Q2 2019 Earnings Call

Please standby.

Good day and welcome to the Compass Minerals' second quarter Earnings Conference Today's conference is being recorded.

At this time I would like to turn the conference over to the resell Womble. Please go ahead.

Thank you.

This morning, our CEO , Kevin Crutchfield Nrcs, Jamie Standen. So are you compass Minerals' second quarter 2019 result.

As well as our outlook for the rest of 2018.

Before I turn the call over to Dan Let me remind you that today's discussion may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

These statements are based on the company's expectations as of today's date August seven 2019, and involve risks and uncertainties that could cause the company's actual results to differ materially.

Please refer to the company's most recent 10-K for full disclosure of these risks.

The company undertakes no obligation to update any forward looking statements made today to reflect future events or developments.

Our remarks also today include non-GAAP financial disclosures, which we feel are important to provide a full understanding of our businesses and operating condition.

You can find reconciliations of any of these measures in our earnings release or in our earnings presentation, both of which are available at the Investor Relations section of our website at compass minerals Dot com.

Now I'll turn the call over to Kevin.

Good morning, everyone.

First let me say, how glad I am to be here at compass minerals and participating on my first earnings call.

After a brief review of some of our financial and operational results I'll share some of the early thoughts I have about our path forward.

First a quick review of our second quarter results.

While total company revenue declined slightly we generated operating earnings growth of 46% and adjusted EBITDA growth of 6% compared to the prior year quarter.

The EBITDA results exclude the impact from unusual logistics costs, we incurred in our salt business due to severe flooding along the Mississippi River.

Despite the impact of those additional costs most of the earnings growth came from improvements in our salt business driven by.

Increased sales prices on highway Deicing salt as well as an uptick in sales within the consumer and industrial business.

We also increased earnings in the plant Nutrition, South America segment due to increase prices and sales volumes of our agriculture products.

Looking more specifically at the Salt business I'm happy to report that we have continued to make progress towards improving production at our Goderich mine.

Year to date. The mine has produced approximately 36% more so than last year at a 20% lower per unit cost.

The outcome is a direct result of ongoing improvements in the performance of our continuous mining system.

For my multiple visits to the mine I'm seeing strong improvements in the skill levels of our employees with operating and maintaining the new equipment, which is leading to increased equipment availability and higher utilization rate.

The increase in internally produced tons are important for improving our market position and allowing us to take greater advantage of a strong highway deicing bid season in North America.

Our highway Deicing bidding for the 2019 2020 winter season is approximately 85% complete.

Given the results thus far we expect to increase our committed bid volumes by more than 15%.

At an average bid price it as approximately 8% above prior year's results.

This is a strong result, given last year, our average bid price increased 18%.

The strong bid season results. In addition to better operational performance are expected to help drive meaningful margin expansion in EBITDA growth for this business over the second half of the year.

Our plant nutrition business remained somewhat slowed during the second quarter, particularly in North America.

The rainy weather throughout the spring resulted in lost sales in many of our key S O P and micro nutrient market.

In South America, our volumes have grown versus last year, but not quite at the level. We expected given that last year's results were negatively impacted by the Brazilian trucker strike.

We also said some uncertainty among Brazil growers in terms of the timing of their nutrient purchases.

That uncertainty is related to multiple factors, including the evolving you as China trade dispute as well as crop conditions in North America, both of which have had an important role to play in soybean farmer economics in Brazil.

In both North and South America. However, we're operationally strong and are well stocked throughout our warehouse networks to serve our customers demand.

In Brazil, the window to serve our customers looks to be more narrow than we would like which is another reason, we're a bit cautious about the rest of the year in that market.

As most of you know I joined Compass minerals in May and I've spent most of the last three months getting to know our people operations and businesses.

I've been impressed with the quality competitive position and in some cases, the uniqueness of our asset portfolio.

I also appreciate the strong attributes of our core markets and businesses, which have the capacity for attractive cash flow generation.

Regardless of what's transpiring in the broader economic cycle.

And I'm very impressed with our people who go to work every day with a strong sense of purpose and dedication to their jobs.

Given these positive attributes and the significant investments that have already been made to improve these assets.

Coupled with a laser focus on execution overtime I'm optimistic about the ability of the business to significantly increase its margin.

