Q4 2020 Compass Minerals International Inc Earnings Call
Good morning, and welcome to Compass minerals fourth quarter earnings and full year earnings conference call on.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
Ask the question during the session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star Zero I will now turn the call over to Douglas Sharp Senior director of Investor Relations. Please go ahead.
Good morning, and welcome to the Compass minerals fourth quarter and full year 2020 earnings conference call.
Today, we will discuss our recent results and our outlook for 2021.
We will begin with prepared remarks from our CEO, Kevin Crutchfield, and our CFO Jamie standard.
Joining in for the Q&A session are Brad Griffith, our chief commercial officer, as well as George Schuller, Our Chief operations Officer.
Before getting started I would remind everyone that the remarks, we make today represent our view of our financial and operational outlook as of todays date February 17 2021.
These expectations involve risks and uncertainties that could cause the company's actual results to differ materially.
A discussion of these risks can be found in our SEC filings located on line at investors Dot Compass minerals Dot com.
Our remarks today also includes certain non-GAAP financial measures.
You can find these reconciliations of these items in our earnings release or in the updated corporate presentation, both of which are available online.
I will now turn the call over to Kevin Crutchfield.
Good morning to everyone and thanks for taking the time to join our fourth quarter and full year 2020 earnings call I'll.
I'll start today by giving of topline overview of our financial and operating results for 2020 before providing some thoughts on the impact of our enterprise wide optimization efforts as well as our path forward.
As we look back on the year from a broader perspective, 2020 introduced personal and professional challenges to each and every one of us on.
I'm incredibly grateful to the men and women of our company per staying laser focused on operating safely and responsibly.
Continuing to bring forward new ideas for improvement and remaining committed to delivering for our customers communities and our shareholders. During this extremely difficult time.
As we published on our earnings release yesterday afternoon, a number of full year 2020 financial metrics fell short of our expectations largely due to certain external factors and other anticipated events the directly impacted our 2020 results.
We will provide more color on those shortly and we're taking steps internally to further GERD, our preparedness for such events.
I continue to believe strongly that our team's prudent management and unwavering commitment to our enterprise wide optimization efforts underpin longer term transformational benefits that we've started to see throughout our operations and fully expect to positively impact our financial results in the future.
One key factor, we simply cannot control, but rather we must manage through is the weather we estimate the weak winter weather season in both first quarter and fourth quarter of last year negatively impacted our full year 2020 operating income by approximately $40 million to $45 million of.
Other external factors adversely affecting our business during the calendar year included the wildfires in California, and drought conditions in South America, both of which impacted demand timing from our plant nutrition customers in multiple hurricanes in the Gulf coast, which required multiple.
Grief, but unplanned shutdowns at our Cote Blanche mine.
In addition, our South American plant nutrition business experienced stronger year over year, agriculture sales volumes and in local currency achieved a 16% increase in the fourth quarter operating earnings versus 2019.
However, the Brazilian currency weakened by approximately 33% during the year compared to the U S dollar, which ultimately hurt our bottom line in terms of U S results as we look at full year 2020 on a consolidated basis net income for the year decreased by approximately 5% and adjusted EBITDA decreased by approximately.
8% when compared to 2019 results.
On the positive side, we continued to generate strong positive cash flow from operations totaling over $175 million for the full year.
We also took an aggressive approach to managing our capital plan and I'm pleased we were able to come in on 13% below the midpoint of our original guidance for a total spend of roughly $85 million for the year.
Our free cash flow for the full year was just over $90 million and we returned $99 million to shareholders through our dividend program, which reflects our confidence in the company's ability to deliver cash flow through varying economic and weather related cycles.
As we stated in our press release last night, we've commenced the strategic separation of our South American assets in the two businesses with the dual goal of attracting the right counterparties and unlocking maximum value for each asset.
As a result, we formally relaunched what is designed to be of targeted and expedient process for the sale of both of our chemical and plant nutrition businesses in South America, Inc.
If completed we intend to use the proceeds from these transactions to continue reducing our debt further enhance our liquidity and continue our focus on meeting our customer demand for our central products.
Given the sensitive nature of these matters, we will not be fielding any questions on this topic, but we'll provide more information as it becomes appropriate to do so.
With our multiyear runway of ample liquidity no material debt maturities due for over three years capital plan flexibility and improving execution capabilities. Our near term priority is to deploy any incremental free cash flow after dividends, whether from organic generation of our strategic transactions.
Towards continuing our deleveraging process and paying down our debt to further enhance our equity valuation.
