Compass Minerals Intl Inc

year earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone keypad. If you require any further assistance, please press star zero. I'll now turn the call over to Douglas Criss, Senior Director of Investor Relations. Please go ahead.

Douglas Criss Good morning and welcome to the Compass Minerals fourth quarter and full year 2020 earnings conference call. Today, we will discuss our recent results and our outlook for 2021. We will begin with prepared remarks from our CEO, Kevin Crutchfield, and our CFO, Jamie Stanton. Joining in for the Q&A session are Brad Griffith, our Chief Commercial Officer, as well as George Shuler, our Chief Operations Officer. Before getting started, I would remind everyone that the remarks we make today represent our view of our financial and operational outlook as of today's date, February 17, 2021. These expectations involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures. You can find these reconciliations of these items in our earnings release or in the updated corporate presentation, both of which are available online. I will now turn the call over to Kevin Crutchfield.

Good morning, everyone, and thanks for taking the time to join our fourth quarter and full year 2020 earnings call. I'll start today by giving a top-line overview of our financial and operating results for 2020 before providing some thoughts on the impacts of our enterprise-wide optimization efforts as well as our path forward. As we look back on the year from a broader perspective, 2020 introduced personal and professional challenges to each and every one of us. I'm incredibly grateful to the men and women of our company for staying laser-focused on operating safely and responsibly, continuing to bring forward new ideas for improvement and remaining committed to delivering for our customers, communities, and our shareholders during this extremely difficult time. As we published in our earnings release yesterday afternoon, a number of full-year 2020 financial metrics fell short of our expectations, largely due to certain external factors and other anticipated events that directly impacted our 2020 results. We'll provide more color on those shortly, and we're taking steps internally to further gird our preparedness for such events. That said, I continue to believe strongly that our team's prudent management and unwavering commitment to our enterprise-wide optimization efforts underpin longer-term transformational benefits that we've started to see throughout our operations and fully expect to positively impact our financial results in the future. One key factor we simply cannot control, but rather we must manage through, is the weather. We estimate the weak winter weather season in both first quarter and fourth quarter of last year negatively impacted our full year 2020 operating income by approximately 40 to 45 million dollars. Other external factors adversely affecting our business during the calendar year included the wildfires in California and drought conditions in South America, both of which impacted demand timing from our plant nutrition customers and multiple hurricanes in the Gulf Coast, which required multiple brief but unplanned shutdowns at our Cove launch mines. In addition, our South American plant nutrition business experienced stronger year-over-year agriculture sales volumes and in local currency achieved a 16% increase in fourth quarter operating earnings versus 2019. However, the Brazilian currency weakened by approximately 33% during the year compared to the U.S. dollar, which ultimately hurt our bottom line in terms of U.S. results. As we look at full year 2020 on a consolidated basis, net income for the year decreased by approximately 5%, and adjusted EBITDA decreased by approximately 8% when compared to 2019 results. On the positive side, we continue to generate strong positive cash flow from operations totaling over $175 million for the full year. We also took an aggressive approach to managing our capital plan, and I'm pleased we were able to come in 13% below the midpoint of our original guidance for a total spend of roughly $85 million for the year. Our free cash flow for the full year was just over $90 million. and we returned $99 million to shareholders through our dividend program, which reflects our confidence in the company's ability to deliver cash flow through varying economic and weather-related cycles. As we stated in our press release last night, we have commenced a strategic separation of our South American assets into two businesses with the dual goal of attracting the right counterparties and unlocking maximum value for each asset. As a result, we formally relaunch what is designed to be a targeted and expedient process for the sale of both of our chemical and plant nutrition businesses in South America. If completed, we intend to use the proceeds from these transactions to continue reducing our debt, further enhance our liquidity, and continue our focus on meeting our customer demand for our essential products. Given the sensitive nature of these matters, we will not be fielding any questions on this topic, but will provide more information as it becomes appropriate to do so. With our multi-year runway of ample liquidity, no material debt maturities due for over three years, capital plan flexibility and improving execution capabilities, our near-term priority is to deploy any incremental free cash flow after dividends, whether from organic generation or strategic transactions, towards continuing our deleveraging process and paying down our debt to further enhance our equity valuation. Now, moving to our SALT segment. Full-year adjusted EBITDA margins increased approximately three percentage points to 29%, despite our adjusted EBITDA being lower by 2%. We also saw continued improved production performance at our flagship Godrich mine, On a full year basis, production tons out of Goderich have increased 17% from 2019 results, and production costs are down 16%. In addition, during the fourth quarter of 2020, the team was able to achieve its highest production month since its conversion to continuous mining and haulage. These steadily improving production metrics highlight a sentiment you've heard me communicate before, that we've not yet reached our full long-term potential at this operating asset. I'm confident our progress will continue as we build out our new mine plan, helping to ultimately secure Goddard's position as the leading salt mine in North America from both a cost and volume perspective. When coupled with enhancements that are designed to provide long-term flexibility and optionality to our logistics and procurement teams, we set a course to capture significant value during stronger seasonal demand by meeting the needs of current and new customers alike. Our Cote Blanche mine also demonstrated strong year-over-year operating performance while managing through four significant hurricane events in 2020. These storms resulted in approximately 11 lost production days in the year. The preparations made by our team to protect the site and ensure the safety of our people allowed us to resume production efficiently and effectively after each event. This culture of resilience that permeated throughout the organization in 2020 is perhaps best reflected in the operational agility of our co-punch team, who were still able to achieve their full year-end production targets despite