Q2 2021 Compass Minerals International Inc Earnings Call
And welcome to the Compass minerals second quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session and instructions will be provided during that time.
Before we get started I will remind everyone that the remarks, we make today represent our view of our financial and operational outlook as of todays date August 16th 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.
Our earnings release or in our presentation, both of which are also available online.
The results in our earnings release issued Friday August 13th and presented during this call reflect only the continuing operations of the business unless otherwise noted.
The result, also restate historical amounts for comparative purposes and reflect adjustments to information presented in the company's previously filed annual report on Form 10-K for the year ended December 31.2020.
Quarterly report on Form 10-Q for the quarter ended March 31.2021.
As previously announced the nine months 2021 fiscal year reflects the change in fiscal year end from December 31 to September 30.
I will now turn the call over to Kevin Crutchfield, our president and CEO.
Good morning, and thanks for taking the time to participate today.
Ill kick off my comments with a brief overview of our financial performance for the second quarter also want to take a few minutes to review, where we stand as a company in light of our leadership teams previously communicated strategic priorities.
As reported we maintained solid momentum in the second quarter controlling what we can control and pricing in salt sales volumes ultimately that work resulted in strong consolidated revenue growth of 14% compared to the prior year period.
Cause meaningful contributions from both salt and plant nutrition enabled us to exceed our topline revenue expectations for the quarter.
We continue to work through our previously reported sulfate of potash feedstock in consistency and managing around supply chain disruptions and insulated shipping costs, which are not unique to our industry.
While both our consolidated operating earnings and adjusted EBITDA saw second quarter declined compared to the prior year largely due to margin compression during the quarter year to date, we've seen measured growth these categories of 20% and 13% respectively.
Pleased with the way our team continues to navigate this challenging environment staying laser focused on execution in our core businesses.
In fact during the first half of 2021, we generated strong positive free cash flow of $220 million, an increase of approximately 23% versus the prior year.
On the cost management side, we've taken prudent steps to control, our selling general and administrative expenses compared to the prior year.
We also continued to actively manage our capital plan spending in that category coming in at approximately $34 million year to date.
Focusing on our Salt segment for a moment second quarter revenues were better than expectations and over $142 million, while operating earnings of approximately $19 million and EBITDA of $37 million were both down primarily driven by a 28% increase in shipping and handling cost for the segment.
Our reported Salt segment results for the quarter were also impacted by an accounting methodology change that Jamie will discuss in more detail.
When considering our salt results on a year to date basis. However, we've achieved meaningful growth of 23% and operating earnings and 20% in EBITDA for the segment.
Regarding the 2021.2022 bid season for our North American Highway business, we continue to take a disciplined approach balancing market share with margin capture while always looking for opportunities to strategically expand our footprint.
Without good season, approximately 80% complete we expect the average contract pricing for this winter season to be generally consistent with prior season results.
Our total committed bid volumes are expected to increase by approximately 7%.
Moving to our plant nutrition segment, an increase in average selling price of 6% and relatively flat volumes in the second quarter compared to prior year translated to $54 million of revenue for the segment, which was slightly better than expectations.
Operating earnings for the segment were $5.6 million lower compared to second quarter 2020, while EBITDA came in at $9.8 million roughly in line with expectations. Given our previously discussed feedstock inconsistency that are anticipated to weigh on segment costs at least through the third quarter of this year.
We continue to believe the impact of the feedstock quality issues on the cost structure of our plant nutrition business is short term in nature and the proactive adjustments that we've implemented to address the issue have shown favorable incremental results.
We're also actively monitoring the ongoing drought conditions in the Western U S and continually assessing how they may potentially impact near term demand for our potassium plus sop product.
And Sop sales volumes remained stable through the quarter and we expect volumes to remain steady through September compared to the prior year quarter.
However, we will continue to keep a close eye on demand as the drought season continues as there could be volume impact later in 2021 calendar year.
As I alluded to at the beginning of my comments today I would like to now shift gears from the quarterly recap to provide some color on our strategic execution of the company.
When I joined Compass minerals in mid 2019, one of my first tasks as Chief Executive Officer was to set a course for countless minerals that acknowledged that didn't dwell on the challenges of the past.
That recognized long term success must be built on a foundation of consistent execution.
And then providing clarity to both our employees and our external stakeholders as to what kind of company, we were committed to becoming.
With the help of my senior management team I outlined early in 2023.
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Delivering on our commitments and conducting a deep strategic assessment of our advantaged assets and related capabilities.
It's been approximately 18 months since we laid out those priorities and while Theyre still is certainly work to be done I am extremely pleased with how far we've come in that short time span.
Over the course of the last six months in particular, we have successfully executed against a number of strategic priorities that provided the company with a platform to generate material long term benefits to our shareholders.
Paramount to building a sustainable culture is ensuring the safety and wellbeing of our workforce we.
We focus on our zero harm in parity for our people and our environment by continuing to strengthen our safety and environmental stewardship processes across all sites with the ultimate goal of zero injuries or incidents in the workplace.
