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spk00: Welcome to the Compass Minerals first quarter 2021 earnings conference call. Your host, Douglas Criss, Senior Director of Investor Relations.
spk02: Good morning, and welcome to the Compass Minerals first quarter 2021 earnings conference call. Today, we discuss our recent results and our outlook for the balance of 2021. We will begin with prepared remarks from our President and CEO, Kevin Crutchfield, and our CFO, Jamie Standen. Joining in for the Q&A session are Brad Griffith, our Chief Commercial Officer, as well as George Shuler, our Chief Operations Officer. Before we get started, I will remind everyone that remarks made today represent our view of financial and operational outlooks as of today's date, May 5th, 2021. These expectations involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these results can be found in our filings at the SEC located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures. You can find reconciliations of these items in our earnings release, in our presentation, both of which are also available online. In March 2021, the company's board of directors approved the divestiture of the company's South America businesses and its North American micronutrients business as part of a broader asset optimization strategy. Collectively, the results of these businesses have presented as discontinued operations for all periods presented. The continuing operations of the company are reported on the consolidated level and in two segments, salt and plant nutrition, which was previously known as Plant Nutrition North America. The results in our earnings release issued yesterday and presented during this call reflect the continuing operations of the business unless otherwise noted. I will now turn the call over to Kevin.
spk03: Thank you, Doug, and good morning, everyone. Thanks for taking the time to join our first quarter 2021 earnings call. Before providing an overview of our financial and operating results for the quarter and sharing some color on the recent progress we've made executing on a number of our previously communicated strategic priorities, I want to first highlight another new safety milestone achieved by our operational team in the first quarter of this year. When we talk about our safety performance as a leading indicator for operational success, it's a reflection of not just who we are as a company but who we strive to be. And while I'm deeply proud of the meaningful progress our team continues to make in this area, we will not rest until we reach our ultimate goal of zero harm across our entire operational footprint. With that in mind, I'm pleased to report that we achieved another step change decline in our total case incident rate, or TCIR, this past quarter, coming in at a multi-year low for our 12-month rolling average with a TCIR of 1.39%. I want to personally thank our team for their continued focus on keeping themselves and their coworkers safe, whether they be operating underground at one of our numerous processing plants or in a support role at our corporate offices. Nothing we do is more important. As published in our earnings release yesterday afternoon, we also achieved a measured improvement in our overall financial results, enabled primarily by a meaningful increase in year-over-year operating earnings within our SALT segment, as well as five-year lows in operating costs per ton in the segment. And these results are about more than just volumes or price leverage. I firmly believe they're also a clear indication that our enterprise-wide optimization strategies are working. This progress has been reflected in the margin expansion within our SALT segment compared to first quarter 2020, despite a lower average price per ton for the first quarter of 2021. As we look at the first quarter on a consolidated basis, operating earnings increased by approximately 40%, and adjusted EBITDA increased by approximately 30% when compared to 2020 first quarter results. In addition, we continued to generate strong positive cash flow from operations, totaling approximately $197 million for the quarter. We also continued to actively manage our capital plan, with that spend coming in at approximately $17 million for the first quarter. Focusing on our SALT segment, first quarter operating earnings grew to $80 million, which was an approximate 41% increase versus first quarter 2020. In addition, EBITDA grew 37% to $98 million, while our EBITDA margins increased approximately two percentage points to 27%. And despite a 9% reduction in average SALT pricing for the quarter, again, that's versus first quarter 2020 levels. At our Goderich mine specifically, production tons increased approximately 6% compared to first quarter 2020 levels. These steadily improving production metrics highlight a drumbeat you've heard me communicate a number of times before with regard to our performance at Goderich. While great strides have been made over the last few quarters, I still feel that we have not yet reached our full potential. Before I touch upon winter weather impacts to the broader segment in the quarter, I'd be remiss if I didn't also mention briefly the historic five-year collective bargaining agreement we finalized at the tail end of the quarter with our talented, represented workforce at the Godrich Mine. We value the improved partnership we have forged with the Union up at Godrich, and I remain personally optimistic about the future of our flagship mines. I'm sure many of you experienced the severe winter weather that blanketed much of the U.S. in February. As discussed in our previously published snow data report, however, February was the exception, not the rule, for the 2020-2021 U.S. winter season, with snow events in our 11 tract representative cities actually falling below the 10-year average and March being unusually weak. One contrasting bright spot of the mild U.S. winter was a robust winter season in the U.K. throughout the first three months of 2021, which helped drive a meaningful contribution to our salt sales volumes. In total, we estimate that salt sales volumes resulting from the strong U.K. winter season and February storm activity in North America facilitated a positive impact to operating earnings of approximately $11 to $14 million. Given the severity of the February storms in the U.S., we would expect customer inventory to be at