having navigated a record hurricane year in the Gulf. In addition, Given the recent announcement of a nearby competitor closing its facility, we're carefully analyzing opportunities to capture value for our portfolio by enhancing relationships with our existing customers while also potentially putting us in a position to cultivate some new relationships. I'd also like to give a particular call out to our logistics team, which has worked diligently on reshaping our network of partners to maximize efficiencies across our operations, while maintaining strong service levels for our customers. As I mentioned previously, our plant nutrition business, particularly in North America, faced some unforeseen circumstances of its own this past year, including extreme wildfires and drought. The resulting conditions from those events delayed the harvest of key crops, particularly tree nuts, along with the fall fertilizer application season. Our team worked to ensure we were well positioned to capture those sales volumes in the fourth quarter, ultimately delivering strong year-over-year revenue growth of 16%. Thanks to those efforts, our fourth quarter sales for this segment was the highest in the last 20 years, making up the significant third quarter shortfall. Given this strength, we were able to partially offset some of the unexpected higher costs that we experienced during the year. Our Potassium Plus product continues to be the SOP market share leader in North America, and recent pricing dynamics have reinforced our confidence that near-term underlying demand remains robust. We anticipate upcoming harvests in certain key markets to be very strong, which further translates into nutrient deficiencies for the soil and the need for our products. When coupled with much more positive global backdrop for all fertilizers and the recent surge in pricing, we anticipate steady demand from our North American customers in 2021. I would also like to point out that our micronutrients product line was able to achieve a full-year gross sales record in 2020 since our acquisition. Our South American plant nutrition business continued to achieve measured growth in local currency with sales revenue up 18% for the full year 2020. Our customers on the agricultural side have experienced very attractive fundamentals, and we anticipate these sales trends to continue in 2021. But as has been a recurring theme, the weaker currency has hurt our results in U.S. dollar terms. Against the backdrop of the challenges we've all faced in 2020, I'm even more impressed with the efforts of our employees to engage and execute on our enterprise-wide optimization effort. As a reminder, this effort is focused on five broad value streams, namely operations, commercial, logistics, procurement, and working capital. I referenced previously in my comments some of the early benefits coming through our SALT segment results from certain of these value streams. In prior quarters, we highlighted our Harvest Hall project at our Ogden facility in Utah, the SALT Finds Compassion project at Goderich, and the progress we're making with employee engagement through our organizational health focus. I would now like to highlight some optimization benefits we're experiencing in procurement. In 2020, we completely transformed that department. moving from a decentralized and transactional function to a centralized, high-standard team focused on operations excellence through global strategic sourcing mindset and a performance-driven culture. We implemented a category management function, a team concept built to bring together procurement with all relevant areas within that segment. Each team in a category is a cross-functional and cross-regional aligned to business needs and extensive engagement with stakeholders. During its initial year in this new structure, the department executed over 65 initiatives, driving as much as 10% annualized savings in a number of specific procurement categories, such as contractor services, packaging, raw materials, and equipment spare parts. In addition to cost savings, This new procurement strategy is expected to reduce the risk of supply chain disruption and provide a market advantage when our customers require a more sustainable and responsible supply chain. This high degree of focus from our team is expected to produce long-lasting benefits and help expand our margins. As we work to both navigate external challenges and drive internal improvements over the course of 2020, There was no area of focus given more attention than our responsibility to keep our employees safe and healthy. As many of you have heard me communicate before, our number one priority as a management team is ensuring our employees go home at the end of their shift as healthy as they arrived. Our focus on this zero-harm culture has been critical in our ability to navigate the current pandemic. For the year, we achieved another step change decline in our total case incident rate, or TCIR. In addition to achieving a multi-year low for our 12-month rolling TCIR average in 2020, we ended the year with an average of 1.53, and I'm happy to share that our TTCIR in December was among the lowest of any month in the history of the company, coming in at 1.23. As a leading indicator for operational success, this continuous improvement in our primary safety metric highlights our commitment to conducting business in a responsible manner that protects the health, safety, and security of all of our employees, contractors, and the communities in which we operate. The COVID-19 pandemic remains an ongoing challenge, and we continue to take actions to mitigate its impact. In addition, we faced another slow start to the winter season in our served markets. Yet our talented workforce, advantaged assets, and efficient procurement and logistics operations continued to perform with excellence through this adversity, supporting our global customers with essential products, proving our resilience as an organization. While our overall financial performance in 2020 was below our expectations, we were aggressive in our efforts to mitigate the various external headwinds we face. We now estimate a combined negative impact to our original operating earnings forecast of roughly $67 million due specifically to weak winter weather in both the first and fourth quarters, a Brazilian currency that progressively weakened throughout the year, and COVID-19 impacts including both cost preventative measures at our sites, and reduced demand within certain higher margin end markets. While these factors were out of our control, be assured we're acutely focused on identifying steps we can take to help insulate our businesses from the severity of similar impacts in the future. Again, what has allowed us to effectively navigate through the past year is the underlying resilience of the markets in which we serve with our essential products the strength of our advantaged assets, and the dedication of our employees to drive improvements through the optimization effort. We've also maintained close contact with our customers and remained on course with our previously communicated strategic priorities. I continue to be excited about the future prospects of our company and confident of long-term value our team at Compass Minerals can deliver. So now I'll turn it over to Jamie, who will discuss in more detail our fourth quarter and full year results as well as our 2021 outlook. Jamie?