We continue to enhance employee safety training, which focuses on elimination of at risk behaviors and we maintain a culture of open communication and trust by empowering every employee to stop any work process, they deem to be unsafe.
I'm proud to say the results of our safety focus was reflected in the first quarter of this year by a multiyear low for our total case incident rate or <unk> 12 month Rolling average that strong safety performance continued through the second quarter with a rolling 12 months TCE IRR of one.
For a representing a significant improvement over the previous five year period.
As you've heard me say before we believe our safety performance is a leading indicator for operational success and one of our fundamental commitments to creating a sustainable business.
The other half of building a sustainable culture requires increasing our levels of employee engagement and our execution muscle, which has been a key focus of our internal optimization effort that we launched in the fall of 2019.
Making improvements in this area doesn't come easily or quickly and it requires a certain level of humility as an organization to gain self awareness about what we do well.
We can get better and what steps are required to get there.
While I'm generally pleased with the strides we've made in this category, including but not limited to our commitment as a board and senior management team to ensuring diversity and inclusion throughout all levels of the organization. This will continue to be an ongoing area of focus for our company.
Through our increased execution muscle we've enabled improvements in our second strategic imperative delivering on our commitments.
The foundation of this priority is simple.
Clear with our stakeholders about our goals capabilities and challenges and then do what we say we're going to do.
We've talked a lot on these quarterly calls about the other half of our internal optimization effort.
Creating value for the organization through a bottom up process of innovation and continuous improvement.
We're purposeful in not calling these efforts a program as they permeate through all levels of the organization and are increasingly becoming simply how we do business here accomplice minerals.
As it has clearly been a strategic focus for our team on offer recent performance at our Goderich mine is probably the most salient example of our efforts to date.
Over the course of the last two years, we've made meaningful improvements in both production and safety hitting internal records in both categories. We've implemented a new long term mine plan.
The increased production efficiencies and extend the longevity of this strategic core asset.
And as reflected in the.
The historic five year collective bargaining agreement secured in late March we buttress those efforts by committing time energy and resources towards rebuilding strong and lasting relationships with both our represented workforce at goderich and the community Bank alone.
But despite this progress I still believe we have room to grow at goderich or we can say it is fully reached its operating potential.
Which brings me to the final area of strategic focus have often spoken about positioning our company for success by getting our core asset mix right, finding new ways to leverage those advantaged assets and strengthening our balance sheet in the process.
In this area our actions have been well documented.
With the completed sale of our North American Mike Micro nutrients business in April.
Solid July one with the completed divestment of our South American plant nutrition business, we achieved the financial flexibility needed to consider strategic growth opportunities, whether organic or otherwise.
Specifically these transactions have enabled us to reduce our long term debt by approximately $400 million.
In addition, we continue to pursue a sale of our South American chemical business and look forward to sharing more information around that expected transactions when appropriate.
And finally, as we announced several weeks ago, we're excited by the opportunity to broaden our essential mineral portfolio through the identification of a sustainable lithium resource at our Ogden, Utah solar evaporation side on the great Salt Lake.
We are currently undertaking a strategic evaluation to assess development options for this lithium brine resource in order to service growing domestic market demand, while maximizing the long term value of the asset.
As a co product of our existing Sop.
Salt and magnesium chloride production processes. The addition of lithium to our Ogden production portfolio is not expected to have an impact on the essential minerals, we already produce on site.
Equally as important by leveraging existing operational infrastructure permits and PON processes at our Ogden facility.
We believe we are uniquely positioned to capture this newly defined lithium resource with nominal incremental impact to the beds in waters of the great Salt Lake.
We feel this organic opportunity is well aligned with our strategic imperatives and we're excited to share more details soon on this and other future projects that lie ahead.
But opportunities like this are only feasible at the underlying fundamentals of our operating segments our sale.
I remain highly confident about the inherent strength of our advantaged assets, the resiliency and commitment of our people and the disciplined with which we operate.
As we continue to advance our strategy and grow our essential minerals business, we do so with a deep commitment towards generating sustainable earnings growth and EBITDA margins, thereby creating value for all stakeholders.
Now at this time, all term and turn it over to Jamie Jamie who will discuss in more detail our second quarter financial performance in the rest of the year outlook Jamie.
Thanks, Kevin and good morning, everyone.
I'll start with a few comments regarding our consolidated results before moving on to our segment specific performance and then finishing with our rest of year outlook.
On a consolidated basis for second quarter 2021, the company achieved strong year over year sales volume growth in our salt segment and increased pricing in our plant nutrition segment compared to prior year results.
Despite this topline revenue uplift our consolidated operating income was below the prior year period by approximately $9 million, while our consolidated adjusted EBITDA fell 21% compared to 2020.
Over the same period, we saw both operating margins and EBITDA margins compress.
This compression is primarily related to unit costs associated with the feedstock and consistency.
For our Sop production that we've highlighted over the last two quarters as well as elevated shipping and handling costs and the salt segment.
We are pleased to report that during the first six months of the year, we generated about $255 million in cash flow from continuing operations and approximately $222 million of free cash flow.