Now moving to our Salt segment full year adjusted EBITDA margins increased approximately three percentage points to 29%, despite our adjusted EBITDA being lower by 2%.
We also saw continued improved production performance at our flagship Doddridge mine on a full year basis production tons out of God, or which have increased 17% from 2019 results and production costs are down 16%.
In addition, during the fourth quarter of 2020, the team was able to achieve its highest production month since its conversion to continuous mining and haulage. These.
The steadily improving production metrics highlight of sentiment you have heard me communicate before that we've not yet reached our full long term potential what this operating assets.
I am confident of our progress will continue as we build out our new mine plan, helping to ultimately secure <unk> position as the leading salt mine in North America from both the cost and volume perspective.
When coupled with enhancements that are designed to provide long term flexibility and optionality to our logistics and procurement teams.
We set of course to capture significant value during stronger seasonal demand by meeting the needs of current and new customers alike.
Our Cote Blanche mine also demonstrated strong year over year operating performance, while managing through four significant hurricane events in 2020. These.
These storms resulted in approximately 11 lost production days in the year.
The preparations made by our team to protect the site and ensure the safety of our people allowed us to resume production efficiently and effectively after each of it.
This culture of resilience that permeated throughout the organization in 2020 is perhaps best reflected in the operational agility of our Cote Blanche team, who were still able to achieve their full year end production targets, despite having navigated a record hurricane year in the Gulf.
In addition, given the recent announcement of a nearby competitor closing its facility, we're carefully analyzing the opportunities to capture value for our portfolio by enhancing relationships with our existing customers, while also potentially putting us in a position to cultivate some new relationships.
I'd also like to give a particular callout to our logistics team, which has worked diligently on reshaping our network of partners to maximize efficiencies across our operations, while maintaining strong service levels for our customers.
As I mentioned previously our plant nutrition business, particularly in North America faced some unforeseen circumstances of its own this past year, including extreme wildfires in drought.
The resulting conditions from those events delayed the harvest of key crops, particularly treat us along with the fall fertilizer application season.
Our team worked to ensure we were well positioned to capture those sales volumes in the fourth quarter ultimately delivering strong year over year revenue growth of 16%.
Thanks to those efforts of our fourth quarter sales for this segment was the highest in the last 20 years, making up the significant third quarter shortfall.
Given the strength, we were able to partially offset some of the unexpected higher costs that we experienced during the year our per tassie and plus product continues to be the sop market share leader in North America, and recent pricing dynamics have reinforced our confidence that near term underlying demand remains robust.
We anticipate upcoming harvest in certain key markets to be very strong, which further translates into nutrient deficiencies for the soil.
And the need for our products when coupled with much more positive global backdrop for all fertilizers and the recent surge in pricing, we anticipate steady demand from our north American customers in 2021.
I would also like to point out that our micronutrient products line was able to achieve of full year gross sales record in 2020 since our acquisition.
In our South American plant nutrition business continued to achieve measured growth in local currency with sales revenue up 18% for the full year 2020, our customers on the agricultural side have experienced very attractive fundamentals and we anticipate these sales trends to continue in 2021.
But it has been a recurring theme the weaker currency has hurt our results in U S dollar terms.
Against the backdrop of the challenges we of 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. As a reminder, this effort is focused on five broad value streams, namely operations commercial low.
<unk> procurement and working capital I.
I referenced previously in my comments some of the early benefits coming through our Salt segment results from certain of these value streams.
In prior quarters, we highlighted our harvest Hall project at our Ogden facility in Utah the <unk>.
The funds compaction project at Goderich, and the progress, we're making with employee engagement through our organizational health focus I would now like to highlight some optimization benefits we're experiencing in procurement in 2020, we completely transformed that department moving from a decentralized and transactional function to our centrally.
<unk> high standard team focused on operations excellence through global strategic sourcing mindset and the performance driven culture.
We implemented of category management function. The team concept built to bring together procurement with all relevant areas within that segment.
Each team in the categories across functional and cross regional aligned to the business needs and extensive engagement with stakeholders.
During its initial year in this new structure the department of executed over 65 initiatives driving as much as 10% annualized savings in a number of specific procurement categories, such as contractor services packaging raw materials and equipment spare parts.
In addition to cost savings this new procurement strategy is expected to reduce the risk of supply chain disruption and provide a market advantage when our customers require a more sustainable and responsible supply chain the.
This high degree of focus from our team is expected to produce long lasting benefits and help expand our margins.
