Compass Minerals International Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joel Jackson - BMO Capital Markets - Analyst : Hi, good morning. First question I want to ask is -- thanks for the '25 outlook. Can you talk about -- so if I look at your guidance for '25, you're suggesting that salt EBITDA margins will contract about 100 basis points in '25. Can you roll through sort of when you compare '24, '25, some of the drag that's causing that? And then if we normalize the '26 with things that you're doing, assuming the [never] happening, an average winter, what could '26 margins like if we do get a normal winter in normal situations as your work propagates down to margins?

Question: Joel Jackson - BMO Capital Markets - Analyst : Okay, thanks. So there was some headlines a month or so ago that there may be -- Compass might be in play, you guys might be looking to sell the company or people are interested. I realize the sense of topics, but where are you right now on working through the company, trying to improve it? Do you think you've done enough improvement that it's ready for sale? How do you see you guys as stewards of this company longer term?

Question: Joel Jackson - BMO Capital Markets - Analyst : Okay. Thank you.

Question: David Begleiter - Deutsche Bank - Analyst : Thank you. Good morning. Ed, on highway deicing, can you help us with the -- committed volumes are down 9%. The forecasting volumes to be sold being up at 9%. And I know this is the average sales to commemoration, but can you help bridge that gap between down 9% on the commitments but up 9% on the actual sales.

Question: David Begleiter - Deutsche Bank - Analyst : Got it. And then just on Fortress, has the team been able to develop a new formulation that solve the problems with the prior formulation? Has that been fully -- has that been tested out?

Question: David Begleiter - Deutsche Bank - Analyst : But we can gather that since negotiations are continuing, there has been some progress made on your part. Is that fair? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 17, 2024 / 3:00PM, CMP.N - Q4 2024 Compass Minerals International Inc Earnings Call

Question: David Begleiter - Deutsche Bank - Analyst : Okay. And would you expect some resolution on these negotiations in the first half of '25?

Question: David Begleiter - Deutsche Bank - Analyst : Understood. Thank you.

Question: David Silver - CL King & Associates - Analyst : Yeah, thank you. Couple of questions. I guess, just to start with the plant nutrition segment. I would like to maybe kind of ask -- pose this question from a longer-term perspective, but you harvest brine in year one and it's a two- to three-year production or evaporation and separation process. So keeping that in mind, I mean, when I look at the fourth-quarter results and I strip out the pricing change and whatnot, it does look like there is a meaningful shift, I guess, in the overall production cost structure. And I'm just wondering about the path back from your perspective in plant nutrition. In other words, is it as simple as making sure the original brine that you pump out is appropriately, I don't know, saturated with the right minerals? Or is there something more that needs to be done? In other words, maybe just a thought on the path back for the plant nutrition, I guess the cost structure or economics back to where it has been in the past?

Question: David Silver - CL King & Associates - Analyst : Okay. Thank you. My next question relates to the 2025 guidance, I guess, from an overall perspective. And I'm thinking ultimately about free cash flow. So, if we take the midpoint of the company, EBITDA may be $189 million and layer in $110 million for CapEx and $70 million for interest. There is some room there, and of course, contingencies based on kind of winter deicing volume. But that's kind of the starting point, and I'm kind of scratching my head and I'm thinking about interest, but I think maybe more on the tax line. So can you remind me, apart from the nominal rate, can you talk about what the cash tax liability might look like if you were to hit the midpoints of your guidance ranges for 2025? I noticed in the fourth quarter there was a small credit, which I wasn't expecting. Assuming that you do hit your guidance midpoints under that scenario, what happens on the tax line? Will you be able to maybe get some credits there? Or is this the case where the valuation allowances and other things mean that there will be a cash tax liability?

Question: David Silver - CL King & Associates - Analyst : So I guess what you're saying is it depends, right? But, okay. I know it's pretty complicated, multiple jurisdictions. Thank you. I'll get back in the queue.