average levels, which should bode well for the upcoming bid season. That said, we're still in the early innings of the bid season process, and we would anticipate being able to provide some incremental color, as we've historically done during our second quarter call. Winter weather in the quarter also had a positive impact on our consumer and industrial, or CNI, business. We sold approximately 25% more tons of packaged de-icing products this quarter than we did in the comparable quarter last year. We also saw improvement in CNI pricing from a non-de-icing perspective, which aligns with one of our enterprise-wide optimization goals to smooth seasonality impacts where we can. As we shift to our plant nutrition segment, I want to first reemphasize that we've made a change in how we'll report the segment going forward. Jamie will go into this in more detail on the financial mechanics during his comments, but the key takeaway is that starting this quarter, continuing operations for the plant nutrition segment is primarily focused on our SOP business, which we market as potassium plus. For the first quarter, we reported revenue for that business of $54 million, which was relatively in line with our expectations, reflecting an approximate 2% decline in both sales volume and selling price. Our EBITDA margin in this segment fell for the quarter to 24% as we continued to implement process improvements to address the feedstock quality issues we experienced at our Ogden operations in the fourth quarter of 2020. We're making measured progress but believe these changes will take hold over the next few quarters. We're pleased with some of the success by our logistics team to offset a portion of that margin decline through improvement in the per-unit expense structure. We're also actively monitoring the ongoing drought conditions in California and have seen water costs there increase substantially, which could potentially impact near-term demand. For the time being, however, we continue to experience strong demand from our customers for our potassium plus fertilizer product, which provides a lower salt index than MOP, ultimately improving drought tolerance. We've also taken a number of actions year to date to execute on our strategic priorities. A key area of focus you've heard me speak to often on these quarterly updates has been a commitment from our board and our senior management team to conduct a deep assessment of our business, operational assets, and core competencies in order to best position Compass Minerals for future success. Such internal valuations are never easy, as behind every asset there are teams of talented and committed employees, past capital investments, and years of sweat equity. But based on our assessment, it became clear that the right path forward for our company required an aggressive optimization of our operational footprint, enabling us to hone our focus on core operations while simultaneously delivering our balance sheet. As we previously announced, we executed in March a sale agreement for the agricultural portion of our plant nutrition South America business with ICL to purchase those operations for $418 million or roughly 9.75 times 2020 adjusted EBITDA. At ICL, we're pleased to find a buyer who could appreciate the potential of that business and who provides a great fit for our South American team. From a timing perspective, we're working closely with ICL to finalize the transaction and remain on track to close early in the third quarter of 2021. In addition, We continue to pursue a sale of our South American chemical business and look forward to announcing details around that expected transaction as soon as we have something to report. Before moving on, I'd like to give a quick call out to our team down in Brazil, who've worked diligently throughout the sale processes to continue to maximize efficiencies of our operations and maintain a strong level of service for our South American customers. This group has successfully grown this business over the last few years while having to navigate through an extremely challenging environment, and we appreciate all they've contributed to our company. We also recently announced a definitive sale agreement for certain of our North American micronutrient assets to Koch Agronomic Services for approximately $60 million. Aligned with our broader asset optimization strategy, we did not envision a future state for the company where these assets would be considered core. We feel the assets are well-suited within Koch's broader portfolio while allowing our plant nutrition segment to focus its efforts on marketing our leading potassium plus SOP product. I want to also take a moment to thank our current and former employees whose talent and innovative contributions helped develop those micronutrient assets over time. Collectively, we feel these transactions will be transformational for our company. By divesting these assets, we expect to de-risk the business in addition to strengthening the financial position of the company. These actions allow us to focus on our market-leading North American businesses and a complementary productive UK salt business while eliminating our foreign currency exposure to Brazil, which has been a drag on profitability the last few years. Importantly, as we expect to use the proceeds from these transactions primarily to reduce leverage. The transactions should also enable the financial flexibility required for us to stay agile, positioning us well for both organic and inorganic opportunities, if and when they arise, to ultimately enhance our equity evaluation. To recap, this has been a quarter of meaningful improvement and significant change, achieving a number of milestones to reshape and strengthen our company. I continue to be impressed by our employees' resiliency to not only navigate the changing operational landscape of our company, but to demonstrate their alignment with our strategic plan through the energy and engagement they bring to accomplish these goals. This support and expertise, coupled with the core advantages we possess within our unique asset base and our efforts to increase financial flexibility, give me great confidence in our company's ability to deliver ongoing, and sustainable shareholder value. Now, with that, I'll turn it over to Jamie, who will discuss our first quarter in more detail, as well as our rest of year outlook. Jamie?