Thanks, Kevin, and good morning, everyone. First, a quick review of our consolidated results. Our fourth quarter 2020 consolidated sales revenue and operating income both declined year over year as late winter weather coupled with lower highway de-icing average gross sales price pressured salt results, while lower year over year SOP pricing along with elevated SOP production costs, more than offset Plant Nutrition North America sales volumes improvements. For the full year, sales revenue and operating income were also lower, as we dealt with over $100 million in sales revenue impact and more than $40 million of operating earnings impact due to weak winter weather. We also had elevated SOP costs and lower SOP pricing, which were partially offset by stronger year-over-year SOP sales volumes. Looking now at our SALT segment results, total sales in the quarter were 228.5 million, down from 310.9 million in the fourth quarter of 2019, largely due to lower weather-driven demand for de-icing products and the effects of customer carryover inventories. Although the snow event activity was similar to last year's December quarter, This year's winter has been slow to develop, with most of the fourth quarter snow events occurring at the tail end of December. This winter weather impact, combined with high customer inventory levels, resulted in lower de-icing salt sales to highway, commercial, and big box retailers. Total salt segment sales volumes dropped 23% compared to fourth quarter of 2019. Within our salt segment, highway de-icing experienced a 25% sales volume decline, and consumer and industrial sales volumes dropped 16% year over year. Looking at our sales by end use rather than by business unit, most of the volume weakness was attributable to lower de-icing demand. In other words, combined sales of most of our non-de-icing products, such as water conditioning, chemical processing, and food and agriculture, were not impacted by the weather, and were generally flat with the prior year fourth quarter, even after taking into account some lingering slack in demand due primarily to COVID-19 challenges. Highly de-icing prices were down 11% versus the prior year quarter at $59.20 per ton. However, consumer and industrial average selling prices increased 1% to $169.30 per ton. as broad-based price increases across all non-deicing product groups was mostly offset by lower sales mix of our higher-priced deicing products. Operating earnings for the SALT segment totaled $50.2 million for the fourth quarter versus $80.5 million last year, while EBITDA for the SALT segment totaled $67.6 million compared to $96.5 million in the prior year quarter. Despite the challenging environment I just described, we are pleased to report minimal EBITDA margin compression in our SALT segment this quarter, as our enterprise-wide optimization efforts helped lower our unit cash costs and tighten our spending controls on SG&A, which helped offset lower average selling prices. When stepping back and looking at our fourth quarter SALT costs, we ended up at $41 per ton, which is flat with the 2019 fourth quarter. However, on a mix-adjusted basis, our unit cost is about $1.25 per ton lower than prior year. So we absorbed a 25% decline in year-over-year fourth quarter salt sales volume, and we were still able to decrease our mix-adjusted salt unit cost versus the prior year. Improved production and logistics costs in our North American highway business for the full year 2020 helped to offset 12.4% lower salt revenue and resulted in adjusted operating income declining just 6% and an adjusted EBITDA decrease of only 2% year over year. In addition to improved Goderich mine production, we continue to diligently and aggressively implement initiatives across the organization designed to ultimately drive revenue higher and cost lower. These efforts contributed to the expansion of the SALT segment adjusted operating margin to nearly 21 percent from about 19 percent last year, and at the same time driving adjusted EBITDA margin to 29.3 percent compared to 26.1 percent for the full year 2019. While these initiatives are expected to drive sustainable improvements for all segments over time, we continue to be pleased to see these early benefits in our SALT results. It's also worth noting that these benefits have been muted a bit given the difficult weather backdrop, and the real value creation potential will be more obvious under better business conditions. Turning to our plant nutrition North America segments, Fourth quarter total sales revenue increased 15.9% from the prior year to $88.7 million. We achieved this by delivering a 23% increase in sales volumes, partially offset by a 6% lower average selling prices.

