seasonality should drive modest improvements in sequential price results.
And Brazil, given the fact that so many soybean growers forward sold their crops, achieving strong yields will be important and we anticipate a strong rebound in sales volumes in the fourth quarter.
Additionally, the spring rains in many of these important growing regions is now well underway, which bodes well for our fourth quarter results.
Although we expect increases in sales volumes compared to 2019 fourth quarter results. The weaker currency is expected to keep our reported us GAAP results flat with prior year.
In local currency, however, we expect to deliver 20% to 25% EBIT downgrowth compared to prior year full year outlook items are found on slide 14.
Due primarily to the modest reduction in our full year salt sales volumes weaker Brazilian currency and the ongoing COVID-19 operational and commercial impacts we've decided to update our full year adjusted EBITDA guidance, excluding the inventory adjustment, we are now expecting to deliver $330 million to 304.
$5 million of adjusted EBITDA for the full year 2020.
Now, finishing up on slide 15.
We are very pleased to report that we still expect strong free cash flow generation of around $125 million for the full year. Despite the headwinds Kevin and I have discussed today, our net debt to adjusted EBITDA ratio is expected to in the year below four times as we continue to make progress improving our balance sheet and mainly.
Painting, a very strong liquidity position as we enter these last two critical months of 2020, we remain focused on keeping our people safe.
Controlling our costs.
Optimizing our operations and delivering are essential products to satisfied customers around the world.
With that I will ask the operator to begin the Q&A session operator.
At this time I'd like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad. Please note in order for everyone to ask a question. We do ask that you limit yourself to one question and one follow up if you would like to ask any additional questions. We do invite you to re enter the cute.
Q and we'll pause for a moment, while we compiled the Q&A roster.
Our first question comes from the line of market economy with Stevens go ahead. Please your line is open.
Thank you.
Kevin you've made a ton of changes since you arrived accomplished particularly <unk>.
Also next so I was hoping you could talk a little bit more about the progress you're making with garage is you've got a lot of different efforts. There I'm wondering if you could help us understand where those stand.
And on a related note.
We've now seen two smaller use salt businesses agree to change hands at prices are higher than what people are paying for accomplished is there anything about those assets that suggest they're more valuable than your set for asphalt franchise.
Hey, Mark good morning, Thanks for the questions.
I'll get a high level, a little bit about God origin, and I'll look at yours and see if he wants to add anything to it but I think just from an overall standpoint, we feel really good about where things stand it got rich the.
<unk> of the development of the long term plan longterm month plan.
Continues going on schedule, we're working on our Eastfield for purpose roadways to get that western area opened up and develop some new.
<unk> rooms.
We've got the new.
See I'm 46 on site now it will be taken underground and pieces parts and put together and should be operational I think by.
At the end of the year, maybe even some time in December so we feel really good about how things are going it's got her tits producing much more consistently.
Is the evidence notes.
And the the.
Cereal this morning.
Volumes are much much more consistent they are much higher than that where they have been.
We're seeing the cost for that.
And I think I would be.
Low not to talk about how pleased we are with respect safety effort up there in the relationship that we have with the.
The local union on site things are on overall pretty well, we still have a long ways to go we're not at all satisfied with where we are still have a long ways to go but overall very pleased and I'll look at your work and see if he wants to add anything to that before I hit your second question. Thanks, Kevin.
Thanks, Mark I guess, just maybe a couple of things Kevin hit most of the highlights again, it is really around optimization as well around our mechanized mining and what we're doing with some of our maintenance practices.
Again, it's taken a long term look where we used to be driven.
Drill them last operation more went to mechanized mining and really trying to find new opportunities as Kevin highlighted we started with safety as a foundation clearly our workforce our leadership team there is really making some really.
I would call it giant steps, we've got a good experience workforce. There. So there's a lot of things are compassionate openness, we start to go into the fourth quarter as well basically how we look at our our ship rotations those types of things but.