Well. These are still early days for me, we've already begun to make some important changes in our structure and are undergoing a thorough review of every aspect of how we operate.

Our decision to move to a functional organizational structure and this review are all part of an effort to achieve enterprise wide optimization.

Coupled with a renewed focus on operations and technical excellence.

I believe that these efforts will allow us to deliver stronger returns on the investments we've made.

And help us determine what strategic shifts might be needed to achieve greater shareholder value.

In the meantime, executing and delivering results from our existing operations is critical.

I've discussed the improvements made by our team at the Goderich mine, but we have other important examples as well.

Our coal blocks Salt mine was directly impacted by the recent tropical storm that made landfall in Louisiana in July .

On that score I would first like to commend the cope launch team for having such a robust and comprehensive emergency preparedness plan in place and executing it flawlessly as the storm approach keeping our folks out of harm's way and securing our assets.

Secondly, I would also like to commend them for their efforts to restart the operations.

After basically taking a direct hit and enduring a fair amount of damage.

All told however, we don't expect any impact from this storm on our full year production at this site due to the Swift recovery efforts by our cope launch team.

Our team at Ogden has also been driving better results in production and quality at our soapy plant this year.

Where we've driven cash costs on current year production to the $225 per ton range.

And the plant nutrition, North American business. We've also introduced new products like rockets seeds and entered into new partnerships for the development of more innovative products.

These achievements mean, we should be well positioned to deliver growth as the agriculture market improves over the next year.

With stronger execution capabilities.

Attractive fundamentals in our salt business and better market conditions developing in the agriculture market. We expect these factors to culminate in a strong finish for 2019.

And a solid start to 2020.

Now Jamie will walk through the details of our segment results and outlook for the rest of the year Jamie.

Thank you Kevin.

First looking at our Salt results found on slide seven we delivered a 17% increase in operating earnings in the second quarter.

As 14% higher average selling prices and lower highway deicing salt costs more than offset a 19% decline in sales volumes compared to the prior year.

As mentioned by Kevin and in our earnings release. These results included $2.8 million in unusual logistics costs related to the extreme flooding experienced this spring along the Mississippi River.

This flooding resulted in increased transit times, an unexpected demurrage fees.

The shipment delays also had a negative impact on our sales volumes, although we're already starting to make up those sales in the third quarter.

Salt sales volumes were also negatively impacted by lower Deicing commitment volumes from last year's bid season.

As well as the mild winter in the UK, which has reduced restocking demand.

However, some of this decline was offset by stronger consumer and industrial sales.

Average selling price was very positive this quarter as a result of a 7% improvement in highway deicing prices and a 7% benefit from a relatively higher mix of consumer and industrial sales in the 2019 quarter compared to prior year remember these products have a much higher average selling price compared to highway deicing products, although the cost to produce them is also higher.

In addition to the unusual logistics costs, we discussed base rates and fuel prices also increased shipping and handling costs from second quarter 2018 results.

Per unit cash costs for salt products were about 2% above prior year.

Excluding the product mix impact.

Her unit cash costs would have been 10% lower which is a reflection of the improved production at Goderich mine versus last year's results.

And higher year over year operating rates at our Cote Blanche mine.

Second quarter plant Nutrition, North America results, which are discussed on slide eight continued to feel the impact of the wet spring weather.

Sales volumes declined 8%, while average selling prices were slightly higher than prior year results.

With rain continuing into may throughout California, and the Pacific Northwest.

Our commercial team did a great job mitigating the impact by shifting SLP terms to our eastern and southeastern markets, where wet weather was less impactful.

We also believe weaker grower economics for row crops impacted our micro nutrient sales in the second quarter.

Operating earnings for the quarter increased modestly while EBITDA declined about 10%.

Because this is a low earnings quarter.

Small changes have had large impacts on year over year percentage results.

Our earnings were negatively impacted by lower than expected sales for the weather reasons previously discussed.

We've also increased our SGN eight to fully staff, our commercial and R&D teams to support future growth.

And our shipping and handling costs increased year over year due to shipping products to more distant markets compared to last year.

On the positive side, we have continued this year to produce at lower costs at our SLP facility in Utah, where we are really beginning to see the benefits of the investments made there.

SLP only costs were down 9% for the quarter compared to prior year, which was mainly driven by better pond based production from the Utah planned.