And as we expected, shifted the timing of SOP sales volumes

toward the 2020 fourth quarter. While we always price to drive the appropriate value proposition for our customers, we continue to maintain our market share for our premium potassium plus SOP product. Plant Nutrition North America operating earnings and EBITDA for the fourth quarter were pressured by short-term cost increases associated with feedstock inconsistency, unplanned downtime, and North America EBITDA margin compressed to about 20% in the quarter compared to nearly 34% in the prior year, with operating margins declining about 10 percentage points quarter over quarter. Strong full-year sales volumes partially offset by lower sales prices helped us deliver a 16.2% improvement in 2020 full-year plant nutrition North America revenue versus 2019. These revenue results coupled with the short-term fourth quarter cost pressure and the previously disclosed $7.4 million inventory adjustment in the third quarter resulted in a $10.4 million decline in operating income and a $14.6 million decrease in full-year EBITDA. Excluding the inventory adjustment, full-year operating margin would have been 8.1 percent compared to 10.9 percent in 2019. while full-year EBITDA margin would have been 25% versus 32.5% last year. Because the inventory adjustment is non-recurring and our SOP cost pressure is short-term in nature, we expect a sharp rebound in the Plant Nutrition North America EBITDA and operating margin percentages in 2021. Our Plant Nutrition South America segment delivered a 24% year-over-year increase in fourth quarter 2020 revenue and an 18% increase for the full year, both in local currency. This was driven by increases in average selling prices for both agriculture and chemical solutions products, along with stronger year-over-year agro sales volumes. Fourth quarter agro revenue was up about 29% versus 2019, and up nearly 23% for the full year. Even more impressive was our fast-growing Ag B2C business unit, where strong sales volumes and price drove a 37% increase in both our 2020 fourth quarter and full year revenue when compared to prior year, again, all in local currency. Strong demand began in early 2020 for many of our specialty plant nutrition products due to the very attractive economics for Brazilian farmers. And that trend continued as we finished 2020 and moved into the beginning of 2021. In local currency, our plant nutrition South America fourth quarter and full year 2020 operating earnings increased 16% and 35% respectively, while EBITDA increased in lockstep by 15% and 25% as well. While we're obviously disappointed with our fourth quarter and full year 2020 results, it's important to again point out that the combination of weak winter weather, Brazilian currency devaluation, and COVID-19 impacts in both mitigation costs and in-market deterioration negatively affected our 2020 full-year operating income by nearly $70 million. Despite this impact, we were able to hold year-over-year adjusted EBITDA margins flat at 21% and generate more than $175 million in cash flow from operations and $90 million of free cash flow. I would now like to shift gears and spend a few minutes on our 2021 outlook. As a reminder, when we work through our annual planning process, we utilize an underlying assumption of average winter weather and how that would translate through our upcoming bid season. There are multiple scenarios we run, but at the end of the day, we focus on what we can control and then manage through the consequences of what the weather and other opportunities or challenges bring by adjusting our plan dynamically throughout the year. We are extremely disciplined in our approach to capital spending and closely monitor the supply and demand dynamics of both the salt market, particularly in North America, and the specialty fertilizer market, where our high-value potassium plus SOP product has a leading market share in North America. Should those factors dictate a supply response, we feel strongly that we can quickly adjust to make rational economic decisions and still be ready to meet our customers' needs. We're optimistic about 2021 as we look for normalized sales volumes in our salt business and the expectation of even better agriculture fundamentals in both North and South America. The initial benefits of our optimization efforts have started to register throughout our various segments. And while we're not providing specific guidance on the expected benefits, we continue to believe that the long-term commercial and operational advantages from these efforts will be meaningful to our bottom line. For the full year 2021, we are expecting consolidated adjusted EBITDA of between $330 million and $360 million, which is a year-over-year increase of about 20%. While the midpoint of our guidance is at the lower end of last year's full-year guidance, it's important to note that weak winter weather impacts like those in 2020 are never immediately reset, as prior bid season pricing almost always has a significant influence on the following year's average selling prices. Our annual operating plan anticipates approximately $100 million in 2021 capital spending, as well as free cash flow at levels similar to 2020. We are forecasting a significant increase in salt volumes as winter weather normalizes in both North America and the UK, and we're expecting high single-digit sales volume growth for our Plant Nutrition South America segment. Within Plant Nutrition North America, We expect to see volumes down slightly compared to 2020 as we continue to monitor the growing season and balance our customer needs given the recent ramp up in pricing. Importantly, we will continue working to offset any 2021 headwinds through a dual focus on value creation and cost containment through our enterprise-wide optimization effort. While our net debt to adjusted EBITDA ratio ended 2020 at about 4.3 times, is expected to end 2021 below four times we expect to also continue to make progress improving our balance sheet and maintaining a very strong liquidity position with very little in near-term debt maturities in summary while 2020 has been a year marked by challenges not only for our company but globally our business model worked and our people withstood the test we exercised flexibility managed external factors beyond our control, executed our plan, and worked on our long-term strategy while continuing to return cash to shareholders. As we enter the new year, we remain focused on keeping our people safe, optimizing our operations, containing costs, and delivering our essential products to satisfied customers around the world. With that, I will ask the operator to begin the Q&A session. Operator?