As announced in June our board of Directors approved a change in our fiscal year end September 30 from December 31.
We're optimistic this change will improve our full year forecasting accuracy going forward as we will have the benefit of embedding complete highway deicing bid season results within our full year forecast at the beginning of each fiscal year.
From an accounting perspective, the shorter nine month year in 2021 impacts our results in a couple of different ways.
First it temporarily increased our expected effective tax rate to 40% and therefore increased our year to date tax expense to $17.7 million.
However, this is not expected to impact our effective tax rate for cash taxes over the typical 12 month period.
Similarly, changing to a shorter year temporarily increases our unit costs in both the plant nutrition and salt business during the second and third quarters by about $20 per ton and 50 per ton respectively.
Looking now at our Salt segment results total sales in the second quarter of 2021 were $143 million up from $122 million in the second quarter of 2020.
An increase of approximately 17% and ahead of expectations.
This improvement was largely due to additional demand related to customers, taking minimum volumes as well as the timing of certain chemical sales.
In addition, our consumer and industrial sales volumes returned to more typical levels as demand normalized compared to last year, which was negatively impacted by the early months of the pandemic.
As expected highway deicing prices at $59.42 per ton were slightly lower versus the prior year quarter.
I think it is important to note that while we have seen lower highway deicing prices over the last four quarters.
Deicing prices had actually shown up 4% average annual growth rate since 2017.
On the other hand, consumer and industrial average selling prices increased over eight $8 or 5% to $158.78 per ton due to broad based inflation related price increases across all of our product groups.
Okay.
Operating earnings for the Salt segment totaled $19.2 million for the second quarter versus $22.5 million in the 2020 quarter, while EBITDA for the Salt segment totaled $36.8 million compared to $39.7 million in the prior year quarter.
On a year to date basis. These segment results are at the high end of our second quarter guidance expectations.
Our operating and EBITDA margins contracted approximately five seven percentage points respectively.
Compared to the 2022nd quarter, which is mostly due to a 28% increase in shipping and handling unit costs.
Impacting both our highway deicing and consumer and industrial businesses.
Again, when comparing on a year to date basis salt operating margins are flat year over year.
EBITDA margins contracted only one percentage point.
And shipping and handling unit costs are flat as well.
That being said, we did expect these higher shipping and handling costs this quarter, which fall into three primary buckets first vessel and barge costs were higher year over year, largely due to higher fuel costs as well as modest rate increases.
And the other bucket is related to our depot costs in this area. We added some long term capacity and saw higher overall rents.
The last piece was related to distribution costs in our C&I business, while mix played a role in the increases we saw significantly higher truck rates as well as some of the logical shipping required to overcome supply chain disruptions during the quarter.
Overall, we believe the entire salt industry has been similarly impacted by shipping and handling costs. Therefore, we expect to adjust our future bid prices and product with pricing as appropriate to offset these costs just like we have in the past.
Second quarter Salt per unit cash costs were relatively flat from second quarter 2020, as improved UK production costs were offset by higher production costs and the consumer and industrial business.
Turning to our plant nutrition segment second quarter, 2021 revenue was 5% higher than the prior year quarter at $53.8 million.
This reflects steady sales volumes and an increase of 6% and our average selling price compared to the prior year quarter.
It's worth noting that during the second quarter. There has clearly been strong and strong global demand for all fertilizer products.
We have generally continued to see strong demand in North America for our potassium plus S&P product.
And that was partially offset by the severe drought conditions in the west and southwest we are pleased to deliver 6% sequential improvement in our average sales price compared to the first quarter of 2021.
Plant nutrition operating earnings were down $5.6 million and EBITDA was down $6.1 million to $9.8 million for the second quarter compared to the second quarter 2020.
With higher prices and lower earnings we experienced some short term compression in our operating margins from 12% down to 1%.
While our EBITDA margins also compressed by 13 percentage points to 18% versus second quarter 2020.
As we have previously discussed we continue to experience higher per unit operating cost during the second quarter as we worked through the feedstock inconsistency is impacting our sop production rates.
While this continues to impact our financial results. These elevated short term costs are factored into our guidance and we have implemented proactive measures.
We also made a change to our interim period inventory valuation method.
At the allergy.
As we work through our normal quarterly closing process, we identified the need to correct. Our interpretation of the accounting guidance as it relates to our salt segment interim periods.
Inventory valuation reporting.
It is important to note that this correction impacts interim periods, only and does not impact our historical full year results.
When compared to our new method, our historical interpretation overstated first quarter product costs and understated subsequent quarter product costs with no impact to the full year results.
For 2021. This resulted in shifting approximately $12 million in costs from first quarter 2021 to subsequent periods.
About $11 million of those costs were recorded in the second quarter. This year.
Our second quarter 2021 Form 10-Q describe that this change and restated our year to date 2021 financial information as well as our prior year to date information.
Because we are making corrections to these prior periods. We also restated our financials for other immaterial items.
<unk> shifting a few of these items into the appropriate periods.