Turning to our plant Nutrition, South America segment results on line on slide nine.

We reported a 15% increase in revenue for the second quarter on 19% higher volumes and 3% lower average selling prices.

These results were stronger in local currency as you can see on the slide.

The key drivers of local revenue growth were improved sales volumes and better agriculture products selling prices.

Some of the volume lift versus prior year was due to the fact that truckers in Brazil were on strike last may as mentioned by Kevin.

Operating earnings and EBITDA also improved primarily driven by higher sales volumes and prices in the agricultural business. This was partially offset by higher raw material input costs.

Before moving onto our outlook a few corporate items of note.

Net earnings were again impacted by an increase in other expense, which was $2.6 million larger than prior year results.

Similar to the first quarter. The primary driver was an FX loss related to the strengthening Canadian dollar versus the us dollar.

We also incurred higher interest expense due to increased borrowings on our revolving credit facility.

Turning to our second half outlook, which can be found on slide 10, we expect salt segment results to deliver additional growth due to increased highway deicing bid prices and commitment volumes.

As well as improved consumer and industrial sales, particularly within the package Deicing category.

In plant Nutrition, North America, we expect second half 2019 sales to benefit from increased SLP demand following the reduced applications in the spring while prices are expected to remain stable.

Micro nutrients, however are facing additional headwinds from increased inventories at the customer level.

In our plant nutrition, South American business, we continue to expect full year growth in sales volumes, along with revenue and earnings growth in the second half of the year.

We are a bit cautious on the degree of growth in South America.

Growers appear to be taking their time to make planting decisions for this season based on several factors, they're waiting to see where the U.S. so yields land.

You have reduced soybean demand from China due to Asian swine flu. In addition to domestic policy concerns and uncertainty regarding the Brazilian currency.

So while soybean economics are still attractive they are not as robust as last year, which major reduced demand for some of our higher value products during the balance of the year.

There may also be acreage shifts between soy and corn. These changes can impact our margins as our corn applied products are somewhat lower on the value spectrum in general.

For the full year, we are maintaining our original view on EBITDA based on the growth expectations I just outlined we continue to expect to generate about $100 million of free cash flow for the full year 2019.

We also expect to end the year with our leverage ratio below four times debt to EBITDA.

As Kevin mentioned, we are very pleased with our bid results thus far.

Which sets us up nicely for the upcoming winter.

In plant Nutrition, North America, we have fully deployed our SLP inventories and stand ready to serve fall demand and in South America. We are patiently waiting for traders to start taking positions in corn, and soy, which should push growers to meet the expected investments in fertilizer inputs.

These factors plus an amplified focus on disciplined internal capital allocation and enterprise wide strategic sourcing will further enhance both margins and cash flow generation.

Now I'll ask the operator start to Q and a session.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question plus one follow up then reenter the queue.

Again that is star one to ask a question.

Well take our first question from Vincent Anderson with Stifel.

Good morning, and welcome aboard Kevin.

I wanted to go back to God rich for a little bit more detail has the timeline changed at all.

Since since you last updated us.

With regards so when you think you'll be at least in a place where you can stop importing salt if not at targeted capacity utilization rate.

Hey, good morning, Vincent Thank you.

Maybe the best way to hit guidance is just to talk about it in the context of a continuum.

And maybe this might even answer other questions folks have on their mind, but as you know we've got.

For CMC H units in place there and as you can see.

Year over year, where were.

Seeing better results and I would expect that trend to continue.

As we get more comfortable with the equipment and we're doing some things on the maintenance side lots of cooperation collaboration between production and maintenance.

On the per prevented decide to keep these things in running in the salt face that.

More appropriate levels of availability and system utilization so.

That's kind of number one we've got a new unit showing up I think we've talked about that in the past the show up late late this year. We're not we don't have anything built into the plan this year for that.

But we'll see the full benefit of that unit next year that allow us to pull one of the older units off.

Towards development on this new mine plan that Weve.

Referenced a time or two in the past.

So with that I would expect as we continue to improve things at goderich, which it will lessen the burden of purchasing import salt and for every ton you do that you're going to experience margin expansion.

Because the margin we experience across imported tons is less obviously than we can achieve through internally produced tons. In addition, as we grow our volumes at.

God rates, which I have every intent the belief that we will.

