Compass Minerals, Overland Park, Kan., on Nov. 15 reported a third-quarter loss as well as a nearly 80 percent cut in dividends in order to accommodate investment in new projects. Wall Street did not react well to the news, with Compass shares closing before the news on Nov. 15 at $71.97. They closed on Tuesday, Nov. 16, at $57.01, nearly a 21 percent drop. Shares continued to drift lower during the week, closing Nov. 18 at $54.92.
Compass said third-quarter feedstock inconsistencies caused higher per-unit costs at its Ogden facility, resulting in a Plant Nutrient operating loss of $200,000 compared to year-ago earnings of $1.1 million. The loss came despite a 9 percent increase in sulfate of potash prices and a 46 percent uptick in volumes.
Salt results were also pressured by tapered production to manage inventory levels, as well as lost production and sales volumes from Hurricane Ida.
Company-wide, Compass reported a net loss from continuing operations of $4.6 million ($0.14 per diluted share) on sales of $211.7 million, compared to the year-ago loss of $4.9 million ($0.15 per share) and $174.6 million, respectively. Compass reported a net loss of $56 million ($1.65 per share), compared to the year-ago income of $4.3 million ($0.11 per share). The larger net loss was due to discontinued operations. Adjusted EBITDA was down at $39.7 million from the year-ago $63.9 million.
“I am proud of the strong work of our team to successfully navigate a number of headwinds in the third quarter to finish fiscal 2021 within our prior announced guidance range,” said President and CEO Kevin Crutchfield. “I am equally pleased with the continued progress we’ve made as a company to safely deliver on our commitments, leverage our advantaged assets and achieve meaningful milestones in our longer-term growth strategy.
“Looking forward, I believe the strategic investments we are making to expand our essential minerals portfolio and leverage expected future demand in the lithium and fire retardant markets could be transformational for Compass Minerals,” he continued. “Building upon our stable and market-leading salt and plant nutrition businesses, I’m increasingly confident that we are well positioned to grow our margins and increase shareholder returns over the long-term.”
Compass expects lower SOP volumes in fiscal 2022 as the feedstock constraints continue in the short term. However, it believes first-half 2022 product pricing will more than offset higher production costs and lower sales volumes, resulting in improved margins and profitability in 2022.
Nine-month net income from continuing operations was $20.9 million ($0.58 per share) on sales of $836.6 million, down from the year-ago $27.9 million ($0.79 per share) and $695.7 million, respectively. The company reported a net loss of $213.3 million ($6.30 per share), compared to year-ago income of $35 million ($1.00 per share). Adjusted EBITDA was $201.6 million, down from the year-ago $207.9 million.
| Plant Nutrition | 3Q-21 | 3Q-20 | YTD-21 | YTD-20 |
| Sales ($/M) | 49.3 | 30.8 | 156.8 | 137.2 |
| Operating Loss/Earnings ($/M) | (0.2) | 1.1 | 5.8 | 12.0 |
| EBITDA ($/M) | 8.7 | 10.4 | 32.6 | 40.7 |
| Sales Volumes (000 st) | 79 | 54 | 261 | 238 |
| Avg. Sales Price ($/st) | 627 | 575 | 602 | 577 |
| Salt | 3Q-21 | 3Q-20 | YTD-21 | YTD-20 |
| Sales ($/M) | 159.5 | 141.2 | 671.1 | 550.9 |
| Operating Loss/Earnings ($/M) | 22.4 | 26.2 | 133.2 | 116.5 |
| EBITDA ($/M) | 40.1 | 43.6 | 186.5 | 165.7 |
| Sales Volumes (000 st) | 1,825 | 1,663 | 8,510 | 6,657 |
| Avg. Sales Price ($/st) | 87.42 | 84.94 | 78.87 | 82.75 |
Compass also announced on Nov. 15 plans to cut dividends nearly 80 percent in order to fund previously announced growth opportunities in lithium and fire retardants (GM Oct. 29, p. 33; Nov. 5, p. 33, respectively). The company said its Board of Directors has declared a quarterly cash dividend of $0.15 per share, down from $0.72 per share, enabling the company to reinvest additional capital in these projects.
Compass expects to reinvest the approximately $80 million of cash it anticipates retaining annually from this dividend reduction primarily toward a strategic expansion of the company’s essential minerals product portfolio. As a result, the company expects to meaningfully increase both its earnings capacity and shareholder value over the long term while maintaining strong liquidity levels. It said the Board will continue to evaluate the company’s capital allocation needs on an ongoing basis to balance supporting the investment needs of the business with returning cash to shareholders.
The company previously indicated that it was undertaking a reassessment of its capital allocation strategy as part of its July 2021 announcement of a 2.4 million mt sustainable lithium resource identified at its Ogden, Utah, solar evaporation site. The purpose of the assessment was to weigh the intrinsic value creation potential of recently announced growth opportunities in the lithium and fire retardant markets against the historical practice of returning capital through dividends. Since that time, the Board and senior management team have jointly evaluated a number of potential scenarios to better align the dividend level with the company’s expected future capital allocation needs, peer trends, and current equity market dynamics.
“I believe our decision to prioritize high-potential, organic growth opportunities positions our company to deliver meaningfully improved and lasting returns, while still providing a stable and sustainable distribution of cash flow to shareholders,” added Crutchfield.
“The decision to reduce our dividend is not something we took lightly; however, upon rigorous assessment, it became abundantly clear that there are simply higher and better uses for a portion of that capital in view of our ultimate goal to maximize value creation for our diversified shareholder base. I am excited by the opportunity to expand our product offerings in the coming years to satisfy a market need for these essential minerals,” he said.
As previously announced, Compass is in the process of developing a battery-grade lithium hydroxide capability with an estimated, initial annual production capacity of approximately 20,000 to 25,000 mt lithium carbonate equivalent by 2025. The company also recently announced that it is acquiring a 45 percent minority ownership stake in Fortress North America (Fortress), a next-generation fire retardant company dedicated to producing more environmentally friendly and carbon neutral fire retardants to combat the devastating effects of wildfires. Magnesium chloride, a key raw material input to Fortress’ products, is derived from the Compass Great Salt Lake solar evaporation production stream.