It's very it's very important to note that the change in methodology as well as the other corrections are now reflected in all periods presented in our second quarter 2021 financial statements.
Now I'll spend a few minutes on our reporting as well as our third quarter and nine months 2021 outlook.
Given the change in our fiscal year ended September 30, the company will file a transition report on Form 10-K for the shortened 2021 fiscal year salt and in a year and <unk> each year.
Is it higher whereby 99% on 2021.
Guidance on a pro forma continuing on a reiteration basis, which includes results from our margin to continue.
As we head into our final quarter of fiscal year 2021, we continue to be optimistic about the overall business. We anticipate the salt segment will provide steady revenue and EBITDA generation for the remainder of our new fiscal year.
We expect third quarter Salt segment revenue of $160 million to a $190 million and EBITDA of 45 million to $55 million with our consumer and industrial business continuing to deliver steady sales volumes.
Yes.
In our plant nutrition segment, we currently anticipate relatively flat year over year sales volumes during the third quarter. However.
However, the continued drought in the Western U S could put some pressure on our sales volumes in the back half of the calendar year.
We continue to closely monitor the situation out west.
Given this demand backdrop, coupled with our expectation of rising shipping and handling expenses as well as unit costs slightly higher than those realized in the second quarter.
We are expecting plant nutrition revenue.
And EBITDA in the range of $5 million to $8 million for the third quarter of 2021.
While we continue to optimize our portfolio through efforts to balance price demand and customer relationships. We are focused on operating this business sustainably for the long run and plan to carefully navigate these dynamics.
2021 period.
Between $175 million.
Now.
On a few corporate items.
Interest expense estimate for the nine months step year was approximately $46 million as we significantly lowered our debt levels in July our.
Our nine months capital spending forecast is approximately $70 million and.
And our free cash flow is expected to be in the $70 million to $75 million range.
With the closing of the plant Nutrition, South America agro business sale.
Along with the completed North American micro nutrient sale, we have been able to meaningfully reduce our absolute debt levels and continue to expect our leverage ratio to be in the 275 to three times net debt to EBITDA range upon completion of our Brazil chemical business divestiture.
As we consider our short and long term paths forward. We are pleased with the continued efficiency, we've been able to capture from our internal optimization plan.
And we're excited for the future as our strategic assessment of our newly defined lithium resource progresses.
As Kevin noted in his comments our entire senior management team is unified in our focus on executing against the strategic imperatives, we've laid out for the company.
As we continue to optimize our existing assets and build our essential minerals portfolio.
The Q&A roster.
Your first question comes from the line of David Begleiter with Deutsche Bank.
Thank you good morning.
Kevin just on the bid season pricing the lack of any pricing is that due to you couldnt get pricing or you didn't try to get price in order to maximize some of your volume gains.
I'm not sure I caught all of that question, David would you mind repeating that I apologize.
On the lack of any pricing in the end if highway deicing is that a function of you couldnt get the pricing given competitive dynamics of the marketplace.
Are you chose not to push pricing in order to focus on volume and market share.
No I mean look we always take it I mean first thing I'd say is.
Every business is different.
And our focus is to take a holistic comprehensive review and match our production plan with what we anticipate.
The demand side to be so.
So when you think about the winter rather than February I guess, I would probably characterize it as generally unremarkable, so inventories to deal with but I think on balance.
Beginning of the year kind of flattish and having the ability to grow our volumes by roughly 7%.
It turned out pretty good for us and as you look back from sort of 2017 to now I mean, we're still.
Sort of a 4% compound annual growth rate on the on the price side. So.
I consider the season at least thus far were 80% through I consider it a very successful season, having picked up some market share and grown our footprint on a modest basis.
Understood and just on the <unk>.
Lithium alpha and the great Salt Lake can you discuss some of the risks and challenges you see with daily technology for that resource.
Yeah look as we announced I guess about a month ago, we empower.
Our plan is to conduct a thorough strategic assessment of both the resource and the technologies as well as the.
The type of structure, we think would be appropriate to allow this.
Asset to realize its maximum value.
And I think obviously the first bridge, we have to crosses the direct lithium extraction technology and as we.
We discussed during the previous period.
Well on our way to making a choice there we've evaluated the handful of technologies were down too.
A couple that we want to make sure that we make a good selection, but we are.
Sure.
Very long in that process and would expect to be able to make an announcement pretty soon but everything that we have some recovery.
Injection the non lithium materials.
Contaminants if you will.
Has been very very positive.
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But we want is we want to take our time and make a good selection.
Getting pretty close and look forward to updating the market more.
Thank you.
Thanks for your next.
Your next question comes from the line of Mark Connelly with Stephens.
Thanks.
Kevin can you remind us whether the.
Can you just remind me of shorting Ram.
Just a second.
Could you give us a rundown of which CMS should we won orders at this point.
Yes.
It was a year.
And smaller.
The units are running well.
Bye.
Based on what we see the demand.
As being so.
We're not.
Color, but the two bigger units 40 searches that are.