Thank you. At this time, we would like to take any questions you may have for us today. To ask a question, please press star 1 on your telephone keypad. Your first question is from Chris Parkinson with Credit Suisse. Your line is open.

Great. Thank you very much. You know, salt segment volumes were lower, but you did manage to hold in margins pretty well. And, you know, over the next couple of years, there are clearly a lot of moving parts in both salt as well as plant nutrition in North America, understanding some of the near-term issues that are obviously not recurring, which is how should investors be thinking about the long-term margin profile as we head into 22 and 23? I mean, what's your base case overall, and what are the kind of the key things over the next several quarters we all should be looking for? Thank you very much.

Hey, Chris. Good morning. Good question. Thank you. Look, I think we talked about this a little bit in the past that, you know, on the SALT side, we're trying to drive towards, you know, the high 20s, low to mid 30s, depending on kind of where the market is. I think we did a pretty good job last year in spite of, you know, selling a million and a half tons less and expanding our EBITDA margins. So, you know, we think over time that that low to mid-30s is a nice target area for us over the next couple of years. And the other thing that I would add that it's subtle but it's worth mentioning is, We're building a new mine at Goderich right now. Now, you don't see that through the numbers, but we have development sections that are driving new entries and getting us set up for the next 30 to 50 years. So even in spite of that additional cost, we're still reducing costs up there. And if we wanted to really increase margins over the short term, we could do something with those units and idle them, et cetera. But George and I have talked about it. We don't think that's wise to do. in the near term because we think the idea of setting this new mine plan up is the right answer. Then on the plant nutrition side, I would expect a sharp snapback return to normalized operating margins in plant nutrition North America. What we experienced in the fourth quarter, we believe, was temporary in nature, and we believe that we have that well in hand. So I think you'll see a nice snap back. And, you know, we would expect kind of similar margins there, too, low to mid-30s, depending on market conditions.