Fixed fixed cost absorption levels will also improve driving down garbage costs, which will further increase margin expansion, so without any reference to specific targets.

That is the at least the near term game plan and then the longer term game plan is.

We discussed creating mining districts and migrating ourselves from the this old mine.

Set up that's been in place 50, 60 years towards a new mine set up so that we can reduce the care and maintenance costs associated with.

Maintaining the of the old mine works and get ourselves set up.

For the next 30, 40, 50, 50 years, but thats going to take two three years to get underway.

But that's what we're working towards so thats, a really long answer to your question and I hope that was responsive to it.

No certainly helpful. I appreciate it.

Sticking with salt, 85% completed.

At this point I think that's about 10% to 20% above the usual pace.

Yes through the balance of the year would you characterize the 85% is in line with the broader bid season or is it higher than normal because you chose to fill your book faster than than maybe some of your competitors.

Well I think it's a function of people being depleted in terms of inventories. The RFP came out pretty aggressively we had a couple of really big wins I think was probably what makes up most most of that delta because we normally come in.

At this time of the year as I'm learning anyway somewhere in the 70% Zip code.

In that we're in at 85% I think it's really a function of a couple of big wins that we took.

Up in up in the upper Midwest and I think that's that's essentially the difference Jamie did you have anything thats exactly right.

Thanks.

Going to try to sneak one more in here.

Have there been any early indications that you are for.

Fourth quarter micro nutrient demand could have.

Pretty healthy come back given higher crop prices and where we started the year and pressures on yields.

I think.

We mentioned some headwinds here in the second half expected to continue certainly higher crop prices and depletion of those customer inventories will help.

But we're just not quite sure yet we're going to have to wait and see how that unfolds.

It's hard to say at this point exactly.

Fair enough. Thank you.

Our next question comes from Mark Connelly with Stephens.

Thanks.

Just two questions.

Kevin when we spoke last you haven't spent a lot of time, yet with the people on the AG side of it.

Since.

And I assume that you're spending most of your time on salt, but but since that time you have made some important management and organizational changes we hear a lot from investors that the AG business doesn't fit so can you share your still early thoughts on on how the AG business does that.

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Yes.

Good. Good question, Yes, we did make some important changes and we will continue to make changes as we evolve towards more of a functional organization structure with a bifurcation between operations and the commercial aspects in treating that from an enterprise wide standpoint, and then as Jamie mentioned in his prepared remarks.

Centralizing strategic sourcing in how we allocate capital internally, we think there are some some value there.

But not to get into strategy here. This morning, I think our first order of business as we are conducting our business in MRI or diagnostics, whatever you want to call. It top to bottom, we see a lot of internal potential here.

And I think staying focused on that in the near term and improving the results in our performance is job jobs, one two and three.

For the next handful of quarters, so thats, what were really going to be focused on.

And as we start to put runs on the board through some of these improvements that we've.

We're in the very early stages of and as the business gets healthier and healthier I think thats when we will evolve into more of a strategic discussion with.

The management team as well as the board on where we go from here.

So I don't I don't want to touch on.

Somebody's view that AG doesn't fit or does does fit I think what we're.

Job one for us is improving the performance of the business because it goes without saying that.

We've had some misses in the past and I think getting focused on that's really job one.

That's helpful and second question is just on working capital you had a bigger build this quarter with higher.

That's a good thing so how should we think about the second half should we assume that working capital is going to be a bigger build a year over year again as as Gotta, which continues to.

Yes ill take that one.

We will you will see a bit more cash consumed from the working capital build.

Last year in our salt business, we ended the year with that.

Significantly lower inventories than we would have typically wanted to end with.

Right.

And then as you can recall, we had consumed all of our 2018 salt kind of midway through first quarter. This year. So we would prefer to finished the year with higher levels and so you can expect to see.

A bit bigger not not a huge difference but.

It could be.

$10 million to $15 million bigger year over year in terms of working capital in the second half.

Super helpful. Thank you Jim.

Well take our next question from Christopher Parkinson with Credit Suisse.

Great. Thank you.

You hit on this a little bit what you wouldn't you take a step back and just look at the current sub segment level outlooks.

Over the intermediate to long term, how should investors be thinking about the annualized cash conversion in a normalized environment.

Maintenance and growth Capex and just key variables. So just any additional insights on slide 12, and just how you're thinking about that would be very helpful. Thank you.