Our running business.
Overall, very very well and just just a couple of comments on that mark banks at high level.
$808 million, although labor miners.
Right.
Or can you give us element inventory obviously the miners.
Again as Kevin highlighted we still have a lot of upside.
Workforce, there our management team.
I still believe there is a lot of upside in both the boats and the new equipment and plus our and.
Profit, we have our 36 Julie.
Hunters as well so.
Again as we go through the next couple of years.
As we finish that that as we start to finish off that new mine development, you'll give us some continual opportunity to improve our productivity and our cost that location.
Okay.
More question on the <unk>.
Sop quality issues clearly, there's the sort of thing comes and goes when will you have visibility from your past this.
Yes.
Yeah, maybe maybe I'll start on that and Daniel kind of weigh in and look.
As Kevin highlighted there we've had we've continued to make some real good progress both operationally and from a maintenance improvements.
Over the last couple of quarters at our site at Ogden.
Again, you've heard from both of them are passing some cyclical nature and in regards to this and we see it it's kind of hard to put it.
And granted but I'll call. It maybe every five to seven to eight years <unk> see this phenomenon, but we've taken a very methodical approach over the last quarter and a half two quarters.
And all of them.
Take a look at our feedstock through harvest methods sampling and our operating practice to not only allow us to deliver what we expect to deliver in 2021, but also as we encounter this in the future as we go through there. So I feel that you know again, it's one that we don't you don't have year on year out we ask the apps are eager to kind of keep working.
Again with this phenomenon happen in every market.
Five to seven years, you got to take everything you, possibly can during this period of time to try to work on it so when we see it again.
I would also I would just add that obviously, we're coming up on the end of this evaporation season. So we will have a fresh.
Raw material feedstock, which as George alluded to we're doing a lot more testing and monitoring and we've really learned a lot over the last six months in terms of how to manage through this.
In terms of our mixing in prepping.
So with with more data by upon mix and blend to optimize them.
Plant given that.
Yes.
But.
The sub optimal quality of last.
Last year's harvest.
Page in our prepared.
Materials on page 14, it's an illustrative view.
Few of the Goderich mine and as George pointed out we pulled off some of the older units to develop these new roadway so.
We continue to be implementing a new mine plan, putting a new mine basically in place while at the same time continuing to produce in.
Broken a couple of internal records here, even given this year. So I think it's important to note that thats occurring in a way that you really can't see from the outside looking in so were incurring a fair amount of cost as we develop this new mine plan to put these new bypass roadways in but once we get those in Europe as we've talked about before.
I think we will see a step function change both in terms of.
Productivity and cost et cetera. So we still have a couple more years to go on that but it's so this is progressing nicely and I felt that it would be some nice out of context.
Thank you.
Your next question comes from the line of SEC does stained with Morningstar.
Hi, good morning, everyone and thanks for taking my question.
With prices flat, how do you think about the profit per ton next year and how do you view unit production costs have you hit the first step change and we should stay flat until the new mine plans complete.
Okay.
Yes.
Yes. So so we're we're not going to talk specifically about profitability in the upcoming year. So.
I can tell you we will see.
Our our salt costs fall in the third quarter relative to both both sequentially and year over year.
And there is still.
As George and Kevin were alluding to that step change has not yet occurred.
It is still down the road as we complete the new mine plan and finish our bypass roads.
Ultimately shut down old mine works fit.
That our extensive to maintain and along a long way to travel through so.
We'll have to wait for our full year guidance that we that we rollout in November.
For for the full year beginning October one through September 30 of 2022.
Okay.
Appreciate that and then just a quick follow up on lithium.
Once you select DLR partner what are the next couple of development steps as you move forward in the process.
Yes.
Well I think once we make.
The DLA selection.
We're doing the on site pilot testing now than the strategy will be too.
How do we set those modules up in a way from a from a logistics standpoint location standpoint pumping standpoint et cetera to start.
The production of chloride.
So that would be the key next steps, so I think and I don't want to put a time limit on the PLE.
Technology.
Provider selection, but I think in the relatively near term.
So during the strategic assessment.
We've indicated that we're open to discussions and Thats been very active I would say at least thus far and we think that that will inform how we think about this project going forward.
I appreciate the detail. Thank you.
Thanks Bill.
Your next question comes from the line of Joel Jackson with BMO capital markets.
Good morning, gentlemen.
Hi, Jimmy Kevin I think you talked about being able to get maybe a dollar or two of lower salt costs I think that was kind of looking.
Yes, looking at the future year now if you think of the timber fiscal year, you try to combat Covid.
Right Tom.
So it's kind of 'twenty fiscal year, what can you do on costs here in salt.
Considering the improvements triangle broadridge, but obviously the multiple buckets of inflation.
Cost in shipping that you laid out earlier in the call.
Yes.
Got it.
Date opportunities there Joel I think one thing to remember about our business.
We're extracting minerals.
Many of our labor costs are set we've got multiple collective bargaining agreements.
Within our C&I business, we've obviously got some some direct inputs back.
<unk>.