spk05: Thanks, Kevin, and good morning, everyone. I'll start with some comments on our consolidated results and then move on to our segment-specific performance before discussing our outlook for the remainder of the year. As we reported in our earnings release and as Doug highlighted this morning, All the results we're discussing today are on a continuing operations basis, unless otherwise noted, with our South American and North American micronutrient businesses falling into the discontinued operations bucket. On a consolidated basis for the first quarter 2021, year-over-year sales volume growth in our salt segment more than offset the slight decrease in plant nutrition sales volumes compared to prior year results. Consolidated operating earnings grew 40% when compared to the prior year to approximately $63.6 million, while our consolidated adjusted EBITDA grew almost 30% compared to 2020. Over the same period, we saw operating margins grow 180 basis points to nearly 15%. We also generated nearly $200 million in cash flow from operations and $180 million of free cash flow This compares to free cash flow of about $206 million during the same period last year. However, last year's total included an approximately $55 million one-time tax refund. Excluding that refund, our consolidated free cash flow is up about 19% year over year. Looking now at our SALT segment results. Total salt sales in the quarter were $369 million, up from $288 million in the first quarter of 2020, an increase of approximately 28%. This improvement was largely due to stronger weather-driven demand for our de-icing products. The severe winter weather we experienced during February in the US, paired with the strong UK winter season, along with some incremental bookings from snow events that carried over from late December 2020, translated into stronger sales volumes versus the prior year. As a reminder, first quarter 2021 snow events were 8 percent below the 10-year average. While we provide the snow event data as a directional indication of winter weather activity and related demand in our North American de-icing market, we obviously sell de-icing products to many regions within this market, and weather can vary significantly throughout those regions. This quarter, our book of business outperformed the broader weather statistics, and because of that, we have estimated a positive winter weather sales revenue impact of $27 million to $33 million and an $11 million to $14 million positive impact on our operating earnings for the first quarter of 2021. As expected, highway de-icing prices were down 9% versus the prior year quarter at $64 per tonne. which reflects the drag from the previous year's bid season. However, consumer and industrial average selling prices increased 5% to $162.70 per ton due to broad-based price increases across both de-icing and non-de-icing product groups, as well as a stronger mix of packaged de-icing product sales. Operating earnings for the SALT segment totaled $80.1 million for the first quarter versus $56.9 million last year, while EBITDA for the SALT segment totaled $98.1 million compared to $71.5 million in the prior year quarter. We are pleased to report operating and EBITDA margin expansion of approximately 200 basis points for both metrics in our SALT segment compared to first quarter 2020. mostly due to a strong sales mix shift toward highway de-icing and higher year-over-year production levels at both our Goderich mine and Winsford UK mine. The combination of these factors more than offset our lower average selling prices for the quarter. Looking at our first quarter salt per unit operating costs, we delivered a 13 percent improvement versus first quarter 2020, which is the lowest first quarter salt unit cost performance since 2016. As I mentioned previously, these lower unit costs help offset the decline in year-over-year first quarter salt average selling prices. In addition, the segment delivered lower logistics unit costs in our highway business for the quarter, which more than offset higher year-over-year consumer and industrial shipping costs. We continue to implement initiatives across the organization designed to drive revenue higher and cost lower as part of our enterprise-wide optimization efforts. While many of these individual projects and initiatives are small on a standalone basis, they are really starting to aggregate into meaningful improvements in revenue and lower costs. In addition, they are contributing to our EBITDA margin expansion, which at 27% this quarter also represents the highest first quarter result since 2016. Turning to our plant nutrition segment, first quarter 2021 revenue was 4% lower compared to the prior year at $54.2 million. This reflects a 2% reduction in both sales volumes and average selling prices compared to the prior quarter. It's worth noting that during the first quarter, we have continued