You can probably tell from my tone I'm pretty upbeat on where we had been and where we are and where we're going to continue to go. So thank you Kevin.
So are you are you done with the compaction project.
So we're not yet.
Yeah, sorry, sorry about that Mark we're not quite complete I mean, we actually haven't and we're operating what we're doing now is I guess I'd call it optimizing.
So we're probably if I was going to tell you about a 90% that's probably where we are.
And optimization, so it's kind of tweak in a little bit to make sure that we get the right sizing the right material going through but fill them pretty good about where it's at and where it's going to continue to go. Thank you.
Sure. Thank you.
On your Ah Your second question Mark.
Obviously watch the shift in the salt landscape pretty pretty closely followed the last process pretty closely and.
Obviously, the Kissner consortium, Missouri.
Very well seasons, and very well respected group and they were clearly in it to win.
When you look at the valuation of the headline level certainly.
It looks it looks rich and I think it does point out the difference in the way public sector views.
Quality sold assets versus the way the public.
Public the public sector values them.
But I also think that they they make probably made some I don't know because I'm just speculating, but made some adjustments for.
The weather and I think they see some pretty significant cost out synergy. So I don't think they view that they paid.
The kind of headline multiple that everybody else's talking about but you're right. It does point out a pretty significant difference in the way.
Markets view, so quality salt assets versus versus the way public markets view them and.
Yes, My view is all boats lift on the rising tide and I think as we continue to put runs on the board here.
You'll see that multiple evaluation improve on the on the campus equity as well.
Thank you again.
Thank you Mark our next question comes from the line of Vincent Anderson with Stifel. Go ahead. Please your line is open.
Yeah. Thanks in the morning.
Nice job of garbage again, this quarter, just trying to to true up.
My estimates with the quarter up 53% year over year or does that kind of leave you run rate relative chair near term targets.
Just particularly about got rich mind, Vincent is that what you're asking.
Yes, Sir.
Yeah, Yeah, so we've still got a little bit of room to run.
We're very pleased with the rates were producing.
It's hard to put it as a percentage of where we think that asset can be because there's a lot of upside from here still but.
I would say I'd say, we have significant upside, but we're we're very very well positioned in terms of productivity in production versus where we had been historically and I would add to that too once we get this new unit underground and installed will see another.
Appreciable bump.
And production consistency reliability and those are you I'll, probably get tired of you, saying this but I think by the time, we get done with got or it will run out of market before we run out of capability at Doddridge, and then it'll just be a function of fine tuning God Rage, and then calibrating it with.
The supply demand.
Balance and not trying to force turns into a market is it really doesn't want them. So that'll be a high class problem first world problem, when we get get to that point more excited the trajectory that we're home.
Perfect and you kind of addressed this earlier and forgive me if I just didn't didn't catch it right but.
When you think about what you saw in the last legs of mid season.
Did you pull up on the amount of times you are trying to place or did pricing just kind of start to come down at the tail end is maybe people you took sure from earlier in the mid season, we're scrambling to place volumes.
Yeah look at character out of slipped Brad come in on this too, but I would characterize it is.
The season went on we maintained our discipline.
Looked at it from a cost of production standpoint, what we thought the price might go for and they were just some things that we elected not to pursue we did what we thought it was work we did win sometimes the best deals that you do the ones that you know and we were okay with that so.
We still we are able to call back about 4% market share, which is down a little bit where we thought we'd be but we ended up.
I think we're pretty happy with where we ended up.
With you add anything to the not Kevin I think I think you nailed it just just one other comment there vinson.
Certainly expect assault segment to be up in the fourth quarter on revenues versus prior year and as Kevin said.
Overall I think we're very pleased with the midseason, we have been able to place more of those low cost got rich tons of both Kevin George and Jamie were referencing.
Alright, thank you.
Our next question comes from the line of Chris Parkinson with Credit Suisse. Go ahead. Please your line is open.