And other things that drive that business, but.
I would say overall, we've got we're going to see lower costs. If you just look at the nine month over nine month cost salt costs are going to be down significantly quarter.
Order of magnitude 10%.
Then as we get into 2022 I'm not we're not going to talk much about that we continue to work on our long term mine plan.
That step change is forthcoming we haven't said exactly when that will be.
As we progress through that and then youre going to see another thats, what youre going to see that next step down when we complete that mine plan. So.
I think that's all we really have to say, we're not getting any any any outlook or any information around 2022, just yet, but we do expect to continue continue to see improvement.
For the reasons of.
Our limited exposure in many instances to inflation.
Obviously, we'll continue to see a shipping and handling inflation on that side, but as I said in my prepared remarks, we will also look to recapture those costs as we go into our next bid season next year and then we do it dynamically constantly within our C&I business.
Okay. So my follow up on that has been so your salt netback for fiscal 'twenty two should be lower what are you just said.
Then just following up on that I think it's important because you've talked about your strategy now that you've come in and what your base Eastern strategy. What's your mine production planning strategy, a very clear what you want to do and really trying to optimize doddridge.
That has led to a lot of production and a lot of competitive response, <unk> with flat pricing and inflationary environment. It would really be helpful. If you can explain the entire picture what is running more volume.
Pricing and inflationary of arginine does that mean lower net backs do you next fiscal year does that make you want to be a SaaS your strategy.
<unk> got <unk> down the road when you look at what the market size is and what the competitors did.
Joe I would say I would answer that.
Specifically, but just that.
<unk>.
We have recaptured some share that we have historically had.
And our commitments are up to 7% pricing is flat.
I mentioned in my prepared remarks prices on a CAGR basis up 4% since 2017. So prices went up high when supply was not available supply is now available they've come back down we feel like there is an equilibrium now I don't think theres any difference in strategy or how we run the business.
We're going to now.
Now that we've set our market share where it is now we're going to be.
Be disciplined and operate that way going forward.
It allows us to focus on execution, Joe because again like I mentioned before we've calibrated our volumes.
That's what we anticipate to be the market demand, we could do more but we made the election not not too too.
So to regain some of the market share of this Jamie said was.
<unk> originally anyway.
<unk>, our footprint, just a tad but with that.
With that then on the commitment side. It allows us to focus on execution, both in <unk> and our other facilities and run them as a portfolio and then attempt to optimize.
The resulting margins.
As a consequence of that holistic approach.
Matthew if I can make.
Oh, sorry.
We obviously to make one comment just on the accounting to lots of times from an operational perspective.
As Jamie and Kevin referenced that there is always about tons and production, but I can assure you there is a real cost and financial acumen across our site acres that is going to continue to.
We start to look at our cost as we go into 2022 and 2023 that I think is extremely important in GAAP recognized cost our business. Thanks.
To answer your question.
Obviously.
Sop is not potash and doesn't see the same range of the highs and lows and we're seeing that I guess you in pricing you've been very good you've been very good pricing Sop.
But it is interesting that.
One of the better years for AG in a decade, maybe not so good for California, drought, but youre, achieving some of lowest Barney.
In Q and G. In several quarters for S&P in my 14 years any quarterly earnings.
And you're probably gonna achieved the lowest sop premiums tend to Midwest potash prices.
Forever.
Can you talk about that is that northern Midwest potash pricing or just how to launch they're not liquid they're not real there's some other things operation you talked about how do you think about this business as this become now the child you have to really focus on the business you've got some stuff of God right now, it's really about trying to make Ogden.
<unk> tried to do.
Be the asset companies have talked about for well over a decade.
Yes, no thats it.
That's a good one.
Joel I think let me make a couple of comments I think Brad as a couple of comments you hit on a couple of good points credits.
It's not good timing obviously for in terms of when you look at our net our profitability in this quarter. We've got these feedstock and inconsistent fees and Thats absolutely unfortunate I think on the on the spread side as you referred to Sop versus MLP not a lot of MLP has traded at some of those price.
As you've seen there's not a lot of MLP even available so.
That remains to be seen.
<unk> do you want to add some color on the.
General market, yes, Thanks, Jamie Hey, Joe.
Your question on Midwest potash are those prices real.
What I would say and I think you're probably referring to the $570.
Corn belt price for kcl.
And our discussions with producers and with our distribution customers Beijing. They don't feel like transactions are occurring rapidly at that dollar figure.
Farmers and farmers are kind of pushing back the crop economics don't make a lot of sense.
And in some cases crops, who are who have been.
Quote unquote chloride.
Tolerant like potatoes.
Have migrated to kcl those same crops now there is a renewed interest in sop simply because of the price delta between kcl and sulfate of potash I'd make one more comment Joel.
We took our third price lift on August 1st in the market our prices vary.
By region and given current market dynamics that you are referring to we do anticipate further ton appreciation.
Our potassium plus products we're.
We're in active discussions right now with with our customers and I would expect us to announce specifics to them in the coming days.
