Compass Minerals : Reports Year-Over-Year Earnings Growth for the Third Quarter

Compass Minerals (NYSE: CMP) reported significant year-over-year revenue and earnings growth driven primarily by the acquisition of Produquímica Indústria e Comércio S.A. (Produquímica), which now constitutes the company's Plant Nutrition South America segment.

“We posted solid earnings this quarter, including the positive impact from the addition of our Plant Nutrition South America segment and margin improvement in our Plant Nutrition North America segment, and our North American highway deicing bid season results were in line with our expectations following the mild winter,” said Fran Malecha, Compass Minerals’ president and CEO. “We continue to make progress throughout the company with significant cost saving projects, efficiency initiatives and innovation to ensure our company is positioned for long-term growth.”

The company reported net earnings of $32.0 million, or $0.94 per diluted share, in the third quarter of 2017 compared to earnings of $9.1 million, or $0.27 per diluted share, in the prior-year period. Special items impacting results in the 2017 third quarter include a tax benefit of $13.0 million, or $0.38 per diluted share, as well as a restructuring charge of $4.3 million ($3.0 million net of taxes), which reduced net earnings by $0.09 per diluted share. Excluding these items, net earnings were $22.0 million, or $0.65 per diluted share.

Total revenue in the third quarter of 2017 increased 62 percent from the 2016 third quarter as a result of the Produquímica acquisition. Salt and Plant Nutrition North America segment revenue declined 8 percent and 3 percent, respectively, from the prior year.

Consolidated operating earnings increased $11.9 million to $31.4 million in the 2017 third quarter, as the benefit of $21.4 million in operating earnings from Plant Nutrition South America was partially offset by declines in the company's two other segments. Excluding the impact of restructuring costs, total operating earnings increased 83 percent from 2016 third-quarter results.

SALT SEGMENT

Salt segment revenue declined $11.0 million from third-quarter 2016 results on 5 percent lower sales volumes. The primary driver of weakness was a 16 percent year-over-year reduction in consumer and industrial sales volumes mainly due to lower pre-season orders for packaged deicing products. While average sales prices for highway deicing and consumer and industrial salt products each increased 2 percent compared to prior-year results, the relative decrease in higher-priced consumer and industrial sales volumes reduced the overall average price for salt products.

Salt segment operating earnings declined 25 percent from 2016 third-quarter results and operating margin decreased to 18.0 percent from 22.1 percent due to lower revenue, as well as increased logistics and restructuring costs. Excluding $2.0 million in restructuring costs applicable to the Salt segment, adjusted operating earnings declined 18 percent, and adjusted operating margin compressed to 19.6 percent.

PLANT NUTRITION NORTH AMERICA SEGMENT

Revenue generated by the Plant Nutrition North America segment declined 3 percent from third-quarter 2016 results. Sales volumes declined 7 percent driven by lower sulfate of potash (SOP) sales compared to the prior year. Sales of these products late in the quarter were reduced primarily due to the impact of hurricane activity in the southeastern U.S. Average selling prices increased 6 percent from prior-year results, primarily driven by a year-over-year increase in higher-priced micronutrient sales.

Plant Nutrition North America segment operating earnings for the quarter were $0.2 million less than prior year results which resulted in an operating margin slightly below prior-year results. Excluding the impact of restructuring costs applicable to this segment, operating earnings increased $1.0 million, while adjusted operating margin expanded to 8.7 percent reflecting the positive benefit of price and product mix improvements.

PLANT NUTRITION SOUTH AMERICA SEGMENT

The Plant Nutrition South America segment reported revenue of $123.2 million in the third quarter of 2017. Sales volumes of agriculture products were modestly below company expectations primarily due to the delayed planting season in Brazil. Third-quarter 2017 operating earnings totaled $21.4 million. Additional historical information for this segment can be found in the Third-Quarter 2017 Business Update presentation at www.compassminerals.com/investorrelations.

OTHER FINANCIAL HIGHLIGHTS

Sales, general and administrative expense increased $19.0 million in the 2017 third quarter from prior-year results primarily due to the addition of Produquímica. This increase also includes $1.9 million in restructuring costs. Excluding those costs, SG&A as a percent of sales was 14.7 percent compared to 14.3 percent in the 2016 third quarter.

Interest expense increased $8.1 million from the third quarter of 2016 to $13.5 million as a result of increased borrowings to fund the acquisition of Produquímica in October 2016.

Other income totaled $1.2 million compared to an expense of $1.5 million in the prior year. This shift resulted from foreign exchange gains in the quarter, as well as increased interest income.

Income tax in the quarter yielded a benefit of $12.5 million compared to an expense of $3.1 million in the prior-year quarter. The company recorded a $13 million discrete tax benefit in the quarter which resulted from the release of a valuation allowance on deferred tax assets related to the Produquímica acquisition. Management now believes that these deferred tax assets are more likely than not to be utilized in future years based on the business' performance. Additional refinements have reduced the company's full-year tax-rate expectation to 14 percent, excluding special items.

RESTRUCTURING PLAN UPDATE

The company's restructuring plan initiated in July 2017, which is designed to reduce ongoing costs and further streamline the organization, is on track. The company expects to achieve about $10 million in cost reductions this year and approximately $20 million in ongoing savings beginning in 2018. Approximately $7.9 million of on-going savings have been realized year-to-date.