As we worked to both navigate external challenges and drive internal improvements over the course of 2020, there was no area of focus given more attention than our responsibility to keep our employees safe and healthy as many of you have heard me communicate before our number one priority of the management team is ensuring our employees go home.
At the end of their shift as healthy as they arrived our focus on this zero harm culture has been critical in our ability to navigate the current pandemic.
For the year, we achieved another step change decline in our total case incident rate or <unk> and.
In addition to achieving a multiyear low for our 12 months Rolling TCA IR average in 2020, we ended the year with an average of 153 and.
And I'm happy to share that our TTC IR in December was among the lowest of any month in the history of the company coming in at 123.
As a leading indicator for operational success. This continuous improvement in our primary safety metric highlights our commitment to conducting business in a responsible manner that protects the health safety and security of all of our employees contractors and the communities in which we operate.
The COVID-19 pandemic remains an ongoing challenge and we continue to take actions to mitigate its impacts.
In addition, we faced another slow start to the winter season in our served markets.
Yet our talented work force advantaged assets and efficient procurement and logistics operations continued to perform with excellence through this adversity supporting our global customers with the essential products improving our.
Our resilience as in the organization.
While our overall financial performance in 2020 was below our expectations, we were aggressive in our efforts to mitigate the various external headwinds we face.
We now estimate of combined negative impact to our original operating earnings forecast of roughly $67 million due specifically to weak winter weather in both the first and fourth quarters of Brazilian currency, the progressively weakened throughout the year and COVID-19 impacts, including both <unk>.
Cost preventative measures at our sites and reduce demand within certain higher margin end markets.
While these factors were out of our control be assured we're acutely focused on identifying steps, we can take to help insulate our business from the severity of similar impacts in the future.
Again, what has allowed us to effectively navigate through the past year as the underlying resilience of the markets in which we serve with our central products the strength of our advantaged assets and the dedication of our employees to drive improvements through the optimization effort.
We've also maintained close contact with our customers and remained on course with our previously communicated strategic priorities.
I continue to be excited about the future prospects of our company and confident of long term value our team at compass minerals can deliver.
So now I'll turn it over to Jamie who will discuss in more detail, our fourth quarter and full year results as well as our 2021 outlook Jamie.
Thanks, Kevin and good morning, everyone.
First a quick review of our consolidated results our fourth quarter 2020, consolidated sales revenue and operating income both declined year over year as late winter weather, coupled with lower highway Deicing average gross sales price pressures salt results.
While lower year over year, S&P pricing, along with elevated S&P production costs more than offset plant nutrition, North America sales volumes improvements.
For the full year sales revenue and operating income were also lower as we dealt with over $100 million in sales revenue impact and more than $40 million of operating earnings impact due to weak winter weather.
We also had elevated S&P costs, and lower S&P pricing, which were partially offset by stronger year over year S&P sales volumes.
Looking now at our Salt segment results total sales in the quarter were $228 5 million down from $310 9 million in the fourth quarter of 2019, largely due to lower weather driven demand for deicing products and the effects of the customer carryover inventories.
Although the snow event activity was similar to last year's December quarter. This year as the winter has been slow to develop with most of the fourth quarter snow events occurring at the tail end of December.
This winter weather impact combined with high customer inventory levels resulted in lower Deicing salt sales to highway commercial and big box retailers.
Total salt segment sales volume has dropped 23% compared to fourth quarter of 2019.
Within our Salt segment Highway Deicing experienced the 25% sales volume decline in consumer and industrial sales volumes dropped 16% year over year.
Looking at our sales by end use rather than by business unit. Most of the volume weakness was attributable to lower deicing demand.
In other words combined sales of the most of our non deicing products, such as water conditioning chemical processing and food and agriculture were not impacted by the weather and were generally flat with the prior year fourth quarter, even after taking into accounts some lingering slack in demand due primarily to COVID-19.
<unk>.
How do we the icing prices were down 11% versus the prior year quarter at $59 20 per ton.
However, consumer and industrial average selling prices increased 1% to $169 30 per ton.
As a broad based price increases across all non deicing product groups was mostly offset by lower sales mix of our higher price deicing products.
Operating earnings for the Salt segment totaled $50 2 million for the fourth quarter versus $85 million last year, while EBITDA for the Salt segment totaled $67 6 million compared to $96 5 million in the prior year quarter.
Despite the challenging environment I. Just described we are pleased to report minimal EBITDA margin compression in our Salt segment. This quarter as our enterprise wide optimization efforts helped lower our unit cash cost and tightened our spending controls on SG&A, which helped offset lower average selling prices.