Thank you. So there have been a couple of smaller deals that announced in Brazil, both Hagging just plant nutrition.
Let's say comparable substrates.
Can you just give us an update on your thought process of the eventual sales the Brazilian out that's just how should we be thinking about that currently thank you.
Yeah. Thanks for the question of yet we noted those as well and we think that bodes well for us and we are just assessing the situation.
Thinking through carefully when when we want to restart the process that's probably.
And the not too distant future, but we think those transactions bode well for.
Our process when we do re engage in Reinitiate. So we're we're monitoring that very closely.
And we'll we'll have something to say about that.
Certainly on the next call if not before.
And just quick follow up I'll, just can you software a little bit more color in the general outlook I know you mentioned in your prepared remarks, but just on freight costs.
How should we think about this for 21 across your different vehicles on the U S.
<unk>.
Yeah sure let me, let me take that one Kevin.
So as we think about.
For the rest of the year, obviously fuel, whereas feel going to be stays below 40, we've got we've got some benefit coming in the fourth quarter. This year as we get into next year.
Let's talk about Salt I think.
We've got we should be flattish in the first half.
Of 2021.
And then we think based on some of our enterprise wide optimization efforts will continue to to work those and get get some relief in the back half along with some.
Some contractual things, we're working through with certain of our suppliers.
In.
In plant Nutrition North America.
I think you can expect to see some general inflationary pressure as it relates to afraid of course, we always have shifts by quarter, depending on whether we're we're shipping more to the Easter more to our southwest markets.
And then in Brazil, again, it's just inflationary pressure and we do see quite a bit of noise down there quarter to quarter.
In in the freight line alone just due to customer pickup versus delivery.
That can vary so it's more of a net sales net price.
Analysis that we do down there, but we would expect again just basic an inflationary pressures.
Although I would say we are doing a lot of work on the logistics side to give us.
If you give us some upside there or cost improvement and logistics.
Thank you.
And again as a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad. Our next question comes from the line of Joel Jackson with BMO Capital markets. Go ahead. Please your line is open.
Pretty much an <unk> thanks for taking my question.
With lower oriented volume assumption to make.
<unk>.
Normal way there what do you expect solid call per ton improvements to be in 2021.
So.
On a normalized basis.
The.
The bid commitments don't have a huge impact on that we would envision having are obviously the price impact in the first first quarter of the year continued improvement at Gotta Rich, we're not quite ready to put up to put an actual cost per ton out there yet but.
Our goal is to drive into the low 30% EBITDA margins in 2021.
<unk>.
To do that we're going to we're going to need to see some some significant.
Salt cost improvement so until we will talk more about this specifically on our.
On our in February when we talk about the full year.
2020 into and give you a full year guidance for 2021, but.
It would be.
A couple of dollars high level is what I would I would expect in the across the entire salt segment.
Thanks, that's helpful and then.
Just that you mentioned negative COVID-19 impact lost sales and incremental operating costs.
I think there were about 7 million too cute tree have you made any offsetting COVID-19 Renaissance savings.
I need sustainable looking into 2021.
We've got we've got a number of things that have offset some of those costs.
Thinking about teeny and.
Just constrain spending.
Through SG&A.
But but we think of many of those costs being offset by our enterprise wide optimization efforts. So we still within that number we've seen a little bit of benefit in our business.
From on the sanitation and the chemical side down in Brazil, but it's not that significant most of our offsets there have been just our own internal improvements.
Through procurement logistics operations and commercial.
Thank you.
Our next question comes from the line of Mark commonly with Stevens go ahead. Please your line is open.
I wanted to come back to.
To Brazil for a second.
Obviously was late planting it certainly feels like the sales shift and just pushed back but.
But there's also a compression in the season and does that raise the risk that you end up with a shift to more holier and would that be a significant margin application.
Hey, Mark this is Brad Griffith.
I think when we when we look at.