to see strong demand for our potassium plus and delivered a 5% sequential price improvement with an average selling price of $573 per ton compared to the fourth quarter. Plant nutrition operating earnings were down 2.2 million to 4.4 million, and EBITDA was down 3.2 million to 13.2 million for the first quarter compared to 2020. With lower earnings, we also had some compression in our operating margins from 11.7% last year down to 8.1%, while our EBITDA margins compressed about 4.7 percentage points versus first quarter 2020, landing at 24.4 this year. Although we experienced a higher proportion of direct-to-customer shipments, driving favorable logistics per unit costs, That only partially offset the lower average selling prices and higher per unit operating costs. During the first quarter, we continued to work through our suboptimal harvest quality, impacting our SOP production rates. Historically, we do experience variations in our pond harvest quality from year to year, depending on the prior summer evaporation season. Our current harvest material isn't as rich in potassium minerals as it has been during the last several years, which is putting some short-term cost pressure on our plant nutrition segment. We continue to optimize our raw material feedstock sorting and utilize MOP as an input when needed, but all of this is expected to put modest cost pressure on the segment until the harvest quality improves or we transition into the 2021-2022 harvest material this fall. Now I would like to touch on the impact of our recent divestiture announcements. We have determined that our decision to sell our South American and North American micronutrient businesses represents a strategic shift that has a major effect on the company's operations and financial results. We will now instead focus on our core salt and potassium mineral portfolio. As a result, We have classified these assets and liabilities of these businesses as held for sale on the consolidated balance sheets. Additionally, these businesses are being reported as discontinued operations in our consolidated income statements. Again, as Kevin mentioned during his remarks, this strategic decision to exit these businesses allows us to accelerate our leverage reduction goal and focus on our core businesses. Now, I'll spend a few minutes on our second quarter and rest of your outlook. Again, we are providing full-year adjusted EBITDA guidance and corporate-level expenditure guidance on a pro forma continuing operations basis, which excludes the 2021 operating results from our discontinued operations. The continuing operations of the company are now reported on a corporate consolidated level and in two segments, salt and our newly renamed plant nutrition segment. Given first quarter business performance and continued benefits from our enterprise-wide optimization efforts, we're optimistic about 2021 as we move through the second quarter of this year. We expect second quarter salt segment revenue of $110 million to $135 million and EBITDA of $37 million to $47 million. We have also increased our full-year salt segment sales volume midpoint guidance by about 500,000 tons, due to the strong sales volumes we delivered during the first quarter of this year. We're cautiously optimistic on the market outlook for our plant nutrition segment as we continue to monitor the drought situation in California. While we continue to expect strong demand for our S&P products in the back half of the year, a continuation of the drought could put some sales volume pressure on this business. We also expect to continue to see modestly elevated per-unit operating costs for that segment until we move into the fourth quarter of 2021. The combined impact of our segment outlook has allowed us to move our consolidated adjusted EBITDA guidance upward to $270 million to $295 million for the full year 2021. This compares to our prior pro forma adjusted EBITDA guidance of $250 million to $280 million Now a few corporate items. We've reduced our interest expense estimate for the year to $58 million to $60 million, as we expect significantly lower debt levels beginning in the third quarter. Our capital spending forecast has also been revised slightly lower to the $95 million to $100 million range, and we continue to expect full-year cash flow to be at or about $90 million in 2021. And finally, after adjusting both our debt levels and EBITDA for our discontinued operations, we expect our leverage ratio to be in the 2.75 to 3 times net debt to EBITDA area at the end of 2021. In summary, we are extremely pleased with the strategic progress we have made to start the year. Our people and their collective safety continues to be our top priority, while at the same time we execute revenue and value-creating optimization initiatives across the organization. With that, I'll ask the operator to begin the Q&A session. Operator?