When stepping back and looking at our fourth quarter Salt costs, we ended up at $41 per ton.
Which is flat with the 2019 fourth quarter. However.
However, on a mix adjusted basis, our unit cost is about $1 25 per ton lower than prior year.
So we absorbed the 25% decline in year over year fourth quarter Salt sales volume and we were still able to decrease our mix adjusted salt unit costs versus the prior year.
Improved production and logistics costs in our North American Highway business for the full year 2020 helped to offset the 12, 4% lower salt revenue.
And resulted in adjusted operating income declining just <unk>, 6% and an adjusted EBITDA decrease of only 2% year over year.
In addition to improve the <unk> mine production, we continue to diligently and aggressively implement initiatives occur.
Cross the organization designed to ultimately drive revenue higher and costs lower.
These efforts contributed to the expansion of the Salt segment adjusted operating margin to nearly 21% from about 19% last year and at the same time driving adjusted EBITDA margin to 29, 3% compared to 26, 1% for the full year 2019.
While these initiatives are expected to drive sustainable improvements for all segments overtime. We continue to be pleased to see EPS early benefits in our salt results.
Also worth noting that these benefits have been muted a bit given the difficult weather backdrop.
And the real value creation potential will be more obvious under better business conditions.
Turning to our plant nutrition, North America segment fourth quarter total sales revenue increased 15, 9% from the prior year to $88 7 million.
We achieved this by delivering a 23% increase in sales volumes, partially offset by a 6% lower average selling prices.
As we have discussed in recent quarters, the extreme wildfire conditions in the Western U S delayed the start of the fall application season, and as we expected shifted the timing of S&P sales volumes towards the 2024th quarter.
While we always price to drive the appropriate value proposition for our customers. We continue to maintain our market share for our premium potassium plus S&P product.
Plant Nutrition, North America operating earnings and EBITDA for the fourth quarter were pressured by short term cost increases associated with feedstock inconsistency unplanned downtime and related maintenance cost at our Sop facility in Utah, which weighed significantly on the quarterly and full year results.
In turn our plant nutrition, North America, EBIT margin compressed to about 20% in the quarter compared to nearly 34% in the prior year with operating margins declining about 10 percentage points quarter over quarter.
Strong full year sales volumes, partially offset by lower sales prices helped us deliver of 16, 2% improvement in 2020 full year plant nutrition, North America revenue versus 2019.
These revenue results coupled with the short term fourth quarter cost pressure and the previously disclosed $7 4 million inventory adjustment in the third quarter resulted in a $10 $4 million decline in operating income and a $14 $6 million decrease in full year EBITDA.
Excluding the inventory adjustment full year operating margin would have been eight 1% compared to 10, 9% in 2019, while full year EBITDA margin would have been 25% versus 32, 5% last year.
The inventory adjustment is nonrecurring and our S&P cost pressures short term in nature, we expect a sharp rebound in the plant nutrition North America EBIT.
And operating margin percentages in 2021.
Our plant Nutrition, South America segment delivered a 24% year over year increase in fourth quarter, 2020 revenue and an 18% increase for the full year both in low local currency.
This was driven by increases in average selling prices for both agriculture, and chemical solutions products, along with stronger year over year at gross sales volumes.
The fourth quarter agro revenue was up about 29% versus 2019 and up nearly 23% for the full year even.
Even more impressive was our fast growing <unk> business unit were strong sales volume and price drove a 37% increase in both our 2024th quarter and full year revenue when compared to prior year again, all in local currency.
Strong demand began in early 2020 for many of our specialty plant nutrition products due to the very attractive economics for Brazilian farmers and that trend continued as we finish 2020 and moved into the beginning of 2021.
In local currency, our plant nutrition, South America of fourth quarter, and full year 2020, operating earnings increased 16% and 35% respectively. While EBITDA increased in lock step by 15% and 25% as well.
While we're obviously disappointed with our fourth quarter and full year 2020 results. It's important to again point out that the combination of weak winter weather Brazilian currency devaluation, and COVID-19 impacts in both mitigation costs and end market deterioration negatively affected our 2020 full year operating income.
By nearly $70 million.
Despite this impact we were able to hold year over year, adjusted EBITDA margin flat at 21% and generate more than $175 million on cash flow from operations and $90 million of free cash flow.
I would now like the shift gears and spend a few minutes on our 2021 outlook.