Your next question comes from the line of Chris Shaw Mr. Sha. Please state your company name and proceed with your question.
Yes, that's correct.
Yes.
How are you doing.
Good morning, Jay.
Just some quick ones.
On the bid season, the pricing and I was curious.
The higher shipping and freight costs did they did they start coming about too late for you to start planning that into your bid season, I know with the season I would start with like March or maybe in February for some but even though from a later bids you werent able sort of budget.
I'll do that into the some of your bids.
Well, we monitor it very closely as it relates to the highway business a lot of what we're doing right now is that vessel and barge we were expecting higher rates, we built that into our bidding process.
And so now we're kind of booking these bids in and last mile freight still remains to be seen we'll deliver these tons through.
The December quarter in the March quarter, as we always do and we've got an estimate around those things so.
And then on the on the C&I side.
Just Scott real expensive.
<unk>.
More than we thought so so while unit cost for shipping and handling and salt is is up kind of.
$6 or so a ton year over year, we were expecting $4.4.50. So most of it we were planning on we really just got hit on.
On truck and some fuel was a bit higher than we expected.
Got it that's helpful.
And then.
<unk>.
I guess the guidance for SLP volumes for third quarter was similar last year somewhere in that sort of 50 to 60000 tons.
Youre, saying thats sort of.
Abnormal but in the past I always thought that'd be a really sort of a weak quarter and I know, it's similar to last year is there increased seasonality that I'm not aware of a number or.
Or is that some evidence of the drought and impacting volumes already.
Jason you want to take that brand or yes, I don't.
I don't think there is any kind of seasonality change Chris.
I think right now our.
Our distribution customers.
Just want to get product in place so that they can they can position it adequately.
For applications.
And I think there is still a significant amount of demand.
Bye bye not growers by citrus.
Barry is chloride sensitive crops or for sulfate of potash, so I don't see any changes in.
Seasonality I think.
I've been surprised at the Salt southwest fertilizer conference or our team heard fairly optimistic reports from our distribution customers in some of our larger end user producers. So it's a very resilient.
A group of people and so I would expect to see things relatively consistent Chris.
Okay, Great. That's helpful. Thanks, a lot guys.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone keypad. Your next question comes from the line of David Silver with CL King.
Yeah, Hi, good morning.
I think I'd like to start with.
Question on your Salt.
Salt volumes.
So in the second quarter I mean from a historical perspective, both your de icing volumes.
And your C&I volumes were both kind of at the very upper end or even above the upper end of may be the last 10 years.
And the combination I think is the highest in more than a decade.
So I'm just wondering why you found incremental demand for salt in the seasonally slow second quarter and in particular I'm kind of scratching my head and I'm wondering if this is Avery island effect in other words are you capturing some incremental share that.
That may be used to go to a competitor. Thank you.
I would say I would say generally C&I hitting C&I first.
Yeah.
The business has done a really good job those those volumes are solid last year was obviously depressed from the pandemic.
But we are we are we.
We did see some modestly higher volumes when you look back over the last five years or so for sure.
On the.
Highway Deicing side, we had some some we were able to book some nice business on the chemical franchise, there that could be a little bit of timing, sometimes those ebb and flow whether you get some of those contracts in the in the second quarter or the third.
Quarter in terms of deliveries and then.
You had a combination of little bit of.
Hangover weather April do you remember how weak March was April picked up we saw a little bit of sales from that and then we really saw as Kevin alluded to the overall market outside the overall season outside of the really strong February.
There were a number of our customers that just didn't take their minimums. During the season. So so those were really flowing through the quarter as well so.
It's a combination of things.
And.
That's kind of a summary.
Okay. Thanks, Yeah, I was just kind of scratching my head, especially last year I think there was a benefit from some contract minimum shipments in the second quarter. Okay.
Remember, we did increase our commitments last year as well so that kind of builds from year to year, and I think too David Wood freight.
It's kind of constraining imports and while I think some some inventories that acted as a little bit of a buffer as it relates to Avery Island, I mean, there could be some of that effect flowing through it's kind of hard to tell.
But we do think just kind of given where seaborne freight rates are it's going to.
It's going to be more challenging for the more traditional.
Importers.
Weaker dollar higher freights right that gives you a little a little extra advantage, okay, I'm going to switch over to the lithium.
<unk>.
So I know, it's very early days and there are a number of.
Decisions.
And the options to consider probably in a sequential manner, but I guess, one option would be to partner with another.
Another company.
And I guess I'm just wondering if you could maybe discuss what you would consider.
And the ideal partner.
To bring to the table. So in other words youre going to have a separate technology provider.
First thing the partner has to bring some capital to the table, but.
And anything beyond that that you would consider especially attractive in considering.
Choosing to partner or joint venture route as opposed to a COVID-19 alone strategy. Thank you.
Yes, that's a great question.
I would just reemphasize, what I said last time as we have it.
Decided that anything is definitely on the table or off the table. We're really trying to think this through and as we think about the bookends of the.
The options could be bill it alone.