spk00: Thank you. At this time, if you'd like to ask a question, please press star 1 on your telephone keypad. Our first question comes from Vincent Anderson with Steeple. Your line is open.
spk04: Yeah, good morning, and congratulations on the CBA up in Godrich. Now that we have kind of a clear view on unit costs in your SOP business, you know, the brine quality issues aside, you know, would you be willing to talk about how you're thinking about target unit cost levels there?
spk05: I think – We can give you a little bit of guidance for the rest of this year. So like we said, they would be a bit elevated when you start to see the year-over-year comparisons of this business having extracted that micronutrients business. But sequentially, as you go into quarter two, it's probably up $20 to $25 a ton. And then in the back half of the year, it'll come back down a bit to probably in the $450 a ton range.
spk04: Okay. And then just kind of sticking with ag, you know, you've had a fairly long relationship with Amy Yoder on your board, and I assume by extension Anuvia. I was just thinking through their portfolio would seem to align pretty well with the organic SOP offerings. Is there any, you know, current or future collaboration plan there now that they've begun really scaling up that business? I don't think we'd have any comment on that, Vincent. Sure, that's fair. And then I guess just kind of thinking to the future here, I know it's a little early, but most of the planned divestments are finishing up. Godrich is at the very least back to good. As you think about what's next for Compass, maybe if you could talk about what you view as kind of your core competencies that you would consider building off of in the future. I'm thinking... You know, your production assets are quite unique, but leverage points like, you know, brine-based material experience, you know, your salt depot network, familiarity with the municipal bidding process, just, you know, anything you'd want to highlight there in terms of, you know, areas for future growth leverage.
spk03: Yeah, good. That's a great question. And I guess what I'd say, just kind of rolling the clock back a couple years to the first Priority was to, you know, get Goderich back on a better track. And I think it's safe to say now after a couple of years, it's headed in the right direction. George is sitting and he can comment on it. But while we, you know, it's doing a lot better, we still believe there's a ton of extra potential up there, which, you know, continues to excite us. The sort of the second priority was to improve the performance of sort of all the assets, make sure that they're performing at their full potential, and that was the purpose of our enterprise-wide optimization approach that we took. And, you know, I think we're continuing to put runs on the board there, and we will continue to do that in the future. And then sort of third priority was to assess core versus non-core, and we've obviously made that decision. And then, you know, along with that will come a de-levering event. So I think that gives us kind of a clear path then. So that's Act I, and then Act II is to start to think about where we go from here, and your point's a good one around competencies, you know, around whether it's extractive, brine-based, mining, et cetera. But I would also say that, you know, the logistics network, how we – the competency that we have in moving bulk materials around efficiently, the depot network that we have is, you know, it's kind of a – of our business, et cetera. So we're just starting to kind of roll into that. And I think over the course of the next, you know, couple of quarters, you can expect to hear something back from us in that regard.
spk04: All right. Thank you. I'll pass it along. Thanks, Vincent.
spk00: Our next question comes from Seth Goldstein with Morningstar. Your line is open.
spk08: Hi, good morning. Thanks for the question. Kevin, in your prepared remarks, you mentioned that you think salt costs may be able to become lower from this point. You know, what's the future trajectory here and how low do you think they can get?
spk03: Yeah, look, I don't want to throw out a specific number because, you know, what we've been talking about is trying to run the salt segment to try to move mid-30s percent EBITDA margin. So that's a function both of cost and what's happening in the marketplace. And look what I'd say about salt segment costs thus far is they're decreasing, but keep in mind too that occurring behind the scenes is kind of invisible to the external world, but we're effectively building a new mine at Goderich. So we've got a lot of development costs that are blended into that cost, which we could take out tomorrow if we wanted to cease development. and you see a step function reduction in cost. We don't think that's wise because we think this is a viable long-term investment, and we're building these new roadways that will be standing for 30 to 50 years. So I think with the passage of time and as we move into this new mine plan, you'll continue to see step function cost reductions over the next really three to five years, at which point it will then kind of sustain itself. going forward based on the way we've designed this new line plan.
spk08: Okay, great. Thanks for the details. I'll pass it on from there. Thank you.
spk00: Our next question comes from Joel Jackson with CMO Capital Markets. Your line is open.
spk08: Hi. Good morning.