And EBITDA margins.

EBITDA margins, yep, yep, sorry.

That's very helpful. In the U.S., we're clearly experiencing some extreme winter conditions, and I never thought snowfall would get so close to Coplanche, quite frankly. But you also have operations in the U.K. Can you just start a little bit more about the start of the winter and how the platforms work? poison to benefit there in terms of thinking about your total portfolio. And then also perhaps discuss North American market share in 21 and 22 onward based on your own ambitions still, as well as the closure of Avery Islands. Thank you very much.

Okay. Yeah, thanks. Good questions there as well. Look, the UK is off to a really good start probably this probably the best start it's had in the last decade or so. So things are really rolling well over there. It's gotten a little milder here of late, but they are off to a great start. And then in terms of market share in the U.S., I mean, you know, we've planned, we've given our guidance based on average weather, and we believe we'll hit those volumes soon. if there is average weather. I believe I'm really confident in our ability to generate those kind of volumes. But what I would say around market shares, we want to be very disciplined about how we think about that over the long term. We want to stay focused on taking the right business, taking the right business at the right price so that we can optimize our margins and then with respect to – and look, if it makes sense to grab a little market share back from a market conditions perspective, we'll do it. And if it doesn't, we'll also be disciplined on the production side if that need occurs. We'll just have to see. I mean, we've still got about eight weeks of weather, and hopefully we want everybody to be safe, but hopefully we'll continue to experience some weather conditions so that we can prove to the external world what this – platform is capable of doing now that we've made these changes to the underpinnings of the organization. And with respect to Avery Island, I mean, that mine was, it was a planned closure later this year. It was closed or it was announced it was going to be closed early. They had some operating issues late last year and they decided to close it early. So that's a million and a half ton, circa a million and a half approximately of ton void in the marketplace that we believe some benefits will inure to us. We're being careful and thoughtful about that. But on balance, taking a million and a half tons out of the market on balance we think should be a good thing for us.

Thank you very much as always.

Thank you, Chris.

Your next question is from Joel Jackson with BMO. Your line is open.

Hi. Good morning, everyone. Kevin, I want to ask a very honest question. Compass Minerals has given guidance for six years in a row, 2015, 2020, in the February report. For six years in a row, Compass Minerals has delivered, by the end of the year, earning below the low end of the initial February guidance range, so six out of six. The question I want to ask is not to look at the past. but to ask you, have you figured out what in your guidance process the last six years has led to that performance and figured how you can make the 2021 guidance more accurate or help us describe why you feel confident in this number when it's been quite poor the last six years?

Yeah, I mean, look, I'm not going to spend a lot of time looking at the past. We're trying to look forward. But as it relates to this year's guidance, I mean, you know, look, we're still dealing with sort of the hangover effect from the down unit pricing in the last bid season. So we've got to work that off between now and the end of this winter season. And, you know, look, if we finish strong, I think that tees up an interesting upcoming bid season. But, look, I believe at a high confidence level, if we experience – average weather, just once, just experience average weather, that we will absolutely be able to deliver on the guidance that we've outlined here. And if the winter stays strong, I actually believe we could outperform it. But that was part of the thinking, too, was let's lay out something that we feel really good about hitting, and hopefully it's got some upside to it. So, look, I think from an execution standpoint, We haven't yet tested what the upside potential of this platform is, and if business conditions cooperate, I think you'll see a set of results that are unlike anything that's been posted in the past. Again, it takes mostly weather, but at the end of the day, I think you'll be able to see the benefits of all the work that's gone in over the last 18 months in terms of the enterprise-wide optimization, Joel. Okay.

Second question would be over the last decade or so, we know that we've seen some numbers come to talk about having free cost sensitivity of something like $0.75 to $1 per tonne per salt per $10. change in Brent now, since you would have signed all these, got on these awards and bid season this spring and summer, we've seen diesel, gasoline, oil price all rise. Can you give us a sense of what the drag is in 2021 guidance from higher freight costs? What was it in Q4? And are there any offsets to help you mitigate things? Yeah, sure.