That the drought conditions in Mato Grosso and for auto state specifically.
Lang planting.
It has delayed for the implanting by three to four weeks roughly.
Right I think by and large our portfolio does not impacted by that whatsoever. We are we.
We are driving sales significantly there in fact are be the C V.
<unk> that's R. Director farm volumes are up 33% third quarter to date revenues up 37, 5% third quarter to date.
So don't see I don't see any compression impacting soybeans, if anything there may be.
A bit of a move on Sapremia corn.
Some of that could could be a bit compressed.
<unk> team has been working diligently with with producers and some of our line retail distribution customers in preparation for that so our intention is to maximize the sales opportunity with.
Several of our products like poly blend.
In Concord, specifically for the corn crop so we're ready.
Okay, and just one more question.
S O P prices were down which makes sense as commodities appears down to are you comfortable with the current Sophie premium and.
Does the fire challenging, California put downward pressure on it so prices.
As you as you look at four P M.
Yeah. Good questions Mark So if I think about ESOP pricing, you've got to look at a number of factors.
First of all pricing for us.
In the third quarter was impacted probably two thirds bye.
Not Canadian and not use what we would call exports so product that we're pushing outside of.
Canada, and the US and also by just dynamic pricing to defend.
Our market share versus versus imports. It's also important to note that because of the granulated volumes were lower for the reasons that Kevin had mentioned earlier.
Earlier.
We felt we sold a bit more standard and a percentage in the third quarter. Then we sequentially did last year. So all of those things like that but a little bit of downward pressure on us now to answer the second part of your question.
Think it's important to note.
European producers continue to see strong demand in South America, Middle East and South Asia market.
They've traditionally served okay.
And as you said the MLP to SLP premium.
And <unk> is held consistent as it has in the states and that 200 or 225 dollar range.
So I think we feel good about it the euro has recently strengthen to the U S dollar and freight rates are moving back up which could bode well for pricing and and the U U S. As important as the price higher if they expect to gain entry into the us that.
Health.
Super helpful. Thank you.
Your next question comes from the line of David Silver with B L. K go ahead. Please your line is open.
Hi, Thank you.
So apologies in advance.
You'd have to step away.
At a certain point, so apologies, if I'm, making you to repeat yourself.
I had a couple of questions I guess on on the S O P.
Marketer or the SMP.
Right.
First of all with the.
The variance in the stockpile that led to the seven $4 million charge.
Back of the envelope looking.
Looking at that and.
If I use a 500 dollar accounting cost per ton that's.
Close to 15000 tonnes is that kind of the ballpark and then maybe if you could just comment on over what time frame.
Maybe that buildup of missing inventory or or Mrs measurement.
Occurred that would that would be helpful. And then second also on this so.
I could just get a little bit of color from your perspective on just how disruptive the wildfires have been regarding some of your the agricultural regions I mean, if I think of.
The SMP going to fruit vegetables, and tree nuts, I mean I'm thinking the.
Fruit and vegetable.
Crops are are not.
In an area not generally in areas, where I would think the fires to get it from directly.
Tree nuts, or something like that might be a different story. So.
How much is a disruption might be temporary versus something that really does damage to the.
The trees or the other growth elements of of the products that use the soapy. Thank you.
Thanks, David let let me I'll take the first part of that and then maybe Brad you take the second part, but you're in the right ballpark, maybe a little bit low on the tonnage you mentioned.
As it relates to the time period. This goes back to our expansion at the sight remember, how we've upgraded that facility to be able to make 325000.
Less of a pond based tons back.
Back in 2016, we did that work 17 with some commissioning we ran it really hard.
To test all the system. So he goes back to that time frame of when these this accumulation of the the inventory.
Linked leakage or shrinkage, if you will has occurred.
Spread you want to hit on the yeah.
Hey, David.
So on the on the wildfires really really good question that is the underlying driver for what delayed.
Ullman harvest so.
Kind of a lack of those.