OUTLOOK

The annual North American highway deicing bidding process is now complete. As expected following a mild winter throughout much of its North American served market, the company's awarded bid volumes declined 3 percent compared to 2016 bid season results. Compass Minerals' average awarded sales price also declined approximately 3 percent compared to prior-year results. Given these results, the company expects fourth quarter salt sales volumes to modestly decline from fourth-quarter 2016 results, assuming average winter weather. Salt segment operating margins are expected to be negatively impacted by increased logistics costs when compared to prior year.

As previously disclosed, the company experienced a partial ceiling collapse at its Goderich, Ontario rock salt mine in September 2017, which damaged a portion of the mine's conveyance system. Repairs related to this event are now complete and production at the mine is fully restored.

The company's plant nutrition business has been impacted by delayed purchases by customers in Brazil and parts of the southeastern U.S. In Brazil, these delays relate to a slow start to the planting season, while U.S. sales were delayed due to hurricane activity in the Southeastern U.S. The company expects that these developments have shifted some sales that were expected in the third quarter into the fourth quarter of 2017. Improvements in operating margins are expected sequentially and compared to prior year in both segments.

Conference Call

Compass Minerals will discuss its results on a conference call tomorrow morning, Tuesday, October 31, 2017, at 9:00 a.m. ET. To access the conference call, interested parties should visit the company’s website at www.CompassMinerals.com or dial 877-614-0009. Callers must provide the conference ID number 7184988. Outside of the U.S. and Canada, callers may dial +1-720-452-9074. Replays of the call will be available on the company’s website. An updated summary of the company’s performance is included in a presentation available on the company’s website at www.compassminerals.com/investorrelations.

About Compass Minerals

Compass Minerals is a leading provider of essential minerals that solve nature’s challenges, including salt for winter roadway safety and other consumer, industrial and agricultural uses, and specialty plant nutrition minerals that improve the quality and yield of crops. The company produces its minerals at locations throughout the U.S., Canada, Brazil and the U.K. For more information about Compass Minerals and its products, please visit www.compassminerals.com.

Non-GAAP Measures

Management uses a variety of measures to evaluate the company’s and its operating segments’ performance. While the consolidated financial statements provide an understanding of the company’s overall results of operations, financial condition and cash flows, management analyzes components of the consolidated financial statements to identify certain trends and evaluate specific performance areas. In addition to using U.S. generally accepted accounting principles (“GAAP”) financial measures, management uses the non-GAAP financial measures EBITDA and EBITDA adjusted for items which management believes are not indicative of the company’s ongoing operating performance (“Adjusted EBITDA”) to evaluate the operating performance of the company’s core business operations because its resource allocation, financing methods and cost of capital, and income tax positions are managed at a corporate level, apart from the activities of the operating segments, and the operating facilities are located in different taxing jurisdictions, which can cause considerable variation in net earnings. The company also uses these measures to assess its overall and operating segment operating performance and return on capital against other companies, and to evaluate potential acquisitions or other capital projects. These measures are not calculated under GAAP and should not be considered in isolation or as a substitute for net earnings, operating earnings, cash flows or other financial data prepared in accordance with GAAP or as a measure of overall profitability or liquidity. EBITDA and Adjusted EBITDA exclude interest expense, income taxes and depreciation and amortization, each of which are an essential element of the company’s cost structure and cannot be eliminated. Consequently, any measure that excludes these elements has material limitations. While EBITDA and Adjusted EBITDA are frequently used as measures of operating performance, these terms are not necessarily comparable to similarly titled measures of other companies due to the potential inconsistencies in the method of calculation. The calculation of EBITDA and Adjusted EBITDA as used by management is set forth in the following tables. Because of certain special items in this quarter related to tax benefits and restructuring, the company has also presented adjusting operating earnings and net earnings, excluding special items, which are non-GAAP measures. These measures have been included because management believes they provide additional useful information on performance and are used by management to assess performance.

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements about the company’s ability to position itself for growth; utilization of tax assets; its expectations regarding its restructuring plan, including its ability to achieve cost reductions and ongoing savings; logistics costs; operating margins; delays in sales; and the company’s outlook for the fourth quarter of 2017 and the full year of 2017, including its expectations regarding earnings per share (“EPS”), volumes, average selling prices, operating earnings margin, corporate and other expense, interest expense, depreciation, depletion and amortization, capital expenditures and tax rates. We use words such as “may,” “would,” “could,” “should,” “will,” “likely,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “forecast,” “outlook,” “project,” “estimate” and similar expressions suggesting future outcomes or events to identify forward-looking statements or forward-looking information. These statements are based on the company’s current expectations and involve risks and uncertainties that could cause the company’s actual results to differ materially. The differences could be caused by a number of factors, including without limitation (i) weather conditions, (ii) pressure on prices and impact from competitive products, (iii) any inability by the company to fund necessary capital expenditures or successfully implement any capital projects, (iv) foreign exchange rates and the cost and availability of transportation for the distribution of the company’s products, (v) the ability to successfully integrate acquired businesses, and (vi) any inability by the company to successfully implement its restructuring plan. For further information on these and other risks and uncertainties that may affect the company’s business, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the company’s Annual Report on Form 10-K for the year ended December 31, 2016 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017, filed or to be filed with the SEC. The company undertakes no obligation to update any forward-looking statements made in this press release to reflect future events or developments. Because it is not possible to predict or identify all such factors, this list cannot be considered a complete set of all potential risks or uncertainties.

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