spk05: Asked a couple questions one by one. You sold off a lot of earnings here. You're divesting a lot of earnings this year. One more deal to go. I would have thought maybe your corporate costs would scale down lower. Can you talk about why corporate costs are pretty inelastic despite the large asset though? Yeah, so they were not particularly related to the acquisition of those assets. We have a number of fixed costs, just being a public company operating here in North America. So as those businesses are now divested, you're not going to see any immediate impact, but we're constantly looking at our corporate costs as required, as needed. we'll be diligent and make sure we set that level at the appropriate amount given, you know, our overall business portfolio. I wanted to follow up on a comment, Kevin. I think you talked about that. I think you said that rock salt channel inventories are low or below average, average to below average, if you hit it on the call. So, I mean, obviously it was a milder, a little bit below average winter. And March was quite light. So end of year, you know, I imagine consumption of salt, rock salt in the municipalities and counties was low. And you had a record, you know, Q1 volume of rock salt after, you know, a low Q4. So some shipments obviously deferred to Q1. would you it would seem like from the outside that all that would lead to channel inventories being high so maybe you can comment on some of that and when you get your data points you always have people in the field and you're actually selling this but what are your data points to sort of you know get these inventory assumption levels or yeah
spk03: Yeah, good question, Joel. I mean, I think what I'd say is that we report data on those 11 cities. We sell salt in a lot of other places. And it just so happened that a lot of those other places needed a whole lot more of the salt than sort of their base commitments. In some cases, 150, 175% of their base commitments. And again, kudos to both the production side and the logistics side for being able to flex into a demand scenario and move volumes up nearly one and a half million tons quarter over quarter. So I think, you know, number one, that's a testament to the sort of the changes in the plumbing that we've, that we've made here to be able to respond, um, in that fashion. But, you know, February was, um, you know, snowmageddon and, uh, you know, took everybody down really, really deeply. And we think that coupled with March was mild, but we saw some activity in April. But, you know, the other factor that I think you have to consider too here is the void that Avery Island has created in the marketplace of, you know, circa one to two million tons. That's a pretty big void in what is, you know, considered a small marketplace. So we think all of that sets up for, like we said in the prepared remarks, a constructive bid season. And, you know, thus far, you know, we're only 20% or so in, but we're not seeing anything out of the ordinary in discipline so far. And, you know, it feels pretty good. And beyond that, I don't think we'd like to say too much, given that we're only approximately 20% in.
spk05: If I can ask a follow-up on that. When you think of bid season, freight costs are up so you know there's probably upward pressure on delivered salt price like ignoring the strength of the chain inventory season you know there's probably some upward pressure on on on gross delivered prices because of free cost so yeah how does this play out this year where free costs would probably be higher or please tell me if that's the case and then trying to figure out what your the actual net backs to you what the sensitivity could be
spk03: Yeah, that's a good question. I'll maybe let Brad or Jamie comment on the actual freight cost itself. But the other phenomenon you've got going on here too as well is it's not only U.S. freight, freight in general is up, including Seabourn, which from our perspective is additive and good news for us because it makes it harder on the importers. That's not to say that we won't see them from time to time anymore. So, again, I'll just answer with the way we approach this is optimization and looking at our portfolio of assets and how we can deliver at the lowest price. price possible to generate the highest margin possible. So I don't know, Brad, Jamie, do you want to comment on rates themselves?
spk05: I'll make a high-level comment, and Brad, you could add. But I think certainly we're going to see elevated freight rates as we go into the second quarter. When you look at inflation, just rate inflation, oil prices, and sales mix, we expect to see a higher mix of C&I in our second quarter this year versus last year. And then, you know, you can expect to see higher rates through the rest of the year. But as we go to the bid season, we build those in. And Brandon, you want to talk a little bit about that? No, that's right. And I would just add to what Kevin and Jamie said, Joel.
spk06: First of all, as we look at proxies, we look at tender sizes. And as Kevin said, we're only 20% through the season. Those tender sizes are largely what we have expected. And there appears to be good logical discipline in the market. As Kevin has alluded to, though, bulk freight rates have changed dramatically versus same time last year. As you're probably aware, the Baltic Exchange's main sea freight index gained last week to its highest level since September of 2010, as demand really strengthened across all vessel segments. So economies around the world and supply chains are trying to snap back, and that's putting a strain on rates. So we do expect to see a firm freight market for importers this year for both the icing rock salt and, to Vincent's question earlier, SOP.