Sunlight and drying time in the ripening.
And us if you will.
When those things were were shaken they said on the ground, probably a little bit longer than any producer would have wanted them to.
We're not we're not seeing a tremendous amount of damage. This is still a record crop. Okay. I think that's important to note.
These producers are exceptionally resilient they have still delivered a record harvest profit terms of in terms of volume. So I don't expect to answer your question I don't expect any any sort of demand.
Destruction at all with harvest being delayed at four weeks. It has it has pushed the.
Fertilizer application window back a bit our customers are distribution of retail customers.
In California have been <unk>.
Extremely confident that they believe they will be able to be.
That that narrow narrowed window, if you will in terms of helping.
These producers get the appropriate fertility to replenish the soil from from what was a record harvest that's great.
You are right on fruits and vegetables, we don't see any any real issues, there whatsoever melons and berries.
If you think about Napa.
<unk> has been impacted I think a lot of the Chardonnay grapes came out on time no impact there, but some some of the Reds have been impacted by by smoke pain anything that was hanging out there while this smoke happen.
Been impacted and that's that's going to be structured for.
Certain.
Wineries in or in that in that part of the world, but again the use of SLP is much smaller than what we see.
In three months so.
Not not something we would consider material and similarly, there is going to need to be a fertility program that.
That drives production.
Four four graves as well, we stand ready to meet that need.
As well.
Okay. Thank you for that I appreciate it and then just one question about the adjustment.
To your bid season projections from let's say three months ago, plus a down to plus four.
I'm just wondering I mean your team.
Is probably this is an area where you are probably.
I don't know amongst the most sophisticated.
Operators are players that I can imagine I mean, you have databases going back decades and.
You've got that.
The territory marked pretty good so.
I'm just wondering but.
Is there a cause that you could cite for the.
The drop in the bid success in in particular, I mean, I'm just <unk>.
Noting that there is a new player and the salt market that might be thinking about.
Carrying a lot of that and.
And just wondering if that's changing the competitive behavior in any meaningful way that that you.
Could site.
Regarding this.
The tail end of this season. Thank you.
Yeah, I'll, let me hit the last party.
First.
We got a new player.
In there, but will begin without referred back to us These are seasons.
Ah season team has been in this business for a long time and we've seen nothing that suggests they're operating too.
That payments are interesting minutes or anything like that nothing but rational.
And I think with the bigger transaction that they've just announced they are focused on okay.
Okay, Yeah, they probably Oregon, liver, but they're focused on margin enhancements because when you look at our margins even before the improvements we're in the process of making relative to the asset that they acquired our margins are substantially better. So I think they're going to be focused on that margin enhancement and one way to do that is not not too so cheap.
So I think they're going to behave very rationally in the in the marketplace of no no worries and I wouldn't attribute anything.
That has been a phenomenal in the marketplace we saw.
What we did was.
Because these bids came out we we provided feet.
Feedback that we thought was fair bathroom for our product.
And if we win we're happy if we lose were okay with it so.
Yeah, I got a little competitive there at the end, but I don't I don't have any and don't make any apologies for pass alone business that we don't think it makes any sense for us so.
I'd, rather have the 4%, where we ended up rather than that incremental additional 4%.
At a lesser price that gives us the opportunity to continue growing our margins out to the low 30% low to mid 30% range that we've been talking about all alone.
I I really appreciate the color thanks very much. Thank you.
Our next question comes from the line of Vincent Anderson with Stifel. Go ahead. Please your line is open.
Yeah. Thanks for humor me I just had one more for Brad.
Just wanted to check in on the new AD product commercialization effort may.
Maybe broadly speaking if you could talk about how marketing maybe some of the larger cooperatives.
First from trying to get onto the shelves of of the more established retailers and just any general progress you've made on that front heading into next year.
Vincent Thanks. Good good question. So let me let me see if I can.
Good afternoon so.
First of all let's start with the micro nutrients.