Sure so so.

In the prepared remarks, we mentioned to the focus on internal capital allocation.

We.

We have been running high capex for several years last year above 100.

Trying to get that down below 100 this year.

So so so I think we're going to look to drive our maintenance of business capital a bit lower with more.

More rigor and attention to that specifically so.

Kind of that $90 million range of of Capex is what we're focused on right now.

Cash taxes are going to be.

Similar to what they've been using that 28% tax rate is as good a number as any.

And then.

We do expect to get to that 150 to 200 million of free cash flow based on our expected increased production levels.

A reduction of imported salt like we talked about before and.

It's it's we're not in a position to say, we're going to hit that level in 2020, but as you look out a little bit further and think about 2021 that is.

Is a very very real possibility.

Great and when you think about the competitive landscape in the U.S salt market can you just update us on your intermediate to long term strategy just to maximize netbacks in your key markets and just how that looks like it's shaping up in the queuing current QSR season is there stuff you can do even better.

You next year and the year. After that are you kind of where you think you need to be roughly and that's that comments, excluding that third party sold.

Yeah.

Good good good question I mean, I think job one for us is.

Everybody knows garbage Hasnt performed all that well over the last few years and getting it performing well and basically growing it into the level of import salt that we have now.

It is kind of job one and then when you look at our depots and our logistics in our networks.

We're taking a very close look at.

How we move salt around to make sure that we're doing it in the most efficient way possible.

That last mile the toughest part and we want to try to optimize around that so there is not that there wasn't a focus here before but there will be a renewed focus on that to try to minimize the cost from the salt face to the ultimate depot or even the ultimate customer. So we think there are some additional improvements that can be made there on the logistic side and were honed in on that as well.

But again, just kind of going back to got to reach for a moment theres a ton of pent up potential there.

That.

Super excited about having been up there now have a handful of times already and feel really good about our prospects there it's going to take a while to kind of get things in place, but I think over the next.

A few quarters, you'll still continue to see improvement there.

And then over the next few years I'm Super excited about what the prospects look like in terms of getting into this new mine plan and correct geometries.

Bigger equipment. These new units that we're getting.

Later, this year and next year or.

Much more substantial units than we have up there now and I think they are productive capacities will be will exceed what's in place now so I'm really excited about how we how we're getting things teed up and I think we'll be able to execute over the next few quarters.

Thank you.

Our next question comes from Joel Jackson with BMO capital markets.

Want to go back to bid season on talk about awarding volumes trending up about 15% year over year could you maybe break that down a little more between how much of that came from garbage being able to produce more maybe to maybe some competitors having interest on production two maybe just sort of.

Market growth for inventory.

Adjustments year over year for in the channel. Thanks.

Yes ill start that and maybe you can chime in Kevin.

So so we wouldn't really will never talk about competitor behavior, we picked like Kevin mentioned, we picked up some tons.

Quite a quite a nice slug of tons.

Back in that June July time period.

Which was a bit surprising to us, but I am not sure. If some competitors are shifting tons to different geographies or.

Some may have some supply constraints themselves but.

We are we are running very well down in Cote Blanche So that's given us the opportunity to adjust our we call. It the north South line, where we can serve tons out of either mine so with that plant that facility running like it is we're able to take advantage of that.

A significant part of it is certainly that the higher levels of production.

I have got a rich so that that is a big piece of our ability to increase.

And then.

Gosh, what would be the other piece I think.

It's just I think a lot of business last year went kind of unserved. So.

That enabled us to take take significant amount of tons back take market share back so to speak at at really nice prices in the Grand scheme of things. So theres a lot of pieces there but.

I think on served.

Market that we're taking back so to speak are picking up and cope launch and it's hard to say whats happening with our competitors.

Thank you for that yeah.

Scrutiny.

I was just going to say I mean, I think Jamie hit on the right points. There I mean, we did run into some surprising I guess no bid situations and we don't have a lot of Intel as to what's what's going on with that worked out really well for us we're happy about it.

And as Jamie mentioned that I would like to give kudos to the coke launch team coming through.

Been a very steady producer through the year and they handle that storm very well.

Took a loss on the tons, but they.

They will make that up between now and the end of the year and of course with the Mississippi kind of being backed up we're a little behind on moving moving our saw but we think we think we will be fine throughout the course of the year. So I think we're teed up for a really strong back half of 2019 and have some nice tailwinds going into 2020 as well.