spk00: Our next question comes from Mark Connolly with Stevens. Your line is open.
spk07: Thanks. Kevin, you've eliminated your salt imports. Avery has taken out some supply there. There's still a lot of imported salt coming into your target geography. So how do you think about growing your volumes as Goddard becomes more productive? Is it mostly... staying within the same geography or as your costs come down, presumably your geographic reach rises too. So I'm just sort of wondering if you can help us think about how those different things play into your plans.
spk03: Yeah, look, I mean, I think the importers will always be kind of a fungible thing. They're going to come, they're going to go, they're going to be inconsistent at best. You know, I think with Avery Island, the void that that creates, you know, you think about the jockeying proposition that's going to occur there. Importers are going to have their eyes on it. I mean, Cargill's not going to let that business go without a fight. They're going to try to figure out how to backfill. Other strategics are going to figure out how to try to take some of that business. And look, at the end of the day, some of that business will ignore to our benefit. We want to chase the business that makes sense for us. I'm not going to speculate right now about how much that'll be. But to your other question around how do we grow, we've got a couple options. You can take market share in the existing footprint, or as you point out, as we get better and better at Godrich and and Cote Blanche continues to perform the way it does, we can think about it more from a footprint standpoint and start to grow our marketing region. I don't think that's, you know, I think that's in the cards over the course of the next couple years. I don't know if that'll play out so much this year, but that's how we're thinking about it, just looking at a different footprint.
spk07: Okay. And I wonder if we could talk about the union contract. Unions don't typically, you know, sign five-year contracts without some incentive to do that. So can you talk about anything in this contract that might be different from what we've seen in the past?
spk03: Yeah. I mean, look, I'm here at a high level. George is here, and he was involved day to day. I mean, I think it's much a testament to the relationship, the acknowledgement that it's a partnership.
spk01: up there as as anything and look in terms of giving away the farm nothing nothing could be further from the from the truth it's very consistent with what you'd see in any sort of renewal but george of any color you'd like to add to that yeah yeah thanks kevin and yeah look i'd like to say we're you know from our perspective we're extremely pleased with the cba at godrich um as kevin highlighted i think it demonstrates our continued collaboration with our entire team at godrich And really, when you look at it, our entire enterprise, across the entire enterprise, will continue to build from this as we go forward. But as Kevin highlighted, there weren't anything. It's just really around that relationship that's been built over the last couple years, and I think it sets us up for a great future. So, again, I think, you know, this is one of those brighter ones where I would say our workforce and our leadership team consider this a win-win. Thank you.
spk07: That's helpful. And just one quick question for Jamie. The CapEx reduction, is that just related to the divestitures or is there something else in there?
spk05: Yeah. No, it's a little bit of trimming in a couple of different areas, but primarily the removal of the discontinued ops.
spk07: Okay. Thank you, guys.
spk05: Thanks, Laura.
spk00: Our next question comes from David Silver with CL King. Your line is now open.
spk05: Okay, thank you very much. I had kind of a marketing-based question on your SOP business. So, you know, last year you sold 383,000 tons, which is, you know, something above what your capacity is for solely pond-based SOP production, the lower cost tier of production. My sense is, ag markets are quite robust. You could probably sell a similar amount or more. I was just wondering, from a marketing perspective or managing the business longer term, what is the optimal strategy in an environment like this? In other words, do you want to purchase potash and ramp up internal production to limit the amount of imports even if it limits the price improvement or do you kind of pull in just a little bit and try to squeeze out a little more price um during the growing season for sure but overall i mean how do you kind of handle this uh marketing opportunity um where in my opinion you know the demand is clearly going to be above that that threshold for your pond-based SOP production. Thank you.