As a reminder, when we worked through our annual planning process, we utilized on underlying assumption of average winter weather and how that would translate through our upcoming bid season. There are multiple scenarios, we run but at the end of the day, we focus on what we can control and then manage through the consequences of what the weather and other opportunities or challenges.
On just bring by adjusting our planned dynamically throughout the year.
We are extremely disciplined in our approach to capital spending and closely monitor the supply and demand dynamics of both the salt market, particularly in North America, and the specialty fertilizer market, where our high value per <unk> product has a leading market share in North America.
Those factors dictate of supply response, we feel strongly that we can quickly adjusted to make rational economic decisions and still be ready to meet our customers' needs.
We are optimistic about 2021, as we look for normalized sales volumes in our salt business and the expectation of even better agricultural fundamentals in both north and South America.
The initial benefits of our optimization efforts have started to register throughout our various segments and while we're not providing specific guidance on the expected benefits. We continue to believe that the long term commercial and operational advantages from these efforts will be meaningful to our bottom line.
For the full year 2021, we are expecting consolidated adjusted EBITDA of between $330 million of $360 million, which as of year over year increase of about 20%.
While the midpoint of our guidance is at the lower end of last year's full year guidance. It's important to note that weak winter weather impacts like those in 2020 are never immediately reset as prior bid season pricing almost always has a significant influence on the following year's average selling prices.
Our annual operating plan anticipates, approximately $100 million in 2021 capital spending as well as free cash flow at levels similar to 2020.
We are forecasting of significant increase in salt volumes as winter weather normalizes in both North America, and the U K and we're expecting high single digit sales volume growth for our plant Nutrition South America segment.
Within the plant Nutrition North America, we expect to see volume is down slightly compared to 2020 as we continue to monitor the growing season and balance of our customer needs given the recent ramp up in pricing.
Accordingly, we will continue working to offset any 2021 headwinds through of dual focus on value creation on cost containment through our enterprise wide optimization effort.
While our net debt to adjusted EBITDA ratio into 2020 at about four three times. It is expected in 2021 below four times and we expect to also continue to make progress improving our balance sheet and maintaining a very strong liquidity position with very little near term debt maturities.
In summary, while 2020 has been a year marked by challenges not only for our company, but globally, our business model works and our people withstood the test we exercised flexibility manage the external factors beyond our control executed our plan and worked on our long term strategy.
While continuing to return cash to shareholders.
As we enter the new year, we remain focused on keeping our people safe.
<unk>, our operations containing costs and delivering our essential products to satisfy customers around the world.
With that I will ask the operator to begin the Q&A session operator.
Thank you at this time, we'd like to take any questions. You may have price today to ask a question. Please press star one on your telephone keypad.
First question is from Chris Parkinson with Credit Suisse. Your line is open.
Great. Thank you very much.
Salt segment volumes were lower but you did manage the holding margins pretty well now open. The next couple of years there are clearly.
A lot of moving parts in both salt.
As well as our plant nutrition, North America understanding some of the near term issues are obviously non recurring.
How should investors be thinking about the long term margin profile as we head into 'twenty two 'twenty three I mean, what's your base case overall and what are the kind of the key things over the next several quarters, we all should be looking for thank you very much.
Hey, Chris Good morning. Good question. Thank you look I think we've talked about this a little bit in the past that.
On the salt side, we're trying to drive towards.
The high <unk> low low low to mid Thirty's dependent on kind of where the where the market is and I think we did a pretty good job last year in spite of sell in the millions of dollars five tons less and expanding our EBITDA margin. So we think over time the debt low to mid <unk> is a nice target area for us.
Over the next <unk>.
Next couple of years and the other.
The thing that I would add that.
Subtle, but it's worth mentioning is.
We're building a new mine at God Rich right now now you don't see that through the numbers, but we have development sections that are driving new entries in getting us setup for the next.
The 30 to 50 years so.
Even in spite of that additional cost were still reducing costs up there and if we wanted to.
Really increased margins over the short term, we could do something with those units and idle them et cetera, but George and I have talked about it we don't think Thats wise to do in the near term because we think the idea of setting the new mine plan up is the is the right answer so.
And then on the plant nutrition side, I mean, I would expect of a sharp snapback.
The return to sort of normalized operating margins.
In plant Nutrition, North America, what we experienced in the fourth quarter. We believe is temporary in nature and we believe that we have that well in hand, so I think youll see a nice snapback and we would expect kind of similar margins. They are too low to low to mid <unk>, depending on market conditions and EBITDA margin EBITDA margin.
Yes, yes, sorry.
That's very helpful and just.