We've had a solid year to date, our revenues there are up 26% third quarter to date, there continues to be good customer enthusiasm for fertilizer additive products like our wolf tracks Pvp and some of the newer nutritional brands like rocket seeds.
That you are referencing.
I'm also excited to report that we are launching three new specialty products under the trademark hydro bullet.
And specialty in.
Specialty in row crop utility so we're going to begin shipping those now for the 2021 USA crop season for on farm trials the products. Their Vincent we have hydro bullet Bloom, which is micro nutrients and seaweed action extracts that are intended to mitigate.
Stress and the plant we have hydro bullet Italian these are all liquid products by the way foliar products Hydra bullet battalion, which is an amino acid based liquid fertilizer and that is four avionic stress prophylaxis, so call. It a cult aren't et cetera, and hydro bullet big iron. This.
This one we're really excited about as well as an IP protected novels delivery technology for iron and.
Iron is an imperative element for chlorophyll production in vegetative growth.
We're excited to bring those two market as well we continue to work in our innovation.
Here in Kansas City, and also in South America on a number of projects both on the salt side of the business.
And on the plant nutrition side of the business and we're making good progress on a prioritized set of those projects. So we expect to continue to be able to report new innovation across our portfolio in the future.
On the marketing side Vincent with co ops.
I think we've had we continue to have good success with our customers.
We've become a much more reliable supplier on the <unk> side of the shop and also on the micro nutrients in terms of having product where and when it's needed.
And really working closely with our distribution customers to educate.
And also to facilitate sales to the end user farmer farmer customers. So I feel good about the progress we've been making we wouldn't be seeing the double digit.
Gaines.
Wasn't getting to hold water. So thanks for the question.
Yeah. Thank you actually just one quick point of clarification actually the 2021 season, you said field tests are those commercial field tests or or University.
Commercial yeah, so it'll be approximately for sale, but I think what's important to note as farmers aren't going to automatically switch a 3500 acre farm and put 100% of your folio product on 3500 acres, that's very rare.
Typically give you the worst 50 acres on the farm and see how it performs relative to what has been there standard.
And when our products show up well on some of those tough acres.
It really <unk>.
<unk> their confident and put it on a much larger portion of their of their land.
So that's what we're doing next year 2021, we're we're going to take on the challenges and hopefully performing exceed expectations.
Alright, well, thank you very much for that.
And ladies and gentlemen that concludes the Q&A portion of today's call I'd like to turn the call back over to Kevin Crutchfield for some closing remarks.
Yes, I just want to conclude with a couple of things I know today's really.
Thanks for taking the time out to tune in I continued to be very very excited about what I see here accomplice into things that we have in progress couldn't be more pleased without the direction. We've got the saw franchise billing.
We've made a lot of improvements so far but we've got that much to go again and remain very excited about that and then.
The plant nutrition side, the back half of the year of the back quarter of the year. The demands there is going to be a compressed season, but I have every belief that our team will be able to deliver and we'll end up the year.
In a good spot and then last but not least for those of you not already aware.
I am sad, but also excited that to report that the.
The Risa.
Is moving on to a bigger and.
It looks like to be a very significant opportunity. So this will be her last earnings call with us and Ah.
Would be remiss, if I didn't take just a few minutes to thank her for her.
<unk> decade, great Great service to Compass minerals.
We're going to miss her but it looks like a great opportunity. So we're never want to hold any any more back and we're very excited about her new opportunity but.
We will certainly miss her but I did want to take a few minutes to thank her for her service on this call.
And I am sure. Many of you will want to reach out and then.
And say goodbye as well because he's changing sector zones, but anyway.
Congratulations recent thank you very much congratulations.
So that concludes our earnings call today. Thank you very much for your participation and we'll keep you updated in the future.
Have a good day everybody.
Ladies and gentlemen, this does conclude today's conference call. We do thank you for your participation you may now disconnect.
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