Question: David Silver - CL King & Associates - Analyst : Okay. Just one more and apologies if I'm making you repeat yourself. But I have noted the strength in the salt margins over the past year or so. And I believe, just in my records, that the margin per ton in the fourth quarter here was the highest, I think, going back to at least 2016. Not sure about that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 17, 2024 / 3:00PM, CMP.N - Q4 2024 Compass Minerals International Inc Earnings Call And I'm also aware that the salt, certainly on the deicing side, can be a very volume-sensitive, high-fixed cost, low-variable cost operation. So to me, I mean, it's interesting that the volumes are lower, but the margins have actually improved. Just a couple of things. But firstly, you are still doing some things underground at Goderich. And I would like, maybe if you could comment on -- give us an update on that and what you're expecting the impact of relocating some equipment, some facilities and equipment underground could do to your cost position there? Then secondly, I mean, I do not mean this in a glib way, but what is the current team at Compass doing correctly or right that maybe was not done or was done differently maybe over the past three to five years? In other words, what were you able to find or what were you able to innovate through your production and delivery system that has created a much greater margin performance? And then I would ask you what you think, maybe the potential as -- if you look out a year or two. As someone else said, on a more normalized winter volume year, for instance. Thank you.

Question: David Silver - CL King & Associates - Analyst : Yeah. No, I appreciate all you shared there, a lot of great color. Okay, thank you very much. That's it for me. I appreciate it.

Question: Joel Jackson - BMO Capital Markets - Analyst : Hi, just trying to think about Compass' sort of normalization over time. I think your guidance is a little over 8 million tons for probably the items line this year. What is a normal -- what should be normal volume? Is it kind of 9.5 million tons, probably deicing? I think like, I'm trying to look over different averages and what do you guys think is sort of what is normal?

Question: Joel Jackson - BMO Capital Markets - Analyst : Yeah, exactly. I'm not asking about Goderich capacity. I'm asking, when I look back sort of historically, it seemed like maybe 9.5 million tons, (inaudible) deicing is kind of a normal run rate in a normal winter. Again, those are very elusive goals, but a normal winter will happen. And just (inaudible) for reasons we know. I'm just trying to figure out when you guys plan to look at the mine, you're looking at working capital, looking at union. I mean, what do you plan? What does a normal sales portfolio look like for highway deicing if winter weather was normal, inventories are normal?

Question: Joel Jackson - BMO Capital Markets - Analyst : Okay, great. Because I'm looking at highway deicing as a segment. So if you said 8 million, 8.5 million, and then chemical salt is like what, 2.5 million? Something like that. So we.

Question: Joel Jackson - BMO Capital Markets - Analyst : Okay. So when I said 9.5 million of the full business, you're guiding to about 10 million, correct? That sounds about right? 10 million tons for the highway deicing business? Okay. Which makes sense and makes my next follow-up question not necessary. But the other question I wanted to ask and it's kind of a nuanced question, but I was actually looking at it this morning. I was looking at what Compass used to sell for highway deicing volumes two decades ago, a decade ago. I was looking at what you've sold in the last bunch of years. What I've noticed is that there's a very clear downward trend in average December quarter volumes. So March quarter volumes looked similar as 20 years ago. Is there something going on with the salt industry the last 10 years where December quarter sales just are lower? Is that we have lower average winter weather, so you have a lower pre-buying or pre-buying season or like, is there something going on with December quarters are weaker than historical versus March quarters? Do you get what I'm getting at? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 17, 2024 / 3:00PM, CMP.N - Q4 2024 Compass Minerals International Inc Earnings Call

Question: Joel Jackson - BMO Capital Markets - Analyst : Winter shifted. So not like -- so you're saying like December moved to April, something like that? Or there's more snowfall in early April? Is that what you're getting at?

Question: Joel Jackson - BMO Capital Markets - Analyst : Okay. Thanks for that.