In the U S. We're clearly experiencing some extreme winter conditions and I never thought snowfall would get so close to cop launch quite frankly.
You also of operations in the UK can you just start a little bit more about the start of the winter and how the platforms equation of the benefit in there in terms of thinking about the total portfolio and then also perhaps.
North American market share in 'twenty, one and 'twenty two onwards based on your own ambitions still as well as the closure of Bob Avery Island.
Thank you very much.
Okay. Yeah. Thanks, good questions there as well look the UK is off to a.
A really good start probably.
Are we the best start it's had in the last decade, or so so things are really rolling well over there and it's got a little milder here of here of late but they are off to a great start and then in terms of.
Market share in the in the U S.
We've planned we've given our guidance based on average weather and we believe we'll hit those volumes.
If there is average weather.
I believe I'm really confident in our ability to generate those kind of volumes.
But what I would say around market share as we want to be very disciplined about how how we think about that.
Over the over the long term, we want to stay focused on taking the right business, taking the right business at the right price. So that we can optimize our margins and then.
With respect to look if it makes sense to grab low market share back in from a market conditions perspective, we'll do it and if it doesn't.
It will also be.
Disciplined on the production side.
Net.
If that need occurs we'll just have to see I mean, we still got about eight weeks of weather and hopefully we want everybody to be safe, but hopefully we will continue to experience some weather conditions. So that we can prove to the.
The external world what this.
That four of them is capable of doing now that we've made these changes to the underpinnings of the organization.
And then with respect to Avery Island that mine was.
It was of planned closure later this year.
It was closed or it was announced it was going to be closed early.
They had some operating issues late late last year and they decided to close it early so that's $1 million in the half ton circa $1 million of half approximately.
Tun void in the in the marketplace that.
We believe some benefits will inure to us.
Being careful and thoughtful about that but.
On balance taken.
On a half tons out of the out of the market on balance we think should be a good thing for us.
Great. Thank you very much as always.
Thank you Chris.
Your next question is from Joel Jackson with BMO. Your line is open.
Hi, good morning, everyone.
Kevin I wonder on Jayme want to ask of very honest question compass.
The spinoff, we've given guidance for six years in a row 2015 2020 in the February report.
For six years in a row compass minerals has delivered by the end of the year, earning below the low end of the initial February guidance range of six out of six.
The question I wanted to ask us not to look at the past book to ask you have you figured out what in your guidance process. The last six years.
Has led to that performance and figure out how you can make the 'twenty to 'twenty, one guidance more accurate or help us describe why you have confidence in this number when its been quite for the last six years.
Yes, I mean look I'm not going to spend a lot of time looking at the past, we're trying to look forward, but as it relates to this year's guidance I mean look we're still dealing with.
Sort of the hangover effect from the day on unit pricing in the.
On the last bid season, so we've got to work that off.
Between now and the end of this this winter season and look if we finished strong I think that tees up an interesting upcoming bid season, but look I believe of high confidence level, if we experience.
Average weather.
That's the <unk> experienced average weather that we will absolutely be able to deliver on.
The guidance that we've outlined here in the winter stay strong buybacks I believe we could we could outperform it but that was part of the thinking too was let's lay out something that we feel really good about hitting.
And hopefully it's got some some upside to it so look I think from a.
And execution standpoint.
We haven't yet tested what the upside potential of this.
<unk> platform is and if business conditions cooperate I think youll see a set of results.
That are unlike anything that's been posted in the past you again it takes.
Mostly weather, but at the end of the day I think you'll be able to see the benefits of all of the work that's gone in over the last 18 months in terms of the enterprise wide optimization Joel.
Okay.
Second question would be.
Over the last decade, or so we know that.
We've seen some numbers kind of to talk about.
Moving freight cost sensitivity of.
Something like 75 to a dollar per ton per salt per $10.
And brands now since you were assigned all of these got on really the awards and bid season, this spring and summer.
On the diesel gasoline oil price of all right can you give us a sense of what the drag is in 'twenty 'twenty one guidance from higher freight costs, what was it in Q4 out of any offset to help you mitigate thanks.
Yes, sure let me take that one of the Kevin.
Yeah, so that that range.
<unk> exists it's about it can be <unk> 75 per dollar I think of it more as 50 to one dollar.
Per ton for every $10 of Brent crude when we when we looked at and it depends by mode right of course.
When we set our plan, we're right around $50 Brent for 2021, and obviously I think today its around 63%. So there is some some pressure there, but so when I look at the first quarter.