Let me take that one, Kevin. Yeah, so that range still exists. It's about, it can be 75 cents to a dollar. I think of it more as 50 cents to a dollar per ton for every $10 of Brent crude. When we looked at, and it depends by mode, right, of course, when we set our plan, we're right around $50 Brent for 2021. And obviously, I think today it's around 63. So there is some pressure there. But so when I look at the first quarter, I think we'll actually be down year over year in shipping and handling freight and salt. That's really mixed-driven. If we continue to see weather like we have and it ends up on a normal basis, you know, because of the incremental highway deicing sales volumes, you're going to see that blended salt distribution costs lower year over year. But based on what you said and where oil is, certainly in the back half, we would expect to see some pressure. And, you know, that could be middle single-digit pressure in the back half of 2021, just really fuel-related. As it relates to the fourth quarter, We really did a good job internally through our logistics team. We talked a little bit about it in our prepared remarks, how we optimized our distribution network and did a lot of good value-add opportunities in there, and that really muted the fuel cost increases that we were seeing in the back half of 2020. So as I said, probably looking lower year over year in the first quarter, and there could be some mid-single-digit back half 2021 pressure in freight.

Thank you.

Your next question is from Mark Conley with Stevens. Your line is open.

Thanks. Two questions. If we... If I could start with the harvesting improvements on the SOP that you talked about. You said that that would improve yield and take costs down in that business. But now it looks like you're expecting lower volumes. And so my question is, if you're expecting lower volumes, will you still proceed with that change? And should we expect that the financial benefits of those changes are either going to be reduced or deferred based on the lower volumes?

No, look, I mean, I think, Mark, you know, what happened in the fourth quarter, you know, the wildfires delayed harvest and we had a really compressed sale season. And we, you know, really emptied our pockets to deliver on our customers' needs. But the harvest process is full in check. We kind of incurred the cost for that last year. We'll have a full year of that benefit, so would absolutely expect to see that flow through the cost. And, you know, like I said, Jamie said in the prepared remarks that, you know, the inconsistencies that we experienced across the pond harvest last year, we think that we have that well in hand through testing and blending to create a more uniform feedstock for the plant. And I think you'll see things snap back out there pretty quickly this year.

Okay. And just one more. My original understanding was that when the second 46 went into service at Goderich, you'd bring it down from four CMs to three. But you've changed other parts of the plan. You know, now you've got two 36s in mine development, for example. So can you walk us through what happens from here now that you've got the second 46 in service and what's going to be running where?

Yeah, so just in simple terms, and if I say something wrong here, George is here to correct me, but we had four 36s running. We got the first 46 in. We moved a 36 off onto development of the new roadways. When we got the second 46 in, which is even a beefier unit than the first 46 we got, that freed up a second 36 to work on the new mains development. That's the goal over time to connect the shaft to the old part of the mine. via these new roadways as soon as we reasonably can. So we still have four main production units. Fair? It is.

We run for, just to add an additional comment, we run the four SCTs behind those units. And as Kevin said, with the increased productivity, it does allow us to flex a little bit, do some preventive maintenance, and that's a lot of that optimization and upside that you've seen throughout 2020 and we'll see in 2021 as well. Thanks, Kevin.

Should we expect another 46 to come in and when, or are we going to just stick with too big and too small?

We're still working through that. There's a lot of moving parts up there. We're trying to focus on what the final production fleet ought to look like, but also equally focused on getting this new mine plan developed, get these new roadways developed, and then start developing these new rooms and As I've said before, that's a journey, and it's going to take some time. But, you know, hopefully from the outside looking in, you really won't even see it. And, you know, depending on weather conditions, you run all three of them hard, or you may have to, you know, create a more favorable type approach just based on what the demand scenario looks like. We still have some useful light, too, in these 36s.

I mean, it's just getting capital investment a couple years ago, so we still have some light left in those machines, and we want to utilize those as a pulse before we replace this with 46s. I understand. Very helpful. Thank you.

Thanks, Mark.

Your next question is from Vincent Anderson with Diesel. Your line is open.

Yeah, thank you. So 2021 guidance for salt, so he's going to assume normal salt, winter volumes, but is the guidance assuming any kind of incremental price pressure in next year's bid season from what had been until recently a milder winter, or is it related to, you know, an anticipated inventory hangover that could have led to some customers taking volume maximums?

So, as we always do, we always assume average. So, as we start our annual planning process in late 2020 this year, as we would have last year, we make average winter weather assumptions. So our guidance is assuming average winter for the full season, and then our expectation of how that would flow through into the bid season. We won't comment specifically on what we think price might move in the bid season, but that's all baked in, Vincent.