Thank you for that.

Maybe back on Brazil, So you've given some good commentary about some of the puts and takes in your forecast second half of the year grower caution and some of the sensitivities in corn and beans. Appreciate that could you maybe give some commentary on a lot of the products that you sell in Brazil are not the same commodity fertilizer and crop in for products that we are using a lot of niche products specialty products can you maybe comment on that.

No sensitivity of the broader Brazilian AG macro.

To your specific products that as opposed to more the commodity products. Thanks.

Sure. Thanks Joel.

That's a that's a good question, but remember we do have high technology products.

Leading edge products, but but a lot of our a lot of our products go into soi.

In South America, and corn as well so the biggest.

Shift is like we mentioned in the prepared remarks is that that risk around soy to corn.

The real issue down there right now is as we as farmers wait on.

To to place their to sell their brains with the commodity traders is I think it's that they're about 20% behind typically they would have committed.

20% more of their grains and they have year to date so.

They are you know the big trading companies are taking positions as quickly as they were last year. So they are waiting for that.

So what that can do is shift.

Sales from third quarter to fourth quarter.

So that's why we're being a little cautious there if we see more corn tons planted and suffering you related products that can give us a little bit of margin squeezed because we just don't make as much money on on the corn side as we do the soi the other pieces if they wait too long they can miss the soi the soil applied nutrient season, which is which is coming up quickly in which case if that is a little bit lighter.

In order to deliver the nutrients to the plants, we'd expect a little bit a boost on the full year side, which would which would transition towards a little bit to the and profitability for that matter to the fourth quarter. So.

Yes, we do have some citrus in coffee and other products down in South America, but the lion's share of what we sell into its soy thats the main driver down there.

So.

Thats, what we are that's what we try to try to focus on as it relates to the second quarter itself.

We did see some some good activity on the B to B front.

In our ingredients business, we had significant volumes sold into distribution.

But I think even the distributors are down there, even though they are taking product on.

Their customers, particularly in the South are also waiting to see how things flush out with global trade swine flu, China demand and soy prices.

Thanks.

And as a reminder, that is star one to ask a question.

Well take our next question from Jeffrey Zekauskas with JP Morgan.

Thanks very much.

I think in the course of the call.

Jamie you made a remark about how.

A 150 to 200 million in free cash flow.

Look less possible for 2020, but maybe in 2021.

Why did you say that Hawaii is 2021 better opportunity to capture that level of free cash flow and and why do you roll it out for 2020.

Thanks, Jeff I I'd say, we'll be on a path to that so I would expect.

100 to 150 out in 20.

2020 so.

You know.

Bottom end of that 150 to 200 is kind of how we see it.

We as we ramp up production we can't.

Take time back in the market place as quickly as we would like because of the timing of the bid season. So you have to bid those incremental tons.

Keep increasing our production capacity. So we can bid these incremental tons replace.

Purchase times, which generates more cash flow and it and it and it just pushes it out a bit so just to be clear I would say this year. We're talking about 100 million next year, we should be able to move that up toward kind of halfway up to that 150 to 200.

And then in the 2021 2021 timeframe, we'd be we'd be fully normalized.

How many purchase tons of salt roughly do you sell.

So yeah, we think of it we don't we don't talk about that specifically, but we're spending approximately $15 million on purchased salt.

Okay.

Are there any capacity constraints that you still have that are left over from the strike or any other factors and trying to serve fee.

I guess, the 2020 calendar year.

No I mean, I think just like just like in the 20.

The 2018 19 bid season, how we took our commitments down.

We.

That was because of our own internal supply constraints now that we have continued to see production recover we've we've taken those tons back we're very confident that we can serve.

The 2019 2020 bid season.

Given our current production rates and all of our facilities.

So.

I don't I don't see any issue around being able to serve what we bid no no no not at all.

Was that your question Jeff.

Yes, I guess I'm, just two very quick things.

You treated the extra logistics costs because of the flooding us a nonrecurring item.

Why did you do that I would think that they are all sorts of small natural things that occur when you run out.

Sole turn agricultural business and shouldn't DSP part of normal operations.

Well it was particularly unique Jeff that was something that we havent ever since I've been at the company seen before in terms of.