I think we will actually be down year over year in shipping and handling freight and salt.
It's really mix driven.
If we continue to see whether like we have and we it ends up on a normal basis.
Because of the incremental highway deicing sales volumes youre going to see that blended salt distribution costs lower year over year, but based on what you said on where oil is certainly in the back half we would expect to see some pressure.
That could be that could be middle single digit pressure in the back half of of 2021 just.
Really fuel related.
As it relates to the fourth quarter.
We really did a good job internally through our logistics team, we talked a little bit about it in our prepared remarks, how we optimized our distribution network.
And did a lot of good value add opportunities in there and that really muted the.
The fuel cost increases that we were seeing in the back half of 2000 2020. So.
As I said.
Probably looking lower year over year in the first quarter and there could be some some mid single digit back half of 2021 pressure on freight.
Thank you.
Your next question is from Mark Connelly with Stephens. Your line is open.
Thanks.
Two questions.
<unk>.
If I could start with with the harvesting improvements on the.
So Peter you talked about you said that that would improve yields and take costs down in that business, but now it looks like youre expecting lower volumes in some of my question is if you're expecting lower volumes will you still proceed with that change and should we expect the financial benefits of those changes are either going to be reduced or deferred based on based on the lower volume.
No look I mean, I think mark what happened in the in the fourth quarter of the wildfires delayed harvest and we had a really compressed.
The sales season and we.
Really emptied our pockets to deliver on our customers' needs, but the.
The harvest processes full in check we kind of incurred the costs for that last year.
We will have a full year of that benefits of it would absolutely expect to see that flow through the cost and the.
Like I said on the in the end.
Jamie said in the prepared remarks that.
The the inconsistency that we experienced across the pond harvest last year, we think that we have that well in hand through.
Testing and blending to create a more uniform feedstock for the for the plant and I think youll see things snap back out there pretty quickly this year.
Okay, and just one more my original understanding was that when the second 46 went into service at Goderich bring it down from four CMS of three to three <unk>.
The change to other parts of the plan now you've got 236 of the mine development. For example, so can you walk us through what happens from here now that you've got the second 40, 60 service, what's going to be running where.
Yes, so distant in simple terms of if I say something wrong here George is here to the correct me, but we had 436 is running.
We got the first 46 in we moved our 36 off on two development of the New road ways. When we got the second 46 in which is even though the pure unit than the first 46, we got that freed up a second 36 to.
The work on the on.
On the new mains development.
That's the goal over time too.
Connect the shaft to the old part of the mine of <unk>.
These new roadways as soon as soon as we reasonably reasonably cadence. So we still have four main production units fair. It is we run the four existing of add additional comment we run the four fct's behind those units and as Kevin said with.
With the increased productivity it does allow us to flex a little bit do some preventive maintenance and thats a lot of that optimization and upside of <unk> seen throughout 2020, and we will see in 2021 as well. Thank you Kevin.
So should we expect another 46 to come in and when or are we going to just stick with two big into the small.
We're still working through that.
There's a lot of moving parts up there.
We're trying to focus on what the final production fleet ought to look like.
But also equally focused on.
Getting this new mine plan develop and get these new roadways developed and then start developing these new rooms, and as I've said before that the journey and it's going to take some time, but.
Hopefully from the outside looking in you really won't even see it because.
It's well underway now so still kind of working through what the ultimate production fleet might look like could be could be $3 40 six's and.
And on on weather conditions, you run all three of them harder you may have to.
The create a more variable.
Type of approach just based on what the the.
The demand scenario looks like.
We still have some useful life too in the 36 of them. It's just good capital investment the couple of years ago. So we still have some life left in those machines and we want to utilize those as opposed before we replaces with the 46.
Understood very helpful. Thank you. Thank you thanks Mark.
Your next question is from Vincent Anderson with Stifel. Your line is open.
Yes. Thank you.
So 'twenty and 'twenty, one guidance for salt, so he's going to assume normal winter volumes, but is the guidance, assuming any kind of incremental price pressure and next year's bid season from what had been until recently of milder winter or is it related.
And anticipated inventory hangover that kind of led to some customers taking volume maximums.
So as we always do we always assume average so as we start our annual planning process in late 2020. This year as we would of last year.
We make average winter weather assumption. So so our guidance is assuming average winter for the full season.
And then our expectation of how that would flow through into the bid season, we won't comment specifically on on what we think the price might move in the bid season, but that's all that's all baked in.
Okay, and I guess, maybe then to clarify the will just a bit further.