Okay. And I guess maybe then to clarify it a little just a bit further, Would you say that the risk of customers taking greater volumes under their contract maximums just based on what we've seen year to date, would that be a higher or lower risk impact in your second half outlook?

I would say that based on what we've seen year to date in terms of weather activity, we're pretty well aligned with that. It feels pretty average weather activity on a season-to-date basis. with obviously some strong activity as of late, which has really helped us get back to that area. So I wouldn't expect it to be significantly different than what we thought earlier when we were doing our planning as we've now kind of landed in that average area season to date.

Yeah, and a lot of it, Vincent, too, is like, okay, it's been tough for the last year A couple of weeks for sure, but what does the next six weeks look like? I think that's what will tee up the next season one way or the other. So far, the Poxitani appeal has been spot on, so hopefully he continues to be right.

Fair enough. Just following that point of clarification on Avery Island, to be clear, they were in the market for last bid season. And so this accelerated outage would not really be showing up until now this year's bid season.

Yep, that's right.

Okay. All right. If I could sneak in a little bit of a longer one then. Do you mind just walking through what gets us to the high versus the low end of expectations in North American agriculture? You had a good almond harvest last year, but you also have a good row crop set up that micronutrients didn't seem to fully participate in during the fourth quarter. You know, SOP pricing came down at the end of the year. So maybe if you could spend a minute bridging 2020 to 2021 from a scenario perspective, that would be helpful.

Yeah, sure. Hey, Vincent, Brad Griffith. You know, I think as Kevin said in his comments, we had that record fourth quarter for SOP stemming from a very light 3Q driven by the California wildfires. And we're seeing continued significant activity into the first quarter. Vincent, we're not quite two full months into 2021. And so, as Jamie had mentioned in his comments, our guidance range will factor in things like end-use crop economics and what we see in terms of average application seasons for both the spring and the fall. I think in our favor, when we look at higher MOP and sulfuric acid feedstock costs for Mannheim producers, as well as freight rates now that are about two times what they were versus same time last year, we certainly would expect to see some import price appreciation in the coming months. And so when we take all of that and couple it with our expected ramp to what we typically see in our pond-based production in Ogden, we remain confident in our ability to hit that and serve that market demand while simultaneously capturing the value from every ton. So I think the deltas on that range really come down to what we see in terms of application seasons. and how producers respond to end-use crop economics, which continue to, you know, evolve a bit as more of the world becomes vaccinated. You know, exports are likely to improve from where they are today, and that, of course, will help our end-use customers dramatically.

All right. Thank you. That's all from me.

Again, if you'd like to ask a question, please press star, followed by the number one on your telephone keypad. Our next question is from David with Bankletter with Deutsche Bank. The line is open.

Thank you. Thank you. Good morning. Question on free cash flow, maybe more for Jamie. You said it would be similar to 2020. We're all looking at EBITDA up about $50 million year-over-year at the midpoint and CapEx only up about $14 million. What's the delta in that analysis?

Cash interest will be about $65 million. Cash tax is around $35 million. And working capital will be kind of $50 to $60 million. So that's kind of where that is. We've got a bit of a working capital build there. About half that is SALT. As you look at our full-year guidance on volumes, we are taking our SALT inventories up toward the end of the year. There's a little bit of SOP increase. on the inventory side. And then, you know, the strong, let's call it relative fourth quarter versus 2020 would generate a significant amount of receivables. So that's about $25 million of increase in receivables. So that's the breakdown of that working capital increase.

Thank you. And, Kevin, just on Godrich, what were your production volumes in 2020 and what do you expect them to be in 2021?

We don't really talk specifically about Godrich volumes. They were up, what was it, 16%, 17% year over year. And we expect to continue to grow volumes to the extent that the market will handle them. A lot of that's a function, too, of what the market wants. We'll do everything within our power to balance supply and what we see as the anticipated demand. Like I've said many times before, I think Goderich will reach a point where it runs out of market before it runs out of capability, just based on the nature of the deposit, the gear we've got in place. the greatly improved relationship we have with the workforce up there. There's still extraordinary pent-up potential there at Goderich.

Thank you.

Thank you.

If there are no further questions this time, I turn the call back to presenters for closing remarks.

We appreciate everybody tuning in today. Thanks for the interest, and any follow-ups, just let us know. Thanks, everybody. Have a great day.

This concludes today's conference call. You may now disconnect.