The upper Mississippi Lock was closed in July until June 27th.

I don't I don't think that that's ever happened. So that is an item that we truly view is nonrecurring and extremely unusual you're talking about more rain in the Midwest than they've seen in a 125 years. So.

That is.

So by definition unusual.

Okay, and then lastly in the in the press release, Kevin You said that you made important strides this quarter to drive operational performance.

Which is beginning to be reflected in your results.

Can you can you be specific about.

What it is that you will accomplish this quarter.

Well I mean, I think you can see it in particular in God are each on a year over year basis, being up 36% and I would expect that 36% number to be larger by the time, we get to.

The back half of the year.

So as as I mentioned to think of it as a as a continuum.

But I think at the mine level.

What we're seeing is.

Like I mentioned earlier very close collaboration between the production and maintenance folks to understand that these you know this complicated machinery and it needs to be taken care of.

We are occurring.

Less sort of unplanned.

Failures and doing things more on the preventative side and over time, we'll move more towards.

The predictive side to anticipate what we think might might becoming so bottom line is the units are just running better and I think thats a function of the.

People getting more and more comfortable with.

With the.

With the equipment and how to take care of it in.

That that sort of thing so I think that that in of itself is a big one and I think we'll continue to see that.

Through the balance of the year and then additionally, I would point to.

As soapy costs being down in that $225 a ton ZIP code, that's pretty important milestone compared to where we've we've been in the past. So I'd point to those two things is as example.

Okay, great. Thank you so much.

Our next question comes from Seth Goldstein with Morningstar.

Hi, Thank you for taking my question I'm, assuming the salt production continues to ramp up as expected when do we expect to see the large improvement in unit production costs show up in the financial results is that late 2020 or out in 2021.

So you will start to see some of it in 2020.

On a blended.

Cost basis for all salt tons.

We we will get down below $40.

In 2020, and then that continued improvements we wait we make throughout 20.

2020 itself will really start to show up in 21 for the most part so.

You know we view a couple of dollar lower salt costs in 2020.

And then.

And then another step change out in 2021.

Okay. Thank you and looking at the North American AG business, if I remember right Esso piece sales are only 210% a corn soy and other row crops on but how is the entire north American crop exposure change once you start selling the micro nutrients in North America, and then how will that evolve over time from a crop exposure basis.

Well I would I would say that we havent seen so the 10% number.

Is.

You know I'm not sure I'm not I'm, not specifically sure about that piece a lotta SLP most of our SSP goes into specialty crops don't think of it as a growing into row crops. It does go into potatoes in the Pacific Northwest.

But in terms of crop crop shift I think our S&P will continue to.

Be the best source of potassium for specialty crops in North America.

As we continue to grow our micro nutrient business.

You will start to see that diversification and that.

That's like we mentioned.

Earlier in our prepared remarks, we built out our salesforce and our R&D team to continue driving new products to continue to really grow that business. So those products. Many of those micro nutrients are going on to row crops throughout the Midwest. So it's just going to take some time to build that up before you see a significant.

A significant shift there.

Okay, great. Thank you.

We have a follow up question from Vincent Anderson with Stifel.

[laughter] Mr. Anderson, we are unable to hear you. Please check your mute function.

Sorry about that.

I just had two quick follow ups roughly what portion of the percent increase in a in your salt bid price would you attribute to passing through raw.

Logistics inflation.

Uh huh.

I would say.

So so there's a there's a mix impact the tons, we won versus last year. There's a lot of factors in there, but probably a small portion I would say.

I would say.

You know less than a quarter of it.

That's helpful. Thank you and then just with the Braskem outage down in Brazil, and in the rise in Latin American caustic soda prices have you seen a pick up in interest for potential buyers for your Brazilian chlor alkali facility.

Yeah. So we won't really comment on that specifically, we continue to to really enjoy the margins and the profit of that business, but.

I you know I don't think that you have any comment in terms of M&A M&A.

Alright, thank you.

And it appears we have no further questions at this time.

I'd like to turn the conference back to.

The recent womble for any additional quote for any additional closing remarks.

Thank you Lauren and thank you all for joining our call today do you have any follow up questions feel free to reach the Investor Relations Department and you can find the information on our website.

Have a great day.

And that does conclude today's conference. We thank you for your participation you may now disconnect.