We develop the expertise internally to go to market strategy, we fully capitalize it which we think we can do or the other extreme would be to sever that a state out there and just sell that asset as a mistake.
Co.
Co producers on onside there at Ogden and then everything in between.
And then as it relates to the partner I think unlike a lot of.
Folks that are trying to get into this space.
Capital is not a big concern for US I mean look capital is always a concern, but it's not the kind of concern.
For us that it would be for some lithium type startup. So I think what we'd be looking forward, yes, I mean capital certainly among them, but I think a higher priority would be expertise in the space, whether that's on the technical side or the commercial side, that's probably how we.
The lens through which we would evaluate a partnership because we have the we have the resource in all of the Reits necessary to develop it.
I think from a.
Operating standpoint.
I don't want to underplay, the difficulty, but it is a co product where we're good at.
Tracking products from.
The great Salt Lake, but there's aspects of this business that are new to us and we want to be intellectually honest about that so I think a partner that has expertise.
In the space and areas that we though would be something that we would view very favorably.
Okay, and I'm, just going to squeeze in one last one but also on lithium.
I was wondering if you could maybe give us your early read on the labor outlook. There. So in other words youre going to need a surge of construction workers that at a certain point and then a smaller but long.
Long lasting workforce.
Operate the facility once the construction is done and I apologize not an expert on the labor situation out there, but any idea just roughhouse water construction crew size might be.
Then how do you assess that availability the regional availability for for the type of labor that you need. Thank you.
Yes, I wouldn't want to speculate on head count.
This point, what I would say is.
Probably consistent with the rest of.
Extracted businesses Labor's tight.
It's creating some inflation on the.
Price the price of labor to create an inducement for people to go take a new job.
Fully aware of that but everything we've seen thus far.
We are convinced that we can fuel the swaps that.
We want to fill.
And then as it relates to construction.
Ultimately what the project looks like we would need to decide that first but.
I think I would just say right now wouldn't want to speculate too much on how fast we could get it done.
Your next question comes from the line of Jeff Zekauskas. Mr. Zekauskas. Please state your company name and proceed with your question.
J P. Morgan thanks very much.
Hi.
Given that.
The Avery Island plant was I don't know one to 2 million tons.
That got knocked out.
Are you surprised that.
Salt prices are likely to be flat.
And this year wouldn't you have expected them to be higher and can you talk about what the dynamics were why is that.
Why the closings at that point it didn't make any difference.
Yes look I mean, I guess, what I'd say, Jeff. It's a good question and I think as I mentioned earlier there were some inventories were a little elevated so I think that probably acted as a bit of a buffer and I think in this business, sometimes it moves a little slower than businesses that we're used to on the full commodity.
Decide that.
I take another bid season for the full effects of Avery island kind of flow through.
Something that we're watching carefully.
Look I'm sure the folks that closed Avery Island.
Did everything they could to replenish their own sources of supply.
To maintain there.
The economics to the extent possible, but I would say that it will take another sort of bid season for that full effect flow through.
You would add to that Brent honest, that's good Kevin just just to reiterate a comment you made earlier.
Which is that there is 20% of the season in front of us and so there are a.
A number of tonnes that would have historically been served from.
Matt Avery Island location that.
We have yet to bid.
Okay.
Lithium.
You've spoken about what your resources are.
In general how much lithium carbonate equivalent tonnes can you produce annually.
And in.
In the production of those lithium tons will that affect your S&P.
Per quarter your output of any other mineral or did that or do they remain unchanged.
Yes, so we spoke when we announced the resource production target of 20% to 25000 tons Europe LCD.
And.
Based on early pilot testing, we don't believe that cooling the lithium ion is out of the existing stream there.
Impacts.
Sop stream, the Mag chloride screamed salt et cetera, we just view it as a as a co product. We're just taking the lithium ions out of existing streams and don't think.
That process will come compromised production rates or costs of any of our other products.
Okay, Great and then lastly in the change in Europe.
School year.
Can you state a little bit more clearly what you know.
At September 30.
Now I'd like to turn out because.
Do you have an idea of what your bid season is going to be like.
80% of the volume do you have an idea of what your price looks like and September 30 still before the snowfall.
No.
What incrementally.
Now what do you really get from changing your fiscal year.
Yes, Jeff, it's actually not relevant relative to 630, but instead to January one so.
So when we announce our historically our full year guidance for the year like we did this year in in February.
We are estimating how the winter was going to unfold through March.
How the entire bid season would go through September and then winter weather activity in the fourth quarter.
Now we will have the full bid season under our belt as of 930 and.
And so we will have price for the season for our our portfolio now the only variable becomes winter weather activity. So we will announce our full year guidance in November with the benefit of the full bid season knowledge. So we can now more app.
Europe, we predict our full year expected outcome.
Always impacted by by weather, we cannot do anything differently around weather.
There are no further questions I will now turn the call over to Kevin Crutchfield for any closing remarks.
We appreciate you tuning in today and appreciate your interest in Compass minerals and look forward to keeping you updated.
We move forward. Thank you again for attending have a good day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
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