Despite increased operating income from its Plant Nutrition North America business, Compass Minerals, Overland Park, Kan., reported that weaker results from its Salt and Plant Nutrition South America businesses moved the company into the loss column for second-quarter 2017.
“Despite a strong performance this quarter in our Plant Nutrition North America business, our results were pressured by increased costs in the Salt segment and sluggish plant nutrition sales in South America,” said Fran Malecha, Compass Minerals’ president and CEO. “While this has been a challenging period, I am pleased with the progress we have made in positioning our plant nutrition business for growth and in aggressively identifying areas across the company for cost reductions. Because of the expected benefits of these efforts, our full-year earnings-per-share guidance remains unchanged.” The guidance is $3.00-$3.50 EPS.
Malecha told analysts that North American fertilizer sales exceeded company expectations and were driven by both potassium sulfate and micronutrient sales. The unit was also boosted by lower per-unit costs at the Ogden facility and better cost management.
“We continue to execute our strategy to build a leading solutions-oriented specialty fertilizer business based on SOP, higher-value micronutrients, and other specialty products,” he said. “The market for these products has been stabilizing, and we are cautiously optimistic for growth here, although pricing is likely to be relatively flat for the rest of the year as we work to maintain our position versus imports and to convert more acres from MOP to SOP.”
Malecha said the company will introduce its Brazilian specialty products to the U.S. market by the end of the year, and eventually offer them globally. The company said its Brazilian products are water soluble and its current North American products are all dry. “So this will be a broader product offering and be able to meet our farm customer needs throughout the growing season, which I think is a benefit that bodes well for the future.”
Compass reported a second-quarter net loss of $6.4 million ($0.19 per diluted share) on sales of $228 million, down from the year-ago income of $6.3 million ($0.18 per share) and $169.5 million, respectively. Adjusted EBITDA was $34.2 million, off slightly from the year-ago $34.8 million.
Second-quarter Plant Nutrition North America operating earnings were up, at $7.6 million on sales of $50.5 million from the year-ago $4.7 million and $47.8 million, respectively. Fertilizer volumes were up at 78,000 st from 74,000 st, though average sales prices per ton were off at $642/st from $651/st. However, the company said that SOP prices were off only about 4 percent from year-ago levels.
Second-quarter Plant Nutrition South America operating earnings were $800,000, down from the year-ago pro forma $6 million. Total volumes for the unit were also down at 151,000 st from 187,000 st, with average prices up at $439/st from $385/st.
Second-quarter Salt operating earnings dropped to $10.7 million from the year-ago $23.3 million.
Compass initiated a restructuring plan in July designed to reduce ongoing costs and further streamline the organization. In addition to personnel cuts, it has reorganized its operations team to report directly to respective business units. These changes are expected to result in a $4 million charge in the third quarter. Combined with other cost-saving measures taken in the first half, which resulted in $1.3 million in charges, the company expects to achieve about $10 million in cost reductions this year and $20 million in ongoing savings starting in 2018.
Going forward, based on positive results in the Plant Nutrition North America segment, the company has increased its sales volumes expectations to 320,000-340,000 st, up from the earlier 300,000-330,000 st. Average selling prices are expected to remain stable, though the company said second-half margins are expected to contract due to increased depreciation expense related to the final commissioning of new assets at the Ogden, Utah, facility. Second-half volumes are put at 165,000-185,000 st, with average selling prices at $610-$650/st.
As for Plant Nutrition South America, the company has dropped full-year volume expectations to 750,000-850,000 st from 800,000 to 1 million st. The company said sales volumes have been negatively impacted by delayed and reduced purchasing by the company’s distribution customers, though higher-value products sold directly to farmers have remained strong. Compass believes the growth in direct-to-farmer sales will result in a more profitable sales mix and improved operating margins when compared to the prior year. The company expects second-half volumes of 450,000-550,000 st, with average selling prices in the $550-$590/st FOB range.
The company said challenging fundamentals in Salt are expected to result in pricing pressure for deicing products in the second-half, though the company expects sales volumes to exceed prior year results if winter weather conditions are average. Full-years volumes are seen as 11.3-11.6 million st. Second-half volumes are projected at 5.9-6.3 million st, with average selling prices in the $68-$72/st range.
Compass has declared a cash dividend of $0.72 per share payable Sept. 15, 2017, to shareholders of record as of the close of business Sept. 1.
Compass reported six-month net income of $15.1 million ($0.44 per share) on revenues of $615.8 million, down from the year-ago $56 million ($1.65 per share) and $515.2 million, respectively. Adjusted EBITDA was $104 million, down from $129.4 million.
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Plant Nutrition North America |
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| 2Q-17 | 2Q-16 | 1H-17 | 1H-16 | |
| Sales ($/M) | 50.5 | 47.8 | 99.7 | 98.9 |
| Operating Earnings ($/M) | 7.6 | 4.7 | 15.2 | 10 |
| EBITDA ($/M) | 16.2 | 13.1 | 32.7 | 26.3 |
| Sales Volumes (000 st) | 78 | 74 | 157 | 148 |
| Avg sales prices ($/st) | 642 | 651 | 633 | 670 |
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Plant Nutrition South America |
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| 2Q-17 | 2Q-16 | 1H-17 | 1H-16 | |
| Sales ($/M) | 66.1 | 72 | 127.4 | — |
| Operating Earnings ($/M) | .8 | 6 | 2.6 | — |
| EBITDA ($/M) | 6.4 | 11 | 13.5 | — |
| Sales Volumes (000 st) | ||||
| Agriculture | 79 | 101 | 139 | — |
| Chemical Solutions | 72 | 86 | 144 | — |
| Total Volumes | 151 | 187 | 283 | — |
| Avg sales prices ($/st) | ||||
| Agriculture | 519 | — | 553 | — |
| Chemical Solutions | 350 | — | 352 | — |
| Average | 439 | 385 | 451 | — |
*Year-ago South America figures are pro forma or not available. Compass did not complete the purchase of all of the unit until October 2016.
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Salt |
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| 2Q-17 | 2Q-16 | 1H-17 | 1H-16 | |
| Sales ($/M) | 109 | 119.1 | 383.8 | 411.2 |
| Operating Earnings ($/M) | 10.7 | 23.3 | 56.1 | 106 |
| EBITDA ($/M) | 23.4 | 34.6 | 81.7 | 128 |
| Sales Volumes (000 st) | 1,372 | 1,500 | 5,405 | 5,706 |
| Avg sales prices ($/st) | 79.44 | 79.39 | 71.01 | 72.06 |