Would you say that the risk of customers, taking greater volume is under their contract Maximums.
Just based on what we've seen year to date would that be of higher or lower risk impacting your second half outlook.
I would say that based on what we've seen year to date in terms of weather activity, we're pretty well aligned with that it feels it feels pretty pretty average weather activity on a year on of season to date basis.
With obviously, some some strong activity as of late.
<unk> has really helped us get back to that that area. So I wouldn't expect it to be significantly different.
Then what we thought earlier when we were doing our planning as we've now kind of landed in that average area.
Season to date.
A lot of it Vincent twos like okay.
Yes, it's been tough for the last couple of weeks for sure but what is the next six weeks of looks like I think that's what'll what of Tee up the next season, one way or the other.
And so.
So far the talks of the Tony field has been spot on so hopefully he continues to be right.
Fair enough just following that point of clarification on Avery Island.
To be clear they were in the market for the last bid season, and so this accelerated the outage.
Not really be shutting up until now.
This year's bid season.
Yes, that's right.
Okay, all right if I could sneak in a little bit of of a longer one than do you mind, just walking through what gets us to the high versus the low end of expectations and North American Agriculture, you had a good almond harvest last year.
But you also have a good row crop setup that micro nutrients didn't seem to fully participate in during the fourth quarter.
The pricing came down at the end of the year. So maybe if you could just spend a minute bridging 2020 to 2021 from a scenario of perspective that would be helpful.
Yeah, sure Hey, Vincent Brad Griffith.
I think as Kevin said in his comments, we we had that record fourth quarter for Sop stemming from a very light <unk> driven by the California wildfires.
And we're seeing continued significant activity in the into the first quarter.
Vincent we're too we're too not quite two four months into 2021.
And so as Jamie had mentioned in his comments on our guidance range will factor in.
Things like <unk> crop economics and.
What we see in terms of average application seasons for both the spring and the fall.
I think in our favor when we look at higher MLP and sulfuric acid feed stock cost for manheim producers as well as freight rates now that are about two times of what they were versus same time last year.
We certainly would expect to see some import price appreciation.
In the coming months and so when we take all of that in a couple of it with our expected ramp.
What we typically see in our pond based production in Ogden.
We remain confident in our ability to to hit that and serve that market demand while simultaneously capturing the value from every time, so I think the.
The the Delta is on that range.
Really come down to what we see in terms of application seasons and.
And how producers respond to induce crop economics, which which continue to evolve a bit as more of the world becomes vaccinated.
Exports are likely to improve from where they are today.
And in that of course, we will help our our end use customers dramatically.
Alright. Thank you that's all from me.
And Dan if you'd like to ask a question. Please press star followed the the number one on your telephone keypad. Our next question is from David Begleiter with Deutsche Bank. Your line is open.
Thank you. Thank you good morning.
Question on free cash flow, maybe more for Jamie.
You said it would be similar to 2020.
But we are looking at EBITDA of about $50 million year over year at the midpoint and Capex only up about $14 million of what's the.
What's the delta in that analysis.
Cash cash interest will be about $65 million cash taxes around $35 million and working capital will be kind of $50 million to $60 million.
That's the.
That's kind of where that is we've got a bit of of working capital build there about half of that is salt as you look at our full year guidance on volumes.
We are taking our salt inventories up towards the end of the year. There is a little bit of S&P increase on.
On the inventory side, and then the strong let's call it relative fourth quarter versus 2020.
Good.
Would generate a significant amount of receivables. So that's that's a couple of about $25 million of.
Of the increase in receivables. So that's the breakdown of that net working capital.
Increase.
And Kevin just on God Rich what will your production volumes in 2020, what's the expected to be in 2021.
We don't really talk specifically about.
Got her age volumes.
We're up low.
Was the 16% 17% year over year.
We expect to continue to grow volumes to the extent that the market will handle them.
But a lot of that's a function of two of what the market will of.
What the what the market wants and we'll do everything within our power to balance supply and what we see is the anticipated.
Demand, but like I've said, many times before I think god or it's will.
Reach a point, where it runs out of market before it runs out of capability just based on the nature of the.
Of the deposit the gear, we've got in place the.
The greatly improved relationship we have with the work force up there theres still extraordinary pent up potential there at goderich.
Thank you.
Thank you.
There are no further questions at this time I'll turn the call back to presenters for closing remarks.
We appreciate everybody tuning in today. Thanks, Thanks for the interest and any follow ups, just just let us know.
Thanks, everybody have a great day.
This concludes today's conference call you may now disconnect.
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