Shares of Compass Minerals fell as much as 16% on Feb. 8, the largest intraday drop since last May, after lowering its outlook for its Plant Nutrition segment and reporting weakening fertilizer demand. In addition, the company’s adjusted EBITDA of $61.8 million missed the Bloomberg Consensus, the average estimate from major Wall Street analysts, which was $74.6 million. Sales of $352.4 million missed analyst estimates of $378.5 million.
Compass now sees Plant Nutrition’s fiscal year 2023 revenue as $155-$225 million, down from the previous outlook of $200-$240 million. Segment EBITDA is now put at $30-$60 million, down from $55-$70 million.
Compass said the full-year outlook for the segment has declined and widened from its prior guidance range, reflecting lower full-year sales volumes than previously assumed based on year-to-date trends, heightened uncertainty regarding prices, and higher production costs. Sales volumes guidance is 205,000-270,000 st.
Fertilizer sales volumes for the first quarter ending Dec. 31, 2022, were off 46%, to 45,000 st from the year-ago 83,000 st, though prices were up 40% to average $924/st from $660/st. Revenues fell 24%, to $41.6 million from the year-ago $54.6 million.
For the volume decline, the company cited the recent drought conditions in California, its largest market for sulfate of potash (SOP), as well as grower expectations of lower future prices that caused many customers to rescind or defer normal levels of fertilizer purchases. This was followed by torrential rains and flooding in the second fiscal quarter that have created considerable uncertainty regarding whether application rates resembling historical levels will be realized this spring.
In addition, per-ton distribution costs increased 19%, reflecting increased fuel rates and fewer sales volumes to absorb fixed expenses. Operating costs increased 26% over the comparable quarter in the prior year, due primarily to the inflationary environment over the past twelve months. Production costs are anticipated to be higher as a result of increased natural gas prices at the company’s Ogden, Utah, facility driven by supply and demand dynamics in that geography.
Compass expects SOP production volumes at Ogden to be flat in fiscal 2023, as the 2022 evaporation season was impacted by less than favorable weather conditions. However, the company stressed that first-quarter sales volumes were driven by lower demand, not production challenges. “In fact, we were and continue to be prepared to service average customer demand, if and when it improves,” Compass President and CEO Kevin S. Crutchfield told analysts.
Despite the declines in volumes and revenues, Plant Nutrition still posted an increase in operating earnings at $11 million, up from the $9.5 million and EBITDA at $19.3 million versus $18.3 million.
“Compass Minerals is off to a mixed start in fiscal year 2023,” said Crutchfield. “While we saw improved results within our Salt business and made progress on our strategic priorities, weak demand in our Plant Nutrition segment and cost pressures are tempering our financial performance and outlook.” He added that consolidated sales revenue, operating earnings, and adjusted EBITDA for the quarter all increased year-over-year.
Compass reported a first-quarter net loss of $300,000 on sales of $352.4 million, down from the year-ago $2.4 million and $331.5 million, respectively. Operating earnings were up at $27.9 million from $20.4 million.
Compass touted adjusted EBITDA from continuing operations of $61.8 million versus the year-ago $58.4 million. However, if discontinued operations were included the year-ago figure was $67 million, reflecting a decrease for this year.
Compass reported progress on new products. It said Fortress North America, a next-generation fire-retardant company in which Compass has a 45% stake, announced that two of its aerial products have been added to the US Forest Service’s Qualified Product List.
In the lithium business, the company closed the gross $252 million strategic equity investment by Koch Minerals & Trading LLC, with $200 million of the proceeds expected to fund the first two years of phase-one lithium development, and the remaining proceeds used to pay down debt during the quarter.
As for the lithium brine source at the Ogden facility, Compass said it remains on track to complete the pre-feasibility engineering estimate by the end of fiscal 2023 second quarter.