spk06: Hey, David. Brad Griffith here. Excellent multi-sectoral question. What I would say first is you're exactly right on Ogden Pond Feed Tons, available Ogden Pond Feed Tons. Remember, too, that we had our winter Saskatchewan operation. of, you know, call it 40, 41,000 tons. So that's not an insignificant source of SOP supply for us to market here in USMCA. You know, from a marketing perspective, we, listen, we model this thing all the time and we try to make the, an optimal financial decision coupled with an optimal customer decision. I think in Kevin's comments, he alluded to having the right agronomy and talking about potassium plus is conferring drought tolerance. When we think about how we market our macronutrient, our specialty macronutrient, a key differentiator is the fact that our product contains both potassium and sulfate sulfur. And both of those play critical roles in drought tolerance. Potassium will facilitate a more robust root system, and sulfate sulfur is more readily available for plant uptake in comparison to elemental sulfur when soils are dry and microbes are less active or available for sulfur oxidation. And that's the situation our customers find themselves in today. Year to date, California is in its fourth driest drought. And so we're really staying close to our farmer customers and some of the difficult decisions that they're having to make with limited groundwater pumping available. We're seeing a decrease in vegetable crops and an increase in higher value orchards like almonds and pistachios. So again, back to your question on volume, we watch the market. We stay exceptionally close to our customers and our distribution and retailers. And we make the call and try to optimize production, including when we would add potassium chloride into our facility at Ogden.
spk05: Okay, thanks for that. Could I just maybe follow up real quick, Brad? You know, I'm scratching my brain here, but I remember back – in the 2007-2008 time frame when potash pricing really took off like a rocket ship. Your company had potash purchase agreements that were kind of uniquely favorable in that the price was based or the price was set maybe late in the prior year. In other words, when the posted price was uh was lower i'm just wondering if that contract stipulation or that contract element kind of remains in place you know for your purchase potash needs this year no so so we've got a couple of pieces there the one you're referring to david uh expired in um I want to say 2013 or 2014 or so. So that is no longer. So if we're going to supplement our Ogden operations, it would be buying MOP at market prices and converting it up to, you know, converting that, upgrading that up into SOP. So we do have an agreement in place as it relates to our Wynyard facility, but that's specific to Wynyard.
spk08: Okay, thank you for that.
spk05: Just one quick question on salt. But, you know, with Avery Island kind of out of commission, you know, you've talked a lot about what it means for your de-icing salt business. But I was wondering if, in your opinion, it provides any incremental opportunities on the CNI side. In other words, you know, historically cargo, you know, has had a full – line of salt products with a lot in like institutional and agricultural processing and certainly some products on the grocery shelf. But are there incremental C&I opportunities for your salt business as a result of the departure of Avery Island? I'll take that one. It's tough to get salt from Utah into the market that Avery Island was serving. You know, the freight differential there just really eats up the cost. I think everybody understands we've got virtually unlimited salt coming off of our operations in Ogden, but the freight cost eats it up, and you just really can't compete from that distance. Okay, very good. Thanks very much. Thanks, David.
spk00: As a reminder, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Chris Shaw with Monash Crispy. Your line is open.
spk08: Yeah, good morning. How are you doing? Chris. You know, you guys mentioned UK had a strong snow year and a strong fall quarter. Can you break that out exactly about how much of an impact that was on the quarter, if not specifically some sort of, I don't know,
spk05: bigger than a breadbasket kind of comment? Yeah, I would say rough estimate is, you know, two or three hundred thousand tons. So there was a pretty even split between the impact in our U.S. market and our U.K. business. Split between, I'm sorry. Yeah, so the U.K. specific is, call it Call it a few hundred thousand tons of benefit. Yeah. Okay.
spk08: And then post the divestitures, particularly in South America, will the tax rate be significantly different?
spk05: I think I remember moving when you first acquired it. Yeah, so the rate we've guided at 28% includes the divestiture. So South America, Brazil, our tax rate was about 32%. So we're shedding one of the higher rate tax jurisdictions in our mix there. So that's how we've come down to right around 28% on a continuing operations basis. All right. I missed that. Thanks. That's all I had. Thanks a lot.
spk08: Thank you. Thanks.
spk00: There are no further questions in queue at this time. I'll turn the call over to Kevin Critchfield, President and CEO, for closing comments.
spk03: I just want to thank everybody for tuning in today. Appreciate your time and questions. Look forward to keeping you updated over the course of the next few quarters as we continue to execute on our operations internally and start to think about where we're going to go from here. So thanks again for tuning in. Have a great day.
spk00: This concludes today's conference call. You may now disconnect.
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